CURO Group Holdings Corp (CURO) 2021 Q1 法說會逐字稿

Hello, and welcome to the CURO Holdings First Quarter of 2021 Earnings Call. (Operator Instructions) Please note today's event is being recorded.

I'd now like to turn the conference over to Matthew Keating, Investor Relations. Mr. Keating, Please go ahead.

Thank you, and good morning, everyone. After the market closed yesterday, CURO released results for the first quarter of 2021, which are available on the investor section of our website at ir.curo.com. With me on today's call are CURO's Chief Executive Officer, Don Gayhardt; President and Chief Operating Officer, Bill Baker; Chief Financial Officer, Roger Dean; Chief Account -- and Chief Accounting Officer, Dave Strano. This call is being webcast and will be archived on the Investor section of our website.

Before I turn the call over to Don, I'd like to note that today's discussion will contain forward-looking statements based on the business environment as we currently see it. As such, it does include certain risks and uncertainties. Please refer to our press release issued last night and our forms 10-K and 10-Q for more information on the specific risk factors that could cause our actual results to differ materially from the projections described in today's discussion. Any forward-looking statements that we make on this call are based on assumptions as of today and we undertake no obligation to update these statements as a result of new information or future events.

In addition to U.S. GAAP reporting, we report certain financial measures that do not conform to generally accepted accounting principles. We believe these non-GAAP measures enhance the understanding of our performance. Reconciliation between these GAAP and non-GAAP measures are included in the tables found in yesterday's press release. Before we begin our first quarter update, I'd like to remind you that we have again provided a supplemental investor presentation which highlights key trends through last week. Don and Roger will reference this presentation in their remarks and you can find it on the Events and Presentations section of our IR website.

We also filed a form 8-K on April 16, realigning our product and segment reporting to how we view our business going forward and to improve your ability to understand and analyze our financial results. We now report financial results for 3 segments. Our U.S. segment is unchanged. Our former Canada segment that included our Cash Money and LendDirect brands is now reported as Canada Direct Lending. Finally, Flexiti's results are reported under our new Canada point-of-sale lending segment.

We also changed our loan product level reporting to distinguish segment-level portfolio performance for revolving lines of credit and installment loans. With the addition of Flexiti on March 10, 2021, revolving lines of credit loans now comprise 74% of CURO's total loan balances.

With that, I would like to turn the call over to Don.

Thanks, Matt. Good morning, and thank you for joining us today. I'll start with the good news that our Board doubled our quarterly dividend to an annual rate of $0.44 per share and authorized a $50 million share repurchase program based on our strong first quarter earnings and continued robust cash and liquidity position.

Like the second half of 2020, our Q1 2021 results in Canada demonstrated meaningfully lower impacts from COVID-19 than did our U.S. operations. We delivered quarterly sequential loan balance growth for Canada Direct Lending of $13.4 million or 4.1%, despite seasonal customer behavior that typically reduces loan balances in the first quarter. Canada Direct Lending balances increased 24.4% year-over-year.

We should note that Canada has seen a recent resurgence in COVID cases, which has necessitated the reimposition of lockdowns. Our branches remain open, but these lockdowns have impacted traffic to our locations. Overall caseloads have started to turn down again and vaccines are ramping up. So we're hopeful that this latest surge is the last one we'll see in Canada. These COVID-related restrictions, most of which were put in place in the second week of April, have had a modest impact on Flexiti's merchant base where brick-and-mortar sales make up about 75% of total volume. We'll have more on Flexiti in a minute.

In contrast to our continued growth in Canada, U.S. loan balances declined 36.6% compared to the prior year and 18.4% sequentially. The declining U.S. loan balances in the quarter was anticipated due to the U.S. Federal Government stimulus payments our customers received during the last 2 weeks of March, along with delayed tax refunds that impacted the same period. The stimulus meaningfully increased prepayments and reduced demand for new loans. With that said, we fully expect to see originations improve as the impact of fiscal stimulus wanes and the reopening of the economy progresses.

With the current trends we see in the U.S., lower jobless claims along with more hiring and open positions, we expect to see better demand in the U.S. in the second half of 2021. Second quarter new account and origination trends are showing steady improvement, particularly with our revolving line of credit products. It will take some sustained progress in these trend lines for this better second half of 2021 to come to fruition, but we're cautiously optimistic.

Overall loan balances finished the quarter 23.1% above the prior year level, including $201.5 million loss of loan balances in the Canada POS lending segment from our Flexiti acquisition. Despite continued COVID-19 impacts that have reduced U.S. loan demand and balances since March of last year, historically strong credit performance and expense management continued to allow us to post solid quarterly earnings while significantly increasing cash and liquidity levels.

Revenue for the first quarter was $196.6 million, a decline of 30% from the same quarter last year. Loan balance declines in the U.S. due to COVID-19 impacts and runoff of the California installment portfolio drove the consolidated revenue decline. We reported adjusted EBITDA of $64 million and adjusted EPS of $0.69 cents per share, both slightly below last year's adjusted EBITDA of $66 million and adjusted EPS of $0.77 cents. In both instances, extremely strong credit performance resulted in much lower NCOs and provision for loan losses, providing a partial offset to the revenue decline.

Canada Direct Lending remained very strong, posting another quarter of sequential loan and bottom line growth. Canada Direct Lending's $25.8 million of adjusted EBITDA for the quarter is the single highest quarterly earnings we have reported for that business and is more than triple the $8.3 million results for the first quarter of 2020. That comparative result was a bit of a one-off given the higher level of provisioning that we recorded last March during the onset of COVID, but we're looking forward to a very strong year in Canada Direct Lending.

In general, we believe that our strong results in Canada are reflective of 2 things. First, our strong market position and market leading omnichannel product offerings; and second, the more pronounced economic rebound in Canada. Canada Direct Lending balances increased $67.4 million or 24.4% from the same period last year. With the mixed shift to revolving line of credit loans, revenue declined about 1% year-over-year. However, net charge-offs for Canada Direct Lending declined $8.9 million or 41% year-over-year. Improvements in net charge-off rates and delinquencies resulted in provision for loan losses of $9.2 million compared to $27.5 million in Q1 of last year. And resulting net revenue was $17.7 million or 56% higher than the first quarter a year ago.

We expect Canada Direct Lending credit quality to remain stable for the near term. You'll see on Slide 5 of our investor supplement that delinquent loan balances as a percentage of total loan balances are still down 38% year-over-year. You'll also notice that in Canada, the percentage of transactions conducted online continues to be well above historical averages. While we can't predict the long-term behaviors of the Canadian consumer, this continues to demonstrate the value of our omnichannel platform and the investments that we've made to allow for seamless transition from our store to digital channels.

Turning to Canada point-of-sale segment or Flexiti. As we previously announced, we successfully closed our acquisition of Flexiti on March 10th. Flexiti is one of Canada's fastest growing buy now, pay later providers with a market-leading omnichannel fintech platform. The acquisition of Flexiti enhances our long-term growth and financial risk profiles and allows us to access the full spectrum of Canadian consumers by adding an established private label credit card platform and point-of-sale financing capabilities. We now reach consumers in Canada through all the ways they access credit, directly, both in-store and online, via credit cards or at the point of sale. Just a reminder that since we closed the acquisition on March 10, Flexiti's P&L results are immaterial to our overall results for the first quarter.

Flexiti continues its outstanding performance early in 2021 with year-over-year originations increasing 69% or CAD 34.7 million to CAD 85 million in the first quarter of 2021, reflecting good growth with longstanding merchants as well as the addition of new merchants like Staples Canada and Sleep Country, which is Canada's largest mattress retailer. We are working with the Flexiti team as they continue to actively pursue new merchant partnerships and hope to have some relationships to announce in the near future.

Another quick reminder that the new merchant relationships are generally dilutive to earnings in the near term primarily because of upfront loan loss provisioning that accompanies rapid loan growth. All in all we're very happy with Flexiti as Peter Kalen and his very capable team have proven to be great partners as we work to expand the merchant base, add to product functionality and expand the pools to include nonprime customers.

Let's turn to the U.S. and the information presented on Slide 6 of our investor supplement. Our results and the drivers are very consistent with other consumer lenders that have reported so far this quarter. Significant U.S. government stimulus has started hitting consumers checking accounts in March, resulted in: one, higher prepayment rates for current loans; two, strong recoveries on past due loans; and three, low demand for new loans. Gross combined loan receivables, including CSO loans, declined 36.6% or $125.8 million a year-over-year. This resulted in an $85.3 million or 36% decline in revenue in the first quarter of 2021 compared to the first quarter of last year.

U.S. net charge-offs in the quarter were only $39.4 million, a decline of $57.4 million or 59% from the last year. At the same time, the percentage of pass-through receivables was down 580 basis points at the end of March 2021 compared to March of 2020. Through April, past due receivables remained down over 29% year-over-year.

We've said before that nonprime consumers consistently show a greater ability to manage credit as measured by the relative change in their delinquency and charge-off data during an economic downturn than prime and near prime customers. Our experience in this crisis certainly provides additional support for this view. Just as our customers have demonstrated their resiliency during this pandemic, our U.S. business has shown its ability to adapt to a dramatic reduction in loan demand. Historically strong credit trends limited the U.S. net revenue declined to $25.3 million or 19% year-over-year in the first quarter. It's difficult to forecast exactly when the ongoing economic recovery is likely to lead to a normalization in loan demand, but we remain very confident in our ability to grow the U.S. business as we emerge from this pandemic.

As noted in our earnings release, we stopped lending under the Verge credit brand. We launched Verge installment loans originating on behalf of Stride Bank in the fourth quarter of 2019 and executed pilot programs in several states. After testing various offers, rates, terms and approval criteria, Stride informed us that it plans to focus on near-prime loans as this provides it with a much larger addressable market and greater opportunity to scale. As a result, Stride has decided to discontinue issuing new Verge credit loans. Verge loan balances totaled $29.7 million as of March 31, 2021, and we expect an orderly runoff of these balances over the next 24 months.

We continue to be excited by the approaching value realization for our investment in Katapult. As we announced back in December, Katapult reached an agreement to merge with FinServ. FinServ is a special purpose acquisition company, or SPAC, and the merger will result in Katapult becoming a publicly traded company, most likely late in the second quarter. At closing and subject to SPAC-related redemption, we expect to receive about $130 million in cash and to retain an ownership level of at least 21% of a public entity. Both of these numbers may move around a bit based on SPAC investor redemptions and achievement of certain earn-out metrics. But at FinServ's current trading price, the total pretax value of our investment in Katapult will be approximately $445 million. We're obviously proud of Katapult's accomplishment, and we're very happy with the return on our $27.5 million cash investment in this business. We're also pleased to have the opportunity to retain a meaningful ownership stake in Katapult. And Chris Masto, CURO's Lead Independent Director, and I will serve on the company's Board of Directors. We believe that this investment allows CURO and its shareholders to participate in the rapidly growing e-commerce point-of-sale finance space.

To close, there's certainly some ongoing headwinds from COVID that may impact portions of our business, but I'm optimistic about the work that we've done to continue to move the company forward. Through both organic growth and with the Flexiti acquisition, we have grown our Canadian operations, which accounted for 72% of our gross combined loan balances at the end of the first quarter. We've continued to invest in our internal technology and risk and analytics platform. The strength of these platforms has helped us to quickly migrate customers to our online channel and to continually refine our credit decisioning, creating new product opportunities at all geographies.

We've made good strides at piloting a near prime product in the U.S. We've grown and enhanced our card product offerings. We've started to realize significant value from our investment in Katapult and its market-leading e-commerce LTO solution. And we continue to evaluate the number of investment opportunities that could offer further growth and diversification of our business lines.

As always, I'd like to close by thanking our 3,900 team members who, despite the challenges created by the pandemic, continue to meet our customers everyday needs for financial services and execute on all our strategic priorities, all while helping customers navigate financial hardship and other challenges. We believe that the strength of our company lies in our people and our culture, and I'm confident that together we will continue to manage through these unprecedented times and position the company for sustained growth over the next several years as demand recovers along with the full reopening of the economy.

What that, I'll turn it over to Roger.

Thanks, John, and good morning. While Don covered some of the consolidated and segment highlights, I'll provide more color on the details.

Canada Direct Lending loan balances increased 24.4% year-over-year, including a $79 million increase in revolving line of credit balances, offset by an $11.6 million decline in installment balances, primarily due to COVID impacts. Our revolving line of credit book in Canada Direct Lending increased 32.9% year-over-year with related revenue up 18.5%. Sequential growth continued to be strong at 4.1% versus the fourth quarter of 2020.

As Don mentioned earlier, a loan book mix shift resulted in revenue that was basically flat year-over-year in Canada, but net revenue for the Canada Direct Lending segment increased 56%, largely due to a 370 basis point improvement in the net charge off rate year-over-year. Despite COVID-19 impacts, Canada Direct Lending posted quarterly adjusted EBITDA of $25.8 million. That's more than a 3x increase year-over-year.

In the U.S., the impact of COVID-19 remained more pronounced in the first quarter with revenue down 38.5% from the prior year and adjusted EBITDA down $18.2 million or 31.7%. U.S. loan balances and revenue decreased 36.6% and 38.5% respectively year-over-year, primarily due to the impact of COVID and some additional effects from the runoff of the California and Virginia portfolios. Just a reminder that we ceased originating installment loans in California on January 1, 2020, and revolving line of credit loans in Virginia on January 1, 2021, because of statutory changes. Excluding California and Virginia, U.S. loan balances finished down $67.8 million or 27.9% year-over-year.

Loss rates in the U.S. improved 850 basis points year-over-year, which, along with the aforementioned sequential decline in loan balances, drove a 69.7% reduction in the provision for loan losses. The resulting $25.3 million decline in net revenue translated to an $18.2 million decline in U.S. adjusted EBITDA with net revenue declines mitigated by lower advertising costs and expense management. Consolidated adjusted EBITDA came in at $63.8 million, down just $2 million or 3.1% as revenue declines from lower loan balances were offset by lower provision for loan loss and cost reductions. As a result, Q1 adjusted earnings per share was $0.69 cents for the quarter.

I'll expand a little bit on -- keep on the trends and key drivers. First, demand and loan volume. Pages 5 and 6 of our supplemental earnings presentation recap the weekly trends through last week, indexed to the week ended March 7, 2020, for the Canadian Direct Lending and U.S. segments. In Canada, application volumes, approval rates and originations have been stable this year, and you'll see that we didn't have the seasonal decline in application volume that we saw in March of last year.

In the U.S., trends for March and April application volumes, approval rates and originations tracked similarly to the same weeks a year ago if you keep in mind that this year's stimulus hit in mid-March and last year's stimulus hit in mid-April. We finished April, 2021 with loan balances in Canada flat and the U.S. down just modestly from quarter end. As we move through the first quarter, the percentage of loans originated to new customers decreased to an average of 10.5%. That's down from 13.6% in the fourth quarter of 2020 and flat to the first quarter of 2020.

Second, I'll talk about delinquency and credit trends. Staying on Pages 5 and 6 of our earnings supplement and looking at weekly delinquency trends by bucket, through April, 2021, both countries continued to see stable and historically low delinquencies. Our first quarter net charge-off rates improved 370 basis points in Canada Direct Lending and 850 basis points in the U.S. compared to the prior year.

Third, just a moment on the provision for loan losses, moving to Page 8 of our earnings supplement deck. Allowance coverage rates declined from the fourth quarter, more so in Canada, on sustained improvement in net charge-off rates and low delinquency levels. The adjustments to allowance coverage and the sequential decline in loan balances in the U.S. resulted in provisions for loan losses for the U.S. and Canada that were less than net charge-offs by $13.6 million and $3.7 million, respectively. Loans modified under our customer care program made up 5.9% of our company-owned installment balances in the U.S. at the end of first quarter, which is down from 6.6% at the end of the fourth quarter of 2020.

We ended the first quarter with $135.4 million in cash and $233.2 million of liquidity, including undrawn capacity on revolving credit facilities. When the Katapult transaction closes, we estimate we'll receive another $130 million or so of cash before taxes. While we continue to see areas to invest in the growth of our business, we are also pleased to expand the ways in which we directly return capital to shareholders that Don highlighted earlier.

This concludes our prepared remarks, and we'll now ask the operator to begin Q&A.

(Operator Instructions) And the first question comes from John Hecht from Jefferies.

First a question that is just related to -- I'm just trying to think about the mix of the business as we kind of move to the next couple of quarters. You mentioned kind of the expected slowdown in Canada given the implementation of lockdowns for the time being, but Flexiti has got a lot of momentum. I mean can -- I assume Flexiti can still grow through this next temporary period of time? Or should we think that the entire platform of Canada will be temporarily impacted by these lockdowns?

John, it's Don. I'll kind of take the first swing at that one. So it's really sort of fluid. Canada had done a terrific job sort of managing through the pandemic -- I mean just a relative -- it's an interesting, relative point. If you look at total employment in Canada -- so Canada had a total employment base in Canada pre-COVID was 19.3 million. That fell to about 16.3 million during sort of the depth of the pandemic in the last spring. But at March 31, it was back to 18.8 million. So almost a full recovery in total employment.

In the U.S., we were at 152 million employed in February of '20. That fell to 100 -- sorry, that's up by 30 million. And then we -- but we're back to 144 million. So from 152 million to 132 million, we're back to 144 million. It's only about 60% recovery. We still need 8 million more. And again, this is as at the end of March. So the hiring pace in the U.S. looks very strong. But on a relative basis or just a -- Canada has basically recovered everything, had recovered everything as of March 31, and the U.S. still had maybe 40% of the kind of COVID job losses to recover.

So we still -- but there's a spike. And I was looking at -- and particularly in Alberta and D.C., the numbers are as high as they are anywhere in kind of North America. It sort of feels like, given where the vaccination rates are, that it ought to be something that is managed and the lockdowns can be removed fairly quickly, in which case, we feel like our -- the -- both the overall business -- and again, we're going to be comping for -- if you look at sort of 2Q, we'll be comping off of weak numbers from last year. So we should get really strong growth in Canada in the Direct Lending piece of the business.

We feel like Flexiti, given the way they've been growing, and as we have mentioned, they -- we had said in our earnings release when we -- or the release when we bought Flexiti, they're expecting kind of roughly 50% origination growth in '21 over '20. They grew about -- for the -- again, we only owned it for the last couple of weeks of the first quarter, but if you look at their whole first quarter, they grew about 69%. So they're off to a really good start. It's -- we've seen a little bit of impact in kind of the weekly numbers there.

But assuming that this is a fairly short-lived phenomenon and given where the vaccination rates are it ought to -- and just public health in general in Canada, it ought to be pretty short-lived. We feel like our Direct Lending business has going to have a really good second quarter and a really strong full year, and I think Flexiti is very much on a path to hit their targets that we talked about. And the big -- the gating element for Flexiti is going to be, to the extent they have additional merchant, add additional bigger merchants. And they're in conversations on a bunch of possibilities there. So hopefully, we'll be able to come back in the not too distant future and talk about some merchant wins there, which will kick up the Flexiti originations and revenue ramp. And probably, we said before, those are a little dilutive to earnings in the near term just because the provision build and some [on-boarding] costs, et cetera.

So I would say, all in all, I know it's a long answer to a short question, but I think all in all, we expect our second quarter with the strength in Canada Direct Lending comping off of COVID periods last year, the addition of Flexiti, they hit their targets and the U.S. starting to comp off of COVID numbers again, we should be in a position to report at least kind of revenue that's kind of flattish, maybe up a little bit. But starts a trajectory where, with all those things continuing to improve, that you get real good revenue growth in the consolidated business in the back half of the year.

Okay. That's super helpful color. I appreciate that. Second is credit is really strong. I mean if you look at delinquency trends across the board, they're strong, suggesting the pipeline is strong. Your approval rate still suggests though that you're being somewhat cautious as well. At what point in time do you get comfort to start, call it, opening up the funnel a little bit to help drive some of that growth?

Yes. I'll start, and I'll start and let Bill -- just, John, I recall that those approval rates are also a function of the fact that all of our customers got so much cash between -- some of that at this time of the year in March and February because of tax refunds, approval rates would be low anyway. Stimulus even exacerbated that. But, Bill -- and just -- I think it just means that we're just -- the quality of the applications aren't as good, and Bill can expand on that.

Yes, I certainly think that that's part of it. The other part that you have to look at is the change in mix. As we've talked about before, there certainly has been stronger demand through our online properties. And just inherently in the business, you have slightly lower approval rates online than in branch. So just that mix shift over the last 12 months is the other thing that has impacted it. But we continue to make progress by state, by product in getting back to the year-over-year approval rates. But expect that to continue.

Okay. And then my final question is -- I mean you guys have done -- obviously, you've increased your capital return quite a bit with the dividend hike and the buyback. But you're going to get more cash soon with the transaction of Katapult, a fairly high revenue -- or excuse me, a cash-generating business. But then you also have these growth channels and growth platforms as things normalize. Just kind of at a higher level, how do we think about your, call it, capital return program policies over the next several quarters with that backdrop?

Yes. John, I think we feel really good about in terms of the dividend, obviously, doubling it. We still feel like if you look at that, the dividend rate, sort of just the cash, the rate relative to sort of net income plus the available cash we have and liquidity we have, we feel that's a number we can easily sustain. And then -- and we're trying to sort of balance capital return, both on the dividend front and the buyback front.

I think we said -- I was looking at -- somebody asked this last quarter, "So what do you think about debt versus capital return versus debt paydown, et cetera," and in the context of Katapult. And I think I answered the question that, "Well, we're going to wait until Katapult is actually done before we sort of move on any of that stuff." And given the timing of that, and my answer is kind of the same, I think we -- there's some variability in terms of potentially how much cash we get out of the destacking there. And I guess we'd like to sort of see where that all plays out before we sort of go further in terms of capital returns.

But we're -- so, you also made the point in terms of investment stuff, both in organic opportunities and we continue to look at a number of M&A strategic investment opportunities. And I think trying to balance having enough dry powder to move quickly on some of those opportunities versus both equity and equity returns and managing the right side of the balance sheet from a debt perspective. That's going to be a kind of a quarter-to-quarter program for us. But I think we'll wait to see Katapult get closed, hopefully, here by the end of this quarter and start to think more about some of those plans.

And the next question comes from John Rowan with Janney.

So the -- it looks like Flexiti's loan portfolio, if I'm just going back to the initial investor presentation, was down from $208 million to $266 million from December 31. Is that correct? And if so, is that seasonality or just the COVID impacts that you guys cited earlier in the presentation?

I'm sorry, John, what were those numbers?

So if I go back to like the Flexiti deal presentation, it looked like as of 12/31, you were showing them with $266 million loan portfolio. But in today's deck, you're showing it at $208 million.

The CAD 266 million was Canadian.

Canadian, yes.

Okay, I got it. So it was converted then.

It's U.S. today. And John, the other thing is that those gross loans -- those are gross loan balances at 12/31. The acquired portfolio, we had a market-to-market, basically fair-valued it. And the loan loss -- basically, the loan loss allowance became discount. So you're looking at a discount or a net loan balance on an acquired basis versus a gross loan balance in the investor presentation. So...

Yes. I just want to make sure it wasn't tied to the -- any type of seasonality or the weakness...

No, no, no they're still...

From COVID that you guys sold about earlier.

No, no, they actually saw higher first quarter loan growth, both sequentially and year-over-year than their internal -- than the internal budgets at Flexiti.

Okay. And then you gave -- the Canadian adjusted EBITDA figure, what was that again for 1Q?

Yes. On Direct Lending, right?

Okay. Are you going to continue...

Direct Lending business because it didn't include -- and they're in the release. It didn't include the -- Flexiti will be a separate. We'll give Direct Lending, which is our cash money lend direct business, and then we'll give Flexiti separately as a...

I know you guys aren't -- didn't give guidance here. One of the items that you don't always update guidance on is the Canadian adjusted EBITDA. The last look that we had on that was about $85 million. Is that still a target? Is that -- I mean, you haven't updated that in a while. So I'm just trying to look at how realistic that target still is for Canada in 2021.

Yes. So John, that would be if you look at sort of direct lending, what we call Canada Direct Lending, that's the comp is where is that business trending versus that $85 million comp. So -- and I think we feel really good about that number. I think -- but to your point, given where we are on sort of the lockdowns and just a more sort of -- it's just a more fluid situation in terms of kind of coming out of COVID than I think we have in the States, we just probably don't have as much visibility on the economy sort of completely opening up there, given what's happened over the last -- so I think we're prepared to sort of stand by the $85 million adjusted EBITDA number for the direct lending business, and we'll look forward to sort of updating that.

And hopefully, as we talk next quarter, all this more recent lockdown COVID surge in Canada is in the rearview mirror, and we have the same kind of visibility on the economic progress there that we have in the States.

And the $10 million -- if I'm not mistaken, it was $10 million of Flexiti dilution for 2021, is that still about right?

Yes, that's -- I think it's still -- that number is -- yes, there's no -- remember, I just said to the extent there are additional merchant wins in 2021, which we hope to have, those are those -- that number may actually get diluted. But it will be because we're -- the business is going to see an addition of merchants, which will kick up the origination growth and the revenue growth and in the long -- obviously, the long-term value. So there may be some short-term dilution to that number if they get more merchant wins.

Okay. And can you remind me how much was the earn-out portion of the equity that you're going to get in FinServ?

So it was 3 million shares that are equally split between the stock trades above 12 and then the other -- half of the bucket is the stock trades above 12 for -- I think it's a month after closing versus -- and then the other bucket is at -- above 14 post closing. That's all...

Okay. So it's 1.5 million above 12 and another 1.5 million above 14.

Yes.

Okay. And then just lastly, Roger, I didn't get this down, I was trying to add it up quickly. You mentioned that the differential in net charge-offs versus provision. Was it $17 million? Is that correct? I thought I heard 2 different numbers, just to make sure I got it -- that correct.

Yes. Yes, I gave the numbers in both -- for both the U.S. and Canada, but that was the total, yes.

That was the total, $17 million?

Yes. If you look at our tables now, John, it's a lot easier to figure that out than it used to be.

Okay. All right. I'll take a look. But I just wanted to make sure because I was adding the 2 numbers.

And the next question comes from Bob Napoli of William Blair.

Can you guys hear me?

Yes.

Yes.

This is Spencer on for Bob. I just want to follow up briefly on the weekly loan approval rate question. You mentioned part of it was due to the mix shift to digital applications. How has the mix shift of digital versus in-store trended compared to Q3 and Q4? And how much of the weekly applications is due to that digital mix?

Yes. This is Bill. So it's a good question, and there are some differences between the U.S. and Canada. I'll start with Canada. If you just look at what's happening there, I think both are being impacted by the lockdowns. But even before we went to the lockdowns, the mix in Canada was still very heavy on the branch side of things. So it's a bit muted up there as far as what the mix is. In the U.S., we've certainly seen an uptick in weekly applications, both across the U.S. stores and the U.S. Internet lending businesses. But I would say that the online business is outpacing on customers and applications by about twofold at this point. So we certainly are seeing some better demand there. But we'd expect the stores to continue to improve as well, to Don's point, as people get back to work and some of the health impacts of the pandemic fade away.

Okay. That's helpful. And then you guys touched briefly on the longer-term ownership of Katapult. But could you just expand a little bit more on the longer-term plans for that ownership? Maybe as Flexiti evolves over time, do you see Katapult naturally -- you're owning more of it or less of it over time? Just anything along those lines.

Yes, it's Don. I'm going to say what I said before, I mean, number one, it hasn't closed yet. So we want to kind of get that key first step, put that in the rearview mirror. And we'll see. I mean it's obviously the business -- it's a strategic investment. And we have a -- we like the point-of-sale business in the U.S. We like the e-com LTO focus that Katapult has. And obviously, we thought the best way to maximize value for CURO holders was to do the transaction that we announced in December and that will close here hopefully very soon. And I think we'll just have to sort of see how it goes, see how their business continues to perform. We like the team there a lot. We like their prospects. We like the sort of the sector they're in. And what that means for us as a holder over time, it's just too hard to sort of say right now.

And the next question comes from Vincent Caintic with Stephens.

First question, so appreciate the details on the Flexiti Canadian point-of-sale metrics. But understanding that it was only acquired in March, is there any help you can give us in terms of maybe a full quarter outlook? Or how you think we should be modeling that in terms of different -- the fees, the provisions and so on that you can help out with?

So I mean, I guess I'll start it -- so from a top line perspective, I think that when we guided -- when we announced the transaction, we said that we expected a revenue of -- I think, full year revenue in the $45 million to $55 million range for that business. And I think the business is scaling in a way that we feel very good about those numbers. And I mentioned they grew a decent amount in the first -- 69% originations just in the first quarter. The April numbers were actually -- again, you're comping over kind of a lot in the COVID lockdown, but they grew originations over 200% in April.

So we feel really good about that kind of the -- call it, the business that we bought and the merchant base that we bought. They've announced some good signings. They just announced a big tire retailer on April 13. So they've announced some good signings. But I think in terms of the overall program, kind of where it sits now, we feel like those revenue numbers, we ought to be building to those revenue numbers on a quarterly basis. So Roger can chime in, so I would expect for the second -- in U.S. dollars, for the second quarter, I think we should be somewhere, Roger, I think, in the $8 million to $9 million range and then it will [end] on a quarterly basis and a lot of build from there. Maybe Roger can kind of help you fill in out here or maybe offline on sort of the credit stats.

Yes. No, I think that's right. And Vince, I think the -- we're kind of still getting our -- I think we're all getting our heads around the impacts of the [call it] brief, albeit temporary lockdown because obviously, Flexiti merchants are affected by that as well. But also there's some timing of the merchants is -- and I can't emphasize it enough with the timing of when these big merchants to get onboarded -- it's just like [Caddock], very similar to Katapult. There's a lot of similarities in the growth curves and things like that. But -- and that's the biggest thing right now that -- Vincent, as we move through the quarter, certainly as we move through Q2, I expect that we'll be coming back with some updates that would help you with that question. But it's just a little too soon right now.

Okay. That's very helpful. And then on the Canadian lockdowns, I know they've been handling it better, and your performance has been better in Canada relative to the U.S. Kind of from your experience last time in Canada when they locked down and then the recovery was fairly quick, now that they're locking down this time, if we kind of use a similar thing, I guess, how quickly do you expect a resumption to normal? Or are you already seeing some sort of return to normal?

Yes. So -- go ahead, Bill.

Yes. I was just going to say, it's still on -- they're still very much -- I mean, they actually extended the lockdown. It was originally a 28-day period. Based on caseloads that they saw, they actually extended it. But just anecdotally from our folks that live and work there, again, we're an essential business, but just what we're hearing is that it is -- they're taking it very seriously and encouraging people to stay home and not go to gyms or restaurants. And so I think that there is certainly going to be a lot of demand once the lockdowns cease. And so again, difficult to predict, but I think we would expect a pretty rapid increase similar to what we saw last time, particularly on new customer demand.

Our credit line increases have held quite steady for us through this because they're existing customers, and it's much easier for them to go online and just increase their credit line and accept that. I think what we would expect a good sort of recovery would be on new loan origination, both in-store and online. And so we're looking forward to that just as much as the folks in Canada are in exiting the lockdown.

And Vincent, much like it is in the States, it's very different province by province. And if -- the part about it that's worrisome is, as you look at like Alberta and Manitoba, and again, Alberta is 10% to 12% of the population, Manitoba is smaller than that, but the cases, they're kind of almost increasing at an increasing rate. But if you look at Ontario, they're -- they've come down from a 7-day average of like 4,500 cases down to 3,500. So they're seeing, in some ways, almost like what we're seeing in the U.S. in terms of the overall declines. But it's very spotty and very different province by province. So that's what makes us a little bit cautious about trying to sort of predict even 30 days out.

And by the way, just as something I hope -- I hope this whole conversation -- I can't wait for this conversation to be in the rearview mirror on these calls because we understand it's important, but I think we all look forward to not talking about this anymore. So...

Right. Right. And then the last one for me. So in the -- switching to the U.S., I know we still have stimulus and unemployment benefits. But any update that you're seeing in April in terms of demand, just any trends you're seeing about where maybe demand might perk up again, any signs there?

Yes. This is Bill. So I think we're seeing -- since kind of the beginning of April, we've seen good sequential growth each week and kind of continuing application demand, but both in-store and online. But as I said earlier, we have seen a bit stronger demand online, and it is a little different state by state. But we would hope that, that continues. Credit continues to be very good. So we're really focused on the approval rates. As I said, looking at overall approval rate can be a bit difficult because of the mix shift that we've seen. But when you break it down state by state and product by product, channel by channel, in many cases, we're back to the approval rates a year ago, if not a bit better.

So I think we're well positioned from a scoring and underwriting perspective to be ready for the demand as it continues to increase. And I think we're staging the marketing dollars appropriately. As we see more demand out there, we'll market a bit more. But I think we're -- I think we've got a good strategy on how to capture that demand as it continues to come back and increase. But as with all of this, it's very dependent on the health crisis and ensuring that we continue to see the numbers and the country continues to see the numbers go the right way. I think that there's obviously a correlation in demand there. But thus far, I mean, it is encouraging.

And the next question comes from Moshe Orenbuch with Crédit Suisse.

Maybe just following up on that, Bill. The issue of demand. Is the suppression of demand the injection, the big dollars or stimulus? Some have suggested that there's -- these ongoing kind of programs, like how do we think about like when that burns through exactly -- well, not maybe exactly. But is it likely to be largely done in the near term? Or is it going to drag through the next several months?

Yes. We do our best to monitor that. And I think largely, we feel like the direct impacts of stimulus have really started to burn off and have over the last 3 or 4 weeks. What we don't know just what that means from a -- what the customers are saving from a savings perspective and how much was spent to pay down debt or catch up on late bills and things like that. But if you look at tax refund season and the large direct stimulus payment, we think a lot of that has actually burned through. The second part of your question is what we're -- I think what we're all interested to see is that -- how this child tax credit starts to be issued to customers on a monthly basis, what that will do. But that's obviously going to be a smaller amount than these large direct-to-consumer payments from the government. So I think largely, the big numbers on stimulus and tax refunds have largely made their way through the system.

Maybe kind of given what has happened in the U.S. and the significant expansion you've had in Canada by comparison, like how do you think about where you're targeting? Are there potential new bank partners? Like could you just talk a little bit about whether it's kind of a state-by-state approach or additional partners and how you're thinking about that?

Yes. I guess I'll look at -- I'll take the state-by-state approach first, I think that's very much how we look at it now and how we've really always looked at it. And we do see different approval rates and demands state by state, product by product. And I think that's where we -- again, that's where we focus the marketing dollars is where we do see increased demand, and that's by channel as well. If you -- like I said, we have seen better application rates online and just resulting in more loans.

On the store side, it's very much state-by-state driven. Single-Pay is certainly much more susceptible to what's happened in the pandemic than some of the longer-term lower-rate products. So that's -- again, that's really how we think about it. And on the partnership side of things, I mean, we're always looking for different kinds of partners and different kinds of products. And we've talked a lot about our interest in near prime as well. We've got a small portfolio in California that we're encouraged with the early results there. Cards continues to be a big focus for us on that side of things as well, and we continue to make investments there and hope to have more to talk about soon.

And this concludes our question-and-answer session. I would like to turn the conference back over to Don Gayhardt for any closing comments.

Yes. Great. Thanks, everybody, for joining us today. We look forward to talking to you after our second quarter release. Have a good day. Bye.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.