CURO GROUP HOLDINGS CORP. Components of Our Results of Operations
Revenue
The core consumer finance products we offer include Open-End, Unsecured Installment, Secured Installment and Single-Pay loans. Revenue in our Consolidated Statements of Operations includes: interest income, finance charges, CSO fees, late fees and non-sufficient funds fees. Product offerings differ by jurisdiction and are governed by the laws in each jurisdiction.
Open-End loans are a revolving line-of-credit with no defined loan term. We record revenue from Open-End loans on a simple-interest basis. Open-End revenues include interest income on outstanding revolving balances and other usage or maintenance fees as permitted by underlying statutes. Accrued interest and fees are included in "Gross loans receivable" in the Consolidated Balance Sheets. Installment loans are fixed-term, fully amortizing loans with a fixed payment amount due each period during the term of the loan. We record revenue from Installment loans on a simple-interest basis. Unsecured and Secured Installment revenue includes interest income from Company-Owned loans and loans originated by a bank in which we have a participating interest and are included in Unsecured Installment loans, CSO fees, and non-sufficient funds or returned-items fees on late or defaulted payments on past-due loans, known as late fees. Late fees comprise less than 1% of Installment revenues. Accrued interest and fees are included in "Gross loans receivable" in the Consolidated Balance Sheets. Single-Pay loans are generally unsecured short-term, small-denomination loans. We recognize revenues from Single-Pay loan products each period on a constant-yield basis ratably over the term of each loan. We defer recognition of unearned fees based on the remaining term of the loan at the end of each reporting period. Single-Pay revenues represent deferred presentment or other fees as defined by the underlying state, provincial or national regulations.
We also provide a number of ancillary financial products, including check cashing, proprietary general-purpose reloadable prepaid debit cards (Opt+), demand deposit accounts (Revolve Credit), money transfer services, credit protection insurance in the Canadian market and retail installment sales.
Provision for Losses
Credit losses are an inherent part of outstanding loans receivable. We maintain
an allowance for loan losses for loans and interest receivable at a level
estimated to be adequate to absorb such losses based primarily on our analysis
of historical loss rates by products containing similar risk characteristics.
The allowance for losses on our Company-Owned gross loans receivables reduces
the outstanding gross loans receivables balance in the Consolidated Balance
Sheets. The liability for
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estimated incurred losses related to loans Guaranteed by the Company under CSO programs is reported in "Liability for losses on CSO lender-owned consumer loans" in the Consolidated Balance Sheets. Increases in either the allowance or the liability, net of charge-offs and recoveries, are recorded as "Provision for losses" in the Consolidated Statements of Operations. Cost of Providing Services
•Salaries and Benefits-include personnel-related costs for our store operations, including salaries, benefits and bonuses and are driven by the number of employees.
•Occupancy-includes rent expense for our leased facilities, as well as depreciation, maintenance, insurance, utility expense, and additional costs related to store cleaning protocols due to COVID-19 in 2020.
•Office-includes expenses primarily related to bank service charges and credit scoring charges at store locations.
•Other Costs of Providing Services-includes expenses related to operations such as processing fees, collections expense, security expense, taxes, repairs and professional fees incurred as part of store operations. •Advertising-costs are expensed as incurred and include costs associated with attracting, retaining and/or reactivating customers as well as creating brand awareness. We have internal creative, web and print design capabilities and if we outsource these services, it is limited to mass-media production and placement. Advertising expense also includes costs for all marketing activities including paid search, advertising on social networking sites, affiliate programs, direct response television, radio air time and direct mail.
Operating Expense
•Corporate, District and Other Expenses-include costs such as salaries and benefits associated with our corporate and district-level employees, as well as other corporate-related costs such as rent, insurance, professional fees, utilities, travel and entertainment expenses and depreciation expense. Other income and expense includes the foreign currency impact to our intercompany balances, gains or losses on foreign currency exchanges and disposals of fixed assets and other miscellaneous income and expense amounts.
•Interest Expense-includes interest primarily related to our Senior Secured Notes, our Non-Recourse SPV facilities and our Senior Revolver.
Income or Loss from Equity Method Investments
We made our first investment in Katapult in 2017 as we identified multiple catalysts for future success, including an innovative e-commerce POS business model, a focus on the large and under-penetrated non-prime financing market, and a clear and compelling value proposition for merchants and consumers. To date, our cumulative cash investment in Katapult is$27.5 million . During the third quarter of 2020, we acquired additional equity interests in Katapult from certain existing owners. As a result of these acquisitions, a portion of our Katapult ownership will continue to be recognized under the equity method of accounting and a portion has been reclassified and will be measured at cost less impairment. Under the equity method of accounting, we recognize our share of Katapult's income or loss on a two-month lag with a corresponding adjustment to the carrying value of the investment included in "Investments" on the Consolidated Balance Sheet. InDecember 2020 , we announced that Katapult and FinServ entered into a definitive merger agreement that, when completed, will provide consideration to us in a combination of cash and stock. The transaction is expected to close during the first half of 2021 and remains subject to approval by stockholders of both companies and other customary closing conditions. The transaction will result in both a cash tax liability and deferred tax liability, with the cash tax liability dependent upon cash received at closing. For additional information, see Item 1, " Business - Company History and Overview " and Note 6, "Fair Value Measurements ."
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Revenue by Product and Segment and Related Loan Portfolio Performance
Revenue by Product
Year-over-year comparisons for the year endedDecember 31, 2020 were impacted by factors related to COVID-19, such as lower consumer demand, increased or accelerated repayments and favorable payment trends as customers benefited from government stimulus programs at the start of the pandemic, our decision to tighten credit, favorable credit performance as a result of these factors and our approach to managing expenses (collectively, "COVID-19 Impacts"). Sequential loan growth, transaction volume and the related financial results of operations for the three months endedDecember 31, 2020 were impacted positively by normal seasonality and selectively returning credit scoring to pre-COVID-19 levels, together with continued historically low delinquencies and NCO rates. Year-over-year comparisons exclude financial results of our formerU.K. operations for all periods presented, as they were discontinued for accounting and reporting purposes in February 2019. See Note 22, " Discontinued Operations " of the Notes to the Consolidated Financial Statements for additional information. The following table summarizes revenue by product, including CSO fees, for 2020 and 2019 (in thousands): Year Ended Year Ended December 31, 2020 December 31, 2019 U.S. Canada Total % of Total U.S. Canada Total % of Total Open-End$ 134,449 $ 115,053 $ 249,502 29.4 %$ 147,794 $ 97,462 $ 245,256 21.5 % Unsecured Installment 333,991 5,125 339,116 40.0 % 523,979 6,751 530,730 46.5 % Secured Installment 79,136 - 79,136 9.3 % 110,513 - 110,513 9.7 % Single-Pay 75,930 44,503 120,433 14.2 % 112,925 78,524 191,449 16.8 % Ancillary 15,018 44,191 59,209 7.0 % 18,295 45,554 63,849 5.6 % Total revenue$ 638,524 $ 208,872 $ 847,396 100.0 %$ 913,506 $ 228,291 $ 1,141,797 100.0 % Full-year comparisons also were influenced by COVID-19 Impacts. For the year endedDecember 31, 2020 , total revenue declined$294.4 million , or 25.8%, to$847.4 million , compared to the prior year. Geographically,U.S. andCanada revenues declined 30.1% and 8.5%, respectively. COVID-19 Impacts on year-over-year results forCanada were less than theU.S. due to the faster reopening of major markets and the continued popularity and growth of Open-End loans inCanada .
From a product perspective, Open-End revenues grew
For the year endedDecember 31, 2020 , Unsecured Installment and Secured Installment revenues decreased 36.1% and 28.4%, respectively, because of COVID-19 Impacts, regulatory changes inCalifornia that became effectiveJanuary 1, 2020 and regulatory changes for CSOs inOhio that were effectiveMay 1, 2019 . ExcludingCalifornia , Unsecured Installment and Secured Installment revenue decreased 32.0% and 18.9%, respectively. Single-Pay revenue declined$71.0 million , or 37.1%, for the years endedDecember 31, 2020 , compared to the prior year, primarily due to COVID-19 Impacts on loan volume and balances, which declined$37.7 million , or 46.2%. Single-Pay loan volumes were particularly affected by the broad reduction in storefront usage in both theU.S. andCanada by customers during periods of self-quarantine and stay-at-home orders, periodic closures of our stores for cleaning purposes, and increased pay-downs as a result of government stimulus programs. Ancillary revenues, which include the sale of insurance products to Open-End and Installment loan customers inCanada , decreased$4.6 million , or 7.3%, versus the prior year, primarily stemming from lower check cashing fees.
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The following table summarizes revenue by product, including CSO fees, for 2019
and 2018 (in thousands):
Year Ended Year Ended
December 31, 2019 December 31, 2018
U.S. Canada Total % of Total U.S. Canada Total % of Total
Open-End $ 147,794 $ 97,462 $ 245,256 21.5 % $ 106,230 $ 35,733 $ 141,963 13.6 %
Unsecured Installment 523,979 6,751 530,730 46.5 % 509,883 13,399 523,282 50.1 %
Secured Installment 110,513 - 110,513 9.7 % 110,677 - 110,677 10.6 %
Single-Pay 112,925 78,524 191,449 16.8 % 107,545 111,447 218,992 21.0 %
Ancillary 18,295 45,554 63,849 5.6 % 18,806 31,353 50,159 4.8 %
Total revenue $ 913,506 $ 228,291 $ 1,141,797 100.0 % $ 853,141 $ 191,932 $ 1,045,073 100.0 %
For a comparison of our results of operations for the years ended December 31,
2019 and 2018, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations-Revenue by Product and Segment and Related Loan
Portfolio Performance" in Part II Item 7 of our 2019 Form 10-K.
Loan Volume and Portfolio Performance Analysis
The following table reconciles Company Owned gross loans receivable, a
GAAP-basis balance sheet measure, to Gross combined loans receivable, a non-GAAP
measure(1). Gross combined loans receivables includes loans originated by
third-party lenders through CSO programs, which are not included in our
Consolidated Financial Statements but from which we earn revenue by providing a
guarantee to the unaffiliated lender (in millions):
As of
December 31, 2020 September 30, 2020 June 30, 2020 March 31, 2020 December 31, 2019 September 30, 2019 June 30, 2019 March 31, 2019
Company-Owned gross loans
receivable $ 553.7 $ 497.4 $ 456.5 $ 564.4 $ 665.8 $ 657.6 $ 609.6 $ 553.2
Gross loans receivable
Guaranteed by the Company 44.1 39.8 34.1 55.9 76.7 73.1 67.3 61.9
Gross combined loans
receivable(1) $ 597.8 $ 537.2 $ 490.6 $ 620.3 $ 742.5 $ 730.7 $ 676.9 $ 615.1 (1) See a description of non-GAAP Financial Measures in "Selected Financial Data -Supplemental Non-GAAP Financial Information."
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Gross combined loans receivable by product are presented below.
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Gross combined loans receivable decreased $144.7 million , or 19.5%, to $597.8
million as of December 31, 2020 , from $742.5 million as of December 31, 2019 .
The decrease was driven by COVID-19 Impacts and, for Installment loans, the
impact of regulatory changes in California that were effective January 1, 2020 .
Sequentially, gross combined loans receivable increased $60.6 million , or 11.3%,
as demand increased during the fourth quarter from normal seasonality, reduced
government stimulus benefits, continued growth in Open-End in Canada and growth
in the Verge Credit brand. Gross combined loans receivable performance by
product is described further in the following sections.
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Open-End Loans
Open-End loan balances as ofDecember 31, 2020 increased$23.4 million , or 7.0% ($16.4 million , or 4.9%, on a constant-currency basis), compared toDecember 31, 2019 . Open-End balances inCanada increased$51.2 million , or 20.3% ($44.2 million , or 17.5%, on a constant-currency basis), year over year and$37.8 million , or 14.2% ($54.1 million , or 22.8%, on a constant currency basis), sequentially. Open-End loan balances in theU.S. declined$27.8 million , or 33.4% year over year. Sequentially,U.S. Open-End balances declined$1.2 million , or 2.1%, primarily due to the conversion of Virginia Open-End loans to Installment loans in advance of regulatory changes effectiveJanuary 1, 2021 . The Open-End allowance coverage decreased sequentially from 16.0% to 14.5% as ofDecember 31, 2020 and decreased from 16.4% year over year. The decrease was due to (i) sustained favorable trends in NCOs throughout 2020, (ii) the sequential decrease in TDRs loans as a percentage of total gross loans receivable, and (iii) continued lower past-due gross loans receivable as a percentage of total gross loans receivable compared to historical trends. Year over year, NCO rates improved 520 bps and past-due rates improved 440 bps. 2020 2019 (dollars in thousands, unaudited) Fourth Quarter Third Quarter Second Quarter First Quarter Fourth Quarter Open-End loans: Revenue$ 63,073 $ 58,711 $ 56,736 $ 70,982 $ 71,295 Provision for losses 20,262 21,655 21,341 40,991 37,816 Net revenue$ 42,811 $ 37,056 $ 35,395 $ 29,991 $ 33,479 NCOs$ 21,407 $ 18,163 $ 31,684 $ 37,098 $ 37,426 Open-End gross loan balances: Open-End gross loans receivable$ 358,884 $ 322,234 $ 285,156 $ 314,006 $
335,524
Average Open-End gross loans receivable (1)$ 340,559 $ 303,695 $ 299,581 $ 324,765 $
325,248
Open-End allowance for loan losses: Allowance for loan losses$ 51,958 $ 51,417 $ 47,319 $ 56,458 $
55,074
Open-End Allowance for loan losses as a percentage of Open-End gross loans receivable 14.5% 16.0% 16.6% 18.0%
16.4%
Open-End past-due balances: Open-End past-due gross loans receivable$ 37,779 $ 31,807 $ 31,208 $ 49,987 $
50,072
Past-due Open-End gross loans receivable - percentage 10.5% 9.9% 10.9% 15.9% 14.9% Open-End ratios: NCO rate (2) 6.3% 6.0% 10.6% 11.4% 11.5%
(1) Average gross loans receivable calculated as average of beginning of quarter and end of quarter gross loans receivable. (2) We calculate NCO rate as NCOs divided by Average gross loans receivables.
Q1 2019 Open-End Loss Recognition Change
EffectiveJanuary 1, 2019 , we modified the timeframe over which we charge-off Open-End loans and made related refinements to our loss provisioning methodology. Prior toJanuary 1, 2019 , we deemed Open-End loans uncollectible and charged-off when a customer missed a scheduled payment and the loan was considered past-due. Because of our continuing shift to Open-End loans inCanada and our analysis of payment patterns on early-stage versus late-stage delinquencies, we revised our estimates and now consider Open-End loans uncollectible when the loan has been contractually past-due for 90 consecutive days. Consequently, past-due Open-End loans and related accrued interest now remain in loans receivable for 90 days before being charged off against the allowance for loan losses. All recoveries on charged-off loans are credited to the allowance for loan losses. We evaluate the adequacy of the allowance for loan losses compared to the related gross loans receivable balances that include accrued interest. Prospectively fromJanuary 1, 2019 , past-due, unpaid balances plus related accrued interest charge-off on day 91. This change was treated as a change in accounting estimate for accounting purposes and applied prospectively beginningJanuary 1, 2019 .
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In addition, the following table illustrates, on a non-GAAP pro forma basis, the 2019 quarterly results as if the Q1 2019 Open-End Loss Recognition Change had been applied to our outstanding Open-End loan portfolio as ofDecember 31, 2018 . This table is illustrative of retrospective application to determine the NCOs that would have been incurred in each quarter of 2019 from theDecember 31, 2018 loan book. Pro Forma 2019 (dollars in thousands) Fourth Quarter Third Quarter Second Quarter First Quarter Open-End loans: Pro Forma NCOs$ 38,748 $ 29,762 $ 29,648 $ 31,788 Open-End gross loan balances: Open-End gross loans receivable$ 335,524 $ 314,971 $ 283,311 $ 240,790 Pro Forma Average Open-End gross loans receivable (1)$ 325,248 $ 299,141 $ 262,051 $ 245,096 Pro Forma NCO rate (2) 11.9% 9.9% 11.3% 13.0%
(1) Average gross loans receivable calculated as average of beginning of quarter and end of quarter gross loans receivable. (2) We calculate NCO rate as NCOs divided by Average gross loans receivables.
Unsecured Installment Loans - Company Owned
Company Owned Unsecured Installment revenue for the three months endedDecember 31, 2020 and related gross loans receivable decreased$27.0 million , or 42.6%, and$58.4 million , or 36.3%, respectively, from the prior-year period. The decrease in receivables was primarily due to COVID-19 Impacts and regulatory changes inCalifornia that were effectiveJanuary 1, 2020 , partially offset by growth in the Verge Credit brand. Sequentially, Company Owned Unsecured Installment revenue and related gross loans receivable increased$5.2 million , or 16.7%, and$21.8 million , or 17.6%, respectively. Unsecured Installment loans inCalifornia were$23.6 million , or 23.0%, of total Company Owned Unsecured Installment loans as ofDecember 31, 2020 , a decrease of$47.8 million fromDecember 31, 2019 . Sequentially, California Unsecured Installment loans decreased$3.8 million . ExcludingCalifornia , Company Owned Unsecured Installment loans receivable decreased$10.6 million , or 11.8%, from the prior-year period, while revenues for the three months endedDecember 31, 2020 decreased$11.6 million , or 28.7%, compared to the prior-year period, due to COVID-19 Impacts. Sequentially, excludingCalifornia , Company Owned Unsecured Installment revenue and related loans receivable increased$7.2 million , or 33.5% and$21.2 million , or 36.8%, respectively, fromSeptember 30, 2020 . The receivable increase was due to normal seasonality, reduced quarantine and stay-at-home orders and less government stimulus during the fourth quarter. The Unsecured Installment quarterly NCO rate improved approximately 920 bps year-over-year, as a result of COVID-19 Impacts. Sequentially, the quarterly NCO rate increased from 11.5% in the third quarter to 12.1% in the fourth quarter of 2020 on higher new customer origination mix and expansion into new states. The Unsecured Installment allowance coverage increased year-over-year, from 22.1% as ofDecember 31, 2019 , to 23.5% as ofDecember 31, 2020 , as a result of certain loan modifications under the Customer Care Program, which were classified as TDRs. Loans classified as TDRs are included within Company Owned gross loans receivable. Amounts waived on these loans are immediately charged-off and the impairment for these loans is included within the Allowance for loan losses. Determination of the impairment for TDRs includes an estimate of their lifetime losses, which is greater than estimated incurred losses at a point in time. TDRs increased our total Unsecured Installment allowance coverage by nearly 100 bps from the allowance coverage that would have otherwise been required. Sequentially, the allowance coverage increased from 22.2% to 23.5%, as a result of moderately higher past-due balances from 21.1% to 23.6%, due largely to growth in new geographical markets, as well as the aforementioned increase in the NCO rate.
Unsecured Installment Loans - Guaranteed by the Company
Unsecured Installment loans Guaranteed by the Company declined$31.1 million year over year, primarily due to COVID-19 Impacts. Sequentially, Unsecured Installment loans Guaranteed by the Company increased$4.4 million , or 11.2%, due to normal seasonality, reduced quarantine and stay-at-home orders and less government stimulus during the fourth quarter. NCO rates for Unsecured Installment loans Guaranteed by the Company increased year over year from 47.6% to 52.5%, and sequentially from 38.6% to 52.5%, as new customer volume improved and origination mix shifted online. The CSO liability for losses as a percentage of loans Guaranteed by the Company increased year over year from 14.2% to 16.6% as of
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December 31, 2020 due primarily to an increased liability for certain loans modified under the Customer Care Program. Sequentially, past-due balances as a percent of gross loans receivable decreased from 15.3% to 14.1%. The CSO liability for losses increased from 15.8% to 16.6% during the three months endedDecember 31, 2020 , as a result of the aforementioned increase in NCO rate. 2020 2019 (dollars in thousands, unaudited) Fourth Quarter
Third Quarter Second Quarter First Quarter Fourth Quarter Unsecured Installment loans: Revenue - Company Owned
$ 36,387 $ 31,168 $ 33,405 $ 55,569 $
63,428
Provision for losses - Company Owned 16,506 9,647 12,932 26,182
33,183
Net revenue - Company Owned$ 19,881 $ 21,521 $ 20,473 $ 29,387 $ 30,245 NCOs - Company Owned$ 11,308 $ 9,595 $ 23,110 $ 32,775 $ 35,729 Revenue - Guaranteed by the Company (1)$ 42,401 $ 36,240 $ 37,024 $ 66,840 $
72,183
Provision for losses - Guaranteed by the Company (1) 22,535 14,884 11,418 26,338
34,858
Net revenue - Guaranteed by the Company (1)$ 19,866 $ 21,356 $ 25,606 $ 40,502 $
37,325
NCOs - Guaranteed by the Company (1)$ 21,505 $ 13,882 $ 15,432 $ 27,749 $
34,486
Unsecured Installment gross combined loans receivable: Company Owned$ 102,425 $ 84,959 $ 81,601 $ 123,118 $
160,782
Guaranteed by the Company (1) 43,175 38,822 33,082 54,097
74,317
Unsecured Installment gross combined loans receivable (1)(2)
$ 145,600 $ 123,781 $ 114,683 $ 177,215 $
235,099
Average gross loans receivable: Average Unsecured Installment gross loans receivable - Company Owned (3)
$ 93,692 $ 83,280 $ 102,360 $ 141,950 $
167,636
Average Unsecured Installment gross loans receivable - Guaranteed by the Company (1)(3)
$ 40,999 $ 35,952 $ 43,590 $ 64,207 $
72,511
Allowance for loan losses and CSO liability for losses: Unsecured Installment Allowance for loan losses (4)$ 24,073 $ 18,859 $ 18,451 $ 28,965 $
35,587
Unsecured Installment CSO liability for losses (1)(4)$ 7,160 $ 6,130 $ 5,128 $ 9,142 $
10,553
Unsecured Installment Allowance for loan losses as a percentage of Unsecured Installment gross loans receivable
23.5% 22.2% 22.6% 23.5% 22.1%
Unsecured Installment CSO liability for losses as a percentage of Unsecured Installment gross loans Guaranteed by the Company (1)
16.6% 15.8% 15.5% 16.9% 14.2%
Unsecured Installment past-due balances: Unsecured Installment gross loans receivable - Company Owned$ 24,190 $ 17,942 $ 17,766 $ 34,966 $
43,100
Unsecured Installment gross loans - Guaranteed by the Company (1)
$ 6,079 $ 5,953 $ 4,019 $ 9,232 $
12,477
Past-due Unsecured Installment Company Owned gross loans receivable -- percentage
23.6% 21.1% 21.8% 28.4% 26.8%
Past-due Unsecured Installment gross loans Guaranteed by the Company -- percentage (1)
14.1% 15.3% 12.1% 17.1% 16.8%
Unsecured Installment other information: Originations - Company Owned$ 66,502 $ 49,833 $ 24,444 $ 55,941 $
87,080
Originations - Guaranteed by the Company (1)$ 57,053 $ 51,433 $ 33,700 $ 64,836 $
91,004
Unsecured Installment ratios:
NCO rate - Company Owned (5) 12.1% 11.5% 22.6% 23.1%
21.3%
NCO rate - Guaranteed by the Company (1)(5) 52.5% 38.6% 35.4% 43.2%
47.6%
(1) Includes loans originated by third-party lenders through CSO programs, which are not included in our Consolidated Financial Statements. (2) Non-GAAP measure. For a description of each non-GAAP metric, see "Item 6. Selected Financial Data-Non-GAAP Financial Measures." (3) Average gross loans receivable calculated as average of beginning of quarter and end of quarter gross loans receivable. (4) We report Allowance for loan losses as a contra-asset reducing gross loans receivable and the CSO liability for losses as a liability on the Consolidated Balance Sheets. (5) We calculate NCO rate as NCOs divided by Average gross loans receivables.
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Secured Installment Loans
Secured Installment revenue and the related gross combined loans receivable for the three months endedDecember 31, 2020 decreased 41.6% and 45.2%, respectively, compared to the prior-year period. The decreases were due to COVID-19 Impacts and regulatory changes inCalifornia that were effectiveJanuary 1, 2020 .California accounted for$13.7 million , or 27.6%, of total Secured Installment gross combined loans receivable as ofDecember 31, 2020 , as compared to$36.5 million , or 40.4%, as ofDecember 31, 2019 , a decrease of$22.8 million , year over year. ExcludingCalifornia , Secured Installment loans receivable decreased$18.0 million , or 33.5%, from the prior-year period, while revenues decreased$6.6 million , or 33.1%, year over year, due to COVID-19 Impacts. The Secured Installment NCO rate improved 440 bps compared to the prior-year period. Secured Installment Allowance for loan losses and CSO liability for losses as a percentage of Secured Installment gross combined loans receivable increased from 11.5% as ofDecember 31, 2019 to 14.4% as ofDecember 31, 2020 . The increase was primarily attributable to the classification of certain loan modifications under the Customer Care Program as TDRs, partially offset by the impact of lower past-due receivables as ofDecember 31, 2020 . TDRs increased our total Secured Installment allowance coverage by 270 bps from the allowance coverage that would otherwise have been required. Despite the sequential increase in past-due Secured Installment gross combined loans receivable, the Secured Installment Allowance for loan losses and CSO liability for losses as a percentage of Secured Installment gross combined loans receivable remained flat at 14.4% due to sustained favorable trends in NCOs throughout 2020. 2020 2019 (dollars in thousands, unaudited) Fourth Quarter Third Quarter Second Quarter First Quarter Fourth Quarter Secured Installment loans: Revenue$ 16,757 $ 16,692 $ 19,401 $ 26,286 $ 28,690 Provision for losses 4,028 3,291 7,238 9,682 11,492 Net revenue$ 12,729 $ 13,401 $ 12,163 $ 16,604 $ 17,198 NCOs$ 4,090 $ 4,033 $ 9,092 $ 10,284 $ 11,548
Secured Installment gross combined loan balances: Secured Installment gross combined loans receivable (1)(2)
$ 49,563 $ 49,921 $ 54,635 $ 74,405 $
90,411
Average Secured Installment gross combined loans receivable (3)$ 49,742 $ 52,278 $ 64,520 $ 82,408 $
91,445
Secured Installment Allowance for loan losses and CSO liability for losses (4)$ 7,115 $ 7,177 $ 7,919 $ 9,773 $
10,375
Secured Installment Allowance for loan losses and CSO liability for losses as a percentage of Secured Installment gross combined loans receivable (1)
14.4% 14.4% 14.5% 13.1% 11.5%
Secured Installment past-due balances: Secured Installment past-due gross combined loans receivable (1)(2)$ 8,430 $ 7,703 $ 9,072 $ 15,612 $
17,902
Past-due Secured Installment gross combined loans receivable -- percentage (1) 17.0% 15.4% 16.6% 21.0%
19.8%
Secured Installment other information: Originations (2)$ 21,884 $ 19,216 $ 11,242 $ 20,990 $ 40,961 Secured Installment ratios: NCO Rate (5) 8.2% 7.7% 14.1% 12.5%
12.6%
(1) Non-GAAP measure. For a description of each non-GAAP metric, see "Item 6. Selected Financial Data-Non-GAAP Financial Measures." (2) Includes loans originated by third-party lenders through CSO programs, which are not included in our Consolidated Financial Statements. (3) Average gross loans receivable calculated as average of beginning of quarter and end of quarter gross loans receivable. (4) We report Allowance for loan losses as a contra-asset reducing gross loans receivable and the CSO liability for losses as a liability on our Consolidated Balance Sheets. (5) We calculate NCO rate as NCOs divided by Average gross loans receivables.
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Single-Pay
Single-Pay revenue declined$22.4 million , or 44.9%, year over year, while related receivables declined$37.7 million , or 46.2%, for the three months endedDecember 31, 2020 , primarily due to COVID-19 Impacts. Single-Pay loan volume was particularly affected by the reduction in store traffic as customers self-quarantined and the increased loan repayments funded by government stimulus programs. Sequentially, Single-Pay revenues increased$2.4 million , or 9.5%, on related loan growth of$2.5 million , or 6.1%, due to normal seasonality and reduced quarantine and stay-at-home orders during the fourth quarter. The Single-Pay Allowance for loan losses as a percentage of Single-Pay gross loans receivable, which was consistent year over year, decreased sequentially from 7.7% to 7.0% as ofDecember 31, 2020 , due to sustained favorable NCO trends throughout 2020. 2020 2019 (dollars in thousands, unaudited) Fourth Quarter Third Quarter Second Quarter First Quarter Fourth Quarter Single-pay loans: Revenue$ 27,460 $ 25,084 $ 22,732 $ 45,157 $ 49,844 Provision for losses 6,153 4,799 (2,588) 9,639 12,289 Net revenue$ 21,307 $ 20,285 $ 25,320 $ 35,518 $ 37,555 NCOs$ 6,367 $ 4,439 ($ 598 )$ 10,517 $ 12,145 Single-Pay gross loan balances: Single-Pay gross loans receivable$ 43,780 $ 41,274 $ 36,130 $ 54,728 $
81,447
Average Single-Pay gross loans receivable (1)$ 42,527 $ 38,702 $ 45,429 $ 68,088 $
78,787
Single-Pay Allowance for loan losses$ 3,084 $ 3,197 $ 2,802 $ 4,693 $
5,869
Single-Pay Allowance for loan losses as a percentage of Single-Pay gross loans receivable 7.0% 7.7% 7.8% 8.6% 7.2% NCO rate (2) 15.0% 11.5% (1.3)% 15.4% 15.4%
(1) Average gross loans receivable calculated as average of beginning of quarter and end of quarter gross loans receivable. (2) We calculate NCO rate as NCOs divided by Average gross loans receivables.
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Consolidated Results of Operations
The table below presents our consolidated results of operations. A further
discussion of the results of our operating segments is provided under "-Segment
Analysis" below.
(in thousands)
Year Ended December 31,
2020 2019 2018
Revenue $ 847,396 $ 1,141,797 $ 1,045,073
Provision for losses 288,811 468,551 421,600
Net revenue 558,585 673,246 623,473
Advertising costs 44,552 53,398 59,363
Non-advertising costs of providing services 205,674 241,232 238,640
Total cost of providing services 250,226 294,630 298,003
Gross margin 308,359 378,616 325,470
Operating expense (income)
Corporate, district and other expenses 159,853 160,103 132,401
Interest expense 72,709 69,763 84,382
Loss on extinguishment of debt - - 90,569
(Income) loss from equity method investment (4,546) 6,295 -
Total operating expense 228,016 236,161 307,352
Net income from continuing operations before income taxes
80,343 142,455 18,118
Provision for income taxes 5,895 38,557 1,659
Net income from continuing operations 74,448 103,898 16,459
Net income (loss) from discontinued operations, net of
tax 1,285 7,590 (38,512)
Net income (loss) $ 75,733 $ 111,488 ($ 22,053 )
Comparison of Consolidated Results of Operations for the Years Ended
Revenue and Net Revenue Revenue decreased$294.4 million , or 25.8%, to$847.4 million for the year endedDecember 31, 2020 from$1,141.8 million for the year endedDecember 31, 2019 as a result of the declines in combined gross loans receivable discussed above. Year over year,U.S. decreased 30.1%, primarily from COVID-19 Impacts, andCanada decreased 8.5% (7.7% on a constant-currency basis). As previously mentioned, COVID-19 impacts on year-over-year results forCanada were less pronounced compared to theU.S. due to the faster reopening of Canadian markets and the continued growth of our Open-End loans inCanada . Provision for losses decreased by$179.7 million , or 38.4%, for the year endedDecember 31, 2020 compared to the prior year. The decrease in provision for loan losses was primarily due to lower loan volume and lower NCOs as a result of COVID-19 Impacts, as discussed in more detail in "-Revenue by Product and Segment and Related Loan Portfolio Performance-Loan Volume and Portfolio Performance Analysis" above and "-Segment Analysis" below.
Cost of Providing Services
Non-advertising costs of providing services decreased$35.6 million , or 14.7%, to$205.7 million in the year endedDecember 31, 2020 , compared to$241.2 million in the year endedDecember 31, 2019 . Of the$35.6 million decrease,$15.5 million was related to third-party collection costs incurred in 2019 related toAd Astra , which were included in Non-advertising costs of providing services prior to the acquisition ofAd Astra . Following theJanuary 3, 2020 acquisition, we includedAd Astra operating costs within "Corporate, district and other expenses," consistent with the presentation of our other internal collection costs. The remaining decrease in Non-advertising costs of providing services was due to (i) lower underwriting and other variable costs as a result of lower demand, (ii) lower collection costs after governmental stimulus-related pay-downs and (iii) lower discretionary variable compensation.
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Advertising costs decreased
Corporate, District and Other Expenses
Corporate, district and other expenses were$159.9 million for the year endedDecember 31, 2020 , a decrease of$0.3 million , or 0.2%, compared to the year endedDecember 31, 2019 . Corporate, district and other expenses in the year endedDecember 31, 2020 included$9.6 million of collection costs related toAd Astra , which prior to our acquisition of it, were included in Non-advertising costs of providing services. For the year endedDecember 31, 2020 , corporate, district and other expenses also included (i)$12.9 million of share-based compensation costs, (ii)$2.2 million of Canadian GST described in our reconciliation to Adjusted Net Income above and (iii)$5.7 million of legal and other costs described in our reconciliation to Adjusted Net Income above. For the year endedDecember 31, 2019 , corporate district and other costs included (i)U.K. -related costs of$8.8 million , (ii)$10.3 million of share-based compensation and (iii)$4.8 million of legal and other costs as described in our reconciliation to Adjusted Net Income above. Share-based compensation costs increased primarily as a result of awards granted in the first quarter of 2020. ExcludingAd Astra costs, share-based compensation expense and other costs described above, comparable corporate, district and other expenses decreased$6.6 million year over year, primarily due to the timing and extent of variable compensation and other cost reductions, including work-from-home initiatives to manage COVID-19 Impacts.Equity Method Investment
Refer to the "-Katapult Update for the Year Ended
Interest Expense
Interest expense for the year ended
Provision for Income Taxes
The effective income tax rate for the year endedDecember 31, 2020 was 7.3%. The effective income tax rate was lower compared to the federal and state/provincial statutory rates of approximately 26%, primarily as the result of discrete, one-time tax benefits related to usage of NOLs and other valuation allowance releases and the several non-taxable events during the fourth quarter of 2020. First, given the CARES Act impact treatment of NOLs as described above, we recorded an income tax benefit of$11.3 million related to the carry-back ofU.S. federal NOLs from tax years 2018 and 2019, which offsets our tax liability for years prior to tax reform and will generate a refund of previously paid taxes at a 35% statutory rate. Second, we recorded a tax benefit of$4.6 million related to the release of a valuation allowance previously recorded against NOLs for certain entities inCanada . In addition, we released a valuation allowance of$1.1 million against the cumulative losses from our investment in Katapult, as we continued to record equity method income from this investment during the year. The tax benefits described above were partially offset by an increase in the reserve for uncertain tax positions in theU.S. of$1.1 million and the impact of the fourth quarter non-taxable events. Refer to the Reconciliation of Net Income from continuing operations to Adjusted Net Income in "Item 6. Selected Financial Data" for additional information.
The effective income tax rate of adjusted tax expense included in Adjusted Net
Income for the year ended
Katapult Update for the Year Ended
A portion of our investment in Katapult is accounted for using the equity method of accounting. We recognize our share of its income or loss on a two-month lag with a corresponding adjustment to the carrying value of the investment included in "Investments" on the unaudited Consolidated Balance Sheet. As ofDecember 31, 2020 , our recognized share of Katapult's earnings throughOctober 31, 2020 was$4.5 million for the year endedDecember 31, 2020 , as compared with a loss of$6.3 million for the year endedDecember 31, 2019 .
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During the third quarter of 2020, we acquired additional equity interests in Katapult from certain existing owners for$11.2 million . As a result of these acquisitions, a portion of our Katapult ownership will continue to be recognized under the equity method of accounting and a portion has been reclassified and will be measured at cost less impairment. During the fourth quarter of 2020, we purchased an additional equity interest in Katapult for$1.6 million . InDecember 2020 , we announced that Katapult and FinServ entered into a definitive merger agreement that, when completed, we expect will provide consideration to us in a combination of cash and stock. To date, our cumulative cash investment in Katapult is$27.5 million . The transaction is expected to close during the first half of 2021 and remains subject to approval by FinServ's stockholders and other customary closing conditions. The transaction will result in both a cash tax liability and deferred tax liability, with the cash tax liability dependent upon cash received at closing.
The table below presents select financial information for Katapult for the periods presented:
For the Nine Months Ended September 30,(1)
(in thousands, unaudited) 2020 2019
Revenue $ 173,842 $ 59,479
Cost of revenue 116,534 46,576
Gross profit 57,308 12,903
Operating expenses 28,195 22,611
Interest and loss on extinguishment of debt 10,091 6,594
Income before income taxes 19,022 (16,302)
Net income $ 18,599 ($ 16,302 )
Originations $ 142,462 $ 54,094
Cash and restricted cash $ 39,239
Gross property held for lease $ 179,302
(1): Source: Katapult's Registration Statement on Form S-4, pages F-62, F-63, F-69 and 101, filed with the
Comparison of Consolidated Results of Operations for the Years Ended
For a comparison of our results of operations for the years endedDecember 31, 2019 and 2018, see "Management's Discussion and Analysis of Financial Condition and Results of Operations-Consolidated Results of Operations" in Part II Item 7 of our 2019 Form 10-K.
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Segment Analysis
We report financial results for two reportable segments: theU.S. andCanada . Following is a summary of results of operations for the segment and period indicated (in thousands): U.S. Segment Results Year Ended December 31, 2020 2019 2018 Revenue$ 638,524 $ 913,506 $ 853,141 Provision for losses 230,164 392,105 348,611 Net revenue 408,360 521,401 504,530 Advertising costs 40,702 46,735 48,832 Non-advertising costs of providing services 137,467 171,714 170,870 Total cost of providing services 178,169 218,449 219,702 Gross margin 230,191 302,952 284,828 Corporate, district and other expenses 137,152 138,180 112,761 Interest expense 63,413 59,325 80,381 Loss on extinguishment of debt - - 90,569 (Income) loss from equity method investment (4,546) 6,295 - Total operating expense 196,019 203,800 283,711 Segment operating income 34,172 99,152 1,117 Interest expense 63,413 59,325 80,381 Depreciation and amortization 12,992 13,816 13,823 EBITDA (1) 110,577 172,293 95,321 Loss on extinguishment of debt - - 90,569 Legal and other costs 5,662 4,660 (408) U.K. related costs - 8,844 - (Income) loss from equity method investment (4,546) 6,295 - Share-based compensation 12,910 10,323 8,210 Other adjustments (58) (184) 219 Adjusted EBITDA (1)$ 124,545 $ 202,231 $ 193,911
(1) For a detailed description of non-GAAP financial measures and how we use them, see "Item 6. Selected Financial Data-Supplemental Non-GAAP Financial Information."
Comparison of
U.S. revenues decreased by$275.0 million , or 30.1%, to$638.5 million for the year endedDecember 31, 2020 compared to the prior year, as a result of decreases in combined gross loans receivable. Excluding the aforementioned impact of California Installment loan runoff,U.S. revenues decreased by$203.0 million , or 26.2%. The provision for losses decreased$161.9 million , or 41.3%, for the year endedDecember 31, 2020 , compared to the prior year, primarily as a result of lower loan volume and lower NCOs. Year-over-yearU.S. NCOs decreased$140.1 million , or 35.2%. Non-advertising costs of providing services for the year endedDecember 31, 2020 were$137.5 million , a decrease of$34.2 million , or 19.9%, compared to$171.7 million for the year endedDecember 31, 2019 . The decrease was primarily driven byAd Astra costs of$15.5 million , which prior to its acquisition by us were included in Non-advertising costs of providing services. The remaining decrease year over year in Non-advertising costs of providing services was due to (i) lower underwriting and other variable costs as a result of lower demand, (ii) lower collection costs resulting from stimulus-related pay-downs and (iii) lower discretionary variable compensation.
Advertising costs decreased
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Corporate, district and other expenses were$137.2 million for the year endedDecember 31, 2020 , a decrease of$1.0 million , or 0.7%, compared to the year endedDecember 31, 2019 . Corporate, district and other expenses for the year endedDecember 31, 2020 included$9.6 million of collection costs related toAd Astra , which were historically included in Non-advertising costs of providing services. For the year endedDecember 31, 2020 , corporate, district and other costs included (i)$5.7 million of legal and other costs described in our reconciliation to Adjusted Net Income above and (ii)$12.9 million of share-based compensation costs. For the year endedDecember 31, 2019 , corporate, district and other expenses included (i)U.K. related costs of$8.8 million as described in our reconciliation to Adjusted Net Income above, (ii)$4.7 million of legal and other costs also described in our reconciliation to Adjusted Net Income above and (iii) share-based compensation costs of$10.3 million . Share-based compensation costs increased primarily as a result of awards granted in the first quarter of 2020. Excluding these items, comparable corporate, district and other expenses decreased$5.4 million year over year, primarily due to the timing and extent of variable compensation and certain cost reductions, including work-from-home initiatives, to manage COVID-19 Impacts, partially offset by higher professional fees for the year endedDecember 31, 2020 . As previously described, and given the two-month lag, we recorded equity income from our investment in Katapult of$4.5 million for the year endedDecember 31, 2020 .
Comparison of
For a comparison of ourU.S. segment results of operations for the years endedDecember 31, 2019 and 2018, see "Management's Discussion and Analysis of Financial Condition and Results of Operations-Segment Analysis" in Part II Item 7 of our 2019 Form 10-K. Canada Segment Results Year Ended December 31, 2020 2019 2018 Revenue$ 208,872 $ 228,291 $ 191,932 Provision for losses 58,647 76,446 72,989 Net revenue 150,225 151,845 118,943 Advertising costs 3,850 6,663 10,531 Non-advertising costs of providing services 68,207 69,518 67,770 Total cost of providing services 72,057 76,181 78,301 Gross margin 78,168 75,664 40,642 Corporate, district and other expenses 22,701 21,923 19,640 Interest expense 9,296 10,438 4,001 Total operating expense 31,997 32,361 23,641 Segment operating income 46,171 43,303 17,001 Interest expense 9,296 10,438 4,001 Depreciation and amortization 4,506 4,814 4,514 EBITDA (1) 59,973 58,555 25,516 Legal and other costs - 135 119 Canada GST 2,160 - - Other adjustments 685 211 277 Adjusted EBITDA (1)$ 62,818 $ 58,901 $ 25,912
(1) For a detailed description of non-GAAP financial measures and how we use them, see "Item 6. Selected Financial Data-Supplemental Non-GAAP Financial Information."
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Comparison of Canada Segment Results of Operations for the Years Ended
Canada non-Single-Pay revenue increased$14.6 million , or 9.7% ($16.1 million , or 10.8%, on a constant-currency basis), to$164.4 million , compared to$149.8 million in the prior year, on growth of$45.6 million , or 17.1% ($38.5 million , or 14.4%, on a constant-currency basis), in related loan balances. The increase was driven by continued growth of Open-End loan despite COVID-19 Impacts. Ancillary revenue, which includes sales of insurance to Open-End loan customers, remained flat year over year due to increased insurance claims from consumers impacted by COVID-19 during the year endedDecember 31, 2020 . Single-Pay revenue decreased$34.0 million , or 43.3% ($33.6 million , or 42.8%, on a constant-currency basis), to$44.5 million for the year endedDecember 31, 2020 , and Single-Pay receivables decreased$17.7 million , or 49.6% ($18.2 million , or 50.7% on a constant-currency basis), to$18.1 million from$35.8 million , in the prior year. The decreases in Single-Pay revenue and receivables were due to product mix shift from Single-Pay loans to Open-End loans, as well as significant declines in demand attributable to COVID-19 Impacts. The provision for losses decreased$17.8 million , or 23.3% ($17.0 million , or 22.3%, on a constant-currency basis), to$58.6 million for the year endedDecember 31, 2020 , compared to$76.4 million in the prior year. The decrease in provision for loan losses was primarily a result of lower NCOs and favorable loan performance as a result of COVID-19 Impacts as discussed previously. Year-over-year Canada NCOs decreased$26.2 million , or 32.5%.Canada cost of providing services for the year endedDecember 31, 2020 was$72.1 million , a decrease of$4.1 million , or 5.4% ($3.4 million , or 4.5%, on a constant-currency basis), compared to$76.2 million for the year endedDecember 31, 2019 , primarily related to certain cost reductions to manage COVID-19 Impacts, as well as efficient and strategic advertising efforts through the course of 2020 to manage growth inCanada .
Comparison of Canada Segment Results of Operations for the Years Ended
For a comparison of ourCanada segment results of operations for the years endedDecember 31, 2019 and 2018, see "Management's Discussion and Analysis of Financial Condition and Results of Operations-Segment Analysis" in Part II Item 7 of our 2019 Form 10-K. Currency Information
We operate in the
Changes in our reported revenues and net income include the effect of changes in currency exchange rates. We translate all balance sheet accounts intoU.S. dollars at the currency exchange rate in effect at the end of each period. We translate the statement of operations at the average rates of exchange for the period. We record currency translation adjustments as a component of Accumulated Other Comprehensive Income in Stockholders' Equity.
Constant Currency Analysis
For the years endedDecember 31, 2020 and 2019, approximately 24.6% and 20.0%, respectively, of our revenues were originated in Canadian Dollars. As a result, changes in our reported results include the impacts of changes in the foreign currency exchange rates for the Canadian Dollar.
Income Statement
Year Ended December 31, Year Ended December 31,
2020 2019 % Change 2019 2018 % ChangeAverage Exchange Rates for the Canadian Dollar$ 0.7462 $ 0.7539 (1.0) %$ 0.7539 $ 0.7720 (2.3) %
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Balance Sheet - Exchange Rate as of
December 31, Change
2020 2019 $ %
Exchange Rate for the Canadian
Dollar $ 0.7863 $ 0.7683 $0.0180 2.3 %
The following constant currency analysis removes the impact of the fluctuation
in foreign exchange rates and utilizes constant currency results in our analysis
of segment performance. Our constant currency assessment assumes foreign
exchange rates in the current fiscal periods remained the same as in the prior
fiscal periods. All conversion rates below are based on the U.S. Dollar
equivalent to the Canadian Dollar. We believe that the constant currency
assessment below is a useful measure in assessing the comparable growth and
profitability of our operations.
We calculated the revenues and gross margin below for the year ended December
31, 2020 using the actual average exchange rate for the year ended December 31,
2019 (in thousands).
Year Ended December 31, Change
2020 2019 $ %
Canada - constant currency basis:
Revenues $ 210,786 $ 228,291 $ (17,505) (7.7) %
Gross Margin 78,611 75,664 2,947 3.9 %
We calculated the revenues and gross margin below for the year ended December
31, 2019 using the actual average exchange rate for the year ended December 31,
2018 (in thousands).
Year Ended December 31, Change
2019 2018 $ %
Revenues $ 233,739 $ 191,932 $ 41,807 21.8 %
Gross Margin 77,439 40,642 36,797 90.5 %
We calculated gross loans receivable below as of
December 31, December 31, Change
2020 2019 $ %
Canada - constant currency basis:
Gross loans receivable $ 322,712 $ 302,375 $ 20,337 6.7 %
Liquidity and Capital Resources
Our principal sources of liquidity to fund the loans we make are cash provided by operations; our Senior Revolver, Cash Money Revolving Credit Facility, Non-RecourseU.S. SPV Facility, Non-Recourse Canada SPV Facility, and funds from third-party lenders under our CSO programs. Additionally, inAugust 2018 , we issued$690.0 million 8.25% Senior Secured Notes. As ofDecember 31, 2020 , we were in compliance with all financial ratios, covenants and other requirements in our debt agreements. We anticipate that our primary use of cash will be to fund growth in our working capital, finance capital expenditures, finance opportunistic acquisitions and meet our debt obligations. We may also use cash to fund a return of capital for our stockholders in the form of dividends, such as those in connection with our dividend program initiated in 2020, or through share repurchase programs, as we have in the past. Our level of cash flow provided by operating activities typically experiences some seasonal fluctuation related to our levels of net income and changes in working capital levels, particularly loans receivable. Unexpected changes in our financial condition or other unforeseen factors may result in our inability to obtain third-party financing or could increase our borrowing costs in the future. We have the ability to adjust our volume of lending to consumers to the extent we experience any short-term or long-term funding shortfalls, such as tightening our credit approval practices (as we have done during the COVID-19 pandemic), which has the effect of reducing cash outflow requirements while increasing cash inflows through loan repayments.
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We may also sell or securitize our assets, draw on our available revolving credit facility or line of credit, enter into additional refinancing agreements or reduce our capital spending to generate additional liquidity. Although consumer demand increased sequentially during the fourth quarter of 2020, our cash on hand and total liquidity remains at elevated levels due to a combination of factors, including (i) a sustained decrease in demand since the onset of the COVID-19 pandemic, (ii) increased or accelerated repayments as customers benefited from government stimulus programs, (iii) favorable credit performance, and (iv) the runoff of California Installment loans following regulatory changes effectiveJanuary 1, 2020 . These factors resulted in our available cash on hand of$213.3 million and our total liquidity of$310.7 million as ofDecember 31, 2020 . We believe our cash on hand and available borrowings provide us with sufficient liquidity for at least the next 12 months. As previously described, our investment in Katapult and acquisition of Flexiti, when closed, may materially impact our future cash flow and cash and cash equivalents. For additional information, refer to "Item 1-Business-Company Overview." We have no material commitments or demands that are likely to affect our liquidity other than these transactions.
Borrowings
Our debt consisted of the following as of
Balance as of
Capacity Interest Rate Maturity Counter-parties December 31, 2020
Non-Recourse Canada SPV Waterfall Asset
Facility (1) C$175.0 million 3-Mo CDOR + 6.75% August 2, 2023 Management $ 96,075
BayCoast Bank; Stride
Bank; Hancock-Whitney
Senior Secured Revolving Bank; Metropolitan
Credit Facility $50.0 million 1-Mo LIBOR + 5.00% June 30, 2021 Commercial Bank -
Non-Recourse U.S. SPV 1-Mo LIBOR + Atalaya Capital
Facility $200.0 million 6.25(2) April 8, 2024 Management 43,586
Cash Money Revolving Canada Prime Rate
Credit Facility (1) C$10.0 million +1.95% On-demand Royal Bank of Canada -
8.25% Senior Secured Notes
(due 2025) $690.0 million 8.25% September 1, 2025 680,000
(1) Capacity amounts are denominated in Canadian dollars, while outstanding balances as of
Refer to Note 7, "Debt," for details on each of our credit facilities and resources. Cash Flows
The following highlights our cash flow activity and the sources and uses of funding during the periods indicated:
Year Ended December 31,
(in thousands) 2020 2019 2018
Net cash provided by continuing operating activities
$ 651,135 $ 523,656 Net cash used in continuing investing activities (255,056) (530,260) (592,954) Net cash (used in) provided by continuing financing activities 7,329 (97,968) 19,092
Years Ended
As previously described, year-over-year comparisons were impacted by COVID-19 Impacts and the runoff of California Installment loans from regulatory changes effectiveJanuary 1, 2020 .
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Continuing Operating Activities
Net cash provided by operating activities from continuing operations for the year endedDecember 31, 2020 was$403.5 million , primarily attributable to net income from continuing operations of$74.4 million , the effect of non-cash reconciling items of$330.4 million , partially offset by changes in our operating assets and liabilities of$1.4 million . Our non-cash reconciling items of$330.4 million included (i) provision for loan losses of$288.8 million , (ii) changes in deferred income tax of$11.7 million , (iii) share-based compensation of$12.9 million and (iv)$17.5 million of depreciation and amortization. Our changes in operating assets and liabilities of$1.4 million related to a higher income tax receivable of$20.6 million and a higher accounts payable and accrued liabilities balance of$11.9 million , partially offset by a$23.7 million decline in accrued interest on our gross loans receivable due to overall volume decline, as previously discussed.
Continuing Investing Activities
Net cash used in investing activities from continuing operations for the year endedDecember 31, 2020 was$255.1 million , primarily reflecting (i) the net origination of loans of$217.0 million , (ii) the acquisition ofAd Astra for$14.4 million , net of cash received, and (iii)$12.8 million of additional equity interests in Katapult. In addition, we used cash to purchase$10.9 million of property, equipment and software.
Continuing Financing Activities
Net cash used in financing activities from continuing operations for the year endedDecember 31, 2020 was$7.3 million , primarily due to$49.5 million of proceeds on our Non-RecourseU.S. SPV Facility, partially offset by a net pay-down on our Non-Recourse Canada SPV Facility of$19.0 million , common stock repurchases of$5.9 million , cash dividends of$9.1 million and debt issuance costs of$7.0 million related to the Non-RecourseU.S. SPV Facility.
Years Ended
For a comparison of our cash flows for the years ended
Condensed Consolidating Financial Information
The following unaudited condensed consolidating financial information is presented separately for:
(i)CURO as the issuer of the 8.25% Senior Secured Notes; (ii)The Company's subsidiary guarantors, which are comprised of certain of its domestic subsidiaries, including CFTC, as the issuer of the 12.00% Senior Secured Notes that were redeemed inAugust 2018 and CURO Intermediate, but excluding theU.S. SPV and Canada SPV (the "Subsidiary Guarantors"), on a consolidated basis, which are 100% owned by CURO, and which are guarantors of the 8.25% Senior Secured Notes; (iii)The Non-RecourseU.S. SPV facility, a wholly-owned, bankruptcy-remote special purpose subsidiary; (iv)The Non-Recourse Canada SPV facility, a wholly-owned, bankruptcy-remote special purpose subsidiary; (v)The Company's other subsidiaries on a consolidated basis, which are not guarantors of the 8.25% Senior Secured Notes (the "Subsidiary Non-Guarantors"); (vi)Consolidating and eliminating entries representing adjustments to: 1.eliminate intercompany transactions between or among us, the Subsidiary Guarantors, the Non-RecourseU.S. SPV facility, the Non-Recourse Canada SPV facility and the Subsidiary Non-Guarantors; and 2.eliminate the investments in subsidiaries; and (vii)The Company and its subsidiaries on a consolidated basis.
For additional details, see Note 7, "Debt."
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Consolidating Balance Sheets
December 31, 2020
Subsidiary Subsidiary CURO
(dollars in thousands) CURO Guarantors U.S. SPV Canada SPV Non-Guarantors Eliminations Consolidated
Assets:
Cash and cash equivalents $ - $ 158,941 $ - $ - $ 54,402 $ - $ 213,343
Restricted cash - 19,181 2,665 29,329 3,590 - 54,765
Loans receivable, net - 113,940 58,355 247,947 47,318 - 467,560
Income taxes receivable 55,460 (24,444) - - 1,046 - 32,062
Prepaid expenses and other - 19,212 396 (8) 8,394 - 27,994
Property and equipment, net - 36,258 - - 23,491 - 59,749
Investments - 27,370 - - - - 27,370
Right of use asset - operating leases - 73,744 - - 41,288 - 115,032
Deferred tax assets 13,757 (13,757) - - - - -
Goodwill - 105,922 - - 30,169 - 136,091
Other intangibles, net - 17,466 - - 22,959 - 40,425
Intercompany receivable - 164,615 - - - (164,615) -
Investment in subsidiaries 192,011 - - - - (192,011) -
Other assets - 7,898 - - 697 - 8,595
Total assets $ 261,228 $ 706,346 $ 61,416 $ 277,268 $ 233,354 ($ 356,626 ) $ 1,182,986
Liabilities and Stockholders' equity
(deficit):
Accounts payable and accrued liabilities $ 14 $ 38,344 $ - $ 34,055 ($ 22,789 ) $ - $ 49,624
Deferred revenue - 3,546 106 30 1,712 - 5,394
Lease liability - operating leases - 81,435 - - 41,213 - 122,648
Income taxes payable (15,916) 15,916 - - - - -
Accrued interest 18,975 1 405 742 - - 20,123
Liability for losses on CSO lender-owned
consumer loans - 7,228 - - - - 7,228
Debt 680,000 - 43,585 96,076 - - 819,661
Intercompany payable - 46,119 (46,119) 30,737 133,878 (164,615) -
Payable to CURO Holdings Corp. (563,585) 563,585 - - - - -
Other long-term liabilities - 15,276 - - 106 - 15,382
Deferred tax liabilities 9,835 - - (105) 1,291 - 11,021
Total liabilities 129,323 771,450 (2,023) 161,535 155,411 (164,615) 1,051,081
Stockholders' equity (deficit) 131,905 (65,104) 63,439 115,733 77,943 (192,011) 131,905
Total liabilities and stockholders'
equity (deficit) $ 261,228 $ 706,346 $ 61,416 $ 277,268 $ 233,354 ($ 356,626 ) $ 1,182,986 --------------------------------------------------------------------------------
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December 31, 2019
Subsidiary Subsidiary CURO
(dollars in thousands) CURO Guarantors Canada SPV Non-Guarantors Eliminations Consolidated
Assets:
Cash and cash equivalents $ - $ 44,727 $ - $ 30,515 $ - $ 75,242
Restricted cash - 14,958 17,427 2,394 - 34,779
Loans receivable, net - 286,881 220,067 52,045 - 558,993
Income taxes receivable 19,690 (8,987) - 723 - 11,426
Prepaid expenses and other - 26,623 - 9,267 - 35,890
Property and equipment, net - 43,618 - 27,193 - 70,811
Investments - 10,068 - - - 10,068
Right of use asset - operating leases - 74,845 - 42,608 - 117,453
Deferred tax asset 8,561 (3,506) - - - 5,055
Goodwill - 91,131 - 29,478 - 120,609
Other intangibles, net - 11,569 - 22,358 - 33,927
Intercompany receivable - 113,599 - - (113,599) -
Investment in subsidiaries 84,514 - - - (84,514) -
Other assets - 6,938 - 704 - 7,642
Total assets $ 112,765 $ 712,464 $ 237,494 $ 217,285 ($ 198,113 ) $ 1,081,895
Liabilities and Stockholder's equity
(deficit):
Accounts payable and accrued
liabilities $ 465 $ 48,333 $ 13,462 ($ 2,177 ) $ - $ 60,083
Deferred revenue - 6,828 46 3,296 - 10,170
Lease liability - operating leases - 82,593 - 42,406 - 124,999
Accrued interest 18,975 1 871 - - 19,847
Payable to CURO Holdings Corp. (635,511) 635,511 - - - -
Liability for losses on CSO
lender-owned consumer loans - 10,623 - - - 10,623
Debt 678,323 - 112,221 - - 790,544
Intercompany payable - - 69,639 43,960 (113,599) -
Other long-term liabilities - 10,285 - 379 - 10,664
Liabilities from discontinued
operations - - - 4,452 - 4,452
Total liabilities 62,252 794,174 196,239 92,316 (113,599) 1,031,382
Stockholders' equity (deficit) 50,513 (81,710) 41,255 124,969 (84,514) 50,513
Total liabilities and stockholders'
equity (deficit) $ 112,765 $ 712,464 $ 237,494 $ 217,285 ($ 198,113 ) $ 1,081,895 --------------------------------------------------------------------------------
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Consolidating Statements of Operations
Year Ended December 31, 2020
Subsidiary Subsidiary CURO
(dollars in thousands) CURO Guarantors
$ - $ 507,855 $ 130,669 $ 132,194 $ 76,678 $ - $ 847,396
Provision for losses - 167,374 62,790 46,594 12,053 - 288,811
Net revenue - 340,481 67,879 85,600 64,625 - 558,585
Cost of providing services:
Salaries and benefits - 65,745 - - 34,140 - 99,885
Occupancy - 31,287 - - 23,688 - 54,975
Office - 15,505 - - 4,658 - 20,163
Other costs of providing services - 24,930 - - 5,721 - 30,651
Advertising - 40,702 - - 3,850 - 44,552
Total cost of providing services - 178,169 - - 72,057 - 250,226
Gross margin - 162,312 67,879 85,600 (7,432) - 308,359
Operating expense (income):
Corporate, district and other
expenses 13,466 123,497 189 404 22,297 - 159,853
Intercompany management fee - (14,779) - 3,540 11,239 - -
Interest expense (income) 58,601 547 4,265 9,498 (202) - 72,709
Income from equity method investment - (4,546) - - - - (4,546)
Intercompany interest (income)
expense - (10,788) - 2,216 8,572 - -
Total operating expense 72,067 93,931 4,454 15,658 41,906 - 228,016
(Loss) income from continuing
operations before income taxes (72,067) 68,381 63,425 69,942 (49,338) - 80,343
(Benefit) provision for income taxes (39,153) 44,229 - (101) 920 - 5,895
Net (loss) income from continuing
operations (32,914) 24,152 63,425 70,043 (50,258) - 74,448
Net income on discontinued operations - - - - 1,285 - 1,285
Net (loss) income (32,914) 24,152 63,425 70,043 (48,973) - 75,733
Equity in net income (loss) of
subsidiaries:
CFTC 108,647 - - - - (108,647) -
Guarantor Subsidiaries - 24,152 - - - (24,152) -
Non-Guarantor Subsidiaries - (48,973) - - - 48,973 -
U.S. SPV - 63,425 - - - (63,425) -
Canada SPV - 70,043 - - - (70,043) -
Net income (loss) attributable to
CURO $ 75,733 $ 132,799 $ 63,425 $ 70,043 ($ 48,973 ) ($ 217,294 ) $ 75,733 --------------------------------------------------------------------------------
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Year Ended December 31, 2019
Subsidiary Subsidiary CURO
(dollars in thousands) CURO Guarantors Canada SPV Non-Guarantors Eliminations Consolidated
Revenue $ - $ 913,506 $ 114,574 $ 113,717 $ - $ 1,141,797
Provision for losses - 392,105 53,224 23,222 - 468,551
Net revenue - 521,401 61,350 90,495 - 673,246
Cost of providing services:
Salaries and benefits - 73,606 - 35,374 - 108,980
Occupancy - 32,083 - 23,904 - 55,987
Office - 17,787 - 5,400 - 23,187
Other costs of providing services - 48,238 - 4,840 - 53,078
Advertising - 46,735 - 6,663 - 53,398
Total cost of providing services - 218,449 - 76,181 - 294,630
Gross margin - 302,952 61,350 14,314 - 378,616
Operating expense (income):
Corporate, district and other expenses 10,964 127,216 (244) 22,167 - 160,103
Intercompany management fee - (14,774) 49 14,725 - - Interest expense 58,301 1,024 10,400 38 - 69,763 Loss from equity method investment - 6,295 - - -
6,295
Intercompany interest (income) expense - (5,316) 1,759 3,557 - - Total operating expense 69,265 114,445 11,964 40,487 - 236,161 (Loss) income from continuing operations before income taxes (69,265) 188,507 49,386 (26,173) -
142,455
(Benefit) provision for income taxes (17,255) 48,933 - 6,879 -
38,557
Net (loss) income from continuing operations (52,010) 139,574 49,386 (33,052) -
103,898
Net income on discontinued operations - - - 7,590 - 7,590 Net (loss) income (52,010) 139,574 49,386 (25,462) - 111,488 Equity in net income (loss) of subsidiaries: CFTC 163,498 - - - (163,498) - Guarantor Subsidiaries - 139,574 - - (139,574) - Non-Guarantor Subsidiaries - (25,462) - - 25,462 - Canada SPV 49,386 - - (49,386) - Net income (loss) attributable to CURO$ 111,488 $ 303,072 $ 49,386 ($ 25,462 ) ($ 326,996 )$ 111,488
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Year Ended December 31, 2018
Subsidiary Subsidiary CURO
(dollars in thousands) CURO Guarantors Canada SPV Non-Guarantors Eliminations Consolidated
Revenue $ - $ 853,141 $ 28,465 $ 163,467 $ - $ 1,045,073
Provision for losses - 348,611 33,345 39,644 - 421,600
Net revenue - 504,530 (4,880) 123,823 - 623,473
Cost of providing services:
Salaries and benefits - 71,447 - 35,307 - 106,754
Occupancy - 30,797 - 22,887 - 53,684
Office - 21,285 - 5,248 - 26,533
Other costs of providing services - 47,341 - 4,328 - 51,669
Advertising - 48,832 - 10,531 - 59,363
Total cost of providing services - 219,702 - 78,301 - 298,003
Gross margin - 284,828 (4,880) 45,522 - 325,470
Operating expense (income):
Corporate, district and other expenses 9,251 103,509 38 19,603 - 132,401
Intercompany management fee - (11,516) 16 11,500 - -
Interest expense 20,432 59,949 3,907 94 - 84,382
Loss from equity method investment - 90,569 - - - 90,569
Intercompany interest (income) expense - (4,126) - 4,126 - - Total operating expense 29,683 238,385 3,961 35,323 - 307,352 (Loss) income from continuing operations before income taxes (29,683) 46,443 (8,841) 10,199 -
18,118
(Benefit) provision for income taxes (6,617) 5,805 - 2,471 -
1,659
Net (loss) income from continuing operations (23,066) 40,638
(8,841) 7,728 - 16,459
Net loss on discontinued operations - - - (38,512) - (38,512) Net (loss) income (23,066) 40,638 (8,841) (30,784) - (22,053) Equity in net income (loss) of subsidiaries: CFTC 39,525 - - - (39,525) - Guarantor Subsidiaries - 40,638 - - (40,638) - Non-Guarantor Subsidiaries - (30,784) - - 30,784 - Canada SPV (8,841) - - 8,841 - Net income (loss) attributable to CURO$ 16,459 $ 41,651 ($ 8,841 ) ($ 30,784 ) ($ 40,538 ) ($ 22,053 )
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Consolidating Statements of Cash Flows
Year Ended December 31, 2020
Subsidiary
(dollars in thousands) CURO Subsidiary Guarantors U.S. SPV Canada SPV Non-Guarantors Eliminations CURO Consolidated
Cash flows from operating activities:
Net cash provided by continuing
operating activities $ 7,858 $ 200,931 $ 64,077 $ 98,117 $ 30,114 $ 2,408 $ 403,505
Net cash provided by discontinued
operating activities - - - - 1,714 - 1,714
Cash flows from investing activities:
Purchase of property, equipment and
software - (10,497) - - (423) - (10,920)
Originations of loans, net - (36,499) (103,876) (68,255) (8,331) - (216,961)
Investments in Katapult - (12,757) - - - - (12,757)
Acquisition of Ad Astra , net of
acquiree's cash received - (14,418) - - - - (14,418)
Net cash used in continuing investing
activities - (74,171) (103,876) (68,255) (8,754) - (255,056)
Cash flows from financing activities:
Proceeds from Non-Recourse Canada SPV facility - - - 23,581 - - 23,581 Payments on Non-Recourse Canada SPV facility - - - (42,535) - - (42,535) Proceeds from Non-RecourseU.S. SPV facility - - 49,456 - - - 49,456 Proceeds from credit facilities - 60,000 - - 9,947 - 69,947 Payments on credit facilities - (60,000) - - (9,947) - (69,947) Payments to net share settle RSUs (1,950) - - - - - (1,950) Proceeds from exercise of stock options - 765 - - - - 765 Debt issuance costs paid - - (6,992) - - - (6,992) Repurchase of common stock (5,908) - - - - - (5,908) Dividends paid to CURO Group Holdings Corp. 9,088 (9,088) - - - - - Dividends paid to stockholders (9,088) - - - - - (9,088) Net cash (used in) provided by financing activities (7,858) (8,323) 42,464 (18,954) - - 7,329 Effect of exchange rate changes on cash, cash equivalents and restricted cash - - - 994 2,009 (2,408) 595 Net increase in cash, cash equivalents and restricted cash - 118,437 2,665 11,902 25,083 - 158,087 Cash, cash equivalents and restricted cash at beginning of period - 59,685 - 17,427 32,909 - 110,021 Cash, cash equivalents and restricted cash at end of period $ -$ 178,122 $ 2,665 $ 29,329 $ 57,992 $ -$ 268,108
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Year Ended December 31, 2019
Subsidiary
(dollars in thousands) CURO Subsidiary Guarantors Canada SPV Non-Guarantors Eliminations CURO Consolidated
Cash flows from operating activities:
Net cash provided by continuing
operating activities $ 74,372 $ 412,075 $ 130,896 $ 32,407 $ 1,385 $651,135
Net cash used in discontinued operating activities - - - (504) -
(504)
Cash flows from investing activities: Purchase of property and equipment - (12,356) - (1,625) -
(13,981)
Originations of loans, net - (364,412) (125,500) (18,199) - (508,111) Investments in Katapult - (8,168) - - - (8,168) Net cash used in continuing investing activities - (384,936) (125,500) (19,824) -
(530,260)
Net cash used in discontinued investing activities - - - (14,213) -
(14,213)
Cash flows from financing activities:
Proceeds from Non-Recourse Canada SPV facility - - 23,558 - -
23,558
Payments on Non-Recourse Canada SPV facility - - (24,877) - -
(24,877)
Proceeds from credit facilities - 140,000 - 70,346 -
210,346
Payments on credit facilities - (160,000) - (70,346) -
(230,346)
Payments on subordinated stockholder debt - - - (2,256) -
(2,256)
Proceeds from exercise of stock options - 149 - - -
149
Payments to net share settle RSUs (2,400) - - - - (2,400) Debt issuance costs paid (30) - (170) - - (200) Repurchase of common stock (71,942) - - - -
(71,942)
Net cash (used in) provided by financing activities (1) (74,372) (19,851) (1,489) (2,256) -
(97,968)
Effect of exchange rate changes on cash, cash equivalents and restricted cash - - 680 2,679 (1,385)
1,974
Net increase (decrease) in cash, cash equivalents and restricted cash - 7,288 4,587 (1,711) -
10,164
Cash, cash equivalents and restricted cash at beginning of period - 52,397 12,840 34,620 -
99,857
Cash, cash equivalents and restricted cash at end of period $ -$ 59,685 $ 17,427 $ 32,909 $ - $
110,021
(1) Financing activities include continuing operations only and were not impacted by discontinued operations.
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Year Ended December 31, 2018
Subsidiary
(in thousands) CURO Subsidiary Guarantors Canada SPV Non-Guarantors Eliminations CURO Consolidated
Cash flows from operating activities:
Net cash (used in) provided by continuing operating
activities ($ 674,290 ) $ 1,104,821 $ 72,648 $ 16,308 $ 4,169 $ 523,656
Net cash provided by discontinued operating
activities - - - 10,808 - 10,808
Cash flows from investing activities: Purchase of property, equipment and software - (11,105) - (2,928) -
(14,033)
Originations of loans, net - (398,542) (172,193) (7,228) - (577,963) Investments in Katapult - (958) - - - (958) Net cash used in continuing investing activities - (410,605) (172,193) (10,156) -
(592,954)
Net cash used in discontinued investing activities - - - (27,891) -
(27,891)
Cash flows from financing activities:
Proceeds from Non-Recourse
- 17,000 - - - 17,000
Payments on Non-Recourse
- (141,590) - - - (141,590)
Proceeds from Non-Recourse Canada SPV facility - - 117,157 - -
117,157
Payments on 12.00% Senior Secured Notes - (605,000) - - -
(605,000)
Proceeds from issuance of 8.25% Senior Secured Notes 690,000
- - - - 690,000
Payments of call premiums from early debt extinguishments - (69,650) - - -
(69,650)
Debt issuance costs paid (13,848) (232) (4,529) - -
(18,609)
Proceeds from revolving credit facilities - 87,000 - 44,902 -
131,902
Payments on revolving credit facilities - (67,000) - (44,902) -
(111,902)
Proceeds from exercise of stock options - 559 - - - 559 Payments to net share settle RSU's (1,942) - - - -
(1,942)
Net proceeds from issuance of common stock - 11,167 - - -
11,167
Net cash provided by (used in) financing activities 674,210
(767,746) 112,628 - - 19,092
Effect of exchange rate changes on cash and restricted cash - - (243) (2,933) (4,169)
(7,345)
Net (decrease) increase in cash and restricted cash (80) (73,530) 12,840 (13,864) -
(74,634)
Cash and restricted cash at beginning of period 80 125,927 - 48,484 -
174,491
Cash and restricted cash at end of period - 52,397 12,840 34,620 -
99,857
Cash and restricted cash of discontinued operations at end of period
- - - 13,243 - 13,243
Cash and restricted cash of continuing operations at end of period $ -$ 52,397 $ 12,840 $ 21,377 $ -$ 86,614
Off-Balance Sheet Arrangements
We originate loans in all of our store locations and online, except for our operations inTexas and, prior toMay 2019 ,Ohio . In these states, we operate as a CSO. Refer to "Critical Accounting Practices and Estimates-Credit Services Organization " below for further information on our CSO/CAB relationships and "Item 1. Business-Regulatory Environment and Compliance" for further information on developments inOhio . As ofDecember 31, 2020 andDecember 31, 2019 , the incremental maximum amount payable under all such guarantees was$36.6 million and$62.7 million , respectively. This liability is not included in our Consolidated Balance Sheets. If we are required to pay any portion of the total amount of the loans we have guaranteed, we will attempt to recover some or the entire amount from the customers. We hold no collateral in respect of the guarantees. We estimate a liability for losses associated with the guaranty provided to the CSO lenders using assumptions and methodologies similar to the allowance for loan losses, which we recognize for our consumer loans. The liability for losses on CSO lender-owned consumer loans was$7.2 million atDecember 31, 2020 and$10.6 million atDecember 31, 2019 , which we include as "Liability for losses on CSO lender-owned consumer loans" on the Consolidated Balance Sheets. -------------------------------------------------------------------------------- Table of contents Critical Accounting Policies and Estimates The preparation of financial statements in conformity withU.S. GAAP requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ significantly from those estimates. We consider the following accounting policies to be critical in understanding our historical and future performance and require management's most subjective and complex judgments.
Allowance for Loan Losses
Credit losses are an inherent part of outstanding loans receivable. We maintain an allowance for loan losses for loans and interest receivable at a level we estimate to be adequate to absorb incurred losses based primarily on our analysis of historical loss or charge-off rates by products containing similar risk characteristics. The allowance for losses on our Company Owned gross loans receivables reduces the outstanding gross loans receivables balance in the Consolidated Balance Sheets. We report the liability for losses related to loans Guaranteed by the Company under CSO programs in "Liability for losses on CSO lender-owned consumer loans" in the Consolidated Balance Sheets. We record increases in either the allowance or the liability, net of charge-offs and recoveries, as "Provision for losses" in the Consolidated Statements of Operations. We also consider delinquency trends as well as macro-economic conditions we believe may affect portfolio losses. If a loan is deemed to be uncollectible before it is fully reserved based on information we become aware of (e.g., receipt of customer bankruptcy notice or death), we charge off such loan at that time. Qualitative factors such as the impact of new loan products, changes to underwriting criteria or lending policies, new store development or entrance into new markets, changes in jurisdictional regulations or laws, recent credit trends and general economic conditions impact management's judgment on the overall adequacy of the allowance for loan losses. Any recoveries on loans previously charged to the allowance are credited to the allowance when collected.
We exercise judgment in evaluating assets for impairment.Goodwill is tested for impairment annually, or when circumstances arise which could more likely than not reduce the fair value of a reporting unit below its carrying value. These tests require comparing carrying values to estimated fair values of the reporting unit under review. TheU.S. andCanada operations are our two reporting units, as defined by FASB's ASC 280, Segment Reporting, for which we assess goodwill for impairment. During the fourth quarter of 2020, we performed a quantitative assessment for theU.S. andCanada reporting units as ofOctober 1, 2020 . As further described in Note 1, "Summary of Significant Accounting Policie s and Nature of Operations , an impairment would occur if the carrying amount of a reporting unit exceeded the fair value of that reporting unit. Events or circumstances that could indicate an impairment include a significant change in the business climate, a change in strategic direction, legal factors, operating performance indicators, a change in the competitive environment, the sale or disposition of a significant portion of a reporting unit or economic outlook. Fair value of each reporting unit is sensitive to changes in macroeconomic factors in theU.S. andCanada as a result of COVID-19, which could impact both reporting units. Changes in the expected length of the current economic downturn, timing of recovery, or long-term revenue growth or profitability for these reporting units could increase the likelihood of a future goodwill impairment. Additionally, changes in market participant assumptions such as an increased discount rate or further share price reductions could increase the likelihood of a future impairment. These and other macroeconomic factors were considered when performing the annual test as ofOctober 1, 2020 . Based upon the quantitative assessment as ofOctober 1, 2020 , management concluded both reporting units' estimated fair values exceeded their carrying value. As a result, we did not record impairment losses on goodwill for the year endedDecember 31, 2020 .
The following table summarizes the segment allocation of recorded goodwill on our Consolidated Balance Sheets for the periods indicated:
December 31, 2020 Percent of Total December 31, 2019 Percent of Total
U.S. $ 105,922 77.8 % $ 91,131 75.6 %
Canada 30,169 22.2 % 29,478 24.4 %
Total Goodwill $ 136,091 $ 120,609
69-------------------------------------------------------------------------------- Table of contentsCredit Services Organization
Through our CSO programs, we act as a CSO/CAB on behalf of customers in
accordance with applicable state laws. We currently offer loans through CSO
programs in stores and online in the state of
As described above in "-Allowance for Loan Losses," we estimate a liability for losses associated with the guaranty provided to the CSO lenders using assumptions and methodologies similar to the allowance for loan losses, which we recognize for our consumer loans. The liability for losses on CSO lender-owned consumer loans was$7.2 million atDecember 31, 2020 and$10.6 million atDecember 31, 2019 , which we include as "Liability for losses on CSO lender-owned consumer loans" on the Consolidated Balance Sheets. We calculate CSO fees based on the amount of the customer's outstanding loan and in accordance with the applicable jurisdiction's laws. For services we provide under our CSO programs, we receive payments from customers on their scheduled loan repayment due dates. The CSO fee is earned ratably over the term of the loan as the customers make payments. If a loan is paid off early, no additional CSO fees are due or collected. The maximum CSO loan term is 180 days inTexas . During the years endedDecember 31, 2020 and 2019, approximately 60.7% and 58.2%, respectively, of Unsecured Installment loans, and 59.1% and 54.3%, respectively, of Secured Installment loans originated under CSO programs were paid off prior to the original maturity date. Since CSO loans are made by a third-party lender, we do not include them in our Consolidated Balance Sheets as loans receivable; instead, we include them in "Prepaid expense and other" in our Consolidated Balance Sheets. We receive payments from customers for these fees on their scheduled loan repayment due dates.
Recently Issued Accounting Pronouncements
See Note 1, "Summary of Significant Accounting Policies and Nature of Operations" of our Notes to Consolidated Financial Statements for a discussion of recent accounting pronouncements.
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