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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2023
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________to__________
Commission File Number: 1-38315
CURO GROUP HOLDINGS CORP.
(Exact name of registrant as specified in its charter)
Delaware90-0934597
(State or other jurisdiction
Of incorporation or organization)		(I.R.S. Employer Identification No.)
200 W Hubbard Street, 8th Floor, Chicago, IL
60654
(Address of principal executive offices)(Zip Code)

Registrant’s telephone number, including area code: (312) 470-2000
Former name, former address and former fiscal year, if changed since last report: No Changes

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, $0.001 par value per shareCURONew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes ☒    No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer☐Accelerated filer☒
Non-accelerated filer☐
Smaller reporting company☒Emerging growth company☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes ☐    No ☒
As of May 5, 2023 there were 40,975,253 shares of the registrant’s Common Stock, $0.001 par value per share, outstanding.
1



CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES

FORM 10-Q
FIRST QUARTER ENDED MARCH 31, 2023
INDEX
Page
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Exhibits, Financial Statement Schedules

2


GLOSSARY

Terms and abbreviations used throughout this report are defined below.
Term or abbreviationDefinition
2022 Form 10-KAnnual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 10, 2023
7.50% Senior Secured Notes7.50% Senior Secured Notes, issued in July 2021 for $750.0 million, which mature in August 2028
ABLAsset-Backed Lending
ACLAllowance for credit losses
AOCIAccumulated other comprehensive income (loss)
ASCAccounting Standards Codification
ASUAccounting Standards Update
Average gross loans receivableUtilized to calculate product yield and NCO rates; calculated as average of beginning of quarter and end of quarter gross loans receivable
BNPLBuy-Now-Pay-Later
bpsBasis points
C$Canadian dollar
Canada SPV
A four-year revolving credit facility with capacity up to C$400.0 million
CECLIn June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU requires an impairment model (known as the current expected credit loss (“CECL”) model) that is based on expected rather than incurred losses, with an anticipated result of more timely loss recognition. This guidance is effective for us on January 1, 2023.
CDORCanadian Dollar Offered Rate
CODMChief Operating Decision Maker
CSOCredit services organization
Exchange ActSecurities Exchange Act of 1934, as amended
FASBFinancial Accounting Standards Board
First HeritageFirst Heritage Credit, LLC, a wholly-owned U.S. subsidiary of the Company, which we acquired in July 2022
First Heritage SPVA revolving credit facility, entered into concurrent with the acquisition of First Heritage, with capacity up to $225.0 million
FlexitiFlexiti Financial Inc., a wholly-owned Canadian subsidiary of the Company, which we acquired on March 10, 2021
Flexiti SecuritizationA non-recourse revolving credit facility, entered into on December 9, 2021, with capacity up to C$526.5 million
Flexiti SPV
A revolving credit facility, entered into concurrent with the acquisition of Flexiti, with capacity up to C$535.0 million
Form 10-Q
This report on Form 10-Q for the quarter ended March 31, 2023
HeightsSouthernCo, Inc., a Delaware corporation d/b/a Heights Finance, a wholly-owned U.S. subsidiary of
the Company, which we acquired in December 2021
Heights Finance SPVA non-recourse revolving credit facility, entered into concurrent with the acquisition of Heights Finance, with capacity up to $350.0 million. This facility was extinguished on July 15, 2022 when we entered into a new non-recourse revolving warehouse facility, see "Heights SPV."
Heights SPV
A revolving credit facility, entered into to replace the incumbent lender's facility and finance future loans originated by Heights, with capacity up to $425.0 million
KatapultKatapult Holdings, Inc., a lease-to-own platform for online, brick and mortar and omni-channel retailers
Legacy U.S. Direct Lending BusinessThe Legacy U.S. Direct Lending Business historically operated under the Speedy Cash, Rapid Cash and Avio Credit brands. We sold the Legacy U.S. Direct Lending Business to Community Choice Financial on July 8, 2022.
NCONet charge-off; which equals total charge-offs less total recoveries
POSPoint-of-sale
ROURight of use
RSURestricted Stock Unit
SECSecurities and Exchange Commission
3


Term or abbreviationDefinition
Senior RevolverSenior Secured Revolving Loan Facility with borrowing capacity of $40.0 million
SOFRSecured Overnight Financing Rate
SPVSpecial Purpose Vehicle
SRCSmaller Reporting Company as defined by the SEC
U.S.United States of America
U.S. GAAPGenerally Accepted Accounting Principles in the U.S.
VIEVariable Interest Entity; our wholly-owned, bankruptcy-remote special purpose subsidiaries

4



ITEM 1. FINANCIAL STATEMENTS
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
March 31, 2023 (unaudited)
December 31,
2022
ASSETS
Cash and cash equivalents$54,935 $73,932 
Restricted cash (includes restricted cash of consolidated VIEs of $92,185 and $52,277 as of March 31, 2023 and December 31, 2022, respectively)
123,282 91,745 
Gross loans receivable (includes loans of consolidated VIEs of $1,890,438 and $1,964,275 as of March 31, 2023 and December 31, 2022, respectively)
2,062,829 2,087,833 
Less: Allowance for credit losses (includes allowance for credit losses of consolidated VIEs of $227,642 and $108,451 as of March 31, 2023 and December 31, 2022, respectively)
(259,959)(122,028)
Loans receivable, net
1,802,870 1,965,805 
Income taxes receivable20,100 21,918 
Prepaid expenses and other (includes prepaid expenses and other of consolidated VIEs of $9,388 and $12,908 as of March 31, 2023 and December 31, 2022, respectively)
47,295 53,057 
Property and equipment, net29,867 31,957 
Investment in Katapult20,502 23,915 
Right of use asset - operating leases54,597 61,197 
Deferred tax assets53,474 49,893 
Goodwill276,487 276,269 
Intangibles, net127,387 123,677 
Other assets10,991 15,828 
Total Assets$2,621,787 $2,789,193 
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable and accrued liabilities (includes accounts payable and accrued liabilities of consolidated VIEs of $15,785 and $13,571 as of March 31, 2023 and December 31, 2022, respectively)
$85,875 $73,827 
Deferred revenue33,227 32,259 
Lease liability - operating leases55,468 62,847 
Contingent consideration related to acquisition18,128 16,884 
Accrued interest (includes accrued interest of consolidated VIEs of $7,428 and $7,023 as of March 31, 2023 and December 31, 2022, respectively)
20,090 38,460 
Debt (includes debt and issuance costs of consolidated VIEs of $1,624,804 and $1,609,427 as of March 31, 2023 and $21,094 and $20,047 as of December 31, 2022, respectively)
2,627,263 2,607,314 
Other long-term liabilities10,552 11,736 
Total Liabilities2,850,603 2,843,327 
Commitments and contingencies (Note 7)
Stockholders' Equity
Preferred stock - $0.001 par value, 25,000,000 shares authorized; no shares were issued
— — 
Common stock - $0.001 par value; 225,000,000 shares authorized; 50,658,160 and 50,216,165 shares issued; and 40,960,047 and 40,518,052 shares outstanding at the respective period ends
23 23 
Treasury stock, at cost - 9,698,113 and 9,698,113 shares at the respective period ends
(136,832)(136,832)
Paid-in capital125,337 124,483 
(Accumulated deficit)/retained earnings(168,548)4,268 
Accumulated other comprehensive loss(48,796)(46,076)
Total Stockholders' (Deficit) Equity(228,816)(54,134)
Total Liabilities and Stockholders' (Deficit) Equity$2,621,787 $2,789,193 
See accompanying Notes to unaudited Condensed Consolidated Financial Statements.
5



ITEM 1. FINANCIAL STATEMENTS
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three Months Ended
March 31,
20232022
Revenue
Interest and fees revenue$179,437 $264,956 
Insurance and other income30,036 25,240 
Total revenue209,473 290,196 
Provision for losses62,932 97,531 
Net revenue146,541 192,665 
Operating Expenses
Salaries and benefits64,805 79,729 
Occupancy11,672 17,037 
Advertising2,175 10,500 
Direct operations13,092 20,274 
Depreciation and amortization9,021 9,814 
Other operating expense17,433 16,377 
Total operating expenses118,198 153,731 
Other expense (income)
Interest expense58,943 38,341 
Loss (income) from equity method investment3,413 (1,584)
Loss (gain) on change in fair value of contingent consideration2,728 (265)
Gain on sale of business2,027 — 
Total other expense 67,111 36,492 
(Loss) income before income taxes(38,768)2,442 
Provision for income taxes20,703 1,106 
Net (loss) income$(59,471)$1,336 
(Loss) earnings per share:
Basic (loss) earnings per share$ (1.46)$ 0.03 
Diluted (loss) earnings per share$ (1.46)$ 0.03 
Weighted average common shares outstanding:
Basic40,783 40,368 
Diluted40,783 41,308 

See accompanying Notes to unaudited Condensed Consolidated Financial Statements.
6



ITEM 1. FINANCIAL STATEMENTS
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(in thousands)
(unaudited)
Three Months Ended
March 31,
20232022
Net (loss) income$(59,471)$1,336 
Other comprehensive (loss) income, net of tax:
Change in derivative instruments designated as cash flow hedges, net of tax(2,750)— 
Foreign currency translation adjustment, net of tax30 6,633 
Other comprehensive (loss) income, net of tax(2,720)6,633 
Comprehensive (loss) income$(62,191)$7,969 

See accompanying Notes to unaudited Condensed Consolidated Financial Statements.

7



ITEM 1. FINANCIAL STATEMENTS
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in thousands, except share data)
(unaudited)
Common StockTreasury Stock, at costPaid-in capitalRetained Earnings (Deficit)AOCITotal Stockholders' Equity
Shares OutstandingPar Value
Balances at December 31, 2022
40,518,052 $23 $ (136,832)$ 124,483 $ 4,268 $ (46,076)$ (54,134)
Cumulative effect of Adoption of ASU 2016-13, net of tax
(113,019)(113,019)
Net loss— — — — (59,471)(59,471)
Other comprehensive loss, net of tax— — — — — (2,720)(2,720)
Dividends(326)(326)
Share-based compensation expense— — 1,636 — — 1,636 
Net settlement of share-based awards441,995 — (782)— — (782)
Balances at March 31, 2023
40,960,047 $23 $ (136,832)$ 125,337 $ (168,548)$ (48,796)$ (228,816)

Common StockTreasury Stock, at costPaid-in capitalRetained Earnings AOCITotal Stockholders' Equity
Shares OutstandingPar Value
Balance at December 31, 2021
40,810,444 $23 $(124,302)$113,520 $203,467 $(32,378)$160,330 
Net income— — — — 1,336 — 1,336 
Other comprehensive income, net of tax— — — — — 6,633 6,633 
Dividends— — — — (4,791)— (4,791)
Share-based compensation expense— — — 4,093 — — 4,093 
Proceeds from exercise of stock options— — — — — — — 
Repurchase of common stock(824,477)— (12,530)— — — (12,530)
Net settlement of share-based awards362,815 — — (2,284)— — (2,284)
Balance at March 31, 2022
40,348,782 $23 $(136,832)$115,329 $200,012 $(25,745)$152,787 


See the accompanying Notes to unaudited Condensed Consolidated Financial Statements


8

CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(dollars in thousands, unaudited)
Three Months Ended
March 31,
20232022
Cash flows from operating activities
Net (loss) income$(59,471)$1,336 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization9,021 9,814 
Provision for losses62,932 97,531 
Amortization of debt issuance costs and bond discount3,730 2,241 
Deferred income tax benefit19,681 (4,326)
Loss on disposal of property and equipment(21)38 
Loss from equity method investment3,413 (1,584)
Change in fair value of contingent consideration2,728 (265)
Share-based compensation 1,636 4,093 
Changes in operating assets and liabilities:
Accrued interest on loans receivable(37,415)28,491 
Prepaid expenses and other assets3,517 2,177 
Accounts payable and accrued liabilities4,664 (41,555)
Deferred revenue968 2,285 
Income taxes payable— (684)
Income taxes receivable1,818 3,114 
Accrued interest(18,370)(18,511)
Other long-term liabilities(2,974)(462)
Net cash (used in) provided by operating activities(4,143)83,733 
Cash flows from investing activities
Purchase of property, equipment and software(10,027)(11,375)
Loans receivable originated or acquired(401,763)(541,674)
Loans receivable repaid420,823 365,379 
Divestiture of Legacy U.S. Direct Lending Business, net of cash provided(2,027)— 
Net cash provided by (used in) investing activities7,006 (187,670)
Cash flows from financing activities
Proceeds from SPV and SPE facilities68,576 190,922 
Payments on SPV and SPE facilities(56,140)(79,718)
Debt issuance costs paid(2,237)(276)
Proceeds from credit facilities— 87,560 
Payments on credit facilities— (67,560)
Payments to net share settle equity awards(782)(2,284)
Repurchase of common stock— (13,531)
Dividends paid to stockholders(326)(4,791)
Net cash provided by financing activities9,091 110,322 
Effect of exchange rate changes on cash, cash equivalents and restricted cash586 1,867 
Net increase in cash, cash equivalents and restricted cash12,540 8,252 
Cash, cash equivalents and restricted cash at beginning of period165,677 162,075 
Cash, cash equivalents and restricted cash at end of period$178,217 $170,327 

SUPPLEMENTAL CASH FLOW INFORMATION

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the unaudited Condensed Consolidated Balance Sheets as of March 31, 2023 and 2022 to the cash, cash equivalents and restricted cash used in the Statement of Cash Flows (in thousands):
March 31,
20232022
Cash and cash equivalents$54,935 $60,209 
Restricted cash (includes restricted cash of consolidated VIEs of $92,185 and $64,141 as of March 31, 2023 and March 31, 2022, respectively)
123,282 110,118 
Total cash, cash equivalents and restricted cash used in the Statement of Cash Flows$178,217 $170,327 
See accompanying Notes to unaudited Condensed Consolidated Financial Statements.
9


CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS
Nature of Operations

The terms “CURO" and the “Company” refer to CURO Group Holdings Corp. and its direct and indirect subsidiaries as a combined entity, except where otherwise stated.

The Company is a tech-enabled, omni-channel consumer credit lender serving U.S. and Canadian customers for over 25 years. Our roots in the consumer finance market run deep. We have worked diligently to provide customers a variety of convenient, easily accessible financial services. Our decades of alternative data power a hard-to-replicate underwriting and scoring engine, mitigating risk across the full spectrum of credit products.

Basis of Presentation

The Company has prepared the accompanying unaudited Condensed Consolidated Financial Statements in accordance with U.S. GAAP and the accounting policies described in its 2022 Form 10-K. Interim results of operations are not necessarily indicative of results that might be expected for future interim periods or for the year ending December 31, 2023.

While certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted, the Company believes that the disclosures are adequate to enable a reasonable understanding of the information presented. Additionally, the Company qualifies as an SRC, which allows registrants to report information under scaled disclosure requirements. SRC status is determined on an annual basis as of June 30th. The Company met the definition of an SRC as of June 30, 2022 and will evaluate its status as of June 30, 2023.

The unaudited Condensed Consolidated Financial Statements and the accompanying notes reflect adjustments of a normal and recurring nature, which are, in the opinion of management, necessary to present fairly the Company's results of operations, financial position and cash flows for the periods presented.

Revised Revenue Presentation

Beginning January 1, 2023, the Company began reporting "Insurance and other income" in place of the previously reported "Insurance premiums and commissions" and "Other revenue" line items in the unaudited Condensed Consolidated Statements of Operations. Prior period amounts have been reclassified to conform with current period presentation.

Beginning September 30, 2022, the Company began reporting "Loss (gain) on change in fair value of contingent consideration" separately on the unaudited Condensed Consolidated Statements of Operations compared to historical presentation within Other operating expense. Prior period amounts have been reclassified to conform with current period presentation.

Principles of Consolidation

The unaudited Condensed Consolidated Financial Statements reflect the accounts of CURO and its direct and indirect subsidiaries, including Heights, which we acquired on December 27, 2021, and First Heritage, which we acquired on July 13, 2022. Refer to Note 13, "Acquisitions and Divestiture" for further disclosures related to these acquisitions. Intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

The preparation of the unaudited Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. Some estimates may also affect the reported amounts of revenues and expenses during the periods presented. Significant estimates that the Company made in the accompanying unaudited Condensed Consolidated Financial Statements include ACL, certain assumptions related to equity investments, goodwill and intangibles, accruals related to self-insurance, estimated tax liabilities and the accounting for the First Heritage, Heights and Flexiti acquisitions. Actual results may differ from those estimates.

Allowance for Credit Losses

The FASB issued an accounting update in June 2016 to change the impairment model for estimating credit losses on financial assets. The previous incurred loss impairment model required the recognition of credit losses when it was probable that a loss had been incurred. The incurred loss model was replaced by the CECL model, which requires entities to estimate the lifetime expected credit loss on financial instruments and to record an allowance to offset the amortized cost basis of the financial asset. The CECL model requires earlier recognition of credit losses as compared to the incurred loss approach. The Company adopted this standard
10


CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
effective January 1, 2023. The initial impact of adoption was a $100.0 million increase to accumulated deficit ($135.2 million increase to the allowance for credit losses, net of $35.2 million in taxes). For the three months ended March 31, 2023, we concluded to record a valuation allowance against the U.S. DTAs. See Note 8 - Income Taxes for further information. As a result, the company decreased the tax impact to Accumulated deficit by $13.0 million as a result of the valuation allowance. As of January 1, 2023, the impact of CECL at adoption was recorded as a $113.0 million increase to Accumulated deficit ($135.2 million increase to the allowance for credit losses, net of $22.2 million in taxes). The ACL on gross loans receivables reduces the outstanding gross loans receivables balance in the unaudited Condensed Consolidated Balance Sheets. After adoption, all changes in the ACL, net of charge-offs and recoveries, are recorded as “Provision for losses” in the unaudited Condensed Consolidated Statements of Operations.

The ACL is based on an analysis of historical loss, charge-off rates and recoveries. The Company also considers delinquency trends, impact of new loan products, changes to underwriting criteria or lending policies, changes in jurisdictional regulations or laws, recent credit trends and reasonable and supportable economic forecasts, which cover the life of the loan. The Company will also adjust for quantitative and qualitative factors that are not fully reflected in the historical data. If a loan is deemed to be uncollectible before it is fully reserved based on received information (e.g., receipt of customer bankruptcy notice or death), the Company charges off the loan at that time. The Company charges credit losses, including accrued interest, against the allowance when the account reaches 180 days contractually delinquent, subject to certain exceptions. Any recoveries on loans previously charged to the ACL are credited to the ACL when collected.

The Company selected a static pool Probability of Default (“PD”) / Loss Given Default (“LGD”) / Exposure at Default ("EAD") model to estimate its base allowance for credit losses, in which the estimated loss is equal to the product of PD, LGD and EAD. Historical static pools of net loans receivables are tracked over the term of the pools to identify the probability of loss (PD) and the average size of losses, net of recoveries (LGD and EAD).

As loans receivable are originated, provisions for credit losses are recorded in amounts sufficient to maintain an ACL at an adequate level to provide for estimated losses over the contractual term of the loan receivables. Subsequent changes to the contractual terms resulting from re-underwriting are not included in the loan receivable’s expected life. The Company uses its historical loss experience to forecast expected credit losses. Historical information about losses generally provides a basis for the estimate of expected credit losses. The Company also considers the need to adjust historical information to reflect the extent to which current conditions differ from the conditions that existed for the period over which historical information was evaluated. These adjustments to historical loss information may be qualitative or quantitative in nature.

Reasonable and supportable macroeconomic forecasts are required for the Company’s ACL model. The Company reviews macroeconomic forecasts to use in its ACL. The projected change in creditworthiness is modeled using Congressional Budget Office data such as unemployment rate and personal income. The Company adjusts the historical loss experience by relevant qualitative factors for these expectations.

Canada Loss Recognition
Effective January 1, 2023, the Company modified the timeframe over which it charges-off loans within the Direct Lending brands in Canada and made related refinements to its loss provisioning methodology. Prior to January 1, 2023, the Company deemed the Direct Lending brands in Canada uncollectible and charged-off on day 91 past-due. As part of our policy alignment within the Direct Lending operating segment, the Company revised its estimates and now considers a loan issued by the Direct Lending brands in Canada loans uncollectible when they have been contractually past-due for more than 180 consecutive days. Consequently, such past-due loans and related accrued interest now remain in loans receivable for 180 days before being charged-off against the ACL. All recoveries on charged-off loans are credited to the ACL when received. The Company evaluates the adequacy of the ACL compared to the related gross loans receivable balances that include accrued interest.

The aforementioned change was treated as a change in accounting estimate and applied prospectively effective January 1, 2023.

The change affects comparability to prior periods as follows:
•Gross loans receivable: balances as of March 31, 2023 include $19.7 million of the Direct Lending brands in Canada loans that are between 91 and 180 days past-due with related accrued interest, while such balances for prior periods do not include any loans that are between 91 and 180 days past-due.
•Revenues: for the three month period ended March 31, 2023, revenues include accrued interest on the Direct Lending brands in Canada loans between 91 and 180 days past-due of $2.2 million, while revenues in prior periods do not include any loans that are between 91 and 180 days past-due.
•Provision for Losses: effective January 1, 2023, past-due, unpaid balances plus related accrued interest on the Direct Lending brands in Canada loans charge off on day 181. Provision expense is affected by NCOs plus changes to the required ACL. Because NCOs now include unpaid principal and up to 180 days of related accrued interest, as compared to prior periods, NCO amounts and rates are higher and the required ACL as a percentage of gross loans receivable is
11


CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
higher. The Company recognized $18.2 million in charge offs related to the Direct Lending brands in Canada loans and, absent the policy change, would have recognized $27.9 million in charge offs on those loans.

Recently Issued Accounting Pronouncements Recently Adopted
ASU 2016-13 and subsequent amendments

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and subsequent amendments to the guidance: ASU 2018-19 in November 2018, ASU 2019-04 in April 2019, ASU 2019-05 in May 2019, ASU 2019-10 and -11 in November 2019, ASU 2020-02 in February 2020 and ASU 2022-02 in March 2022.

As a result of the adoption of CECL on January 1, 2023, through a modified-retrospective approach, the Company recorded an increase to the ACL of $135.2 million and a corresponding one-time, cumulative reduction to retained earnings of $113.0 million (net of $22.2 million in taxes) in the unaudited Condensed Consolidated Balance Sheet as of January 1, 2023. The Company’s ACL increased from 5.8% to 12.6% as a percentage of the amortized cost basis on January 1, 2023.

In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, which removes the accounting guidance for troubled debt restructurings and requires entities to evaluate whether a modification provided to a customer results in a new loan or continuation of an existing loan. The amendments enhance existing disclosures and require new disclosures for receivables when there has been a modification in contractual cash flows due to a customer experiencing financial difficulties. Additionally, the amendments require public business entities to disclose gross charge-off information by year of origination in the vintage disclosures. This ASU became effective for us on January 1, 2023. We adopted this guidance in the first quarter of 2023 using the modified retrospective method. Adoption of this standard did not have a material impact on our unaudited Condensed Consolidated Financial Statements.

As result of the adoption of ASU 2016-13, several of our significant accounting policies have changed to reflect the requirements of the new standard. See above for these updated significant accounting policies as of January 1, 2023.

ASU 2021-08

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities in accordance with ASC 606, Revenue from Contracts with Customers. This ASU became effective for us on January 1, 2023. The adoption of ASU 2021-08 at January 1, 2023 did not have a material effect on the Company's Condensed Consolidated Financial Statements.

NOTE 2 – LOANS RECEIVABLE AND REVENUE

Effective with the sale of the Legacy U.S. Direct Lending Business on July 8, 2022, the Company does not guarantee loans originated by third-party lenders through CSO programs. The Company presents these loans in the below tables, based on historical practice and for comparability purposes.

The following table summarizes revenue by product (in thousands):

Three Months Ended March 31,
20232022
Revolving LOC$84,225 $91,023 
Installment95,212 173,933 
Total interest and fees revenue179,437 264,956 
Insurance and other income30,036 25,240 
   Total revenue$209,473 $290,196 

The following tables summarize loans receivable by product and the related delinquent loans receivable (in thousands):
12


CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2023
Revolving LOCInstallmentTotal
Current loans receivable$1,198,115 $631,661 $1,829,776 
1-30 days past-due44,835 55,119 99,954 
Delinquent:
31-60 days past-due22,039 15,098 37,137 
61-90 days past-due17,439 12,658 30,097 
91 + days past-due32,268 33,597 65,865 
Total delinquent loans receivable71,746 61,353 133,099 
   Total loans receivable1,314,696 748,133 2,062,829 
   Less: allowance for credit losses(175,101)(84,858)(259,959)
Loans receivable, net$1,139,595 $663,275 $1,802,870 


December 31, 2022
Revolving LOCInstallmentTotal
Current loans receivable$1,194,554 $649,262 $1,843,816 
1-30 days past-due46,956 76,709 123,665 
Delinquent:
31-60 days past-due17,677 21,480 39,157 
61-90 days past-due12,190 14,143 26,333 
91 + days past-due13,138 41,724 54,862 
Delinquent loans receivable43,005 77,347 120,352 
   Total loans receivable1,284,515 803,318 2,087,833 
   Less: allowance for credit losses(78,815)(43,213)(122,028)
Loans receivable, net$1,205,700 $760,105 $1,965,805 

13


CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following tables summarize activity in the ACL and the liability for losses in total (in thousands) for the three months ended March 31, 2023, including the impact of the adoption of ASU 2016-13 as discussed in Note 1: Summary of Significant Accounting Policies and Nature of Operations:
Three Months Ended
March 31, 2023
Revolving LOCInstallmentOtherTotal
Allowance for credit losses:
Balance, beginning of period, prior to adoption of ASU 2016-13$78,815 $43,213 $— $122,028 
Impact of adoption of ASU 2016-1383,646 51,566 — 135,212 
Balance, January 1, 2023162,461 94,779 — 257,240 
Charge-offs(24,272)(51,520)(2,000)(77,792)
Recoveries6,319 10,442 315 17,076 
Net charge-offs(17,953)(41,078)(1,685)(60,716)
Provision for losses30,107 31,140 1,685 62,932 
Effect of foreign currency translation486 17 — 503 
Balance, end of period$175,101 $84,858 $— $259,959 

The following table presents an analysis of the activity in the ACL and the liability for losses on CSO lender-owned consumer loans in total (in thousands) for the three months ended March 31, 2022, prior to the adoption of ASU 2016-13, as defined by the accounting guidance in effect at that time:

Three Months Ended
March 31, 2022
Revolving LOCInstallmentOtherTotal
Allowance for credit losses:
Balance, beginning of period$68,140 $19,420 $— $87,560 
Charge-offs(42,387)(59,209)(1,813)(103,409)
Recoveries8,015 30,913 553 39,481 
Net charge-offs(34,372)(28,296)(1,260)(63,928)
Provision for losses37,447 35,685 2,650 75,782 
Effect of foreign currency translation110 34 — 144 
Balance, end of period$71,325 $26,843 $1,390 $99,558 
Liability for losses on CSO lender-owned consumer loans:
Balance, beginning of period$— $6,908 $— $6,908 
Decrease in liability— 258 — 258 
Balance, end of period$— $7,166 $— $7,166 

Credit Quality Indicators for Revolving LOC and Installment Loans

The credit quality of the Company's gross loans receivable is dependent on the Company's ability to enforce sound underwriting standards, maintain diligent servicing of the portfolio and respond to changing economic conditions. The Company uses loan type and loan delinquency as key data points in determining the ACL. Delinquencies are an indicator of credit quality at a point in time. A loan balance is considered delinquent when contractual payments on the loan become more than 30 days past due. This indicator is important to understand the overall credit performance of the Company's customers and their ability to repay

The tables below presents key credit quality indicators, by origination year for installment loans, as of and for the three months ended March 31, 2023 (in thousands):
14


CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Gross loans receivables by origination year, as of March 31, 2023
Delinquent
Current1-30 days past-due31-60 days past-due61-90 days past-due91+ days past dueTotal DelinquentTotal Loans Receivable
Revolving LOC$1,198,115 $44,835 $22,039 $17,439 $32,268 $71,746 $1,314,696 
Installment loans
2023$188,481 $9,038 $1,772 $95 $— $1,867 $199,386 
2022360,421 35,165 10,281 10,413 27,968 48,662 444,248 
202174,221 9,638 2,675 1,983 5,112 9,770 93,629 
20207,466 1,123 285 150 447 882 9,471 
2019691 130 38 9 53 100 921 
Prior381 25 47 8 17 72 478 
Total installment loans$631,661 $55,119 $15,098 $12,658 $33,597 $61,353 $748,133 
Total loans receivables$1,829,776 $99,954 $37,137 $30,097 $65,865 $133,099 $2,062,829 

Activity by origination year, for the three months ended March 31, 2023
Gross charge offsGross recoveriesNet charge-offs
Revolving LOC$(24,272)$6,319 $(17,953)
Installment loans
2023$(7,018)$3,462 $(3,556)
2022(33,537)3,388 (30,149)
2021(9,812)1,155 (8,657)
2020(807)595 (212)
2019(78)561 483 
Prior(268)1,281 1,013 
Total installment loans$(51,520)$10,442 $(41,078)
Total loans receivables$(75,792)$16,761 $(59,031)

Delinquent and Non-accrual Loans
The accrual of interest revenue on loans receivable is suspended when it has been 90 days since the last payment or due to statutory requirements. If a loan is charged off, the accrued interest is charged against the allowance. The Company inherently considers non-accrual loans in its estimate of the ACL.

The following table provides information on our delinquent and non-accrual loans (in thousands):
March 31, 2023
31-60 days past-due61-90 days past-due91 + days past-dueTotal past due90 or more days delinquent and accruing
Total non-accruing (1)
Revolving LOC$22,039 $17,439 $32,268 $71,746 $4,752 $18,344 
Installment15,098 12,658 33,597 $61,353 17,846 32,838 
Total delinquent loans$37,137 $30,097 $65,865 $133,099 $22,598 $51,182 
Percentage of total loan receivables1.8 %1.5 %3.2 %6.5 %1.1 %2.5 %
(1) The gross interest income that was recognized related to non-accruing loans was $1.7 million for the three months ended March 31, 2023.


As of December 31, 2022, Revolving LOC and Installment loans classified as non-accrual were $5.3 million and $54.6 million, respectively.
15


CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Loan Modifications to Customers Experiencing Financial Difficulty

The Company adopted ASU 2022-02 as of January 1, 2023 on a modified retrospective basis through a cumulative adjustment to retained earnings. The new guidance is applicable for all loans modified to customers experiencing financial difficulties as of the beginning of 2023. Following the adoption of this guidance, we evaluate all loan receivables modifications according to the accounting guidance to determine whether such loan modification should be accounted for as a new loan or a continuation of the existing loan. The Company offers loan modifications to customers experiencing financial difficulty through forgiveness of unpaid principal and accrued interest balances.

The following table provides information on the financial effect of the loan modifications to customers experiencing financial difficulty in the period during the period presented (in thousands):

Three Months Ended
March 31, 2023
Amount% of Loan Receivables
Revolving LOC modifications
Principal / accrued interest forgiven$547 — %
Installment modifications
Principal / accrued interest forgiven45 — %
Total modifications$592 0.1 %

Performance of Loans Modified to Customers Experiencing Financial Difficulty

The following table provides information on the performance of loans modified to customers experiencing financial difficulty which have been modified subsequent to January 1, 2023 and remain outstanding at March 31, 2023 (in thousands):

Amortized Cost Basis, as of March 31, 2023
Delinquent
Current1-30 days past-due31-60 days past-due61-90 days past-due91+ days past-dueTotal delinquent
Revolving LOC$11,875 $1,476 $848 $922 $1,270 $3,040 
Installment104 55 19 31 $4 $54 
Total delinquent modified loans$11,979 1,531 867 953 $1,274 $3,094 
Percentage of total loan receivables0.6 %0.1 %— %— %0.1 %0.1 %

Payment Defaults

The following table presents the type, number and amount of loans to customers experiencing financial difficulty that modified their loans between January 1, 2023 and March 31, 2023, and experienced a payment default as evidenced by a charged-off during the period presented (dollars in thousands):
Three Months Ended
March 31, 2023
Number of Accounts defaulted (charged-off)Value of accounts defaulted (charged-off)
Revolving LOC1,780 $54 
Installment155 2 
Total defaults1,935 $56 

Troubled Debt Restructurings (Prior to 2023)

Prior to the adoption of ASU 2022-02, the Company considered a modified loan in which a concession had been granted to the customer to be a TDR based generally on the size of the concession compared to the underlying loan balance and credit quality of the customer. Due to differences between the legacy TDR requirements and current loan modification disclosure requirements, information presented in the disclosures below is not directly comparable to the disclosures under the current guidance.

16


CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The table below presents TDRs that are related to the Company's Customer Care Program implemented in response to COVID-19, included in both gross loans receivable and the impairment included in the ACL (in thousands) as of March 31, 2022:

March 31, 2022
Current TDR gross receivables$12,711 
Delinquent TDR gross receivables4,771 
Total TDR gross receivables 17,482 
Less: Impairment included in the allowance for credit losses(4,031)
Less: Additional allowance(1,853)
Outstanding TDR receivables, net of impairment $11,598 

The tables below present loans modified and classified as TDRs during the periods presented (in thousands):

Three Months Ended March 31,
2022
Pre-modification TDR loans receivable$5,271 
Post-modification TDR loans receivable4,791 
Total concessions included in gross charge-offs$480 

There were $3.6 million of loans classified as TDRs that were charged off and included as a reduction in the ACL during the three months ended March 31, 2022.

The table below presents the Company's average outstanding TDR loans receivable, interest income recognized on TDR loans and number of TDR loans for the periods presented (dollars in thousands):

Three Months Ended March 31,
2022
Average outstanding TDR loans receivable$17,064 
Interest income recognized$4,035 
Number of TDR loans3,424 

17


CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 – VARIABLE INTEREST ENTITIES

As of March 31, 2023, the Company had five credit facilities, whereby certain loans receivable were sold to VIEs to collateralize debt incurred under each facility. See Note 6, "Debt" for additional details on each facility.

The Company has determined that it is the primary beneficiary of the VIEs and is required to consolidate them. The Company includes the assets and liabilities related to the VIEs in the unaudited Condensed Consolidated Financial Statements. The assets of a VIE can be used only to settle liabilities of that VIE. Creditors (or beneficial interest holders) of the VIEs do not have recourse to the Company's general credit.

The carrying amounts of consolidated VIEs' assets and liabilities were as follows (in thousands):
March 31,
2023		December 31,
2022
Assets
Restricted cash$92,185 $52,277 
Loans receivable, net1,662,796 1,855,824 
Prepaid expenses and other9,388 12,908 
Deferred tax assets31,964 17,027 
Total Assets $1,796,333 $1,938,036 
Liabilities
Accounts payable and accrued liabilities$15,785 $13,571 
Deferred revenue 38 31 
Accrued interest7,428 7,023 
Income taxes payable3,292 7,850 
Debt1,603,710 1,589,380 
Total Liabilities $1,630,253 $1,617,855 

NOTE 4 – GOODWILL

Goodwill

The change in the carrying amount of goodwill by reporting unit for the three months ended March 31, 2023 was as follows (in thousands):

Direct LendingCanada POS LendingTotal
Goodwill at December 31, 2022$276,269 $— $276,269 
Foreign currency translation218 — 218 
Goodwill at March 31, 2023$276,487 $— $276,487 

The Company tests goodwill at least annually for potential impairment, as of October 1, and more frequently if indicators are present or changes in circumstances suggest that impairment may exist. The potential indicators include, among various factors, declining sales, earnings or cash flows, or the development of a material adverse change in business climate. The Company assesses goodwill for impairment at the reporting unit level, which is defined as an operating segment or one level below an operating segment, referred to as a reporting unit. See Note 1, "Summary of Significant Accounting Policies and Nature of Operations" of the 2022 Form 10-K for additional information on the Company's policy for assessing goodwill for possible impairment.

During the fourth quarter of 2022, the Company performed a quantitative assessment for each of its reporting units. Management utilized the income and the guideline public company approaches, in equal weightings, in determining a fair value for each of the three reporting units for purposes of testing the goodwill. The income approach estimates fair value using the present value of future cash flows, whereas, the guideline public company approach estimates fair value using the fair value of publicly traded businesses in a similar line of business. As a result, the Company recognized non-cash pre-tax impairment charges of $107.8 million on the Legacy U.S. Direct Lending reporting unit and $37.4 million on the Canada POS Lending reporting unit during the year ended December 31, 2022, to write down the carrying values of goodwill. Management concluded that the estimated fair
18


CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
value of the Canada Direct Lending reporting unit, now included in the Direct Lending reporting unit, was greater than its carrying value, as of the annual assessment date; as such, no impairment charge was required.

Effective the three months ended March 31, 2023, the Company combined the Legacy U.S. Direct Lending and Canada Direct Lending reporting units into a single Direct Lending Reporting unit. Refer to Note 12, "Segment Reporting" for further information. In the first quarter of 2023, the Company performed an interim review of triggering events for the Direct Lending reporting unit, which would indicate whether a quantitative or qualitative assessment of goodwill impairment was necessary. As a result of the interim triggering event review, the Company concluded an additional assessment was not necessary.

Heights Acquisition

The Company completed the acquisition of Heights on December 27, 2021. Provisional goodwill was estimated at $253.9 million, based on the preliminary valuation. The Company recorded $11.8 million of net adjustments during fiscal year 2022, resulting in a goodwill balance of $265.7 million as of December 31, 2022 upon the conclusion of the measurement period, excluding the impairment charge on the Legacy U.S. Direct Lending reporting unit, now included in the Direct Lending reporting unit, recorded in the fourth quarter of 2022. See Note 13, "Acquisitions and Divestiture" for more information related to the business combination.

Legacy U.S. Direct Lending Business Divestiture

On July 8, 2022 the Company completed the divestiture of its Legacy U.S. Direct Lending Business to Community Choice Financial, for total sale proceeds of $349.2 million, net of working capital adjustments, comprised of $314.2 million of cash received at close and $35.0 million in cash payable in monthly installment payments over the subsequent 12 months. The divestiture resulted in a gain of $68.4 million during the year ended 2022 which was recorded in "Gain on sale of business" on the unaudited Consolidated Statement of Operations. The Company reduced the gain by $2.0 million in the three months ended March 31, 2023, based on expected uncollectible amounts. As part of the sale, $91.1 million of goodwill was written off. See Note 13,"Acquisitions and Divestiture" for more information related to the divestiture.
First Heritage Acquisition

On July 13, 2022, CURO closed the acquisition of First Heritage, a consumer lender that provides near-prime installment loans along with customary opt-in insurance and other financial products, for a total purchase price of $140.0 million in cash. Provisional goodwill was recorded at $75.4 million, excluding the impairment charge on the Legacy U.S. Direct Lending reporting unit, now included in the Direct Lending reporting unit, recorded in Q4 2022. See Note 13, "Acquisitions and Divestiture" for more information related to the business combination.


NOTE 5 – FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The Company is required to use valuation techniques that are consistent with the market approach, income approach and/or cost approach. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability based on observable market data obtained from independent sources, or unobservable inputs, meaning those that reflect the Company's own judgment about the assumptions market participants would use in pricing the asset or liability based on the best information available for the specific circumstances. Accounting standards establish a three-level fair value hierarchy based upon the assumptions (inputs) used to price assets or liabilities. The hierarchy requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs.
The three levels of inputs used to measure fair value are listed below.

Level 1 – Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has access to at the measurement date.

Level 2 – Inputs include quoted market prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

Level 3 – Unobservable inputs reflecting the Company's own judgments about the assumptions market participants would use in pricing the asset or liability as a result of limited market data. The Company develops these inputs based on the best information available, including its own data.

19


CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Financial Assets and Liabilities Carried at Fair Value

The table below presents the assets and liabilities that were carried at fair value on the unaudited Condensed Consolidated Balance Sheets at March 31, 2023 (in thousands):

Estimated Fair Value
Carrying Value March 31,
2023		Level 1Level 2Level 3Total
Financial assets:
Cash Surrender Value of Life Insurance$5,961 $5,961 $— $— $5,961 
Derivative asset4,206 — 4,206 — 4,206 
Financial liabilities:
Non-qualified deferred compensation plan$4,376 $4,376 $— $— 4,376 
Contingent consideration related to acquisition18,128 — 18,128 — 18,128 
Derivative liability507 — 507 — 507 

Derivative Asset and Liability

The Company uses interest rate swaps to help manage interest rate risk exposure on variable rate debt. The Company typically classifies these derivatives as Level 2, given that significant inputs can be observed in a liquid market and the model itself does not require significant judgment. During the year ended December 31, 2022, Flexiti entered into interest rate swaps with a counterparty to protect against the interest rate risk on the Flexiti Securitization variable rate borrowing facility. Flexiti is required to hedge the variable interest rate aspect of the Flexiti SPV under the facility's credit agreement. The derivative asset is included in “Other assets” and the derivative liability is included in Other long-term liabilities in the Company’s unaudited Condensed Consolidated Balance Sheet. For additional information on the interest rate swaps, refer to Note 6, "Debt."
Contingent consideration related to acquisition

In connection with the acquisition of Flexiti during the first quarter of 2021, the Company recorded a liability for contingent consideration based on the achievement of revenue less NCOs and loan origination targets over the two years following closing of the acquisition that could result in additional cash consideration up to $32.8 million to Flexiti's former stockholders. The fair value of the liability was estimated using the option-based income approach using a Monte Carlo simulation model discounted back to the reporting date. The significant unobservable inputs (Level 3) used to estimate the fair value included the expected future tax benefits associated with the acquisition, the probability that the risk adjusted-revenue and origination targets will be achieved and discount rates through December 31, 2022. The contingent consideration measured at fair value using unobservable inputs was initially recorded as $20.6 million as of March 31, 2021. At March 31, 2022, the liability recorded was the expected payment based on the actual risk adjusted-revenue and origination targets achieved during the measurement period (Level 3), which ended on March 31, 2022. This liability was changed to a Level 2 estimated fair value at March 31, 2023, because the liability was based on achieved results and no longer includes a forecast component. The liability recorded was $18.1 million as of March 31, 2023. The Company paid $1.0 million of contingent consideration in July 2022, which is included in Contingent consideration related to acquisition in the Company’s unaudited Condensed Consolidated Balance Sheet. For additional information on Flexiti and the related contingent consideration, refer to Note 13, "Acquisitions and Divestiture."

Cash Surrender Value of Life Insurance and Non-qualified deferred compensation plan

The cash surrender value of life insurance is included in Other assets in the Company’s unaudited Condensed Consolidated Balance Sheets. The non-qualified deferred compensation plan offsetting liability is included in “Accounts payable and accrued liabilities” in the Company’s unaudited Condensed Consolidated Balance Sheets.
20


CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The table below presents the assets and liabilities that were carried at fair value on the unaudited Condensed Consolidated Balance Sheets at December 31, 2022 (in thousands):
Estimated Fair Value
Carrying Value December 31,
2022		Level 1Level 2Level 3Total
Financial assets:
Cash Surrender Value of Life Insurance$7,591 $7,591 $— $— $7,591 
Derivative asset7,458 — 7,458 — 7,458 
Financial liabilities:
Non-qualified deferred compensation plan$5,149 $5,149 $— $— $5,149 
Contingent consideration related to acquisition16,884 — — 16,884 16,884 

Financial Assets and Liabilities Not Carried at Fair Value

The table below presents the assets and liabilities that were not carried at fair value on the unaudited Condensed Consolidated Balance Sheets at March 31, 2023 (in thousands):
Estimated Fair Value
Carrying Value March 31,
2023		Level 1Level 2Level 3Total
Financial assets:
Cash and cash equivalents $54,935 $54,935 $— $— $54,935 
Restricted cash
123,282 123,282 — — 123,282 
Loans receivable, net 1,802,870 — — 1,802,870 1,802,870 
Investment in Katapult20,502 9,612 — — 9,612 
Financial liabilities:
7.50% Senior Secured Notes
$983,553 $— $398,960 $— $398,960 
Heights SPV
403,696 — — 403,696 403,696 
First Heritage SPV 170,050 — — 170,050 170,050 
Flexiti SPV351,543 — — 355,804 355,804 
Flexiti Securitization387,314 — — 390,753 390,753 
Canada SPV291,107 — — 293,457 293,457 
Senior Revolver40,000 — — 40,000 40,000 
21


CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The table below presents the assets and liabilities that were not carried at fair value on the unaudited Condensed Consolidated Balance Sheets at December 31, 2022 (in thousands):
Estimated Fair Value
Carrying Value December 31,
2022		Level 1Level 2Level 3Total
Financial assets:
Cash and cash equivalents$73,932 $73,932 $— $— $73,932 
Restricted cash91,745 91,745 — — 91,745 
Loans receivable, net1,965,805 — — 1,965,805 1,965,805 
Investment in Katapult23,915 20,624 — — 20,624 
Financial liabilities:
7.50% Senior Secured Notes
$982,934 $— $466,500 $— $466,500 
Heights SPV
393,181 — — 393,181 393,181 
First Heritage SPV178,622 — — 182,751 182,751 
Flexiti SPV339,651 — — 343,565 343,565 
Flexiti Securitization385,054 — — 387,759 387,759 
Canada SPV292,872 — — 294,594 294,594 
Senior Revolver 35,000 — — 35,000 35,000 

Loans Receivable, Net

Loans receivable are carried on the unaudited Condensed Consolidated Balance Sheets net of the ACL. The unobservable inputs used to calculate the carrying values include quantitative factors, such as current default trends. Also considered in evaluating the accuracy of the models are changes to the loan portfolio mix, 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 macroeconomic conditions, including unemployment rate and customer income. The carrying value of loans receivable approximates their fair value. Refer to Note 2, "Loans Receivable and Revenue" for additional information.

7.50% Senior Secured Notes, Heights SPV, First Heritage SPV, Flexiti SPV, Flexiti Securitization, Canada SPV and Senior Revolver

The fair value disclosures for the 7.50% Senior Secured Notes as of March 31, 2023 and December 31, 2022 were based on observable market trading data. The fair values of the Heights SPV, First Heritage SPV, Flexiti SPV, Flexiti Securitization, Canada SPV and Senior Revolver were based on the cash needed for their respective final settlements.

22


CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Investment in Katapult

The table below presents the Company's investment in Katapult (in thousands):
Investment in Katapult
Balance at December 31, 2021$27,900 
Equity method income - Q1 20221,584 
Balance at March 31, 202229,484 
Equity method loss - Q2 2022(1,328)
Balance at June 30, 202228,156 
Equity method loss - Q3 2022(2,309)
Balance at September 30, 202225,847 
Equity method loss - Q4 2022(1,932)
Balance at December 31, 202223,915 
Equity method loss - Q1 2023(3,413)
Balance at March 31, 2023$20,502 

The Company has an equity method investment in Katapult and records its share of earnings and losses on a one-quarter reporting lag. The Company recorded a loss of $3.4 million for the three months ended March 31, 2023 based on its share of Katapult’s earnings. The equity method investment is presented within "Investment in Katapult" on the unaudited Condensed Consolidated Balance Sheets.

The Company owns 19.5% of Katapult on a fully diluted basis assuming full pay-out of earn-out shares as of March 31, 2023, and 18.2% excluding pay-out of earn-out shares.

23


CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 – DEBT
The Company's debt instruments and balances outstanding as of March 31, 2023 and December 31, 2022, including maturity date, effective interest rate and borrowing capacity, were as follows (dollars in thousands):
Effective interest rateOutstanding as of
Maturity DateBorrowing CapacityMarch 31, 2023December 31, 2022
Corporate Debt:
7.50% Senior Secured Notes
August 1, 20287.50 %$1,000,000 $1,000,000 
Total corporate debt1,000,000 1,000,000 
Funding Debt:
Heights SPVJuly 15, 2025
1-Mo SOFR + 4.25%
$425.0 million$410,867 $400,758 
First Heritage SPVJuly 13, 2025
1-Mo SOFR + 4.25%
$225.0 million173,923 182,751 
Flexiti SPV (1)
September 29, 2025
Weighted average interest rate (2)(3) 8.27%
C$535.0 million355,804 343,565 
Flexiti Securitization (1) (4)
December 9, 2025
1-Mo CDOR + 3.59% (3)
C$526.5 million390,753 387,759 
Canada SPV (1)
August 2, 2026
3-Mo CDOR + 6.00%
C$400.0 million293,457 294,594 
Senior RevolverAugust 31, 2023
1-Mo SOFR + 5.00%
$40.0 million40,000 35,000 
Total funding debt$ 1,664,804 $ 1,644,427 
Less: debt issuance costs(37,541)(37,113)
Total Debt$ 2,627,263 $ 2,607,314 
(1) Capacity amounts are denominated in Canadian dollars, whereas outstanding balances as of March 31, 2023 and December 31, 2022 are denominated in U.S. dollars. The exchange rate applied at March 31, 2023 was 0.74217 and the exchange rate at December 31, 2022 was 0.7365.
(2) The weighted average interest rate does not include the impact of the amortization of deferred loan origination costs or debt discounts.
(3) Swapped to fixed rate via interest rate swap hedging arrangement entered into on July 7, 2022 for Flexiti Securitization and October 11, 2022 for Flexiti SPV.
(4) The effective rate is 7.09%.

Corporate Debt

7.50% Senior Secured Notes

In July 2021, the Company issued $750.0 million of 7.50% Senior Secured Notes which mature on August 1, 2028. Interest on the notes is payable semiannually, in arrears, on February 1 and August 1. In December 2021, the Company issued an additional $250.0 million of 7.50% Senior Secured Notes, also maturing on August 1, 2028, to fund the acquisition of Heights. Refer to Note 14, "Acquisitions and Divestiture" for additional details. In connection with the 7.50% Senior Secured Notes, financing costs of $16.4 million were capitalized, net of amortization, and included in the unaudited Condensed Consolidated Balance Sheets as a component of "Debt." These costs are amortized over the term of the 7.50% Senior Secured Notes as a component of interest expense.

Funding Debt

As of March 31, 2023, the Company had five credit facilities whereby loans receivable were sold to VIEs to collateralize debt incurred under each facility. The following debt arrangements are issued by the Company’s wholly owned, bankruptcy-remote SPVs, which are considered VIEs under U.S. GAAP and are consolidated into the financial statements of their respective primary beneficiary. These facilities are the (i) Heights SPV, (ii) First Heritage SPV, (iii) Canada SPV, (iv) Flexiti SPV and (v) Flexiti Securitization. For further information on these facilities, refer to Note 3, "Variable Interest Entities."

Assets transferred to each SPV are legally isolated from the Company and its affiliates, as well as the claims of the Company’s and its affiliates’ creditors. Further, the assets of each SPV are owned by such SPV and are not available to satisfy the debts or other obligations of the Company or any of its affiliates.

These debts are supported by the expected cash flows from the underlying collateralized finance receivables. Advances on the funding debt are determined based on the contractually agreed upon advance rates. Collections on these finance receivables are remitted to restricted cash collection accounts, which totaled $92.2 million and $52.3 million as of March 31, 2023 and December 31, 2022, respectively. The increase in restricted cash is based on the contractual requirements of the SPVs related to the total value and performance of the underlying collateralized finance receivables.

Heights SPV

24


CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On July 15, 2022, the Company entered into a new $425.0 million non-recourse revolving warehouse facility to replace the incumbent lender's facility and finance future loans originated by Heights. The effective interest rate is 1-month SOFR plus 4.25%. The Company also pays a 0.50% per annum commitment fee on the unused portion of the commitments. The warehouse revolving period matures on July 15, 2025.

First Heritage SPV
On July 13, 2022, concurrently with the closing of the First Heritage acquisition, the Company entered into a $225.0 million non-recourse revolving warehouse facility to replace the incumbent lender's facility and finance future loans originated by First Heritage. The effective interest rate is 1-month SOFR plus 4.25%. The Company also pays a 0.50% per annum commitment fee on the unused portion of the commitments. The warehouse revolving period matures on July 13, 2025.

Flexiti SPV

On September 29, 2022, Flexiti refinanced and increased its Flexiti SPV to increase the borrowing capacity from C$500.0 million to C$535.0 million and extend its maturity to September 29, 2025. As of March 31, 2023, the weighted average interest rate was 8.27%. Flexiti also pays a 0.50% per annum commitment fee on the unused portion of the commitments. All other material terms of the revolving warehouse credit facility remain unchanged.

Flexiti Securitization

In December 2021, Flexiti Securitization Limited Partnership, a wholly-owned Canadian subsidiary of the Company, entered into the Flexiti Securitization. The facility provides for C$526.5 million with a maturity of December 9, 2025. As of March 31, 2023, the effective interest was one-month CDOR plus 3.59%.

Canada SPV

In August 2018, as amended in the fourth quarter of 2021 and first quarter of 2022, CURO Canada Receivables Limited Partnership, a wholly-owned subsidiary of the Company, entered into the Canada SPV. The effective interest rate was 3-month CDOR plus 6.00%. The borrower also pays a 0.50% per annum commitment fee on the unused portion of the commitments.

Senior Revolver

The Company maintains the Senior Revolver that provides $40.0 million of borrowing capacity, including up to $4.0 million of standby letters of credit, for a one-year term, renewable for successive terms following annual review. The current term expires August 31, 2023. The Senior Revolver accrues interest at one-month SOFR plus 5.00%.

Curo Canada Revolving Credit Facility

Curo Canada maintained the Curo Canada Revolving Credit Facility, which provides short-term liquidity for the Company's Canadian direct lending operations.

The Curo Canada Revolving Credit Facility was collateralized by substantially all of CURO Canada’s assets and contains various covenants. Borrowings under the Curo Canada Revolving Credit Facility bore interest per annum at the prime rate of a Canadian chartered bank plus 1.95%.

On December 21, 2022, the borrowing capacity under the Curo Canada Revolving Credit Facility was reduced from C$10.0 million to C$5.0 million, and the facility was cancelled on January 6, 2023.

On May 9, 2023 the company finalized certain debt related transactions. Refer Note 16 - Subsequent Events for further information.
Derivative Instruments and Hedging Activities

During 2022, the Company entered into interest rate swaps to help manage interest rate risk on certain variable rate debt facilities. The Company designated these risk management derivatives as qualifying cash flow hedges under hedge accounting. The derivative assets are included in Other assets on our unaudited Condensed Consolidated Balance Sheet and changes in the fair value of derivatives are recorded as a component of AOCI. During the three months ended March 31, 2023, the hedges were assessed as effective and as such there was no impact to earnings. However, for cash flow hedges during periods in which the forecasted transactions impact earnings, those amounts are reclassified into earnings in the same period during which the forecasted transactions impact earnings. Additionally, they are presented in the same line item in the unaudited Condensed Consolidated Statements of Operations as the earnings effect of the hedged items and reflected in operating activities on the unaudited Condensed Statement of Cash Flows.

25


CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Interest Rate Swap on Flexiti SPV

In accordance with the terms of the Flexiti SPV, on October 11, 2022, Flexiti entered into an interest rate swap due September 29, 2025 on the C$390.0 million, variable rate portion of the borrowing facility, with a notional amount of C$390.0 million. As of March 31, 2023, a $0.5 million interest rate swap is included in Other long term liabilities and, to reflect the change in fair value during the current period, a $1.0 million loss is recognized in Other comprehensive income on the unaudited Condensed Consolidated Balance Sheet.

Interest Rate Swap on Flexiti Securitization

In accordance with the terms of the Flexiti Securitization, on July 7, 2022, Flexiti entered into an interest rate swap due December 9, 2025 on the C$526.5 million, variable rate, borrowing facility, with a notional amount of C$526.5 million. As a result of the swap, the effective interest rate is 7.09%. As of March 31, 2023, a $4.2 million interest rate swap is included in other assets and, to reflected the change in fair value during the current period, a $1.8 million loss is recognized in Other comprehensive income on the unaudited Condensed Consolidated Balance Sheet.

NOTE 7 – COMMITMENTS AND CONTINGENCIES
Securities Litigation and Enforcement

In 2018, a putative securities fraud class action lawsuit was filed against the Company and certain of its directors and officers and other related parties in the United States District Court for the District of Kansas, captioned Yellowdog Partners, LP v. CURO Group Holdings Corp., Donald F. Gayhardt, William Baker and Roger W. Dean, Civil Action No. 18-2662 (the "Yellowdog Action"). The suit alleged the Company made misleading statements and omitted material information regarding the Company's efforts to transition the Canadian inventory of products from Installment loans to Revolving LOC loans. The case was resolved in 2020 for $9.0 million, of which the first $2.5 million was paid by the Company and the remainder paid by the Company's insurance carriers. For the year ended December 31, 2022, there was no further expense related to this litigation.

In June and July 2020, three shareholder derivative lawsuits were filed in the United States District Court for the District of Delaware ("Court") against the Company, certain of its directors and officers, and in two of the three lawsuits, a large stockholder. Plaintiffs generally alleged the same underlying facts of the Yellowdog Action. In July 2021, the derivative lawsuits were voluntarily dismissed and plaintiffs refiled two cases in the United States District Court for the District of Kansas. On October 27, 2022, the Court granted final approval of the parties' settlement and dismissed the case with prejudice. The terms of the settlement provided for the implementation of certain corporate governance reforms and a payment of $345.0 thousand in attorneys’ fees and expenses to plaintiffs’ counsel, which was paid by the Company's insurers, and included no admission of liability or wrongdoing by the Company.

Other Legal Matters. The Company is a defendant in certain other litigation matters encountered from time-to-time in the ordinary course of business, some of which may be covered to an extent by insurance. While it is difficult to predict the outcome of any particular proceeding, the Company does not believe the result of any of these matters will have a material adverse effect on the Company's business, results of operations or financial condition.
NOTE 8 – INCOME TAXES

The Company's effective income tax rate was (53.4)% and 45.3% for the three months ended March 31, 2023 and 2022, respectively.

The effective income tax rate for the three months ended March 31, 2023 was lower compared to the blended federal and state/provincial statutory rate of approximately 26.0%, primarily as a result of recording a valuation allowance against U.S. deferred tax assets ("DTAs") of $29.0 million and lost tax benefits related to share-based compensation of $1.2 million.

The effective income tax rate for the three months ended March 31, 2022 was higher compared to the blended federal and state/provincial statutory rates of approximately 26.0%, primarily as a result of lower income before tax combined with $0.3 million lost tax benefits of non-deductible officers’ compensation and $0.3 million tax expense related to share-based compensation.

For the period ended March 31, 2023, we continued to evaluate the positive and negative evidence to estimate whether sufficient future sources of income will be generated to permit the use of the existing DTAs in the U.S. During the first quarter of 2023, we have determined that negative evidence outweighs the positive evidence of our ability to realize the U.S. DTAs. On this basis, we recorded a valuation allowance of $41.9 million against the U.S. DTAs, including $29.0 million recorded as Provision for income taxes and $13.0 million in Accumulated deficit related to the adoption of CECL.

The Company intends to reinvest Canada earnings indefinitely in its Canadian operations and therefore has not provided for any non-U.S. withholding tax that would be assessed on dividend distributions. If the accumulated earnings in Canada of $218.3 million were distributed to the U.S. legal entities, the Company would be subject to Canadian withholding taxes of an estimated $10.9 million. The determination of the U.S. state income taxes upon a potential foreign earnings distribution is impractical. In the event
26


CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
the earnings are distributed to the U.S. legal entities, the Company will adjust the income tax provision for the applicable period and determine the amount of foreign tax credit that would be available.

NOTE 9 – EARNINGS PER SHARE

The following table presents the computation of basic and diluted earnings per share (in thousands, except per share amounts):
Three Months Ended
March 31,
20232022
Net (loss) income$(59,471)$1,336 
Weighted average common shares - basic40,783 40,368 
Dilutive effect of stock options and restricted stock units— 940 
Weighted average common shares - diluted40,783 41,308 
(Loss) earnings per share:
Basic (loss) earnings per share$(1.46)$0.03 
Diluted (loss) earnings per share$(1.46)$0.03 

Potential shares of common stock that would have the effect of increasing diluted earnings per share or decreasing diluted loss per share are considered to be anti-dilutive; therefore, these shares are not included in calculating diluted earnings per share. For the three months ended March 31, 2023 and 2022, there were 3.6 million and 1.2 million, respectively, of potential shares of common stock excluded from the calculation of diluted earnings per share because their effect was anti-dilutive.

The Company utilizes the "control number" concept in the computation of diluted earnings per share to determine whether potential common stock instruments are dilutive. The control number used is income. The control number concept requires that the same number of potentially dilutive securities applied in computing diluted earnings per share is applied to all other categories of income or loss, regardless of their anti-dilutive effect on such categories.

NOTE 10 – LEASES

Leases entered into by the Company are primarily for retail stores in certain U.S. states and Canadian provinces.

Leases classified as finance leases were immaterial to the Company as of March 31, 2023. Operating leases expire at various times through 2033. Operating leases are included in "Right of use asset - operating leases" and "Lease liability - operating leases" in the unaudited Condensed Consolidated Balance Sheets. Operating lease costs are included in "Occupancy" in the unaudited Condensed Consolidated Statement of Operations. The majority of leases have an original term up to five years plus renewal options under similar terms.

During the first quarter of 2023, the Company recorded a $7.5 million expense for lease abandonment costs and a $4.5 million accrual related to planned store closures as of March 31, 2023. For further information, refer to Note 14, "Restructuring."















The following table summarizes the operating lease costs and other information for the three months ended March 31, 2023 and 2022 (dollars in thousands):
27


CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended
March 31,
20232022
Operating lease costs:
Third-Party
$6,500 9,479 
Related-Party
157 827 
Total operating lease costs$6,657 10,306 
Cash paid for amounts included in the measurement of operating lease liabilities$6,560 $10,925 
ROU assets obtained$(1,287)$5,424 
Weighted average remaining lease term - Operating leases4.3 years4.9 years
Weighted average discount rate - Operating leases8.1 %7.9 %

The following table summarizes the aggregate operating lease payments that the Company was contractually obligated to make under operating leases as of March 31, 2023 (in thousands):
Third-PartyRelated-PartyTotal
Remainder of 2023$16,784 $464 $17,248 
202416,525 633 17,158 
202511,075 650 11,725 
20265,993 667 6,660 
20273,728 686 4,414 
20282,037 668 2,705 
Thereafter6,056 326 6,382 
Total62,198 4,094 66,292 
Less: Imputed interest(9,725)(1,099)(10,824)
Operating lease liabilities$52,473 $2,995 $55,468 

There were no material leases entered into subsequent to the balance sheet date.

NOTE 11 – DIVIDENDS
Dividend Program

In October 2022, the Company's Board of Directors suspended its previously authorized quarterly dividend of $0.11 per share ($0.44 per share annualized). There were no dividends paid in Q1 2023, except those related to previously declared dividends on RSUs vested during the three months ended March 31, 2023 related to the unvested period.

28


CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 – SEGMENT REPORTING
Segment information is prepared on the same basis that the Company's CODM reviews financial information for operational decision making purposes, including gross revenues, net revenue, gross margin, segment operating income and other items.
During the first quarter of 2023, the Company's Chief Executive Officer, who is also the CODM, changed the manner in which he reviews financial information for purposes of assessing business performance, managing the business and allocating resources. In conjunction with this change, the Company realigned its segment structure resulting in the Company having two operating segments: Direct Lending and Canada POS Lending.
Direct Lending. The Direct Lending operating segment represents the majority of net revenue and gross profit. This operating segment represents the Revolving LOC, secured and unsecured installment and single-pay loan products, together with the credit protection and other insurance products and other ancillary sales in the U.S. and Canada, which historically was comprised of the U.S. Direct Lending and Canada Direct Lending operating segments. The U.S. and Canada have similar economic and operating characteristics, including the nature of products and services offered, operating procedures and risks, customer bases and shared corporate resources, which led the CODM to conclude that these separate segments combine to form one operating segment. As of March 31, 2023, the Company operated over 490 U.S. retail locations in 13 states. As of March 31, 2023, the Company operated nearly 150 stores across eight Canadian provinces and had an online presence in eight provinces and one territory.
Canada POS Lending. As of March 31, 2023, the Company served Canadian customers through POS financing available at over 8,500 retail locations and over 3,600 merchant partners across 10 provinces and two territories. The Company provides Revolving LOC loans and a number of other ancillary financial products.

All prior period amounts related to the segment realignment have been retrospectively reclassified throughout to conform to the new presentation.

The following table illustrates summarized financial information concerning reportable segments (in thousands):
Three Months Ended
March 31,
20232022
Revenues by segment: (1)
Direct Lending$169,368 $269,887 
Canada POS Lending40,105 20,309 
Consolidated revenue$209,473 $290,196 
Net revenues by segment:
Direct Lending$121,004 $181,070 
Canada POS Lending25,537 11,595 
Consolidated net revenue$146,541 $192,665 
Segment (loss) income before income taxes:
Direct Lending$(31,632)$12,976 
Canada POS Lending(7,136)(10,534)
Consolidated (loss) income before income taxes$(38,768)$2,442 
Expenditures for long-lived assets by segment:
Direct Lending$3,857 $7,315 
Canada POS Lending6,170 4,224 
Consolidated expenditures for long-lived assets$10,027 $11,539 
(1) For revenue by product, see Note 2, "Loans Receivable and Revenue."
The following table presents the proportion of gross loans receivable by segment (in thousands):
March 31,
2023		December 31,
2022
Direct Lending$1,209,576 $1,254,395 
Canada POS Lending853,253 833,438 
Total gross loans receivable$2,062,829 $2,087,833 

29


CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Geographic Data

The following table presents total revenues by geographic region:
Three Months Ended
March 31,
20232022
U.S.$92,424 $198,399 
Canada117,049 91,797 
Total revenue$209,473 $290,196 


The following table presents the proportion of gross loans receivable by geographic region:
March 31,
2023		December 31,
2022
U.S.$714,816 $773,380 
Canada1,348,013 1,314,453 
Total gross loans receivable$2,062,829 $2,087,833 


The following table presents the Company's net long-lived assets, comprised of property and equipment, by geographic region. These amounts are aggregated on a legal entity basis and do not necessarily reflect where the asset is physically located (in thousands):
March 31,
2023		December 31,
2022
U.S.$12,579 $29,232 
Canada17,288 2,725 
Total net long-lived assets$29,867 $31,957 

The CODM does not review total assets by segment for purposes of allocating resources or decision-making purposes; therefore, total assets by segment are not disclosed.

NOTE 13 – ACQUISITIONS AND DIVESTITURE

ACQUISITIONS
First Heritage

On July 13, 2022, the Company closed the acquisition of First Heritage, a consumer lender that provides near-prime installment loans along with customary opt-in insurance and other financial products, for a purchase price of $140.0 million in cash, subject to certain customary working capital and other adjustments. The Company began consolidating the financial results of First Heritage in the unaudited Condensed Consolidated Financial Statements on July 13, 2022 within the Direct Lending operating segment.

This transaction was accounted for using the acquisition method of accounting, which requires that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. The Company was the acquirer for purposes of accounting for the business combination. The values assigned to the acquired assets and liabilities assumed are provisional based on the preliminary fair value estimates as of the acquisition date. The values assigned to the assets acquired and liabilities assumed are based on preliminary estimates of fair value available as of the date of this Form 10-Q and may be adjusted during the measurement period of up to 12 months from the date of acquisition as further information becomes available. Any changes in the fair values of the assets acquired and liabilities assumed during the measurement period may result in adjustments to goodwill. As of March 31, 2023, the areas that remain subject to such potential adjustments primarily relate to the valuation of certain loans receivables, intangible assets and certain tax-related balances.

The following table presents the preliminary purchase price allocation recorded in the Company’s unaudited Condensed Consolidated Balance Sheet as of the date of acquisition (in thousands):
30


CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Amounts acquired on July 13, 2022
Assets
Cash and cash equivalents
$31,396 
Restricted cash1,933 
Gross loans receivable(1)
218,011 
Prepaid expenses and other1,285 
Property and equipment345 
Right-of-use assets
4,241 
Intangibles, net10,670 
Total assets$267,880 
Liabilities
Accounts payable and accrued liabilities $4,270 
Lease liabilities 4,241 
Debt170,392 
Total liabilities$178,904 
Net assets acquired$88,976 
Total consideration paid164,341 
Goodwill $75,365 
(1) The gross contractual loans receivables as of July 13, 2022 were $236.1 million, of which the Company estimates $18.1 million will not be collected.

The following table sets forth the components of identifiable intangible assets acquired and their estimated useful lives as of the date of acquisition (dollars in thousands):

Fair ValueUseful Life
Trade name$3,790 10.0 years
Customer relationships6,880 3.5 years
Total identified intangible assets $10,670 

Goodwill of $75.4 million represents the excess of the consideration paid over the fair value of the net tangible and intangible assets acquired. The goodwill was primarily attributable to expected synergies created with the Company’s future product offerings and the value of the combined workforce. Goodwill from this transaction is deductible for income tax purposes.

Heights

On December 27, 2021, the Company acquired 100% of the outstanding stock of Heights for $360.0 million, consisting of $335.0 million in cash and $25.0 million of the Company's common stock. Heights is a consumer finance company that provides secured and unsecured Installment loans to near-prime and non-prime consumers, and offers customary opt-in insurance and other financial products across 390 branches in 11 U.S. states.

The Company began consolidating the financial results of Heights in the unaudited Condensed Consolidated Financial Statements on December 27, 2021 within the Direct Lending operating segment.

31


CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2021, the Company completed the determination of the fair values of the acquired identifiable assets and liabilities. During the year ended December 31, 2022, the Company recorded measurement period adjustments that increased goodwill by $11.8 million. The measurement period adjustment related to the fair value of the loan portfolio and would have resulted in $7.7 million of incremental interest and fee revenue during the three months ended March 31, 2022 and no impact on the year ended December 31, 2022. The Company recorded a measurement period adjustment in the fourth quarter of 2022 that decreased goodwill by $3.5 million related to the final true-up of deferred tax balances after the pre-acquisition income tax returns were filed in October 2022. The Company made these measurement period adjustments to reflect the correct deferred tax balances that existed as of the acquisition date and not from events subsequent to such date. Additionally, in the fourth quarter of 2022, a measurement period adjustment was recorded related to tax filings for pre-acquisition activity which resulted in $4.2 million of income tax receivables and an increase to accounts payable for the same amount. As of December 31, 2022, the Company completed the determination of the fair values of the acquired identifiable assets and liabilities.

The following table presents the purchase price allocation recorded in the Company’s unaudited Condensed Consolidated Balance Sheet as of the date of acquisition of Heights (in thousands):

Amounts acquired on December 27, 2021Measurement period adjustmentsAmounts acquired on December 27, 2021 (as adjusted)
Assets
Cash and cash equivalents
$13,564 $— $13,564 
Restricted cash33,630 — 33,630 
Gross loans receivable(1)
471,630 (15,379)456,251 
Income tax receivable3,526 4,209 7,735 
Prepaid expenses and other7,410 — 7,410 
Property and equipment4,748 — 4,748 
Right-of-use assets
16,111 — 16,111 
Intangibles, net11,900 — 11,900 
Deferred tax asset— 2,477 2,477 
Other assets98 — 98 
Total assets$562,617 $(8,693)$553,924 
Liabilities
Accounts payable and accrued liabilities $19,186 $4,209 $23,395 
Lease liabilities 16,315 — 16,315 
Deferred tax liability 1,077 (1,077)— 
Accrued interest on debt1,781 — 1,781 
Debt350,000 — 350,000 
Total liabilities$388,359 $3,132 $391,491 
Net assets acquired$174,258 $(11,825)$162,433 
Total consideration paid428,115 428,115 
Goodwill $253,857 $265,682 
(1) The gross contractual loans receivables as of December 27, 2021 were $485.4 million, of which the Company estimates $29.1 million will not be collected.

DIVESTITURE
Legacy U.S. Direct Lending Business

On July 8, 2022, the Company completed the divestiture of its Legacy U.S. Direct Lending Business to Community Choice Financial, for total sale proceeds of $349.2 million, net of working capital adjustments, comprised of $314.2 million of cash received at close and $35.0 million in cash payable in monthly installment payments over the subsequent 12 months.

32


CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The divestiture resulted in a gain of $68.4 million for the year ended December 31, 2022, which was recorded in "Gain on sale of business" on the unaudited Condensed Consolidated Statement of Operations. Per ASC 205: Presentation of Financial Statements, the sale of the business is not classified as discontinued operations in the Company’s operations or financial results.

The Company reduced the gain by $2.0 million in the three months ended March 31, 2023 based on expected uncollectible amounts.
The following table presents the amounts attributable to each category recorded in the Company’s unaudited Condensed Consolidated Balance Sheet as of the date of divestiture of the Legacy U.S. Direct Lending Business, as adjusted (in thousands):

Amounts divested of on July 8, 2022Subsequent adjustmentsAmounts divested of on July 8, 2022 (as adjusted)
Assets
Cash, cash equivalents and restricted cash$21,292 $— $21,292 
Loans receivable162,147 — 162,147 
Right of use asset39,326 — 39,326 
Goodwill91,131 — 91,131 
Other assets (1)
30,690 (2,027)28,663 
Total assets$344,586 $(2,027)$342,559 
Liabilities
Accounts payable and accrued liabilities $(8,947)$— $(8,947)
Right of use liability(43,433)— (43,433)
Liability for losses on CSO lender-owned consumer loans (5,628)— (5,628)
Other long term liabilities (2)
(5,815)— (5,815)
Total liabilities$(63,823)$— $(63,823)
Net assets sold$280,763 $280,763 
Total proceeds349,206 (2,027)347,179 
Total pretax gain on sale of business$68,443 $66,416 
(1) Includes income tax receivable, property and equipment, intangibles, deferred tax assets and other assets.
(2) Includes deferred revenue, income taxes payable, deferred tax liability and other long-term liabilities

The Legacy U.S. Direct Lending Business had $36.0 million pre-tax net income for the quarter ended March 31, 2022. Pre-tax net income is comprised of net revenue and expenses directly related to the Legacy U.S. Direct Lending Business, which does not include certain costs recorded in the Legacy U.S. Direct Lending operating segment that are not classified as disposed of, such as interest expense on the 7.50% Senior Secured Notes and certain corporate expenses.

NOTE 14 – RESTRUCTURING

On October 5, 2022, the Company's Board of Directors approved restructuring actions to reduce operating expenses through store closures and headcount reductions in both the U.S. and Canada, and the elimination of duplicative corporate office functions in the U.S. Both the workforce reduction and store closures were aimed at reducing duplicative corporate functions and stores with overlapping customer populations as a result of the acquisitions of Heights in December of 2021 and First Heritage in July of 2022. For the year ended December 31, 2022, the Company incurred $16.0 million of expense related to our restructuring actions, of which $7.9 million related to employee termination benefits resulting from the workforce reduction of approximately 150 employees, and $8.2 million related to lease abandonment costs resulting from the closure of 89 stores in the U.S. and Canada.

For the three months ended March 31, 2023, the Company incurred an additional $10.0 million of expense related to our restructuring actions, of which $2.5 million related to employee termination benefits, and $7.5 million related to lease abandonment costs resulting from the closure of stores in the U.S. and Canada.
33


CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following table shows the total restructuring costs incurred during the three months ended March 31, 2023 (in thousands):

Employee Termination BenefitsLease Exit CostsTotal Restructuring Costs
Salaries and Benefits$1,517 $— $1,517 
Other Operating Expense958 7,481 8,439 
Total$2,475 $7,481 $9,956 

The following table shows the total amount incurred and liability, which is recorded in accounts payables and other accrued liabilities in the unaudited Condensed Consolidated Balance Sheets, for restructuring-related costs as of March 31, 2023:

Accrued restructuring costs as of December 31, 2022$4,746 
Restructuring costs incurred during the three months ended March 31, 20239,956 
Amount paid during the three months ended March 31, 2023(4,641)
Accrued restructuring costs as of March 31, 2023$10,061 

NOTE 15 – SHARE REPURCHASE PROGRAM

In February 2022, the Company's Board of Directors authorized a new share repurchase program for the repurchase of up to $25.0 million of CURO common stock. In March 2023, the Board of Directors terminated the program. There were no repurchases under this program.

In May 2021, the Company's Board of Directors authorized a share repurchase program for up to $50.0 million of its common stock. The program commenced in June 2021 and was completed in February 2022. The Company repurchased 824,477 shares of common stock under the plan at an average price of $15.20 for a total cost of $12.5 million during the three months ended March 31, 2022.

34


CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 – SUBSEQUENT EVENTS

$150.0 million Credit Facility

On May 9, 2023, the Company finalized a new $150.0 million first lien credit facility ("$150.0 million Credit Facility") agreement with approximately 68.2% of the existing holders of the 7.50% Senior Secured Notes. The Term Loans will be senior secured obligations of the Company and will rank senior in right of payment to all of its existing and future unsecured senior debt. The new $150.0 million Credit Facility will accrue interest at a rate of 18.0% per annum The Company may elect to pay up to 12.00% per annum in kind during the first year following the closing and up to 9.00% per annum in kind thereafter. The $150.0 million Credit Facility will be guaranteed by the Company's existing and future domestic subsidiaries. The proceeds of the $150.0 million Credit Facility will be used to repay in full the Senior Revolver, for general corporate purposes and for payment of fees and expenses relating to the transactions. The $150.0 million Credit Facility will mature in August 2027. The transaction is expected to close shortly, subject to certain customary closing conditions, as well as the closing of the new 1.5 Lien Notes and the Canada SPV II and the execution of the Third Supplemental Indenture described below.

1.5 Lien Notes

On May 9, 2023, the Company finalized an exchange agreement with approximately 68.2% of the 7.50% Senior Secured Notes holders, who agreed to exchange approximately $682.3 million aggregate principal amount of the 7.50% Senior Secured Notes for approximately $682.3 million of 7.50% Senior 1.5 Lien Secured Notes due 2028 (the “1.5 Lien Notes”). The 1.5 Lien Notes will retain all the same terms and conditions of the 7.50% Senior Secured Notes except that they will rank senior in lien priority to the remaining $317.7 million 7.50% Senior Secured Notes. The exchange is expected to close shortly, subject to certain customary closing conditions, as well as the closing of the $150.0 million Credit Facility and the Canada SPV II and the execution of the Third Supplemental Indenture described below.

Canada SPV II

On May 9, 2023, the Company finalized a new C$110.0 million non-recourse revolving warehouse facility (the “Canada SPV II”) to finance future loans in Canada. The effective interest will be three-month CDOR plus 8.00%. The Company will also pay a 0.50% per annum commitment fee on the unused portion of the commitments. The warehouse revolving period will mature in November 2025. The transaction is expected to close shortly, subject to certain customary closing conditions.

Third Supplemental Indenture

On May 9, 2023, the Company finalized the Third Supplemental Indenture, which will amend the Indenture, dated July 30, 2021, by and between CURO Group Holdings Corp. and TMI Trust Company to, among other things, eliminate or amend substantially all of the restrictive covenants contained in the Indenture other than those related to the payment of principal and interest. The amendment is expected to become effective substantially concurrently with the closing of the $150.0 million Credit Facility and issuance of 1.5 Lien Notes, subject to certain customary closing conditions, as well as the closing of the $150.0 million Credit Facility, the Canada SPV II and the 1.5 Lien Notes described above.

Senior Revolver

Coincident with the closings of the transactions described above, the Company expects to utilize the proceeds from the $150.0 million Credit Facility to pay off the Senior Revolver. The foregoing transactions are referred to collectively as the “Financing Transactions.”


35




ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD LOOKING STATEMENTS
This Form 10-Q contains forward-looking statements. These forward-looking statements include projections, estimates and assumptions about various matters, including future financial and operational performance, as well as the timing and final terms of the Financing Transactions, and may be identified by words such as "guidance," "estimate," "anticipate," "believe," "forecast," "step," "plan," "predict," "focused," "project," "is likely," "is possible," "expect," "anticipate," "intend," "should," "will," 'may," "confident," "trend" and variations of such words and similar expressions. The matters discussed in these forward-looking statements are based on management's beliefs, assumptions, current expectations and estimates and projections, and are subject to risk, uncertainties and other factors that could cause actual results to differ materially from those made, projected or implied in the forward-looking statements. Except as required by applicable law and regulations, we undertake no obligation to update any forward-looking statements or other statements we may make in the following discussion or elsewhere in this document even though these statements may be affected by events or circumstances occurring after the forward-looking statements or other statements were made. Please see the section titled “Risk Factors” in our 2022 Form 10-K and the section titled "Risk Factors" in Item 1A of this Form 10-Q for a discussion of the uncertainties, risks and assumptions associated with our business.
Company Overview

We are a tech-enabled, omni-channel consumer finance company serving consumers in portions of the U.S. and Canada. CURO was founded over 25 years ago to meet the growing needs of consumers looking for additional way to access credit. We continuously update our products and technology platform to offer a variety of convenient and accessible financial and loan services. We design our customer experience to allow consumers to apply for, update and manage their loans in the channels they prefer—in branch, via mobile device or over the phone. Our high customer satisfaction scores speak to our ability to anticipate and exceed customers’ needs.
In the U.S., we operate under several principal brands, including "Covington Credit," "Heights Finance," "Quick Credit," "Southern Finance" and "First Heritage." In Canada, we operate under “Cash Money” and “LendDirect” direct lending brands and the "Flexiti" POS/BNPL brand. As of March 31, 2023, we operated over 490 store locations across 13 U.S. states and nearly 150 stores in eight Canadian provinces and had an online presence in eight provinces and one territory. Our point-of-sale operations are available at over 8,500 retail locations and over 3,600 merchant partners across 10 Canadian provinces and two territories. Until the sale of our Legacy U.S. Direct Lending Business in July 2022, we also operated under brands that included "Speedy Cash," "Rapid Cash" and "Avio Credit." We also offered demand deposit accounts in the U.S. under the "Revolve Finance" brand and credit card programs under the "First Phase" brand, until the fourth quarter of 2022.

Recent Business Developments

In October 2022, we began restructuring actions to increase our operating efficiency by reducing our global workforce and closing 89 stores across the U.S. and Canada. These actions were aimed at reducing duplicative corporate functions and stores with overlapping customer populations as a result of our recent acquisitions. Additional costs were incurred in the first quarter of 2023. Refer to Note 14, "Restructuring" for additional details regarding these initiatives.

Regulatory Developments

See "Regulatory Environment and Compliance" for a description of the regulatory environment in which we operate in the U.S. and Canada and related developments in the first quarter of 2023.

36




Consolidated Revenue by Product and Segment
Beginning January 1, 2023, the Company started reporting "Insurance and other income" in place of the previously reported "Insurance premiums and commissions" and "Other revenue" line items in the unaudited Condensed Consolidated Statements of Operations. Prior period amounts have been reclassified to conform with current period presentation.
As a result of the sale of the Legacy U.S. Direct Lending Business in July 2022, the Company no longer guarantees loans originated by third-party lenders through CSO programs. As such, the Company's results of operations discussed below only include the results from the CSO program for the three months ended March 31, 2022. Refer to Note 13, "Acquisitions and Divestiture" for additional information.
The following table summarizes revenue by product for the period indicated:

For the Three Months Ended
March 31, 2023
March 31, 2022
(in thousands)Direct LendingCanada POS LendingTotal% of TotalDirect LendingCanada POS LendingTotal% of Total
Revolving LOC$ 49,092 $ 35,133 $ 84,225 40.2 %$ 72,368 $ 18,655 $ 91,023 31.4 %
Installment95,212 — 95,212 45.5 %173,933 — $ 173,933 59.9 %
Total interest and fees revenue144,304 35,133 179,437 85.7 %246,301 18,655 264,956 91.3 %
Insurance and other income25,064 4,972 30,036 14.3 %23,586 1,654 25,240 8.7 %
   Total revenue$ 169,368 $ 40,105 $ 209,473 100.0 %$ 269,887 $ 20,309 $ 290,196 100.0 %

During the three months ended March 31, 2023, total revenue decreased $80.7 million, or 27.8%, to $209.5 million, compared to the prior-year period, primarily due to the sale of the Legacy U.S. Direct Lending Business in July 2022, partially offset by the acquisition of First Heritage in July 2022. These transactions caused a shift to longer term, higher credit quality, lower yielding loans.
Product Revenue for the Three Months Ended March 31, 2023
•Revolving LOC
◦Revolving LOC revenue for the three months ended March 31, 2023 decreased $6.8 million, or 7.5%, compared to the prior-year period, primarily due to a decrease of $23.3 million, or 32.2%, in the Direct Lending segment driven by the impact of the sale of the Legacy U.S. Direct Lending Business in July 2022, partially offset by growth in Canada POS Lending of $16.5 million, or 88.3%.

•Installment
◦Installment revenue for the three months ended March 31, 2023 decreased $78.7 million, or 45.3%, compared to the prior-year period, primarily due to the sale of the Legacy U.S. Direct Lending Business in July 2022, partially offset by $20.4 million of revenue from the acquisition of First Heritage in July 2022.

•Insurance and other income
◦Insurance and other income for the three months ended March 31, 2023 increased $4.8 million, or 19.0%, compared to the prior-year period, primarily related to $3.7 million of revenue from the acquisition of First Heritage in July 2022.
37




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, unaudited)Three Months Ended March 31,
20232022Change $Change %
Revenue
Interest and fees revenue$179,437 $264,956 $(85,519)(32.3)%
Insurance and other income30,036 25,240 4,796 19.0 %
Total revenue209,473 290,196 (80,723)(27.8)%
Provision for losses62,932 97,531 (34,599)(35.5)%
Net revenue146,541 192,665 (46,124)(23.9)%
Operating Expenses
Salaries and benefits64,805 79,729 (14,924)(18.7)%
Occupancy11,672 17,037 (5,365)(31.5)%
Advertising2,175 10,500 (8,325)(79.3)%
Direct operations13,092 20,274 (7,182)(35.4)%
Depreciation and amortization9,021 9,814 (793)(8.1)%
Other operating expense17,433 16,377 1,056 6.4 %
Total operating expenses118,198 153,731 (35,533)(23.1)%
Other expense (income)
Interest expense58,943 38,341 20,602 53.7 %
Loss (income) from equity method investment3,413 (1,584)4,997 #
Loss (gain) on change in fair value of contingent consideration2,728 (265)2,993 #
Gain on sale of business2,027 — 2,027 #
Total other expense 67,111 36,492 30,619 83.9 %
(Loss) income before income taxes(38,768)2,442 (41,210)#
Provision for income taxes20,703 1,106 19,597 #
Net (loss) income$(59,471)$1,336 $(60,807)#
#- Change greater than 100% or not meaningful
Comparison of Consolidated Results of Operations for the Three Months Ended March 31, 2023 and 2022

Revenue

For a discussion of revenue, see "Consolidated Revenue by Product and Segment" above.

Provision for Losses

Implementation of CECL

We adopted CECL on January 1, 2023, as further described in Note 1, "Summary of Significant Accounting Policies and Nature of Operations" to the unaudited Condensed Consolidated Financial Statements. Upon implementation of CECL, we recognized an increase to our opening accumulated deficit balance of approximately $113.0 million , net of income tax, which reflects a pre-tax increase to the ACL of approximately $135.2 million.

The CECL standard introduces a new accounting model to measure credit losses for financial assets measured at amortized costs. In contrast to the previous incurred loss model, CECL requires credit losses for financial assets measured at amortized cost to be determined based on the total current expected credit losses over the life of the financial asset or group of assets.

Our process for determining the ACL considers a customer's willingness and ability to pay along with other risk characteristics, including loan size, effective interest rate, loan term, geographic location, expected loss patterns, loan modification programs and other macroeconomic factors. In addition to our quantitative ACL, we also incorporate qualitative adjustments that may relate to risks and changes in current economic conditions that may not be reflected in quantitatively derived results.
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Provision for losses decreased by $34.6 million, or 35.5%, for the three months ended March 31, 2023 compared to the prior-year period, primarily driven by our Legacy U.S. Direct Lending Business divestiture of $44.6 million, which is a higher loss rate product, partially offset by growth in our Direct Lending and Canada POS Lending operating segments.
Operating Expenses

Operating expenses for the three months ended March 31, 2023 decreased $35.5 million, or 23.1%, compared to the prior-year period, primarily driven by:
Salaries and benefits. Salaries and benefits expense was $64.8 million for the three months ended March 31, 2023, a decrease of $14.9 million, or 18.7%, compared to the prior-year period. The decrease is largely due to the July 2022 divestiture of our Legacy U.S. Direct Lending Business and lower headcount as a result of restructuring initiatives implemented in the fourth quarter of 2022.
Occupancy. Occupancy expense was $11.7 million for the three months ended March 31, 2023, a decrease of $5.4 million, or 31.5%, compared to the prior-year period. The decrease was largely due to the 160 stores sold as part of the July 2022 divestiture of our Legacy U.S. Direct Lending Business, partially offset by the acquisition of First Heritage and its 106 stores.
Advertising. Advertising expense was $2.2 million for the three months ended March 31, 2023, a decrease of $8.3 million, or 79.3%, compared to the prior-year period primarily due to the sale of our Legacy U.S. Direct Lending Business in July 2022 and the current approach to marketing our brands.
Direct operations. Direct operations expense was $13.1 million for the three months ended March 31, 2023, a decrease of $7.2 million, or 35.4%, compared to the prior-year period. The decrease is primarily driven by the divestiture of the Legacy U.S. Direct Lending Business, partially offset by the lower cost First Heritage business acquired in July 2022.
Depreciation and amortization. Depreciation and amortization expense for the three months ended March 31, 2023 decreased $0.8 million, or 8.1%, compared to the prior-year period, primarily due to decreased depreciation expense related to store fixed assets sold as part of the Legacy U.S. Direct Lending Business divestiture in July 2022 offset by increases in acquired intangible assets related to First Heritage.
Other operating expenses. Other operating expenses were $17.4 million for the three months ended March 31, 2023, an increase of $1.1 million, or 6.4%, compared to the prior-year period, primarily driven by the acquisition of the First Heritage in the third quarter of 2022.
Other Expense (Income)
Other expenses for the three months ended March 31, 2023 were $67.1 million, an increase of 83.9% compared to the prior-year period, primarily driven by:

Interest expense. Interest expense for the three months ended March 31, 2023, increased $20.6 million, or 53.7%, compared to the prior-year period, primarily driven by increased non-recourse ABL borrowing to support organic loan growth and acquired portfolios, as well as an increase in benchmark rates on variable rate debt.

Equity method investment. The Company's share of Katapult's earnings and losses was $3.4 million of loss for the three months ended March 31, 2023 and $1.6 million of income for the three months ended March 31, 2022.
Gain or loss on change in fair value of contingent consideration. We recorded a $2.7 million loss related to the increase in fair value of the contingent consideration liability related to the Flexiti acquisition during the three months ended March 31, 2023 and a $0.3 million gain related to the decrease in the fair value of contingent consideration liability during the three months ended March 31, 2022.

Gain on sale of business. We recorded a $2.0 million reduction to the gain on the July 2022 sale of our Legacy U.S. Direct Lending Business, based on expected uncollectible amounts.

Provision for Income Taxes
The effective income tax rate for the three months ended March 31, 2023 was (53.4)%. The effective income tax rate for the three months ended March 31, 2023 was lower compared to the blended federal and state/provincial statutory rate of approximately 26.0%, primarily as a result of recording a valuation allowance against U.S. deferred tax assets of $29.0 million and lost tax benefits related to share-based compensation of $1.2 million.

39




Segment Analysis

The following is a summary of portfolio performance and results of operations for the segment and period indicated. We now report financial results for two reportable segments: Direct Lending and Canada POS Lending. See Note 12, "Segment Reporting" for further information.


40




Direct Lending Portfolio Performance

(in thousands, except percentages, unaudited)Q1 2023Q4 2022Q3 2022
Q2 2022(1)
Q1 2022
Gross loans receivable (5)
Revolving LOC$ 461,443$ 451,077$ 439,117$ 501,209$ 473,562
Installment loans 748,133803,318765,041652,467613,231
Total gross loans receivable$ 1,209,576$ 1,254,395$ 1,204,158$ 1,153,676$ 1,086,793
Lending Revenue
Revolving LOC$ 49,092$ 49,915$ 52,461$ 75,736$ 72,368
Installment loans95,212100,435103,478181,747173,934
Total lending revenue$ 144,304$ 150,350$ 155,939$ 257,483$ 246,302
Lending Provision
Revolving LOC$15,539$29,620$28,408$ 34,472$ 28,734
Installment loans31,13946,44233,51186,48557,435
Total lending provision$ 46,678$ 76,062$ 61,919$ 120,957$ 86,169
NCOs (2) (5)
Revolving LOC$6,234$26,715$24,793$ 30,408$ 31,645
Installment loans41,07838,16829,78343,66138,894
Total NCOs$ 47,312$ 64,883$ 54,576$ 74,069$ 70,539
NCO rate (annualized) (2) (3) (5)
Revolving LOC5.5 %23.8%20.9%25.0%27.6 %
Installment loans 21.5 %19.3%16.7%27.7%25.3 %
Total NCO rate15.6 %20.9%18.4%26.5%26.3 %
ACL rate (4) (5) (6)
Revolving LOC25.6 %8.4 %7.9 %9.3 %9.2 %
Installment loans11.3 %5.4 %4.6 %6.9 %4.4 %
Total ACL rate16.8 %6.5 %5.8 %7.9 %6.5 %
31+ days past-due rate (4) (5)
Revolving LOC8.4 %4.1 %5.1 %5.8 %5.8 %
Installment loans8.2 %9.6 %10.2 %9.7 %9.3 %
Total past-due rate8.3 %7.6 %8.3 %8.0 %7.8 %
(1) Includes loan balances and activity classified as Held for Sale.
(2) NCOs presented above include $0.0 million, $0.0 million, $0.5 million, $10.3 million and $5.0 million for the three months ended March 31, 2023, December 31, 2022, September 30, 2022, June 30, 2022 and March 31, 2022, respectively, related to the purchase accounting fair value discount, which are excluded from provision.
(3) We calculate NCO rate as total quarterly NCOs divided by Average gross loans receivable, then we annualize the rate. The amount and timing of recoveries are impacted by our collection strategies, which are based on customer behavior and risk profile and include direct customer communications and the periodic sale of charged off loans.
(4) We calculate (i) ACL rate and (ii) 31+ days past-due rate as the respective totals divided by gross loans receivable at each respective quarter end.
(5) All balances in connection with the CSO program were disposed of on July 8, 2022 upon the completion of the divestiture of the Legacy U.S. Direct Lending Business, as such these balances have been excluded from this amount.
(6) We adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments on January 1, 2023, which requires us to estimate the lifetime expected credit loss on financial instruments. Our previous model required the recognition of credit losses when it was probable that a loss had been incurred.
41





Direct Lending Results of Operations

Three Months Ended March 31,
(dollars in thousands, unaudited)20232022Change $Change %
Revenue
Interest and Fees Revenue$144,304 $246,301 $(101,997)(41.4)%
Insurance and other income25,064 23,586 1,478 6.3 %
Total Revenue169,368 269,887 (100,519)(37.2)%
Provision for Losses48,364 88,817 (40,453)(45.5)%
Net Revenue121,004 181,070 (60,066)(33.2)%
Operating expenses
Salaries and Benefits56,619 73,059 (16,440)(22.5)%
Occupancy11,344 16,811 (5,467)(32.5)%
Advertising Expense1,999 10,200 (8,201)(80.4)%
Direct Operations9,745 16,527 (6,782)(41.0)%
Amortization and Depreciation5,390 5,682 (292)(5.1)%
Other operating expenses18,054 15,684 2,370 15.1 %
Total operating expenses103,151 137,963 (34,812)(25.2)%
Other expense (income)
Interest Expense44,045 31,715 12,330 38.9 %
Loss (income) from equity method investment3,413 (1,584)4,997 #
Gain on sale of business2,027 — 2,027 #
Total other expense49,485 30,131 19,354 64.2 %
Segment (loss) income before income taxes$(31,632)$12,976 $(44,608)#
#- Change greater than 100% or not meaningful

Direct Lending Segment Results - For the Three Months Ended March 31, 2023 and 2022

Total Revenue. Direct Lending total revenue for three months ended March 31, 2023 decreased $100.5 million, or 37.2%, compared to the prior-year period, as a result of the divestiture of our Legacy U.S. Direct Lending business in July 2022, partially offset by the acquisition of First Heritage in July 2022. These transactions caused a shift to longer term, higher credit quality, lower yielding loans. Gross loans receivable increased $122.8 million, or 11.3%, year over year, primarily driven by the acquisition of First Heritage.

Provision for Losses. We adopted CECL on January 1, 2023, as further described in Note 1, "Summary of Significant Accounting Policies and Nature of Operations" to the unaudited Condensed Consolidated Financial Statements. Upon implementation of CECL, we recognized a pre-tax increase to the allowance for credit losses of approximately $121.2 million for the Direct Lending segment. The provision for losses decreased $40.5 million, or 45.5%, for the three months ended March 31, 2023, compared to the prior year period, primarily driven by the divestiture of our Legacy U.S. Direct Lending business in July 2022, partially offset by the acquisition of First Heritage in July 2022.

Operating Expenses. Operating expenses were $103.2 million for the three months ended March 31, 2023, a decrease of $34.8 million, or 25.2%, compared to the prior-year period. The decrease was primarily due to (i) a $16.4 million decrease in salaries and benefits largely due to the July 2022 divestiture of our Legacy U.S. Direct Lending Business, in addition to lower bonuses and lower headcount as the result of restructuring initiatives implemented in the fourth quarter of 2022, (ii) an $8.2 million decrease in advertising expense, in part due to slowed loan growth, and (iii) a $6.8 million decrease in direct operations expense, of which both were primarily attributable to the aforementioned Legacy U.S. Direct Lending Business divestiture in July 2022.

Interest expense. Interest expense for the three months ended March 31, 2023 was $44.0 million, compared to $31.7 million for the three months ended March 31, 2022, primarily driven by (i) increased non-recourse ABL borrowing to support organic loan growth and acquired loans, including in July 2022 the new $225 million non-recourse revolving warehouse facility to finance future loans originated by First Heritage and the new $425 million non-recourse revolving warehouse facility to replace our incumbent lender and finance future loans originated by Heights, and (ii) an increase in benchmark rates on variable-rate debt.
42




Equity method investment. The Company's share of Katapult earnings and losses was $3.4 million of loss for the three months ended March 31, 2023 and $1.6 million of income for the three months ended March 31, 2022.

Gain on sale of business. We recorded a $2.0 million reduction to the gain on the sale of our Legacy U.S. Direct Lending Business that occurred in July 2022, based on expected uncollectible amounts.

Canada POS Lending Portfolio Performance
(in thousands, except percentages, unaudited)Q1 2023Q4 2022Q3 2022Q2 2022Q1 2022
Revolving LOC
Gross loans receivable$ 853,253$ 833,438$ 690,270$ 627,163$ 541,776
Lending revenue$ 35,133$ 31,255$ 24,575$ 20,846$ 18,655
Lending provision$ 14,568$ 17,125$ 13,379$ 5,963$ 8,714
NCOs $ 11,719$ 8,672$ 6,114$ 3,537$ 2,727
NCO rate (annualized) (1)
5.6 %4.4 %3.6 %2.4 %2.0 %
ACL rate (2) (3)
6.7 %4.9 %4.8 %4.5 %5.1 %
31+ days past-due rate (2)
3.9 %2.9 %3.6 %2.8 %1.8 %
(1) We calculate NCO rate as total quarterly NCOs divided by Average gross loans receivable then we annualized the rate. The amount and timing of recoveries are impacted by our collection strategies, which are based on customer behavior and risk profile and include direct customer communications and the periodic sale of charged off loans.
(2) We calculate (i) ACL rate and (ii) 31+ days past-due rate as the respective totals divided by gross loans receivable at each respective quarter end.
(3) We adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments on January 1, 2023, which requires us to estimate the lifetime expected credit loss on financial instruments. Our previous model required the recognition of credit losses when it was probable that a loss had been incurred.

Canada POS Lending Results of Operations
Three Months Ended March 31,
(dollars in thousands, unaudited)20232022Change $Change %
Revenue
Interest and fees revenue$35,133 $18,655 $16,478 88.3 %
Insurance and other income4,972 1,654 3,318 #
Total revenue40,105 20,309 19,796 97.5 %
Provision for losses14,568 8,714 5,854 67.2 %
Net revenue25,537 11,595 13,942 #
Operating expenses
Salaries and benefits8,186 6,670 1,516 22.7 %
Occupancy328 226 102 45.1 %
Advertising176 300 (124)(41.3)%
Direct operations3,347 3,747 (400)(10.7)%
Depreciation and amortization3,631 4,132 (501)(12.1)%
Other operating expense(621)693 (1,314)#
Total operating expenses15,047 15,768 (721)(4.6)%
Other expense (income)
Interest expense14,898 6,626 8,272 #
Loss (gain) on change in fair value of contingent consideration2,728 (265)2,993 #
Total other expense17,626 6,361 11,265 #
Segment loss before income taxes$(7,136)$(10,534)$3,398 (32.3)%
#- Change greater than 100% or not meaningful
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Canada POS Lending Segment Results - For the Three Months Ended March 31, 2023 and 2022

Total Revenue. Total revenue increased by $19.8 million, or 97.5%, driven by increased originations which resulted in our gross loan portfolio growing by $311.5 million, or 57.5% due to both existing and new merchant partners.

Provision for losses. We adopted CECL on January 1, 2023, as further described in Note 1, "Summary of Significant Accounting Policies and Nature of Operations". Upon implementation of CECL, we recognized a pre-tax increase to the ACL of approximately $14.0 million. The provision for losses increased $5.9 million, or 67.2%, for the three months ended March 31, 2023, compared to the prior-year period. The increase in provision for losses was primarily driven by organic loan growth and portfolio seasoning. Total NCO rates for the first quarter of 2023 (annualized) increased to 5.6% from 2.0% year over year. Total past-due rates increased 209 bps year over year and increased 95 bps sequentially.

Operating expenses. Operating expenses remained relatively flat for the three months ended March 31, 2023 at $15.0 million, a decrease of $0.7 million, or 4.6%, compared to $15.8 million for the three months ended March 31, 2022.

Interest expense. Interest expense for the three months ended March 31, 2023 increased $8.3 million, or 124.8%, compared to the prior-year period, primarily driven by increased non-recourse asset-backed lending borrowing to support significant loan growth and increased benchmark rates on variable-rate debt prior to giving effect to interest rate swap agreements.

Gain or loss on change in fair value of contingent consideration. We recorded a $2.7 million loss as a result of an increase in fair value of the Flexiti contingent consideration liability during the three months ended March 31, 2023, compared to a $0.3 million gain following a decrease in the fair value of Flexiti contingent consideration liability during the three months ended March 31, 2022.

Currency Information

We operate in the U.S. and Canada and our consolidated results are reported in U.S. dollars.

Changes in our reported revenues and net (loss) income include the effect of changes in currency exchange rates. We translate the unaudited Condensed Consolidated Balance Sheet into U.S. dollars at the currency exchange rate in effect at the end of each period. We translate the unaudited Condensed Consolidated Statement of Operations at the average rates of exchange for the period. We record currency translation adjustments as a component of Accumulated other comprehensive loss in Stockholders’ Equity.

Constant Currency Analysis

We have operations in the U.S. and Canada. For the three months ended March 31, 2023 and 2022, 55.9% and 31.6%, respectively, of our revenues were originated in Canadian Dollars. As a result, changes in our reported results include the impacts of changes in foreign currency exchange rates of the Canadian Dollar.

Statement of Operations - Exchange Rate for the three month period ended March 31, 2023 and 2022
Three Months Ended March 31,
20232022$ Change% Change
Average Exchange Rates for the Canadian Dollar0.7397 0.7893 (0.0496)(6.3)%

Balance Sheet - Exchange Rate as of March 31, 2023 and December 31, 2022
March 31,December 31,Change
20232022$%
Exchange Rate for the Canadian Dollar0.7422 0.7365 0.0057 0.8 %
The following constant currency analysis removes the impact of the fluctuation in foreign exchange rates and utilizes constant currency results in our analysis of the Canadian operations. 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 our reportable segments during the three months ended March 31, 2023 using the actual average exchange rate during the three months March 31, 2022 (in thousands).
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Three Months Ended March 31,
20232022$ Change% Change
Direct Lending – constant currency basis:
Revenues$174,549 269,887 $(95,338)(35.3)%
Net revenue124,740 181,070 (56,330)(31.1)%
Segment (loss) income before income taxes(30,279)12,976 (43,255)(333.3)%
Canada POS Lending – constant currency basis:
Revenues$42,798 20,309 $22,489 110.7 %
Net revenue27,248 11,595 15,653 135.0 %
Segment loss before income taxes(7,657)(10,534)2,877 (27.3)%

We calculated gross loans receivable for our reportable segments below as of March 31, 2023 using the actual exchange rate as of December 31, 2022 (in thousands).
March 31,December 31,Change
20232022$%
Direct Lending – constant currency basis:
Gross loans receivable$1,205,786 $1,254,395 $(48,609)(3.9)%
Canada POS Lending – constant currency basis:
Gross loans receivable$846,717 $833,438 $13,279 1.6 %

LIQUIDITY AND CAPITAL RESOURCES

Our principal sources of liquidity to fund the loans we make to our customers are (i) cash provided by operations and (ii) our revolving credit facilities and our non-recourse funding facilities, as further described in Note 6, "Debt" of the Notes to the unaudited Condensed Consolidated Financial Statements. Historically, we also used funds from third-party lenders under our CSO programs. As a result of the sale of the Legacy U.S. Direct Lending Business on July 8, 2022, we no longer guarantee loans originated by third-party lenders through CSO programs.

We anticipate that our primary use of cash will be to fund growth in our working capital, finance capital expenditures to further our business strategy in both the U.S. and Canada and meet our debt obligations. In March 2023, the Company's Board of Directors terminated a previously announced $25.0 million share repurchase program. There were no repurchases under this program. Refer to Note 15, "Share Repurchase Program" of the Notes to the unaudited Condensed Consolidated Financial Statements for further details of the program. The Board of Directors suspended the quarterly dividend payment in October 2022.

Our level of cash flow provided by operating activities typically experiences seasonal fluctuations 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 did during the COVID-19 pandemic), which has the effect of reducing cash outflow requirements while maintaining cash inflows through loan repayments.

We may also sell or securitize our assets, draw on our available revolving credit facilities or lines of credit, enter into additional refinancing agreements or reduce our capital spending to generate additional liquidity. The impacts to cash as described in "Cash Flows" below and other factors resulted in our available unrestricted cash on hand of $54.9 million as of March 31, 2023. We believe our cash on hand and available borrowings provide us with sufficient liquidity for at least the next 12 months.

As of March 31, 2023, we were in compliance with or have received waivers of all financial ratios, covenants and other requirements in our debt agreements. Refer Note 16 - Subsequent Events for further information.

We have no additional material commitments or demands that are likely to affect our liquidity.


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Debt Capitalization Summary
(in thousands, except capacity, net of deferred financing costs)

CapacityInterest RateMaturity
Balance as of March 31, 2023 (in USD)
7.50% Senior Secured Notes (due 2028) (2)
$1.0 billion7.50%August 1, 2028$ 983,553 
Heights SPV$425.0 million1-Mo SOFR + 4.25%July 15, 2025403,696 
First Heritage SPV$225.0 million1-Mo SOFR + 4.25%July 13, 2025170,050 
Flexiti SPV(1)
C$535.0 million
Weighted average interest rate (3)(4) 8.27%
September 29, 2025351,543 
Flexiti Securitization(1)
C$526.5 million
1-Mo CDOR + 3.59%)(5)
December 9, 2025387,314 
Canada SPV(1)
C$400.0 million3-Mo CDOR + 6.00%August 2, 2026291,107 
Senior Revolver$40.0 million
1-Mo SOFR + 5.00%
August 31, 202340,000 
(1) Capacity amounts are denominated in Canadian dollars, while outstanding balances as of March 31, 2023 are denominated in U.S. dollars.
(2) On July 30, 2021, we closed our $750 million aggregate principal amount of new 7.50% Senior Secured Notes, which was used to redeem our $690.0 million 8.25% Senior Secured Notes due 2025. On December 27, 2021, we issued an additional $250.0 million of our 7.50% Senior Secured Notes for a total capacity of $1.0 billion.
(3) The weighted average interest rate does not include the impact of the amortization of deferred loan origination costs or debt discounts.
(4) Swapped to fixed rate via interest rate swap hedging arrangement that terminates on September 29, 2025 for Flexiti SPV and December 9, 2025 for Flexiti Securitization.
Refer to Note 6, "Debt," for details on each of our credit facilities and resources.

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Cash Flows

The following highlights our cash flow activity and the sources and uses of funding during the periods indicated (in thousands):
Three Months Ended March 31,
20232022
Net cash (used in) provided by operating activities$(4,143)$83,733 
Net cash provided by (used in) investing activities7,006 (187,670)
Net cash provided by financing activities9,091 110,322 

Three Months Ended December 31, 2023 and 2022

Operating Activities

Net cash used in operating activities for the three months ended March 31, 2023 was $4.1 million, which is primarily attributable to a net loss of $59.5 million and changes in our operating assets and liabilities of $47.8 million, offset by the effect of non-cash reconciling items of $103.1 million. Our non-cash reconciling items of $103.1 million primarily included $62.9 million of provision for losses, $19.7 million of deferred income taxes and $9.0 million of depreciation and amortization. Our changes in operating assets and liabilities of $47.8 million were primarily related to $37.4 million of lower accrued interest on our gross loans receivable and $18.4 million of lower accrued interest on debt due to the timing of interest payments, offset by $4.7 million of higher accounts payable and accrued liabilities as a result of timing on certain accrual settlements and $3.5 million of higher prepaid expenses and other assets.

Investing Activities

Net cash provided by investing activities for the three months ended March 31, 2023 was $7.0 million, primarily due to net repayment of loans of $19.1 million, offset by cash to purchase $10.0 million of property, equipment and software and a $2.0 million reduction to the gain on sale from the divestiture of U.S. Legacy Direct Lending business in July 2022 based on expected uncollectible amounts.

Financing Activities

Net cash provided by financing activities for the three months ended March 31, 2023 was $9.1 million primarily due to $12.4 million of net proceeds from our non-recourse debt facilities, partially offset by $2.2 million in debt issuance costs paid.
Critical Accounting Policies and Estimates

We describe our critical accounting estimates used in the preparation of our consolidated financial statements in Part II - Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates, in our 2022 Form 10-K. We consider the following policies to be our most critical accounting policies because they involve critical accounting estimates and a significant degree of management judgment:
•ACL,
•business combinations and considerations and
•goodwill.

There has been one change in our critical accounting policies from those disclosed in our Annual Report on 2022 Form 10-K related the Company's adoption of ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and subsequent amendments to the guidance: ASU 2018-19 in November 2018, ASU 2019-04 in April 2019, ASU 2019-05 in May 2019, ASU 2019-10 and -11 in November 2019, ASU 2020-02 in February 2020 and ASU 2022-02 in March 2022.

Allowance for Credit Losses

The Company adopted ASC 326 for measurement of current expected credit losses on January 1, 2023. CECL is not prescriptive in the methodology used to determine the expected credit loss estimate. Therefore, management has flexibility in selecting the methodology. However, the expected credit losses must be estimated over a financial asset's remaining expected life, adjusted for prepayments, utilizing quantitative and qualitative factors. The estimate of current expected credit losses is based on relevant information about past events, current conditions, and reasonable and supportable economic forecasts that affect the collectability of the reported amounts. Historical loss experience is the starting point for estimating expected credit losses. Adjustments are made to historical loss experience to reflect differences in asset-specific risk characteristics, such as underwriting standards, portfolio mix or asset terms, and differences in economic conditions - both current conditions and reasonable and supportable
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forecasts. When the Company is not able to make or obtain reasonable and supportable forecasts for the entire life of the financial asset, it has estimated expected credit losses for the remaining life after the forecasted period using an approach that reverts to historical credit loss information.

The Company begins its determination of credit losses by determining loan groups of similar qualitative criteria. The Company identified seven loan groups based on qualitative factors including, financial asset type, loan term, size, geographic location and risk ratings. The loan groups are further disaggregated and analyzed by number of days past due. The Company selected a static pool Probability of Default (“PD”) / Loss Given Default (“LGD”) / Exposure at Default ("EAD") model to estimate its base allowance for credit losses, in which the estimated loss is equal to the product of PD, LGD and EAD. Each of these methods use historical loss experience to forecast expected credit losses. Historical information about losses generally provides a basis for the estimate of expected credit losses. The Company also considers the need to adjust historical information to reflect the extent to which current conditions differ from the conditions that existed for the period over which historical information was evaluated. These adjustments to historical loss information may be qualitative or quantitative in nature.

Reasonable and supportable macroeconomic forecasts are required for the Company’s ACL model. The Company reviews macroeconomic forecasts to use in its ACL. The projected change in creditworthiness is modeled using Congressional Budget Office data, such as unemployment rate, labor participation rate and personal income. The Company adjusts the historical loss experience by relevant qualitative factors for these expectations.

As loans receivable are originated, provisions for credit losses are recorded in amounts sufficient to maintain an ACL at an adequate level to provide for estimated losses over the remaining expected life of the finance receivables. Subsequent changes to the contractual terms that are a result of re-underwriting are not included in the loans receivable’s expected life. The Company uses its historical loss experience and macroeconomic factors to forecast expected credit losses.

While the Company utilizes a systematic methodology in determining its allowance, the allowance is based on estimates, and ultimate losses may vary from current estimates. The estimates are reviewed periodically and, as adjustments become necessary, are reported in earnings in the periods in which they become known.

Regulatory Environment and Compliance

There have been no significant developments with respect to our regulatory environment and compliance since December 31, 2022, as described in our 2022 Form 10-K except for the following:

Canada Regulations

Unsecured Installment Loans, Revolving LOC Loans and POS/BNPL Products

Unsecured Installment loans, Revolving LOC loans and POS/BNPL products are regulated at both the federal and provincial level in Canada. At the federal level, such lending products are subject to the criminal rate of interest provisions of the Criminal Code, which prohibits receiving (or entering into an agreement to receive) interest at an Effective Annual Rate that exceed 60% on the credit advanced under the loan agreement. These provisions have been in place since 1980. In March 2023, the federal government of Canada announced, in connection with its proposed federal budget, its intent to introduce legislation to reduce the maximum allowable rate of interest under its criminal code from an Effective Annual Rate of 60%, or annual percentage rate of 47%, to 35%. While a draft of the 2023 Budget includes language effectuating this change, as with any proposals or plans by governmental agencies, there will be a process undertaken before any final rule or law is adopted and any such final rule or law may differ materially from that proposed. In addition, there may be an implementation period before the industry will need to adhere to the new law. However, we expect this legislation, if adopted in its current form, would adversely affect the pricing for newly originated loans and may require us to reevaluate our underwriting criteria. We expect that our results of operations would be adversely impacted as a result. See the Risk Factors in our 2022 Form 10-K for more information on how changes in regulations such as this change can adversely impact our business.

We are also subject to provincial legislation that requires lenders to provide cost of credit disclosures and extend consumer protection rights to customers, such as prepayment rights, and prohibits the charging of certain default fees.

In addition. some provinces have enacted legislation that regulates high-cost lenders. These laws define a high-cost credit product and require licensing and additional consumer protection oversight.

Single-Pay

Canadian federal legislation exempts from the criminal rate of interest provisions of the Criminal Code cash advance loans of $1,500 or less if the term of the loan is 62 days or less (“payday loans”) and the lender is licensed under provincial legislation as a short-term cash advance lender and the province has been designated under the Criminal Code. In March 2023, the federal
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government of Canada announced in connection with its proposed Federal budget its intent to introduce legislation that would cap the amount of interest that lenders can charge for payday loans. Similar to the above, we await final language and effective date decisions by the Canadian government.

Check Cashing

In Canada, the federal government generally does not regulate check cashing businesses, other than federally regulated financial institutions (and other than the prohibition noted above regarding charging or receiving in excess of 60% annual interest rate on the credit advanced for the fee of a check cashing transaction), nor do most provincial governments impose regulations specific to the check cashing industry. There are some minor exceptions in various provinces.

ITEM 3.         QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For quantitative and qualitative disclosures about our market risks, see "Quantitative and Qualitative Disclosures about Market Risk" in our 2022 Form 10-K. There have been no material changes to the quantitative and qualitative information presented therein.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures 

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, including without limitation, controls and procedures designed to ensure that information required to be disclosed in reports we file under the Exchange Act is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

In conducting the evaluation of the effectiveness of its internal control over financial reporting as of March 31, 2023, the Company has excluded the operations of First Heritage as permitted by the guidance issued by the Office of the Chief Accountant of the SEC (not to extend more than one year beyond the date of the acquisition or for more than one annual reporting period). The First Heritage acquisition was completed on July 13, 2022. As of March 31, 2023, First Heritage's assets represented approximately 8.3% of the Company’s consolidated assets and its total revenues represented approximately 11.5% of the Company’s consolidated revenues for the three months ended March 31, 2023.

See Note 13,"Acquisitions and Divestiture" of the Notes to the unaudited Condensed Consolidated Financial Statements for additional details on our acquisition of Heights and First Heritage and its impact on our unaudited Condensed Consolidated Financial Statements.

Based on an evaluation of our disclosure controls and procedures as of the end of the period covered by this report conducted by our management, with the participation of the Chief Executive Officer and Chief Financial Officer, the Chief Executive Officer and Chief Financial Officer concluded that these controls and procedures were effective as of March 31, 2023.

Limitation on the Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all errors and all fraud. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. A control system also can be circumvented by collusion or improper management override. Because of such limitations, disclosure controls and internal control over financial reporting cannot prevent or detect all misstatements, whether unintentional errors or fraud. However, these inherent limitations are known features of the financial reporting process, therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

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Changes in Internal Control over Financial Reporting

In connection with our adoption of CECL effective January 1, 2023, we have designed certain new controls and procedures as well as modified certain existing controls. These additional controls involve expanded controls over loan level data, the review of qualitative factors and the selection of a macroeconomic forecast.

The Company is working to integrate First Heritage into its overall internal control over financial reporting processes. See Note 13,"Acquisitions and Divestiture" of the Notes to the unaudited Condensed Consolidated Financial Statements for additional details. Except for changes made in connection with the integration of First Heritage and CECL, there were no other changes in our internal control over financial reporting (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) during the quarter ended March 31, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II.     OTHER INFORMATION

Item 1.         Legal Proceedings
The information required by this item is included in Note 7, "Commitments and Contingencies" of the Notes to the unaudited Condensed Consolidated Financial Statements in this Form 10-Q and is incorporated herein by reference.

Item 1A.     Risk Factors
Our substantial indebtedness could materially impact our business, results of operations or financial condition.

We have significant debt. The amount of our indebtedness could have significant effects on our business, including:

•making it more difficult to satisfy our financial obligations;
•inhibiting our ability to obtain additional financing for operational and strategic purposes;
•requiring the use of a substantial portion of our cash flow from operations to pay principal and interest payments on our debt, especially in a prolonged high interest rate environment, which reduces funds available for other operational and strategic purposes;
•putting us at a competitive disadvantage compared to our competitors that may have proportionately less debt;
•restricting our ability to pay dividends; and
•limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate.

For instance, our ability to offer our current products or services or the financial performance of these products and services could be negatively impacted by regulatory changes, which could inhibit our ability to comply with the terms of our debt.

If our cash flows and capital resources are insufficient to fund our debt obligations, or if we confront regulatory uncertainty or challenges in debt capital markets, we may not be able to make interest and principal payments due under our existing indebtedness and we may be required to refinance our indebtedness prior to maturity. There is no assurance that we will be able to refinance our indebtedness on commercially acceptable terms, or at all. In addition, prevailing interest rates or other factors at the time of refinancing could increase our interest or other debt capital expense. A refinancing could also require us to comply with more onerous covenants on our business operations, enter into unfavorable amendments to the agreements governing our outstanding indebtedness or offer additional security interests. If we are unable to refinance our indebtedness prior to maturity we will be required to pursue alternative measures that could include restructuring our current indebtedness, selling all or a portion of our business or assets, seeking additional capital, reducing or delaying capital expenditures or taking other steps to address obligations under the terms of our indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations.

Our ability to meet our debt obligations, refinance current debt obligations or access capital markets in the future depends on our future performance, which will be affected by financial, business, economic, regulatory and other factors, many of which we cannot control or predict. Our business may not generate sufficient cash flow from operations, and we may not realize our anticipated growth in revenue and cash flow, either of which could result in being unable to repay indebtedness, or to fund other liquidity needs. If we do not have enough capital resources, we may need to refinance all or part of our debt, sell assets or borrow more funds, which we may not be able to do on terms acceptable to us, or at all. In addition, the terms of existing or future debt agreements may restrict us from pursuing any of these alternatives.
Item 2.         Unregistered Sales of Equity Securities and Use of Proceeds

There were no unregistered sales or issuer repurchases of our common stock during the period covered by this Quarterly Report on Form 10-Q.

Item 3.         Defaults Upon Senior Securities

None.

Item 4.         Mine Safety Disclosures

None.

Item 5.         Other Information

(a)    Disclosure of Unreported 8-K Information

None.
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(b)    Material Changes to Director Nominee Procedures

None.
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Item 6.        Exhibits
Exhibit no.Exhibit DescriptionFiled/Incorporated by Reference from FormIncorporated by Reference from Exhibit NumberFiling Date
3.110-Q10.18/5/2020
3.28-K3.212/11/17
4.1S-14.111/28/17
4.2S-14.211/28/17
4.3S-14.35/17/18
31.1 Filed herewith
31.2 Filed herewith
32.1 Filed herewith
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The following unaudited financial information from the Company's Quarterly Report on Form 10-Q for the period ended March 31, 2023, filed with the SEC on May 10, 2023, formatted in Extensible Business Reporting Language (“XBRL”) includes: (i) Condensed Consolidated Balance Sheets at March 31, 2023 and December 31, 2022, (ii) Condensed Consolidated Statements of Operations for the three months ended March 31, 2023 and 2022, (iii) Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2023 and 2022, (iv) Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022 and (v) Notes to Condensed Consolidated Financial Statements*
Filed herewith




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Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated: May 10, 2023                CURO Group Holdings Corp.
By:/s/ Ismail Dawood
Ismail Dawood
Chief Financial Officer
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