UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
Curo Intermediate Holdings Corp. (“Seller”), a wholly owned subsidiary of CURO Group Holdings Corp. (the “Company”), entered into a Share Purchase Agreement dated August 2, 2023 and an Amendment to Share Purchase Agreement dated August 31, 2023 (collectively the “Purchase Agreement”), with Questrade Financial Group Inc. (“Purchaser”) pursuant to which Purchaser agreed to purchase from Seller all of the issued and outstanding equity interests of FLX Holding Corp. (“Flexiti”), which constitutes the entirety of the Company’s Canada point-of-sale lending segment, for a purchase price of approximately C$55 million, subject to an adjustment based on Flexiti’s tangible book value and certain other adjustments (the “Divestiture”). The Disposition closed on August 31, 2023. In connection with the Flexiti Divestiture, Seller has agreed to provide Purchaser with certain transition services for which the Seller will be paid certain variable fees (“Transition Services Agreement”).
The accompanying unaudited pro forma combined financial information should be read together with:
•The accompanying notes to the unaudited pro forma combined financial information;
•The Company’s historical consolidated financial statements and the accompanying notes included in the Quarterly Report on Form 10-Q for the three and six months ended June 30, 2023 filed with the Securities and Exchange Commission (the “SEC”) on August 3, 2023;
•The Company’s audited historical consolidated financial statements and the accompanying notes included in the Annual Report on Form 10-K as of and for the year ended December 31, 2022 filed with the SEC on March 10, 2023;
The preparation of the unaudited pro forma combined statement of operations for the years ended December 31, 2022 and 2021 and the unaudited pro forma financial information as of and for the six month period ended June 30, 2023 and related adjustments required management to make certain assumptions and estimates. The unaudited pro forma combined financial information is based upon available information and certain assumptions that the Company and management believes are reasonable under the circumstances. The accompanying unaudited pro forma combined statements of operations for the years ended December 31, 2022 and 2021 and the six month period ended June 30, 2023 have been prepared giving effect to the Divestiture as if the Divestiture had occurred on March 10, 2021, the date the Company acquired Flexiti. The accompanying unaudited pro forma combined balance sheet as of June 30, 2023 has been prepared giving effect to the Divestiture as if the Divestiture occurred on June 30, 2023.
An unaudited pro forma condensed combined statement of operations for the year ended December 31, 2020 is not presented here because the Company did not acquire Flexiti until March 10, 2021 and, therefore, they are not included in our consolidated results for the year ended December 31, 2020.
The unaudited pro forma combined financial statements are prepared in accordance with Article 11 of Regulation S-X. The pro forma adjustments are described in the accompanying notes and are based upon and derived from information and assumptions available at the time of the filing of the Current Report on Form 8-K to which these unaudited pro forma combined financial statements are attached.
The unaudited pro forma financial information is provided for illustrative purposes only and does not purport to represent what the actual consolidated results of operations of the Company would have been had the Divestiture occurred on the dates assumed, nor are they necessarily indicative of future consolidated results of operations. The unaudited pro forma combined statements of operations does not reflect the costs of any disintegration activities or benefits that may result from realization of future cost savings from the Divestiture.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF June 30, 2023
(in thousands)
| CURO Group Holdings Corp. Historical | Transaction Accounting Adjustments (Note 2a) | CURO Group Holdings Corp. Pro Forma Combined | |||||||||||||||
| ASSETS | |||||||||||||||||
| Cash and cash equivalents | $ | 112,531 | $ | 16,435 | Note 2b | $ | 128,966 | ||||||||||
| Restricted cash | 109,484 | (33,109) | 76,375 | ||||||||||||||
| Gross loans receivable | 2,139,865 | (912,250) | 1,227,615 | ||||||||||||||
| Less: Allowance for loan losses | (272,615) | 62,323 | (210,292) | ||||||||||||||
Loans receivable, net | 1,867,250 | (849,927) | 1,017,323 | ||||||||||||||
| Income taxes receivable | 20,854 | 1,242 | 22,096 | ||||||||||||||
| Prepaid expenses and other | 44,518 | 12,104 | Note 2b | 56,622 | |||||||||||||
| Property and equipment, net | 28,418 | (2,592) | 25,826 | ||||||||||||||
| Investment in Katapult | 18,368 | — | 18,368 | ||||||||||||||
| Right of use asset - operating leases | 56,021 | (2,979) | 53,042 | ||||||||||||||
| Deferred tax assets | 54,102 | (38,798) | 15,304 | ||||||||||||||
| Goodwill | 277,069 | — | 277,069 | ||||||||||||||
| Intangibles, net | 133,947 | (59,940) | 74,007 | ||||||||||||||
| Other assets | 22,275 | (12,496) | Note 2b | 9,779 | |||||||||||||
| Total Assets | $ | 2,744,837 | $ | (970,062) | $ | 1,774,775 | |||||||||||
| LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY | |||||||||||||||||
| Liabilities | |||||||||||||||||
| Accounts payable and accrued liabilities | $ | 78,343 | $ | (24,174) | $ | 54,169 | |||||||||||
| Deferred revenue | 36,793 | (33,423) | 3,370 | ||||||||||||||
| Lease liability - operating leases | 56,585 | (3,403) | 53,182 | ||||||||||||||
| Contingent consideration related to acquisition | 18,499 | (512) | 17,987 | ||||||||||||||
| Income taxes payable | 788 | (788) | — | ||||||||||||||
| Accrued interest | 39,306 | — | 39,306 | ||||||||||||||
| Debt | 2,772,872 | (784,699) | 1,988,173 | ||||||||||||||
| Other long-term liabilities | 10,016 | — | 10,016 | ||||||||||||||
| Deferred tax liabilities | 8 | (7) | 1 | ||||||||||||||
| Total Liabilities | 3,013,210 | (847,006) | 2,166,204 | ||||||||||||||
| Commitments and contingencies | |||||||||||||||||
| Stockholders' (Deficit) Equity | |||||||||||||||||
| Preferred stock | — | — | — | ||||||||||||||
| Common stock | 23 | — | 23 | ||||||||||||||
| Treasury stock | (136,832) | — | (136,832) | ||||||||||||||
| Paid-in capital | 127,939 | (270,627) | (142,688) | ||||||||||||||
| Retained earnings | (227,900) | 159,645 | (68,255) | ||||||||||||||
| Accumulated other comprehensive loss | (31,603) | (12,072) | (43,675) | ||||||||||||||
| Total Stockholders' (Deficit) Equity | (268,373) | (123,054) | (391,427) | ||||||||||||||
| Total Liabilities and Stockholders' (Deficit) Equity | $ | 2,744,837 | $ | (970,062) | $ | 1,774,775 | |||||||||||
The accompanying notes are an integral part of the unaudited pro forma combined balance sheet.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2023
(in thousands, except per share data)
| CURO Group Holdings Corp. Historical | Transaction Accounting Adjustments (Note 2c) | CURO Group Holdings Corp. Pro Forma Combined | |||||||||||||||
| Revenue | |||||||||||||||||
| Interest and fees revenue | $ | 358,423 | $ | (72,353) | $ | 286,070 | |||||||||||
| Insurance premiums and other income | 60,293 | (9,979) | 50,314 | ||||||||||||||
| Total revenue | 418,716 | (82,332) | 336,384 | ||||||||||||||
| Provision for losses | 142,530 | (30,411) | 112,119 | ||||||||||||||
| Net revenue | 276,186 | (51,921) | 224,265 | ||||||||||||||
| Operating expenses | |||||||||||||||||
| Salaries and benefits | 126,151 | (16,388) | 109,763 | ||||||||||||||
| Occupancy | 22,939 | (710) | 22,229 | ||||||||||||||
| Advertising | 4,306 | (340) | 3,966 | ||||||||||||||
| Direct operations | 28,558 | (6,781) | 21,777 | ||||||||||||||
| Depreciation and amortization | 18,162 | (7,433) | 10,729 | ||||||||||||||
| Other operating expense | 26,229 | (257) | 25,972 | ||||||||||||||
| Total operating expenses | 226,345 | (31,909) | 194,436 | ||||||||||||||
| Other expense | |||||||||||||||||
| Interest expense | 125,044 | (30,539) | 94,505 | ||||||||||||||
| Extinguishment or modification of debt costs | 8,864 | — | 8,864 | ||||||||||||||
| Loss (gain) on equity investment | 5,547 | — | 5,547 | ||||||||||||||
| Loss on change in fair value of contingent consideration | 2,728 | (2,728) | — | ||||||||||||||
| Gain on sale | 2,027 | — | 2,027 | ||||||||||||||
| Lease termination | 1,435 | — | 1,435 | ||||||||||||||
| Total other expense | 145,645 | (33,267) | 112,378 | ||||||||||||||
| Loss before income taxes | (95,804) | 13,255 | (82,549) | ||||||||||||||
| Provision for income taxes | 22,994 | 3,513 | Note 2e | 26,507 | |||||||||||||
| Net loss | $ | (118,798) | $ | 9,742 | $ | (109,056) | |||||||||||
| Basic loss per share: | $ | (2.91) | Note 3 | $ | (2.67) | ||||||||||||
| Diluted loss per share: | $ | (2.91) | Note 3 | $ | (2.67) | ||||||||||||
The accompanying notes are an integral part of the unaudited pro forma combined statement of operations.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED December 31, 2022
(in thousands, except per share data)
| CURO Group Holdings Corp Historical | Transaction Accounting Adjustments (Note 2c) | CURO Group Holdings Corp. Pro Forma Combined | |||||||||||||||
| Revenue | |||||||||||||||||
| Interest and fees revenue | $ | 905,407 | $ | (95,332) | $ | 810,075 | |||||||||||
| Insurance and other income | 88,490 | (2,335) | 86,155 | ||||||||||||||
| Other revenue | 32,021 | (8,779) | 23,242 | ||||||||||||||
| Total revenue | 1,025,918 | (106,446) | 919,472 | ||||||||||||||
| Provision for losses | 400,325 | (45,180) | 355,145 | ||||||||||||||
| Net revenue | 625,593 | (61,266) | 564,327 | ||||||||||||||
| Operating expenses | |||||||||||||||||
| Salaries and benefits | 281,636 | (25,365) | 256,271 | ||||||||||||||
| Occupancy | 59,485 | (1,258) | 58,227 | ||||||||||||||
| Advertising | 32,143 | (1,420) | 30,723 | ||||||||||||||
| Direct operations | 64,128 | (14,768) | 49,360 | ||||||||||||||
| Depreciation and amortization | 36,322 | (13,923) | 22,399 | ||||||||||||||
| Other operating expense | 82,811 | (3,392) | 79,419 | ||||||||||||||
| Total operating expenses | 556,525 | (60,126) | 496,399 | ||||||||||||||
| Other expense (income) | |||||||||||||||||
| Interest expense | 185,661 | (40,641) | 145,020 | ||||||||||||||
| Income from equity method investment | 3,985 | — | 3,985 | ||||||||||||||
| Goodwill impairment | 145,241 | (37,414) | 107,827 | ||||||||||||||
| Loss on extinguishment of debt | 4,391 | (665) | 3,726 | ||||||||||||||
| Gain on change in fair value of contingent consideration | (7,605) | 7,605 | — | ||||||||||||||
| Gain on divestiture | (68,443) | — | (68,443) | ||||||||||||||
| Total other expense | 263,230 | (71,115) | 192,115 | ||||||||||||||
| Loss before income taxes | (194,162) | 69,975 | (124,187) | ||||||||||||||
| (Benefit) provision for income taxes | (8,678) | 18,543 | Note 2e | 9,865 | |||||||||||||
| Net loss | $ | (185,484) | $ | 51,432 | $ | (134,052) | |||||||||||
| Basic loss per share: | $ | (4.59) | Note 3 | $ | (3.32) | ||||||||||||
| Diluted loss per share: | $ | (4.59) | Note 3 | $ | (3.32) | ||||||||||||
The accompanying notes are an integral part of the unaudited pro forma combined statement of operations.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED December 31, 2021
(in thousands, except per share data)
| CURO Group Holdings Corp. Historical | Transaction Accounting Adjustments (Note 2c) | CURO Group Holdings Corp. Pro Forma Combined | |||||||||||||||
| Revenue | |||||||||||||||||
| Interest and fees revenue | $ | 743,735 | $ | (32,289) | $ | 711,446 | |||||||||||
| Insurance and other income | 49,411 | (421) | 48,990 | ||||||||||||||
| Other revenue | 24,697 | (2,132) | 22,565 | ||||||||||||||
| Total revenue | 817,843 | (34,842) | 783,001 | ||||||||||||||
| Provision for losses | 245,668 | (24,638) | 221,030 | ||||||||||||||
| Net revenue | 572,175 | (10,204) | 561,971 | ||||||||||||||
| Operating expenses | |||||||||||||||||
| Salaries and benefits | 237,109 | (14,147) | Note 2d | 222,962 | |||||||||||||
| Occupancy | 55,559 | (512) | 55,047 | ||||||||||||||
| Advertising | 38,762 | (1,272) | 37,490 | ||||||||||||||
| Direct operations | 60,056 | (14,380) | 45,676 | ||||||||||||||
| Depreciation and amortization | 26,955 | (10,445) | 16,510 | ||||||||||||||
| Other operating expense | 68,473 | (3,601) | 64,872 | ||||||||||||||
| Total operating expenses | 486,914 | (44,357) | 442,557 | ||||||||||||||
| Other expense (income) | |||||||||||||||||
| Interest expense | 97,334 | (14,993) | 82,341 | ||||||||||||||
| Income from equity method investment | (3,658) | — | (3,658) | ||||||||||||||
| Gain from equity method investment | (135,387) | — | (135,387) | ||||||||||||||
| Loss on extinguishment of debt | 40,206 | — | 40,206 | ||||||||||||||
| Loss on change in fair value of contingent consideration | 6,209 | — | 6,209 | ||||||||||||||
| Total other (income) expense | 4,704 | (14,993) | (10,289) | ||||||||||||||
| Income before income taxes | 80,557 | 49,146 | 129,703 | ||||||||||||||
| Provision for income taxes | 21,223 | 13,024 | Note 2e | 34,247 | |||||||||||||
| Net income | $ | 59,334 | $ | 36,122 | $ | 95,456 | |||||||||||
| Basic earnings per share: | $ | 1.44 | Note 3 | $ | 2.32 | ||||||||||||
| Diluted earnings per share: | $ | 1.38 | Note 3 | $ | 2.21 | ||||||||||||
The accompanying notes are an integral part of the unaudited pro forma combined statement of operations.
Note 1 - Basis of Pro Forma Presentation
The unaudited pro forma combined financial statements are prepared in accordance with Article 11 of SEC Regulation S-X. The pro forma adjustments are described in the accompanying notes and are based upon and derived from information and assumptions available at the time of this filing on Form 8-K.
The unaudited pro forma financial information is based on financial statements prepared in accordance with U.S. generally accepted accounting principles, which are subject to change and interpretation. The unaudited pro forma combined financial statements were based on and derived from our historical consolidated financial statements, adjusted for certain transaction accounting adjustments. Actual adjustments, however, may differ materially from the information presented. Pro forma adjustments do not include allocations of corporate costs, as those are not directly attributable to the Divestiture. In addition, the unaudited pro forma financial information is based upon available information and assumptions that management considers to be reasonable, and such assumptions have been made solely for purposes of developing such unaudited pro forma financial information for illustrative purposes in compliance with the disclosure requirements of the SEC. The unaudited pro forma financial information is not necessarily indicative of what the financial position or statements of operations results would have actually been had the Divestiture occurred on the dates indicated. In addition, these unaudited pro forma combined financial statements should not be considered to be indicative of our future consolidated financial performance and statement of operations results. Further, the unaudited pro forma combined statement of operations does not reflect the costs of separation activities or benefits from the realization of future cost savings due to corporate cost savings expected to result from the Divestiture.
The accompanying unaudited pro forma combined statement of operations for six month period ended June 30, 2023 and unaudited pro forma combined statements of operations for the years ended December 31, 2022 and 2021 give effect to the Divestiture March 10, 2021, the date the Company acquired Flexiti. The accompanying unaudited pro forma combined balance sheet as of June 30, 2023 has been prepared giving effect to the Divestiture as having occurred on June 30, 2023.
Note 2 - Divestiture Accounting Adjustments
(a) Reflects the elimination of the assets, liability, and historical equity balances sold as part of the Divestiture, as of June 30, 2023. The amount of the actual loss will be calculated based on the net book value of the sold entities as of the closing of the Divestiture on August 31, 2023 and, therefore, would differ from the current estimate, as of June 30, 2023.
(b) Reflects the addition of (i) $41.7 million of cash related to purchase price received at closing, (ii) $16.2 million estimated closing tangible book value true up, and (iii) $0.1 million of cash received for excess unrestricted cash retained by Flexiti offset by (i) $11.5 million unrestricted cash retained by Flexiti, (ii) $10.6 million of deferred estimated closing tangible book value true up, (iii) $7.0 million other escrowed closing amounts and (iv) $12.5 million estimated transaction costs. The $10.6 million of deferred estimated closing tangible book value true up and $7.0 million other escrowed closing amounts are included in the unaudited pro forma financial information as a $14.5 million increase to Prepaid expenses and other and a $3.1 million increase to Other assets.
(c) Reflects the elimination of revenue and expenses associated with the Divestiture for the years ended December 31, 2022 and 2021 and the six months ended June 30, 2023.
(d) Includes a decrease of $0.3 million related to reimbursement of costs incurred associated with the Transition Services Agreement received from the Purchaser entered into as part of the Divestiture.
(e) Applies a 26.5% estimated blended tax rate to Transaction Accounting Adjustments for the Divestiture. The estimated blended tax rate consists of the Canadian federal income tax rate and an estimated combined provincial income tax rate driven by the apportionment factors applicable to each province.
Note 3 - EPS
Pro forma basic and diluted earnings per share (in thousands, except per share data):
| For the six months ended June 30, 2023 | For the year ended December 31, 2022 | For the year ended December 31, 2021 | |||||||||
| Basic EPS | |||||||||||
Combined pro forma net (loss) income | $ | (109,056) | $ | (134,052) | 95,456 | ||||||
| CURO historical basic weighted average common shares outstanding | 40,893 | 40,428 | 41,155 | ||||||||
| Basic EPS | $ | (2.67) | $ | (3.32) | $ | 2.32 | |||||
| Diluted EPS | |||||||||||
| Combined pro forma net (loss) income | $ | (109,056) | $ | (134,052) | 95,456 | ||||||
| CURO historical diluted weighted average common shares outstanding | — | — | 1,988 | ||||||||
| Pro forma weighted average common shares outstanding | 40,893 | 40,428 | 43,143 | ||||||||
| Diluted EPS | $ | (2.67) | $ | (3.32) | $ | 2.21 | |||||
