CURO Group Holdings Corp (CURO) 2020 Q4 法說會逐字稿

Good morning, and welcome to CURO Group Holdings Fourth Quarter and Full Year 2020 Conference Call. (Operator Instructions) Please note, this event is being recorded. I would now like to turn the conference over to Matt Keating, Investor Relations for CURO. Please go ahead.

Thank you, and good morning, everyone. After the market closed yesterday, CURO released results for the fourth quarter and full year 2020, which are available on the Investors 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; and Chief Accounting Officer, Dave Strano. This call is being webcast and will be archived on the Investors section of our website. Before I turn the call over to Don, I'd like to note that today's discussions 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 in 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.

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

Thanks, Matt. Good morning, and thank you for joining us today. I hope this finds you all healthy and safe. Before we begin our fourth quarter update, I'd like to point out, we've again prepared a supplemental investor presentation to highlight key trends through last week. We'll be referencing this presentation in our remarks, and you can find it on the Events and Presentations section of our IR website.

After a year unlike any in our history, we exited 2020 encouraged by the resiliency we demonstrated, and cautiously optimistic about our opportunities for 2021 and beyond. In the fourth quarter of 2020, we delivered quarterly sequential loan growth of 11.3% compared to 1.6% quarterly sequential growth in the fourth quarter of 2019. Our overall loan balances finished the year 19.5% below prior year levels, 11.7% excluding California installment loans, loan balances in Canada increased 9.2% year-over-year and 13% sequentially.

U.S. loan balances, while still well below 2019 levels, grew 9.2% sequentially in the fourth quarter, driven by our online lending platform. Despite COVID-19 impacts, that lowered loan demand and loan balances after the first quarter of 2020, historically good credit performance as strict expense management allowed us to post solid quarterly earnings while significantly increasing cash and liquidity levels.

In addition to being pleased with our business resiliency during a difficult year, we're excited about the tremendous value realization of our investment in Katapult and by our addition of point-of-sale, buy now pay later and credit card capabilities in Canada with the acquisition of Flexiti.

Starting with Katapult. As we announced in December, Katapult reached an agreement to merge with FinServ in December. FinServ is a special purpose acquisition company or SPAC. And the merger was the first step in a process that result in Katapult becoming a publicly-traded company in the first half of 2021. At closing and subject to SPAC-related redemptions, we expect to receive about $130 million in cash and approximately 21% or 20.4 million shares of the public entity.

In addition, based upon the trading price of the public shares, we could receive up to 3 million additional common shares. As FinServ's recent trading price, all of these earn-out shares would vest and increase the total value of our investment to approximately $520 million. We're obviously proud of Katapult's accomplishments, and we're extremely happy with 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 representation on the company's Board of Directors. We believe that this investment allows CURO and its stakeholders to participate in the rapidly growing e-commerce point-of-sale finance space.

Back at CURO, and as we've noted previously, the impacts of COVID-19 reduced demand, but provided us with ample liquidity for future growth and investments. Along these lines, we were very excited to announce earlier this week that reached an agreement to acquire Flexiti.

As we publicly discussed on Monday, Flexiti is an emerging growth, point-of-sale, buy-now-pay-later provider in Canada, integrated, with over 2,000 merchant partners and available at nearly 6,000 merchant locations and e-commerce sites. Flexiti's originations have grown from $49 million in 2017 to an estimated $292 million in 2020. Moreover, simply annualizing fourth quarter 2020 origination suggests an annual origination run rate close to $475 million.

The Flexiti acquisition affords us access to the full spectrum of Canadian consumers across credit tiers. Flexiti has been recognized for its product innovation and rapid growth, and we're happy to add the company's creative and talented management team for the CURO family. As we said in the context of our own business in Canada, the Canadian market is a large, growing addressable market. There's limited competition at scale in Canada, and we now have omni-channel capabilities to reach customers in all of the ways in which they access credit.

This acquisition increases CURO's long-term growth profile and provides further product and geographical diversification, while reducing regulatory challenges. It also clearly aligns with our expressed interest in growing in Canada and cards, areas where we expect to remain active moving forward. Moving to the final quarter of 2020. Our results were impacted by 3 things: first, the previously mentioned increase in loan demand compared to the prior quarter; secondly, reduced quarantine and stay-at-home orders; and finally, continued historically low delinquencies and net charge-off rates.

Canada remained a bright spot posting another quarter of sequential loan, revenue and bottom line growth. Canada's $22.2 million of adjusted EBITDA for the quarter is the single highest quarterly earnings we have reported from that business segment. We believe that our strong results in Canada reflect 2 principal factors: first, our strong market position and market-leading omni-channel product offerings; and second, the more pronounced economic rebound in Canada through the year-end.

However, like many places, there has been a COVID resurgence in Canada and more specifically, Ontario since year-end, which has led to restrictions on business and personal activity with the impact on the first half of 2021 yet to be determined. Heading into the details a bit more. On a consolidated basis, we experienced steady weekly increases in loan applications and new loan volume overall as we move through the fourth quarter. While these trends were still well below the same periods a year ago, they have for now turned positive.

Our total managed loan balances increased 11.3% from the third quarter of 2020, with growth of 9.2% in the U.S. and 13% in Canada, while managed loan balances were still down 19.5% year-over-year due to the impacts of COVID. The 11.3% sequential increase in this year's fourth quarter was better than the 1.6% sequential growth in last year's fourth quarter.

Further, the year-over-year decline was 11.7% without the impact of the runoff of our California installment portfolios due to regulatory changes there. An unprecedented improvement in credit quality, partially offset the impact of lower loan volume and loan demand on revenue. Total delinquencies were down more than 25% year-over-year for most of the fourth quarter. And through the week ended January 29, total delinquencies were still down 27% compared to the same period a year ago.

Putting together the pieces from a P&L perspective for the fourth quarter, we posted a revenue decline of 33.2% year-over-year, primarily due to COVID-19's impact on loan demand as well as the impact of California regulatory change that went into effect at the start of 2020. Adjusted EBITDA declined $33.2 million or 49.2%, while net revenue declined $39.8 million year-over-year.

The net revenue decline was partially reduced by lower advertising costs as demand has returned slowly. While we did keep some of the cost reduction efforts in place in the fourth quarter, as previously described, we incurred some additional variable compensation, strategic consulting expenses with an eye towards 2021 and forward.

As a result, adjusted EPS declined $0.20 per share for the fourth quarter. We've said before that non-prime consumers consistently show greater ability to manage credit as measured by the relative change in their delinquency and charge-off data during an economic downturn with prime and near-prime customers. Our experience in this crisis certainly provides additional support for this view. Our delinquencies and net charge-offs in the U.S. and Canada stayed low, despite much of the government stimulus burning off.

The behavior of our customers through this period also demonstrates the value of our omni-channel platform and the investments we have made to allow for a seamless transition from our store to digital channels. In the U.S., 68% of transactions occurred online during the fourth quarter of 2020 compared to 57% in the first quarter of 2020. In Canada, where online adoption has lagged the U.S., we saw a similar mix shift towards online, with 35% of transactions conducted online during the fourth quarter of 2020 compared to 23% in the first quarter of the year.

As we look ahead to the rest of 2021, while COVID vaccine distribution progress seems very promising, the timing of the reopening of the U.S. and Canadian economies remains uncertain. In some respects, it feels like the end of the pandemic has been a couple of months away for the past 6 months. In addition, in the U.S., there is significant uncertainty surrounding the timing and magnitude of additional stimulus and the impact of this year's delayed tax season.

Therefore, for now, we plan to continue our recent practice and providing business updates as we move through the quarter. We remain prepared for a wide range of outcomes and are continuing to focus on supporting our customers and communities through this unprecedented time. While we exited 2020 with an upward trajectory for earning asset growth, to the extent that the U.S. Congress passes additional stimulus measures, as is widely anticipated, our U.S. loan balances could again contract in the first half of 2021, putting continued pressure on revenue and earnings levels on our U.S. business.

However, this will also support our continued strong credit performance as well as our cash balances and liquidity. To close, while there's certainly some ongoing headwinds from COVID and potential changes on the regulatory front that may impact portions of our business, I'm optimistic about the work that we've done to continue to move the company forward. We continue to invest in our internal technology and risk and analytics platforms. 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 in all of our geographies.

We've grown our Canadian operations, which accounted for approximately 65% of our consolidated quarterly adjusted EBITDA and 55.2% of our gross combined loan balances at the end of the fourth quarter. And pro forma for the Flexiti acquisition, this percentage increases to approximately 66% of our loan balances. We've also grown and enhanced our card offerings. We've also started to realize significant value from our investment in Katapult and its market-leading e-commerce lease-to-own solution.

And finally, we continue to evaluate a number of opportunities for both new organic initiatives and strategic acquisitions that could offer further growth and diversification of our business lines.

I'd like to close by thanking our 3,900 team members who, despite the challenges created the pandemic, continue to meet our customers' everyday needs for financial services and execute on 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. I'm confident that together, we will continue to manage to these unprecedented times and emerge even stronger and more nimble than before.

And finally, this week, we announced a number of promotions. And one that I'm particularly happy about is that my partner, Bill Baker, has been promoted to President and Chief Operating Officer. Many of you on this call have gotten to know Bill and I think this promotion is incredibly well deserved. Bill is enormously talented and tech savvy, and he is still spearheading some of our most important new product and process initiatives while continuing to oversee our branch and contact center operations.

He has been at CURO for over 15 years. And really, most importantly, it really embodies the kind of servant-leader that want to attract, retain and promote as we continue to grow CURO.

With that, I will turn it over to Roger.

Thanks, Don, and good morning. Consolidated revenue for the fourth quarter of 2020 was $202.1 million, down 33.2% compared to last year's fourth quarter. U.S. loan balances and revenue decreased 39.2% and 39%, respectively, year-over-year, primarily due to the impact of COVID and some additional pressure from the runoff of the California installment portfolios.

California installment balances finished 2020 at $37.3 million, and we expect the remaining balances to run off in the first half of 2021. Excluding California, installment loan balances, U.S. loan balances finished down $102 million or 30.7% year-over-year, but grew at $29.4 million from the end of third quarter. Canada loan balances increased 9.2% year-over-year, including a $51.2 million increase in Open-End balances, offset by a $17.7 million decline in Single-Pay balances, primarily from COVID-19 impacts.

Sequential growth in Canada continued to be strong at 13%. Consolidated adjusted EBITDA came in at $34.3 million, down $33.2 million or 49.2%, as revenue declines from lower loan balances were offset by lower provision for loan loss and cost reductions. As a result, Q4 adjusted earnings per share was $0.20.

Taking this to country, I'll start with Canada, where, again, the year-over-year performance continued to stand out despite COVID headwinds. In Canada, revenue declined 10.5% compared to the prior year quarter, entirely due to lower demand for the Single-Pay product from COVID-19 impacts.

Our Open-End loan book in Canada increased 20.3% year-over-year, with revenue up 14.1% for the same period. Net revenue increased 3.4%, largely due to a 326 basis point improvement in a net charge-off rate year-over-year. Despite COVID-19 impacts, Canada posted annual adjusted EBITDA of $62.8 million, up 6.7% versus 2019 and exited 2020 with Q4 year-over-year loan growth of 9.2%.

In the U.S., the impact of COVID-19 in the fourth quarter remained more pronounced than in Canada, with revenue down 39% from the prior year and adjusted EBITDA down $35.1 million or 74.2%. In addition to COVID impacts, U.S. comps were affected by the aforementioned runoff of our California installment loan portfolios. Loss rates in the U.S. improved 420 basis points year-over-year. So even with the sequential loan growth, the loan loss provision was down 47% like-for-like.

The resulting $41.2 million decline in risk-adjusted revenue translated to a $35.1 million decline in . adjusted EBITDA with risk-adjusted revenue declines mitigated partially by lower advertising cost and expense management. I'll expand a bit on trends and key drivers for the quarter. First, demand and loan volume.

Page 5 of our supplemental earnings presentation recaps the weekly trends through last week indexed to the week ended March 7 of last year. Weekly application volume has returned steadily and loan balances have grown modestly week-to-week, more so in Canada. We finished January 2021 with loan balances in Canada flat to the end of the year and the U.S. down modestly from the end of the year. But this was consistent with the same monthly sequential trend for January a year ago.

As we moved through the fourth quarter, the percentage of loans originated to new customers increased to an average 13.6%, up from the 12.5% in the fourth quarter of 2019 and up from 11.5% in the third quarter of 2020. Second, delinquency and credit trends. Page 6 of our earnings supplement highlights weekly delinquency trends by bucket. As we move through January 2021, delinquency levels have been stable to December, generally. And through the week ended January 29, total delinquency levels still remain over 27% better than the comparable period a year ago.

Our fourth quarter consolidated Company Owned net charge-off rate declined 730 basis points year-over-year, with a 326 basis point improvement in Canada and a 420 basis point improvement in the U.S.

Third, turning to the provision for loan losses. Our allowance coverage rates declined modestly from third quarter of 2020, but we built allowance overall as the provision for loan losses exceeded net charge-offs by $4.8 million for the fourth quarter. Consolidated allowance coverage was 15.6% at the end of fourth quarter 2020 compared to 16.2% at the end of the third quarter of 2020.

The impact of changes in delinquencies and lower net charge-off rates was offset qualitatively in our allowance evaluation by continued high levels of uncertainty for employment trends and expiring unemployment supplements, stimulus and the impact of modified loans.

Loans modified under our Customer Care Program made up 3.6% of our loan balances at the end of fourth quarter, which is down from 4.1% at the end of the third quarter of 2020. Fourth, the operating expense reductions. As discussed on our last 2 quarterly conference calls, we took actions in mid-March to reduce operating expenses across several major categories, including advertising, variable compensation, a freeze on hiring, suspension of merit increases and savings from work-from-home initiatives.

Most of those actions remained in effect for all of fourth quarter. During the fourth quarter, we incurred some discretionary variable compensation costs and some nonrecurring spend for long-term strategic planning, while otherwise maintaining the COVID-19 cost-saving initiatives. On Slide 18 of our investor presentation, we provided outlook for 2021 run rate operating expenses on a quarterly basis, as we return to normalized levels for items like performance-based compensation.

We ended the fourth quarter with $213.3 million in cash and $310.5 million of liquidity, including undrawn capacity on revolving credit facilities. We'll use $85 million of cash when Flexiti closes later this quarter. Then when the Katapult transaction closes in early second quarter, we estimate we'll receive about $90 million-or-so of cash, net of cash taxes, so about a wash in terms of the resulting cash balances.

As we move through the first half of 2021, we will continue to evaluate the use of the resulting excess cash for corporate purposes ranging from funding regrowth of our loan book to investing in new and existing organic growth initiatives to strategic M&A.

As Don mentioned, due to continued uncertainties related to COVID-19, including the time line for full reopening of the markets we serve and impacts from governmental stimulus, we are not in a position to offer 2021 guidance at this point. However, we expect our operating trends in 2021 to continue to be influenced by the timing and magnitude of governmental stimulus and the duration of the pandemic. U.S. loan demand moderated in early January, but bounced back slightly over the last couple of weeks, which we attribute to additional U.S. federal stimulus payments in late December and early January. In other words, about $600 for most eligible people.

Canada demand last month was affected by a return to lockdown measures in several major markets, including Ontario. Because of these factors and expected additional U.S. stimulus measures, loan demand will likely remain constrained in the first half of 2021. Other variables, which could affect the pace of recovery include the timing and magnitude of U.S. income tax refunds.

Based on fourth quarter net income and strong cash flows, our Board of Directors declared a quarterly dividend of $0.055 per share to be paid on March 2 to shareholders of record as of February 16.

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

(Operator Instructions) Today's first question comes from Moshe Orenbuch with Crédit Suisse.

Congrats guys on strong results and especially to you, Bill, on the well-deserved promotion. I guess, Don and Roger, you guys talked about the cash position. It sounds like it's likely to increase during the first half at least of 2021. And Roger, you specifically mentioned a couple of potential uses, but kind of didn't mention kind of debt and equity. I mean, maybe can you guys talk about what you're seeing that makes you think about the uses in the standpoint of opportunities? Are there other things out there? I mean you've done a tremendous amount so far. So maybe you could just talk about that a little bit more, please.

Moshe, I'll start, then Roger can fill some details. So we're -- I think we said we're -- for a while in terms of strategy, [cards Canada] Katapult -- obviously Katapult is going to turned into a realization opportunity as opposed to an investment opportunity. But in both, like [inorganically] and in terms of M&A where we continue the cards and Canada continues to be interesting to us. And we'll evaluate opportunities against kind of M&A opportunities as they come about.

So there's nothing -- I think -- I don't think there's anything that's sort of imminent from us. I think it's just -- we're just going to keep looking at the market. And then obviously, we've got -- Katapult won't close until probably into the early in the second quarter. And Flexiti, we've got kind of good bit of work to do with them in terms of integration, and it not be a kind of integration, we'll just help and support them to grow that business.

So don't just -- this is just not a lot of specifics to offer right now other than we -- we are -- we'll continue to evaluate stuff as it comes up and hope that we can find some things that fit into our -- both organic growth opportunities and M&A opportunities that fit in with our longer-term strategy.

Okay. And is there anything from the standpoint of looking at your debt that makes sense to do with some of that cash? Or is that not something you're doing near term?

I think it's probably something we'll -- once Katapult closes, I think we'll continue to evaluate that, but probably not something that we'll do much on until into the second quarter, even just sort of evaluating in a serious way.

Got you. And just as kind of -- from a big picture standpoint, there's a lot of uncertainty between the risk of near-term shutdowns and the payments of additional stimulus. I keep thinking that when you looked at the stimulus payments that we received almost a year ago, clearly, the outlook for consumers was incredibly uncertain. And while at the moment, it's not certain. Is this something -- I mean, how do you think about your customers' kind of mindset in terms of their willingness to think about borrowing money? When that outlook starts to stabilize? Like -- I mean, is that something that we could expect in 2021? And how do you think about that?

Yes. So the about the -- I guess, the stimulus from just the April-May stimulus was it -- it came with -- at a time when I think customers generally were -- our customers were in good shape like-for-like and it come -- has come -- had income tax refunds. So that's just sort of you look kind of through the year on kind of the seasonality. It hit at time when consumers were -- our customers were typically have a bit more liquidity. So it kind of added to that and at a time when everybody sort of just kind of stopped and there was no -- the discretionary spending kind of fell off dramatically, eating out and travel and that kind of stuff.

So I think if you roll that forward to the year-end stimulus, which was much smaller, that obviously time when there was more uncertainty, and obviously, that our customers were -- and just adding consumers in general, we're just in a different spot from -- in terms of liquidity and sort of their outlook. So we felt like that stimulus, the second stimulus has kind of burned off, I guess, a bit more quickly. And it wasn't sort of saved and then spent. I think it was more kind of readily spent to catch up on maybe some pass-through balances.

So I think looking into '21, I think depending on the timing of it and it's -- what the payment is, what the eligibility levels are in terms of income, I think you're going to -- and where the economy is in terms of reopening, I think it's going to probably tend to look more like the latter stimulus the -- in terms of the kind of personal balance sheets -- the shape of personal balance sheets [what] put forth together, and customers would get us, I guess, I'd call it -- just 1/3 stimulus payment.

So I think -- I don't think anything is -- fundamentally, from there, we see the jobs recovery. I just have just a glance of the Jobs Report, and I think the economy is making kind of taking baby steps forward. But if that can hold and you start to get the jobs back in retail and restaurants and all the hospitality jobs, I think that points to a pretty good second half. And I think that the consumers will be back spending and borrowing again. It's just the timing of that. Because I think I said in my remarks, it feels like we've been kind of getting to the end of the pandemic in a couple of months for the last 6 months, that just keeps -- feels like it gets kind of pushed down a little bit more. So -- but now it does feel like the vaccines can really get distributed right, then you should see a pretty strong second half. And I think the borrowing, and that will include consumer spending and consumer borrowing across the credit spectrum.

And our next question today comes from Kyle Joseph at Jefferies.

Congratulations on navigating a turbulent year, and let me echo my congratulations to Bill on the promotion. Start off in the U.S., I think both Don and Roger talked about tax refunds, but can you give us a sense for the outlook? I know you mentioned they'd be delayed. But so give us a sense for timing and potentially magnitude and if there's going to be any impacts on tax refunds as a result of all the stimulus from 2020?

Kyle, it's Bill. Thank you for the kind words there. I think that's one of the -- as Don mentioned, that's one of the uncertainties we're trying to plot. I mean there's obviously a delay in when people can file for their tax refunds, but I think the bigger question is how that impacts when earned income credit refunds are released, has been the case in previous years, and although you could file at the end of January. Typically, those refunds were not released until late February due to the IRS reviewing them, that there historically has been higher amount of [fraud] with us. So number of years ago, the IRS began holding those and essentially releasing them all at once.

So the question is, you can file now mid-February instead the end of January, how long will they hold those? And we continue to ask the questions and stay close to tax preparation companies and look for guidance from the IRS, but I don't think we've seen anything to date. But if you just sort of run the calendar out, it seems like having earned income credit refunds released in mid-March could be a likely outcome. As far as the impact, I think you don't know how much the stimulus really impacts that. It's really more of a question of employment.

And if people weren't working, how does that factor into their refund? I don't think that there's an impact to the earned income credit. And I think just to point further complicates it is, if that is the timing of tax refunds fraud customer mid-March, does that coincide with another stimulus payment. And then what that does to demand over a number of months because if a customer gets a $4,000 or $5,000 tax refund and then gets a $2,200 direct payment, obviously, that's going to depress loan demand for some time, even if the economy is recovering and people are getting back to work. So just one of the things that we're staying really close to.

Appreciate that. A lot of moving parts there. And then shifting to Canada. Excuse my ignorance here, but is there any talk of incremental stimulus in Canada? I know you mentioned that their economies recovered faster than ours, but anything potentially on the horizon there?

Kyle, it's Don. So I think there is -- the -- but I've exact timing, but they did a kind of a follow-up around as well in 4Q. Just in general, Canada has a more -- just to kind of call it standing social safety net is a lit bit more -- there's a bit more there for consumers, there's a lot of supplements kind of by province for child care, et cetera.

So I think that, that was kind of in place, and that's part of what helped the -- I think additionally, just kind of doing a better job managing the COVID cases that kind of the standing social safety net helped supplemented by this, I think it's called the [sub].

So there is, I think, a little bit of talk about of further stimulus there. I think part of it is, if you look on a relative basis, and I'm not going to in the rabit hole here, but the -- I think Canada has done a much better job sort of from a cases -- per capita cases standpoint, hospitalization, et cetera. But if you look at vaccinations, they're, I think, about kind of 2% versus 8% or 9% in the U.S. So they're good bit behind us in terms of vaccination. Since a lot of -- it started the political sort of finger pointing is starting, and that may give rise to some additional stimulus.

But the additional stimulus there as an increase over kind of what the standing net, say social safety net provided is much less than what you -- than what we've seen on a relative basis in the U.S. relative to what the standing safety net gives consumers.

Got it, very helpful. And one last one for me. Just on the Flexiti business, I guess I'd ask, what is the most comparable business that we look at in the U.S.? Is it kind of a Synchrony and Afterpay and Affirm, or is Flexiti really a combination of all 3 of those? And then a follow-up there would be -- would it be possible to integrate kind of a Katapult product on that platform? Or is there one already there?

So kind -- I guess, the short answer to be probably is a bit of a combination. I think as the business is currently structured and if you look at the product mix now, it's probably closest to a Synchrony. But the growth on the -- which is kind of 6 months, no payments, interest rate for 6 months, and then it kicks into a -- that's not paid off an interest-bearing obligation as a percentage of the total pie there. But if you look at the -- where the mix shift is happening, it's 2 more of a pay over time, a buy-now-pay-later, bit of paying for equal installments product.

So in terms of Katapult-type opportunity, the RTO product, there are versions of it in Canada that some at the retail level. We think that it's simple that the line of credit product -- a line of credit product structured to -- from a credit standpoint to be offered to non-prime consumers is probably the better option there because, it's built on the existing platform that Flexiti has a line of credit platform now.

We obviously offer a line of credit in Canada. So probably we'll look more like a line of credit product offered to non-prime consumers as opposed to an LTO product.

And our next question today comes from John Rowan with Janney.

Bill, congratulations on the promotion. And I wanted to follow-up with you because Kyle stole my question on the tax season. But one other aspect I just wanted to get your input on. Obviously, you talked about possibly delay in earned income tax credits and how that would put up with someone potentially getting their refund. But what about if refunds are different? Are you tracking anything related to people not withholding enough money for the federal unemployment benefits that they received?

And whether or not your customer can see a shift in their average refund, putting aside for a second, the potential for stimulus payments?

Yes, John, it's not really something that we track, certainly not quantitatively, qualitatively, we can review W-2s or paystubs. But at the end of the day, because the majority of their refund comes through earned income credit, we're not tax advisers or tax specialists. So we don't go too far into that. I don't expect a major shift in that arena. I think the bigger question is timing.

The one thing I should have mentioned with the previous question is, what can happen between now and tax refund season. Because typically, you would see balances pay off and pay down because of refunds. But if that's mid-March, it does potentially create an opportunity to grow loan balances between now and then.

It seems unlikely we would see -- actually see a direct payment to customers in February. So what happens over the next few weeks? I mean, as Don mentioned, we saw the last stimulus, we believe, burn off pretty quickly. And there's been a number of articles about pretty high percentage of renters in the U.S. being behind on rent. We've worked with TransUnion a bit on some macro data. And everything that we look at looks like that that stimulus went away pretty quickly. And so there could be an opportunity to grow the book between now and when tax refund reason season happens and/or another round of stimulus.

And just to follow-up on the timing, too, hasn't there always been kind of a -- I don't want to say a longstanding understanding, but some notion that the later the refunds come the less seasonal paydown consumer lenders see from the refunds? I'm trying to refresh my memory, but that had always -- if I'm not mistaken, that was kind of the working assumption that a lot of people would use.

I think it's difficult to tell because the biggest change that we noticed is when they started to hold all of the earned income credit refunds. So you really -- tax season, which for us, used to be 4 to 6 weeks. Now it's typically 8 days or something like that. I mean, it's very, very much compressed because you have all of those refunds going out at one time. Whereas a number of years ago, the refunds would start flowing in late January and go through early to mid-March, and that has just been compressed.

So I don't know that we've seen as big of an impact on what you mentioned other than what we said. It's just a real compression. And and it happens very quickly. And then it also -- the pay downs happen quickly as well, but you do start to -- it does start to normalize.

Okay. And then Roger, just wanted to -- a couple of questions on the slide in your investor presentation on the Katapult deal. Obviously, right now, with the FinServ stock at $17 a share, I assume that, that is more than enough for you to earn those additional 3 million earn-out shares, is that correct?

Correct.

And then -- well, yes. And then, if -- given how strong FinServ stock has performed, you have basically 2 SPAC holder redemption assumptions. I'm going to go ahead and assume that if the stock stays where it is, the working assumption would be that the redemptions would be on the low end of that. I mean is that now -- you obviously can't tell me what redemptions are going, [no one, though] but I assume that the impetus here is for those shareholders to not redeem.

Yes. I mean, based on our understanding of everything that is a predictor of redemptions, everything that's gone on so far would predict very low redemption -- would predict low redemption.

(Operator Instructions) Our next question comes from Bob Napoli with William Blair.

Congratulations, President Baker. Really great to see the promotion.

Thank you.

Just, I guess, obviously, there's a lot of difficulty predicting the next several quarters. I mean, I guess, if you look at the first quarter, you're probably going to have revenue down a little bit. But credit -- I mean, credit probably is going to remain really strong, I guess, if you have -- I don't want to get too much into and have some longer-term questions, but just trying to be like in the ballpark on the first quarter and think the -- but you would expect with the redemption and the additional cash, you're not seeing anything on the credit side that would cause something unusual in the move in the credit losses?

Yes. I mean, it's Roger. Good morning, Bob. Yes, if you look at Page 6 of our investor presentation, we've updated delinquency trends through the end of January through last week. And we actually improved -- they've actually improved over -- so again, for Q1, we -- I don't want to I would kind of smile when I say it, but we have a 90-day charge-off policy, generally. So for Q1, yes, we're 1/3 of the way through Q1 at this point. So -- but I think that -- but I think that points to that direction for all the first half.

So revenues will be down some -- right. So revenues will be down some in the first quarter, then -- I mean, I think the world -- assuming the world goes the way it looks a lot of people were thinking, vaccines are getting out, cases are coming down, the world starts to get kind of back to normal by the third quarter or close to normal and probably not fully normal till '22. I mean what really matters here is the earnings power of the company long term, 2022 earnings power, the Flexiti deal, the cash that you have. You have a strong balance sheet. So there's no questions.

But the only issues, I guess, are the growth rate and the margins of the company as we think about 2022, 2023, any regulatory with the change in administration? Are you seeing anything concerning. I mean, obviously, the CFPB went through a lot with -- under the Obama administration, but I'm sure they'll look for things, and there's always pressure. But what are you concerned about most on the regulatory side that could change the long-term view of your business?

Bob, it's Don. I will -- there were a couple of questions, if you will, more than couple questions. But I guess, the sort of the last maybe part of the question first on CFPB, to your point, we did manage the [business] quite successfully through at Obama CFPB. We've invested a ton in terms of our compliance and risk management areas in the business. There's a lot of much more sophisticated, call it, kind of reg tech of technologies that we can use to better identify and manage risk.

So I think I feel good about our ability to manage the business and have decent working relationships with federal regulators that kind of we have a lot of state level as well. So how that all plays out and the timing of it all remains to be seen, but it's certainly not something that -- and obviously, we didn't -- we don't run the business hoping that certain politicians were in certain elections. I mean, we've got a longer-term kind of view and mandate than that.

So in terms of the rest of it, I think the -- it seems like we've been in this rolling will be better by -- it was going to be the end of the year in -- end of 2020, right, it was maybe again in the first quarter, as the end of second quarter, we'll have a normal summer. And it just seems like it keeps getting stretched out. But I think from a competitive standpoint, we feel great about where we are.

And from a resource standpoint and sort of people, processes, technologies and capital, we feel great about where we are. We know that the longer this thing drags on, the more strain it puts on companies that just don't have the liquidity and the balance sheet strength that we have. We're not alone in that, there are other companies in the sector that are well capitalized and kind of poised to be -- to grow their business. And we also know that -- so this is for me, I've said this before, I'm just kind of, we have been running a business in this consumer financing and so this will be downturn #4. And we know that -- I don't -- we don't see anything changing the way consumers spend and borrow coming out of this downturn.

Obviously, the timing and the scale and the scope, et cetera, this is a different one in some respects. But it does have some -- as it's been dragging on a little bit, we sort of thought maybe would be shorter and sharper. But it is kind of dragging on, it's starting to look more like the last downturn, the '07, '08, '09. And I think our business and a lot of businesses that our sector did quite well in '10, '11 and '12 as consumers return to spending and regular spending and borrowing patterns and credit remained very good, and competition was much more muted because a lot of companies simply couldn't -- didn't survive the financial crisis and either at all or are in -- certainly in the same shape that they were in going into it.

Any thoughts on the long-term returns of your business and the growth rate as you as the world gets back to normal, whenever that is?

Yes. It's just hard to say right now, given -- I think the -- as we -- I think part of it is just sort of projecting what the world is going to look like. And then secondly, obviously, we've added Flexiti to the mix. And as we mentioned, we've got a lot of both sort of organic growth opportunities and potentially further use of our cash and liquidity to do more M&A. So looking at exactly what the business mix looks like coming out of COVID is a hard one to predict right now.

Great. Okay. And then I mean, Katapult, congratulations on that investment and knock on wood, to the -- I know you added, I know that CURO was very involved in bringing that organization together and positioning it for the success it seems to be having, and it's an incredible return.

Okay, thank you, Bob.

Our next question today comes from Vincent Caintic with Stephens.

My questions, most of it has been already asked and answered. But maybe just a few follow-ups. So we talked a little bit about -- you mentioned M&A in a couple of times already. And you've shown us great success with Katapult and monetizing that. And then this Flexiti acquisition, I mean, it's nice to see impressive acquisition that's under -- anywhere under 10x revenues considering where the other guys are trading at.

But when you think about -- you're generating a lot of excess cash, you now have this history of incubating businesses. Is there -- how's the rest of a potential M&A pipeline? And anything else that you might see out there, that's might be interesting to incubate?

Yes, Vincent, it's Don. I think I said earlier we've -- strategically cards and Canada continue to be interesting. And more broadly, we said we -- if consumers are accessing credit through direct-to-consumer, both retail and online through point-of-sale and through cards, we want to have revenue and earnings and growth drivers and investments in all 3 of those verticals in both the U.S. and Canada.

So if you look at kind of what a 6 box matrix there, that's strategically where we're sort of positioning the business over the long haul. So opportunities that fit in those boxes, and those are pretty broad and you're catching pretty much every way and each consumers use credit. But within that, there's a whole bunch of different -- you can look at the -- you can also sort of segment that in terms of near prime and non-prime and, call it, under banked.

And so whether there is ranges of opportunities from a credit standpoint as well, so you can -- you can blow that box up that matrix up and have it look pretty big. So -- but generally speaking, within that near prime, non-prime across those 3 verticals is where we'll look at opportunities. So it's hard to sort of say exactly what's going to come about and what things will look like in terms of values and integration opportunities, et cetera.

So we just have to -- I think we have to sort of remain opportunistic and willing to kind of move quickly to evaluate opportunities. But there's also a lot of organic opportunities that we're beginning to invest in more heavily as well, so.

Okay. Great. And actually, that's a good segue into my next question, which is -- I was just wanted to get some more detail about the technology dollars you plan to invest in for 2021. Because you've had -- CURO has had good experience developing new products organically. And Bill has been really helpful with that, so is there organic products that -- or development that you're thinking of growing any new products that you think might be interesting?

And then now that you have Flexiti in Canada, is there something where can that experience be brought over to the U.S. as well, where you might get into to buy-now-pay-later in the U.S.?

Vincent, it's Bill. I think on Flexiti, we're really focused on supporting them today in Canada with their current business and their current merchant partners. We've done a lot of work on the addressable market up there. We think that there's a tremendous opportunity right in front of us. So I think the focus will remain with them just with the business that they have and that we feel they can go win in the near term.

I think as far as other organic products we're absolutely interested and working currently on some opportunities on our own platform with the notion that even if we would do M&A, it would just make us that much more educated and a better buyer. But to sit on the sidelines and depend on M&A was not something we wanted to do. So we're really working those 2 opportunities in tandem. And like I said, to the extent that we evaluate other businesses, we feel like we can ask better questions and do more diligence and ultimately make a better decision.

All the while, if that doesn't pan out, we've got a really nice jump start on some of these new opportunities.

And ladies and gentlemen, this concludes the question-and-answer session. I'd like to turn the conference back over to Don Gayhardt for any final remarks.

Great. Thanks, everybody, for joining us again. Two calls this week. So appreciate all of your time and attention, and we look forward to talking to you after we complete our first quarter. Thanks very much.

Thank you, sir. This concludes today's conference call. Thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.