CURO Group Holdings Corp (CURO) 2020 Q3 法說會逐字稿

Good morning, and welcome to CURO Group Holdings Third Quarter 2020 Conference Call. (Operator Instructions) Please note, this event is being recorded.

I'd 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 third quarter of 2020 which are available on the Investors section of our website at ir.curo.com.

With me on today's call are CURO's President and Chief Executive Officer, Don Gayhardt; 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 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 obligations 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 our call today. I hope this finds you and your families and your colleagues all safe and healthy.

Before we begin our third quarter update, I'd like to point out that we have again prepared a supplemental investor presentation to highlight key trends through last week. We'll be referencing this presentation and our remarks, and you can find it on the Events and Presentations section of our IR website.

Our results for the third quarter were positively impacted by gradual increase in loan demand, our decisions to selectively adjust our credit scoring to raise approval rates, reduced quarantine and stay-at-home orders and historically low delinquencies and net charge-off rates.

Canada remained a bright spot, posting another quarter of sequential loan balances, revenue and bottom line growth. We continue to experience solid demand and improving credit trends for our open-end loans in Canada which drove the third quarter's impressive results. We believe that our strong results in Canada are reflective of 2 things: one, our strong market position and our market-leading omnichannel product offerings; and second, the more pronounced economic rebound in Canada, where approximately 80% of the jobs lost due to COVID have been recovered compared to just under 60% here in the U.S.

In our U.S. business, we finally started to see some growth return in August and September. Credit has held steady at very strong levels so far. We also continue to gain traction with the Verge credit product and are now offering that product in 14 states. Although there are signs of progress in the U.S. business, the impact of COVID-19 in terms of reducing loan demand and increasing loan repayments remains a challenge, and we still have work to do to get the bottom line in the U.S. back to more normalized levels.

Getting into the detail a bit more, we experienced steady weekly increases in loan applications and new loan volume overall as we move through the third quarter. While these trends were still well below these same periods a year ago, they have for now turned the corner. Our total managed loan balances increased by 9.5% from the second quarter of 2020, with growth of 4.8% in the U.S. and 13.8% in Canada. While managed loan balances were still down 26.5% year-over-year due to the impacts from COVID, the 9.5% sequential increase in this year's third quarter was better than the 7.9% sequential growth in last year's third quarter.

I should note that the year-over-year decline was 18.2% without the impact of the runoff of our California installment portfolios. In addition, an unprecedented improvement in credit quality, partially offset the impact of lower loan volume and on revenue. Total delinquencies were down more than 30% year-over-year for most of the third quarter. Through the week ended October 24, total delinquencies were down 28% compared to the same period a year ago.

Putting the pieces together from a P&L perspective for the third quarter, we posted a revenue decline of 38.8%, primarily due to COVID-19's impact on loan demand as well as the year-over-year impact of the California regulatory change that went into effect at the start of this year. Excluding the impact of our California installment loans, revenue declined 35.8% compared to the year ago quarter, so COVID-19 was by far the main driver.

Adjusted EBITDA declined $30.9 million or 46.1%, while net revenue declined $46.1 million year-over-year. The net revenue decline was offset by about $20 million of year-over-year cost reductions, which Roger will cover in more detail. As a result, adjusted diluted earnings per share declined 62% year-over-year to $0.27 per share for the third quarter.

We said before that non-prime consumers consistently show a greater ability to manage credit as measured by the relative change in their delinquency and charge-off data during economic downturn than 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 omnichannel platform and the investments that we have made to allow for a seamless transition from our store to digital channels. In the U.S., 67% of transactions occurred online during the third 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 shift for online with 34% of transactions conducted online during the third quarter of 2020 compared to 23% in the first quarter of the year.

We remain focused on expanding our product set and strategic relationship and, as mentioned earlier, are encouraged by the early results from our relationship with Stride Bank. As a reminder, Stride Bank licenses our underwriting origination and servicing platforms to generate online installment loans using the Verge credit brand. Verge is now offering 14 states, and we expect another 5 states to go live by the end of the fourth quarter. We remain optimistic about this product's growth potential and future contributions.

Another area where we are focusing a good deal of our effort is on our card platforms. We currently have approximately 415,000 open accounts with a positive balance in our Opt+ plus and Revolve programs. We offer our Opt+ prepaid card in both the U.S. and Canada while our newest product, our Revolve bank account is offered in the U.S. In all cases, we act as the program manager. And while we partner with banks for core functionality, we control pricing, marketing and feature development for all of our card products, allowing us to capture greater economics than if we work as an agent for another program manager.

Revolve is particularly interesting as it offers the full functionality of the bank account to our customers, including direct deposit, early access to payroll direct deposits and overdraft protection and, in many cases, is a better and cheaper alternative to traditional bank accounts. These card-based or light bank accounts, which are also offered by companies like Chime, have proven very popular with non-prime consumers. And we believe that our branch network provides us with a great platform to market and fulfill new account relationships. To that end, our fourth quarter advertising spend includes a significant increase in advertising investment for the Revolve card which, if successful, will continue on into 2021.

I'd now like to turn to our investment in Catapult, a leader in the rapidly growing virtual point-of-sale financing space. Catapult's origination volume and credit performance continues to be strong. Through the end of September, Catapult's originations increased by over 160% compared to the same period in 2019. We pick up our share of Catapult's income on a 2-month lag, so we expect that its strong earnings trends will contribute considerably to our earnings in the fourth quarter of 2020.

It's important to note that our equity share of Catapult's earnings is not included in our adjusted EBITDA or other non-GAAP metrics. Specifically, our equity income from Catapult was $3.5 million in the third quarter of 2020, a $4.9 million improvement over last year's third quarter loss. We also increased our ownership of Catapult in the third quarter, spending $11.2 million. And we now own 46.6% of the primary shares and 41.2% of Catapult's fully diluted shares.

In what has been a very challenging environment, we also generated over $185 million in free cash flow from operations after loan funding and capital expenditures. Roger will highlight our continued strong liquidity position. While we have a fair amount of caution around the economic environment, we are carefully evaluating M&A and investment opportunities focused around our key strategic growth areas in Canada and cards.

As we start the fourth quarter with higher loan balances and continued low delinquencies, we think this third quarter could be the trough for risk-adjusted revenue. With that said, we expect increased new customer counts, online mix shift and upfront loss provisioning on higher volumes to modestly impact risk-adjusted revenue margins in the near term. Even though recent economic data and our own indicator of customer health have been more constructive of late, there remains a significant amount of uncertainty.

As we have over the last couple of quarters, while we aren't going to provide guidance, we plan to continue to provide business updates as we move through the quarter. On Page 12 of our supplemental investor presentation, we've highlighted the trends and uncertainties that we think will affect the balance of 2020 and into 2021. We are prepared for a range of outcomes and are continuing to focus on supporting our customers and communities through this unprecedented time.

More broadly, though, and as we discussed last quarter, we believe that we're still tracking to end 2020 with an upward trend in earning asset growth. Given our current business and product line mix, we think this growth trajectory points to a 2021 revenue picture that looks broadly in line with our results for 2019, although with a higher percentage of the total coming from our Canadian operations. However, there remains uncertainty around the extent to which higher advertising spend and upfront loan loss provisioning that come with higher new account volumes will impact our bottom line results.

In summary, while business continues to show the effects of the pandemic, we feel great about the work that we've done to continue to move your company forward, namely, managing through the pandemic, including extended work-from-home time for over 1,300 employees; continuing to invest in our technology and risk and analytics platform, the strength of which has helped us to quickly migrate customers to our online channel and to continually refine our credit decisioning; supporting the growth of our Canadian operations, which accounted for more than 45% of our consolidated quarterly adjusted EBITDA and 57% of our gross earning assets at the end of the third quarter; growing and enhancing our card offerings; investing in the continued growth of Catapult and its market-leading e-commerce LTO solutions; and continuing to evaluate a number of M&A and corporate development opportunities 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 by the pandemic, continued to meet our customers' everyday needs for financial services and to execute on our strategic priorities, all while helping customers navigate financial hardship and other challenges. Like a lot of companies, on Tuesday, we're giving our U.S. employees extended time off to vote. And I'm very pleased with the response that this plan has generated internally. We firmly believe that the strength of our company lies in our people and our culture. I'm confident that together, we will manage through these unprecedented times and emerge even stronger and more nimble than before.

And with that, I will turn it over to Roger.

Thanks, Don, and good morning, everyone.

As Don mentioned earlier, consolidated revenue for the quarter was $182 million, down 38.8% compared to last year's third quarter. U.S. loan balances and revenue decreased 44.8% and 44%, respectively, year-over-year, primarily due to the impact of COVID and some additional pressure from the runoff of the California installment portfolios. Excluding California installment loan balances, U.S. loan balances finished the quarter down $115.4 million, or 36.5%, but grew $25.6 million from the end of second quarter.

Canada loan balances increased 1.9% year-over-year, reflecting a $28.2 million increase in open-end balances, offset by an $18.4 million decline in single-pay balances from COVID-19-related impacts on store volumes.

The sequential growth from the COVID trough was strong at 13.8%. Consolidated adjusted EBITDA came in at $36.1 million, down $30.9 million or 46.1% as revenue declines from lower loan balances were offset by lower provision for loan loss and cost reductions. Consolidated adjusted net income declined 65.4% and adjusted earnings per share declined 62% year-over-year. Again, note that our year-over-year improvement of $4.9 million from Catapult is not reflected in the numbers that I just cited.

Geographically, I'll start with Canada, where the year-over-year performance continues to stand out despite COVID headwinds. In Canada, revenue declined 18.3% compared to the prior year quarter, entirely due to loan demand for the single-pay product declining from COVID-19 impacts. Our open-end book in Canada increased 11.9% year-over-year, with revenue up 6.7%. Net revenue declined only 3.6%, largely due to a 380 basis point improvement in the net charge-off rate year-over-year.

Positive credit performance, coupled with disciplined expense management, drove a 6.7% year-over-year increase in Canadian adjusted EBITDA to $16.3 million for this quarter. In the U.S., the continuing impact of COVID-19 was more pronounced with revenue down 44% from the prior year and adjusted EBITDA down $32 million, or 61.7%.

In addition to COVID impacts, U.S. comps were affected by the runoff of our California installment portfolios. Excluding California installment loans, U.S. revenue declined 41.1% year-over-year. Loss rates in the U.S. improved 540 basis points year-over-year, and we remain very controlled in our cost structure, which partially mitigated the effect on revenue of lower loan balances.

Don mentioned the key macro drivers of our P&L and balance sheet performance earlier, and I'll expand on that a bit now. First, demand and loan volume. Page 4 of our supplemental earnings presentation recaps the weekly trends through last week indexed to the week ended March 7. Weekly application volume has returned steadily to nearly 120% of what we experienced pre COVID, and loan balances have grown modestly week-to-week, more so in Canada.

However, we would normally expect application volume at this time of the year to be double what we would see in the early part of the year in March. As we moved through third quarter, we selectively adjusted credit criteria, particularly for existing customers, while the percentage of loans originated to new customers also increased to an average of 11.5%. That's down slightly from 12.8% new customers in the third quarter of 2019 but nearly double the new customer percentage from the second quarter of 2020. But approval rates are still lower than a year ago due to the relative quality of the application volume. Loan balances have continued to grow in October with $10 million of sequential growth through October 28.

Second, delinquency and credit trends. Page 5 of our earnings supplement highlights weekly delinquency trends by bucket. As we move through October, delinquency levels have moved slightly off the historic lows we saw for most of the third quarter. This is due predominantly to the aforementioned higher percentage of new customer originations, higher percentage online originations and California runoff.

Through the week ended October 24, total delinquency levels remained over 28% lower than the same period a year ago. Our consolidated net charge-off rate declined 675 basis points year-over-year with a 380 basis point improvement in Canada and a 540 basis point improvement in the U.S. Because of growth mix shifts towards Canada, the consolidated decline in our NCO rate is greater than the sum of each of the countries.

Third, provision for loan losses. Our allowance coverage rates declined modestly from second quarter, but we built allowance levels overall as the provision for loan losses exceeded net charge-offs this quarter by $4.6 million. Consolidated allowance coverage was 16.1% at the end of the third quarter compared to 16.7% at the end of second quarter. The impact of changes in delinquencies and lower net charge-off rates on allowance coverage was offset qualitatively in our allowance evaluation by continued high levels of uncertainty for unemployment trends and expiring unemployment supplements as well as the impact of modified loans.

Fourth, 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.

On a combined basis, we previously guided that these actions would drive $11 million to $13 million of quarterly cost reductions. The actual year-over-year reduction this quarter was $15.6 million so we, again, came in better than expected.

We ended the third quarter with $207.1 million in cash and $302.1 million of liquidity including undrawn capacity on revolving credit facilities. Of course, access to the revolving lines depends on continued collateral performance for the ABL facilities and covenant clients both of which have been very good so far. In addition, on July 31, we closed participation for an additional $100 million of commitments for our U.S. SPV facility, which lowered the blended borrowing cost to 8.15% until $145.5 million was drawn on that facility.

We continue to believe we are well positioned to take advantages of opportunities as our customers and markets recover, but we also remain cautious in capital deployment. Our share repurchase program remains suspended, and we continue to limit capital expenditures to essential maintenance and selective investments. Based on third quarter net income and the strong cash flows, our Board of Directors declared a quarterly dividend of $0.055 per share to be paid on November 19 to shareholders of record as of November 9.

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

(Operator Instructions) Our first question comes from Bob Napoli from William Blair & Company.

So just on, I guess, a couple of strategic items. On Catapult, the earnings improvement there, obviously pretty dramatic. What was the price that you paid for -- what's the valuation? What was the valuation of that -- what's kind of the hidden value in CURO from the current private market valuation of Catapult? So what did you pay, I guess, how did you decide that?

Yes. So Bob, I'm going to answer this question. So we paid more than we paid in the last round, but it was attractive to us. We're buying from some smaller holders, and it was attractive to us, given pretty substantial illiquidity discount. And I think it's pretty disconnected from the true market value of the company. Some of them has come to our sort of online, what we did in this deal to turn over our value. But I think there's -- the company is doing very well. We're super proud of Orlando and his team and what they've been able to do in that business and everybody -- it's difficult for everybody to manage during pandemic. They've done extraordinarily well to continue to grow that business. So I think there's no -- it is certainly something that should be really valuable for us down the road. And this is, I think, kind of I tend to say mortgage is the stuff kind of one-off opportunistic so that's kind of disconnected from the real value of the company. So I think it will become -- we report their earnings on a lag, but I think it will be a bit more clear down the road how well they're really doing.

Great. Then just on Revolve. I mean it sounds like you're trying to build like kind of essentially a neobank or a challenger bank. I mean, you bring up Chime. I think there are a little bit upmarket from you, but I mean you would be in the same area, maybe as Square Cash. And is that the space that you're going after with that? And what's the size of that business? And what do you think it could be over time?

Yes. So our overall -- all of our card products are in other revenue, which is just for competitors, I don't want to break it all the way, but all of our card products are included in other revenue. It's about -- that's about 5% of our total revenue, a bit more now with the depressed loan volumes and all those. So I think the -- but it's very high-margin revenue. And I think other than sort of on some of the overdrafts, there's really been -- there's no credit risk on that. I think we're looking at it. I think -- I guess we have sort of an evolving view of this. I think we -- trying to sort of look at and work with our customers and get a deeper understanding what their needs are beyond simply credit.

And I think that -- I think that's really -- I guess, it's -- in large measure, there's a lot of sort of cross-sell opportunity to our -- not only people that are current loan customers that we have -- I forget the -- lost track how many -- we have 75 million loan applications that are -- that's in our ALL database. So we've, I think, trying to really make sure we've got a product offer. And you can go look at -- you can go -- there's a Revolve website. There's an app you can download and sort of see how it works and see the features and functionality. So I think we're trying to figure out exactly what the right way to sort of sell that product to our customers and put the value -- a value proposition out for them. I think that's a lot of what we're doing.

Now obviously, we have -- we're proud that Bank of Chicago is our partner on that product to work with them. And then we have card processors, et cetera, that we work through. So it's -- there's a net -- kind of a whole ecosystem you have to build to sort of offer that kind of product. So it's not -- so making changes is a little bit -- it takes a bit more time because we're working with others to kind of do that.

So I think that we really want over time to have our customers see us as more than just a place to get a loan. I think we've had good success with Opt+ as a debit card. And I think this -- the people on DDA, a bank account, a DDA product is kind of a natural extension of that. It's just a bit more functionality than an Opt+ debit card. And for us, it's about 3x the monthly return in dollars per cardholder, for active card holders, about 3x what we get from an Opt+ card.

So I'd suspect you'll see us going to put some more marketing money behind it. We're doing a lot of in-store promotions and incentives for our team. And I think this -- we see this is becoming a much, much bigger part of our business going forward.

Great. And just last question, just on credit. I mean you loosened up a little bit. The COVID cases are coming back and people are starting to shut down again. Cities, certainly in Chicago, with our restaurants and bars are closed, I guess, what is how are you seeing...

But still you're paying, Bob.

It's a sad time in some ways. But is that affecting how you're -- I mean, would you retighten? Are you going to retighten, I guess, city by city? Or I mean, what are your thoughts on -- concerns about the credit with the acceleration in cases?

So yes, it's a big question and a good one. I think there are areas where we have -- as we have increased new customer counts and marketing spend and approvals, some of that, I think, by and large, that's gone very well. We've seen a few spots where we didn't like the quality of the new volume. And we've quickly put in some changes to the model.

So we do watch it. I think I said, we watch it on such a granular level by product, by state. We look at each channel stores online and then our site to stores or yes, where people start online and get -- and close in a store. So it's very easy for us to put in changes when we decide -- again, deciding what to do is not necessarily easy, but once you make a decision, getting those changes into the models.

And the other change -- the other part of this, obviously, is we have an ability to take certain volume and have it, what we call, a pending process where we'll have somebody that's online who will be approved pending a discussion with one of our customer service reps to get to verify additional information, employment information, I think, et cetera, et cetera.

So there's a whole range of -- I guess, there's a lot of levers we can pull. And as I said, we're -- if you look at the employment data yesterday was pretty positive, but obviously the markets are sort of digesting more potential shutdown plus a concern about stimulus, probably in terms of the election. So there's -- I think certainly, the first 2 was - and we're trying to balance that. That's why it's there's a lot of moving parts and big moving parts into giving out sort of forecasts. We still feel like we're going to have a quarter of sequential growth that is in the range of what we had from a percentage standpoint this quarter. So it will be more in dollars just as the same percentage on a bigger base. But we don't -- we're not -- I guess the other thing is that -- is holiday demand. And there's a lot of -- we read a lot of discussions on what is -- what the holiday shopping going to look like relative to last year and has COVID and stimulus and some of us have kind of pulled forward -- kind of shop from home kind of pulled forward some of that demand. So I think our forecast for the fourth quarter probably has a good deal of conservatism built in around a less -- a smaller bump from holiday shopping demand.

The next question comes from John Hecht from Jefferies.

Congrats on a good quarter. I guess the first question is, you guys -- your omnichannel, so you've got stores and digital. And then you've got -- you have a lot of products and you're developing, obviously with your Catapult and some of the Verge credit concepts and stuff. So I'm just wondering kind of from a behavioral perspective, as we migrate through this weird time, are you seeing customers use different products in different ways than you maybe saw a year ago? And with that, how do you kind of envision the mix migrating next year?

John, it's Bill. I think it's -- I think we highlighted in the yes the comments, I mean. We certainly have seen a mix to online during the pandemic, but that's been an ongoing kind of phenomenon for a while, which I think it -- which benefits us for sure because we have the omni-channel as you highlighted, the omnichannel piece. But I think going forward, like some of it maybe pulls back a little bit. We still think that Canada and the U.S. are going to be more geared toward mobile, which we're obviously equipped to do. And kind of keeping Catapult aside, that's kind of a different category. But I think certainly, on the core business, I mean, we think that we're certainly equipped to handle both side of things. And still giving customers the opportunity to do call credit card, come in is still something that's pretty powerful for us. I think we highlighted last quarter that we still have this by phone, at store, which is pretty powerful for us. So I think it's kind of a multichannel opportunity, but still it remains pretty wide open for us.

But John, I don't know if this is about -- I would say the -- certainly this shift, if you look at where -- across our business lines, single-pay product continues to sort of, I guess, as -- in terms of customer demand, continues to be the most challenged and certainly been the most challenged through COVID. Yes, we look at Canada, where we have -- everybody has -- there's -- not everybody qualifies for a line of credit product, but if you exhibit good payment behaviors on the single-pay, you will eventually qualify for a line of credit. And I think that continues to -- that product and the flexibility of that product continues to show as our customers sort of favor product. And the one that -- with the payment behaviors are really good, and I use, like the marketing guys, I'd say the stickiness of it. So I think you're going to see less single-pay, less store, more line of credit, more installment and then more of the card-based products. And obviously, mentioned Catapult, I think as an investment for us is going to continue to grow and in what it contributes to us in earnings, and obviously, its value.

Okay. That's very helpful. And then usually, obviously, going into -- well, there's usually seasonality in every quarter. I think seasonality has certainly been a little bit obfuscated given what's become of coronavirus. I mean what are you guys anticipating from a seasonality perspective this quarter? And part of that, tied to the fact that you did loosen up a little bit recently and the resurge -- well, the recovery in loan volume application -- or loan application volume?

Yes. So John, I think -- go ahead, Roger.

Yes, I'll start. You asked about usage of the products. I think Q3 was pretty interesting because as we move through the quarter on a weekly basis, we saw the same seasonality that we normally see with back-to-school, we just saw less usage or less demand. But when you look at how we move through August and then backed up a little bit in late September and early October, the core seasonality of the business seem to be pretty similar despite COVID, despite all the other factors, stimulus, all that kind of stuff.

I think Don mentioned on the call that as we move through the fourth quarter, we see an uptick in demand, obviously, and the seasonality -- November will be stronger than October. But we -- in our own thinking, internally we've haircutted some of that just because of known expectation -- uncertainty -- expectation around what could be a slower holiday season. And Don, I don't know if you want to expand on that.

Yes. Yes. I mean, I think if you look at last year, John, we grew -- we did $302 million in revenue in the fourth quarter and we did 3 -- $297 million in the third quarter. That's '19 actuals. So some of that impact, we had -- we're beginning to sort of slow down Southern California a little bit, but not a big -- third quarter, we get sort of back-to-school. And typically, that's a big bump from the second quarter. And the fourth quarter shows, particularly, what you'll see is the end of the year, the very end of December, we start to build some balances in the -- for holiday shopping stuff which then get paid down in the first quarter.

So I think this year, just given what we're talking about -- first of all, we had good loan -- we had better loan demand and asset growth in the third quarter, but not all that shows up in the P&L in the third quarter. So it's kind of a -- I'd say there's continuing at it, we see some -- we see new customer counts and asset growth continuing kind of on the same pace that it's been on in our internal forecast, and that will bring a sequential -- pretty good sequential improvement in revenue, which you didn't really see. Obviously, third quarter this year is about the same as the second quarter. You will start to see the -- what we've seen, the increases in demand and volumes show up in the top line in the P&L in the fourth quarter. It should grow in excess of at least 10% comes sequentially fourth quarter over the third quarter.

The other piece of that, obviously, and we talked about this in the releases, is not just a different trend overall seasonality, but then you have the U.S. versus Canada where we did -- we've seen -- we just didn't see as big of a trough in Canada. I mean we have -- the revenue in the U.S. was down 44% in the third quarter versus the prior year. Canada, we're rolling on 18% versus the prior year. The other thing, we're also growing about 15% Canada pre COVID and a much smaller number in the U.S.

So all of that, I think it's hard to look at -- you can't just look at sort of just the U.S. trends and U.S. issues around shutdown and stimulus, et cetera. That's only -- that's 70% of the business. And you have there's like different trends for the -- for Canada, and I would also say Canada, while we're certainly not to go on a public health -- where we're at here, but there's differing COVID trends there. And while there's certainly increases in cases in Canada, if you look at it on a -- Canada has about the same number of cases as -- on a daily basis, as there are in the state of Wisconsin.

And it's obviously, a much, much bigger area. It has -- per capita it has about 1/3 of the cases that you see in the U.S. So they've kind of done a better job handling it. I mentioned about 80% of the jobs that were lost during COVID were recovered in Canada. And that number is in the -- depending on what sources we look at, 55% to 60% of the jobs lost in COVID have been recovered in the U.S. So a big gap in how things are going in Canada versus the U.S.

The next question comes from Moshe Orenbuch from Crédit Suisse.

Great. Roger, you talked about the strong cash flow, but your kind of staying PAT right now. What is it that you're waiting to see? Is it a question of the economic environment? Is it a question of the kind of loan demand you might see? Like what -- how do you think about the factors that would allow you to use that a little more aggressively?

I think it's predominantly just continued uncertainty. I don't -- as we think about loan growth, even when -- robust levels of loan growth return, the U.S. and Canadian ABL facilities, we'll fund 80% of that -ish. So as we think about loan growth, we're going to need some cash when robust loan growth returns. But we do have the facilities to fund a lot of that. So I think it's more -- much -- I think right now, it's more around the uncertainty around the environment and the desire to keep some dry powder because as Don mentioned in the prepared remarks, we are evaluating some M&A opportunities and things like that. We're seeing M&A and investment opportunities that we're also mindful of maintaining some dry powder in that regard as well.

Got you. And I think Don had mentioned in the comments about potential M&A opportunities in Canada, which makes a lot of sense. I think you also mentioned card. And are there M&A opportunities there? Is it other investments? What is it that you're looking at there?

Yes. I think -- I got it. I got it. So on the card side, Moshe, we've looked at everything from other sort of debit-based products and then also secured and unsecured card opportunities. So -- but we've -- that's also -- we're also well into sort of looking at internally developing additional card products and investing in development that stuff internally. And then more generally, yes, we're looking at Canadian opportunities. We're like everybody else. It's certainly M&A activity is picking up. You're seeing some -- obviously, some monster deals get done here and there. But we're -- like everybody else where particularly if you're trying to do something in Canada, where we have great people on the ground in Canada, but the inability to travel to Canada and meet people kind of face-to-face as part of a due diligence process, just kind of -- just by definition, kind of slows things down.

The next question comes from John Rowan from Janney.

Roger, I think you said in your prepared remarks that the charge-offs were $4 million below the provisions. Am I correct that the charge-off, the total dollar value, just because -- there are several different figures in the press release, is about $50 million?

Yes, hold on a second. Yes. But yes. And then the provision exceeded that by $4.6 million. So...

Okay. And then maybe just after -- just to remind, if you could just shoot me the CSO revenue figure that helps me with my model. Are you guys still comfortable with the $75 million adjusted EBITDA figure for Canada for next year?

Yes. I mean, I think this quarter, probably -- I'll let Don go through. But I think this quarter probably helped us get even more confident. Yes, the whole -- I think, John, the way we broke that down -- and again, we haven't done our operating plan yet, and we -- you can probably tell everyone there's still -- we think there's still a lot of uncertainty. But the way we broke down next year for Canada was our exit -- we'll exit this year -- or we expect to exit this year with earning asset levels in Canada above what we had in 2019.

So if you go back to 2019, that would imply that the average earning assets are above what they were in 2019. The revenue will be above what it was. But we've also seen dramatic net charge-off improvement, net charge-off rate improvement there compared to what we were seeing in 2019 because in 2019, the portfolio was pretty unseasoned because we've ramped it up so much in the second half of 2018.

So our thinking on Canada next year is the revenue will follow the assets, of course. And we think the charge offs, we don't -- in our own modeling, we don't model that the net charge-off rates in Canada will stay as low as they were in the third quarter. But we believe they'll be below 2019. And if you just do -- you just roll the math out, it makes -- that's kind of what's driving that thought around 2021.

Okay. And then just to be clear on the -- when you said revenue for 2021 will look a lot more like 2019, are we talking about revenue from Canada? Are we talking about consolidated revenue back to...

I was only answering in the context of Canada.

But -- John, it's Don. But here's what I think in Canada. But I think with -- the comment we made in the script was around consolidated numbers. Now the composition of that is going to look more like there's going to be -- if the earning asset trends continue and we kind of roll everything forward, you could have a revenue picture -- consolidated revenue picture 2021 that looks broadly consistent with 2019, but you'll have -- obviously, Canada will be a bigger chunk of that.

Okay. Yes. No, I mean -- well, just given that there's been a little bit of compression in the yield in Canada getting to -- there has to be a lot of growth in that product in Canada in 2021, at least by my model, in order to get back to that consolidated revenue figure. So that's I actually want to make sure it was clear because, obviously, you said in the script that it was mostly weighted toward Canadian growth. So but I just want to make sure I was clear on that.

As far as Catapult goes, do you think $200 million is still a -- or is an appropriate assumption for run rate originations on that business? Or are we even maybe trending better than that?

I want to be -- it's a private company, but I would -- I think that's a very conservative number for 2020.

Okay. Lastly, I know you're not giving guidance, but I'm going to ask for something anyway. In -- prior to the third quarter, your comment was that third quarter earnings were going to be a trough. Do we still see third quarter as a trough with an upward sequential shift into the fourth quarter? Or is that because you came out better this quarter than your guidance, is that not an appropriate assumption anymore?

So -- Roger can do the color. I think the thing about -- I think we made kind of that risk-adjusted revenue, right? And I think the -- below that, you've got -- and that obviously picks up provision. So we think that asset growth even with higher provisioning associated with asset growth, risk-adjusted revenue -- well, we think the third quarter will be a trough. The other pieces from there, you've got -- the biggest piece is going to be ad spend. We mentioned we're going to be spending a good deal more on the card side in the fourth quarter. And we spent -- and if you look at sort of sequential, we spent, what, $7 million in the second quarter and a little more than $10 million in this quarter in advertising. So we would expect that number to go up in -- the 10.5% number to go up in the fourth quarter. So getting all -- trying to sort of filter it all the way down to earnings is a little trickier.

The next question comes from Vincent Caintic from Stephens.

Actually, just first a follow-up on that comment about consolidated revenues in 2021, looking like 2019. Maybe if you could go through sort of what factors you're assuming to get there? So is it sort of similar third quarter trends? Those stimulus. It seems like the product mix is shifting a little bit more to line of credit, so that's been having some more strength, so maybe continuing that. And then, of course, your comment about Canada. So just kind of wondering if there's any additional detail you can give on what you need for 2021 to look like 2019?

This is Don. So on the stimulus side, the -- I guess, it's -- we are not assuming any stimulus in 2020. And I think, broadly speaking, I guess,our 2021 view is that if you're likely to get -- we expect there to be some stimulus, but -- and I think we've had a discussion in that. If you got a -- if we get a blue wave and a $2.5 trillion stimulus, I think that could -- in the states, that's -- I think you're going to see some of the same behaviors you saw or how that filtered in the P&L so in some of the same ways you saw this year, right, which is it will tick down loan demand and we'll see a historically outsized downturn in charge-offs.

That's just hard. If you know what's going to happen, we want to know. But it's just so hard to handicap. So I think our assumptions will be there'll be some -- our internal forecast is kind of some modest stimulus, but not a blue wave $2.5 trillion number.

In Canada, I mean kind of on what John said, I think we do -- we see really good growth and good performance on the -- on that line of credit product. And you just don't have -- just as a baseline, we haven't seen as many people that have kind of permanently lost their job up there or continue to be out of work. So we just didn't see as big a dip and a need to kind of build it back.

So -- and that was a business that was growing. As I said, that was a -- we had 15% revenue growth quarter-over-quarter -- year-over-year in the first quarter. So and I would expect that some of the recovery of demand plus just the organic trends in that business and the appeal of that product is going to lead to a really good -- an excellent 2021 for the Canadian business.

Okay. Great. And then on M&A, and it sounds like you've got something on Canada. To the extent you can give a description, that would be appreciated. I'm thinking it's probably not a portfolio, it would be more of a capability add, it sounds like. And then kind of broadly speaking, if we think 5 years out, what would you like to add, whether it's M&A or additional building it in house capabilities? What are you thinking there?

Yes. So I guess when I think kind of the opportunities, we said is going to range from some sort of selected site to store additions to looking at businesses and have, I'd say, sort of complementary or adjacent products but, first of all, that are probably more focused on online than branch-based as a channel. So there's kind of a range of things we're looking at there.

I think looking out 5 years, it's a great question. I think certainly, the card capabilities and both as an account, as a bank account product like what we have with Revolve and the DDA product, and then being able to expand the way we lend money on to card-based applications, I think, is really important.

And then obviously, we're sort of doing it on the merchant side and the POS side, doing it through the investment in Catapult. So just if you think about that as a -- you sort of have stores and mobile subchannels now and obviously you have phone as well and expanding that to, I think cards is really the one part of sort of getting credit to consumers that were not really invested in and haven't built yet.

And then obviously, the B2B2C application that Catapult provides. And then you look at Canada, we have mobile and stores. We don't have anything in -- on the card side or the POS side in Canada. Just sort of looking at the whole range of both account services plus how credit is provided. I think there's a whole -- there's a bunch of parts of those verticals that we're just not in right now. Some of that may -- some of that may be M&A. And some of that may be that we think we have the capabilities to build those -- invest in those businesses and build those internally.

This concludes our question-and-answer session. I'd like to turn the conference back over to Mr. Don Gayhardt for closing remarks.

Great. Thanks, everybody, for taking the time to join us today. Let's all stay healthy and stay safe, and we look forward to talking to you again in January. Thanks very much.

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