CURO Group Holdings Corp. Announces Second Quarter 2021 Financial Results

CURO Group Holdings Corp. (NYSE: CURO) (“CURO” or the “Company”), a tech-enabled, omni-channel consumer finance company serving a full spectrum of non-prime and prime consumers in the U.S. and Canada, today announced financial results for its second quarter ended June 30, 2021.

“The second quarter was very busy for us as we made significant strides on every value-creation front – growth, profitability, margins, capital and scale. We are pleased to continue to mitigate risk while driving long-term value for our stakeholders,” said Don Gayhardt, CURO's Chief Executive Officer. “Our Canadian operations remained a bright spot in the second quarter, as our Canada Direct Lending and Canada POS segments delivered sequential loan growth of 5.1% and 9.9%, respectively. Our U.S. segment posted modest sequential loan growth in the second quarter that exceeded our expectations. With our acquisition of Flexiti in the first quarter of 2021 and the continued growth in our Canada Direct Lending segment, 76% of our company owned gross loans receivable are in Canada as of June 30, 2021, compared to 56% as of June 30, 2020.”

“On June 1, 2021, we announced a major milestone for Flexiti with the signing of LFL Group, Canada's largest home furnishings retailer, to a 10-year exclusive point-of-sale merchant agreement. We believe this relationship generates more than C$800 million of annualized point-of-sale finance beginning in mid-2022 when fully on-boarded. We believe that this agreement positions Flexiti to become the largest point-of-sale financing provider in Canada and are confident that it will create significant value for us. Flexiti's originations for the second quarter increased by more than 115% year over year. We look forward to capitalizing on the significant growth that Flexiti brings to our business and to serving a larger number of Canadian consumers across all the ways through which they access credit.”

“During the second quarter, we also began to monetize our investment in Katapult with the closing of the Katapult and FinServ merger on June 9, 2021. We received cash of $146.9 million and stock representing 20.7% fully-diluted ownership in the new public company. Our investment in Katapult allows us to continue to participate in the rapidly growing U.S. e-commerce point-of-sale finance space and we are pleased to maintain representation on the company’s board of directors.”

“We announced on July 13, 2021, the difficult decision to close 49 U.S. stores, or about 25% of our total U.S. stores, during the second and third quarters to manage local store market density and to respond to our customers’ evolving usage patterns. The impacted locations generated only 8% of our U.S. store revenue in 2020. CURO remains highly focused on serving the needs of all customers through our store and online channels. This was a consolidation of underperforming stores, not a departure from our commitment to leveraging our omni-channel competitive advantage. Since our platform allows customers to transition seamlessly online, to an adjacent store or to contact centers, this consolidation reduces annual operating costs by approximately $20 million while maximizing the likelihood of retaining a large percentage of customers from the impacted stores.”

“We priced on July 16, 2021 a Senior Secured Notes offering of $750 million at 7.5%. This replaces our Senior Secured Notes due 2025, extends maturities to 2028, lowers the coupon by 75 bps and provides additional capital structure flexibility, particularly as it relates to the financing of our growing Canadian businesses.”

"Finally, we continued to strengthen our management team and are pleased to announce that Dan Kirsche joined us this week as our new EVP and Chief Technology Officer. Dan has a great background leading software engineering for digital marking and consumer lending organizations and is very well-suited to help us execute on our technology priorities.”

Consolidated Summary Results - Unaudited

Second quarter 2021 and recent developments include:

• Year-over-year growth in Company Owned gross loans receivable and combined gross loans receivable of $312.7 million, or 68.5%, and $315.7 million, or 64.4%, respectively.
• Canada Direct Lending gross loans receivable grew $104.5 million, or 40.7%, year over year, and Canada point-of-sale ("POS") Lending gross loans receivable were $221.5 million. The Canada POS Lending segment was added with the acquisition of Flexiti Financial Inc. ("Flexiti") on March 10, 2021.
• U.S. Company Owned gross loans receivable declined $13.2 million, or 6.6%, year over year. Excluding the runoff of impacted loan portfolios in California and Virginia, U.S. Company Owned gross loans receivable grew $35.8 million, or 28.3%, compared to the same period in the prior year.
• Sequentially, (described within this release as the change from the first quarter to the second quarter) Company Owned gross loans receivable and gross combined loans receivable increased $38.2 million, or 5.2%, and $42.9 million, or 5.6%, respectively.
• Revenue and Net Revenue increased $ 5.2 million, or 2.8%, and $10.7 million, or 8.1%, respectively year over year.
• Consolidated net charge-off ("NCO") rates for U.S. and Canada Direct Lending improved 540 bps year over year and 50 bps sequentially. U.S. and Canada Direct Lending past-due loans improved 150 bps year over year and remained stable sequentially.
• Diluted Earnings per Share from continuing operations of $2.39 compared to $0.51 in the prior-year quarter, primarily affected by the closing of the Katapult Holdings Inc. ("Katapult") merger. Adjusted Diluted Earnings per Share of $0.40 compared to $0.53 for the second quarter of 2020.
• Katapult's merger with FinServ Acquisition Corp. ("FinServ") closed on June 9, 2021. As a result, we received cash of $146.9 million and Katapult (NASDAQ: KPLT) stock with a value of $192.0 million as of July 27, 2021. Our fully-diluted ownership of Katapult as of June 30, 2021 was 20.7%, including potential earn-out shares.
• On June 1, 2021, Flexiti signed a 10-year agreement to become the exclusive POS financing partner to the LFL Group ("LFL"), Canada's largest home furnishings retailer. LFL operates over 300 stores in Canada under multiple banners including Leon's and The Brick. Flexiti estimates that the LFL POS relationship will generate over C$800 million in annual financed sales beginning in mid-2022 when fully on-boarded.
• Under the terms of our $50.0 million share repurchase program announced in April 2021, we purchased in the open market 375,880 shares through July 27, 2021.
• Our Board of Directors declared an $0.11 per share dividend payable on August 19, 2021 to stockholders of record as of August 9, 2021.
• Closed, or announced the closing of, 49 U.S. stores to better align with changing customer trends and preferences for online transactions.
• Priced and upsized to $750 million a 7.50% Senior Secured Notes Offering due 2028. The proceeds will be used to (i) redeem our 8.25% Senior Secured Notes due 2025, (ii) to pay fees, expenses, premiums and accrued interest therewith and (iii) for general corporate purposes.

Year-to-date 2021 developments include:

• Revenue decreased $79.1 million, or 17.1%, compared to the prior year, due to the effect of COVID-19 and two rounds of significant U.S. government stimulus that reduced U.S. loan balances.
• Net Revenue increased $3.8 million, or 1.3%, year over year as the negative effect on revenue of lower average loan balances was mitigated by significant improvements in credit quality and the effect of changes in loan balances on loan loss provisioning.
• Diluted Earnings per Share from continuing operations of $2.99 compared to $1.37 in the prior year. Adjusted Diluted Earnings per Share of $1.09 compared to $1.31 for 2020.

From the second quarter of 2020 through the first quarter of 2021, we experienced lower customer demand, good credit performance, increased or accelerated repayments and favorable payment trends as customers were aided by government stimulus programs while periodically enduring pandemic lockdowns (collectively "COVID-19 Impacts"). Second quarter of 2021 was impacted less by COVID-19 Impacts but was still affected by loan demand in the U.S. than pre-COVID-19 levels and additional pandemic lockdowns in Canada.

Consolidated Revenue by Product and Segment

The following table summarizes revenue by product, including credit services organization ("CSO") fees, for the period indicated:

During the three months ended June 30, 2021, total revenue increased $5.2 million, or 2.8%, to $187.7 million, compared to the prior-year period. The year-over-year increase was primarily due to an increase in Canada Direct Lending revenue of $16.7 million, or 36.9%, and $7.0 million of Canada POS Lending revenue from a full post-acquisition quarter for Flexiti. This increase was partially offset by a decrease in U.S. revenue of $18.5 million, or 13.5%.

Canada POS Lending revenue includes merchant discount revenue ("MDR"), which is recognized over the life of the underlying loan term. The Flexiti gross acquired loan portfolio ("Acquired Portfolio"), prior to the fair value discount recorded as a result of purchase accounting, was $208.6 million as of March 10, 2021 (date of acquisition). The Acquired Portfolio was remeasured at fair value of $196.1 million as of the date of acquisition. The fair value discount is based on estimated future net cash flows and is recognized in net revenue over the expected life of the Acquired Portfolio (approximately 12 months). This amortization resulted in an increase in revenue and an increase in loan loss provision of $1.6 million and $1.5 million, respectively, for the three months ended June 30, 2021. The Acquired Portfolio also included $14.1 million of unearned MDR, annual and administrative fees, which are recognized over the expected life of the Acquired Portfolio. Since those unrecognized amounts do not represent future cash flows from the Acquired Portfolio, the unearned MDR, annual and administrative fees were not included in the opening balance sheet as of March 10, 2021, and thus, are not amortized to revenue for the Acquired Portfolio. For the second quarter of 2021, Canada POS Lending revenue and net revenue was lower by $5.6 million and $5.5 million, respectively, ("acquisition-related adjustments") compared to what would have been reported if the unearned MDR and fees had been recognized over the expected life of the Acquired Portfolio. To assist users of our financial statements in analyzing the expected future performance of the Flexiti loan portfolio (for example, expected yields for loans originated post-acquisition) and earnings, we have provided results with and without these acquisition-related adjustments. See "Reconciliation of Net Income from Continuing Operations and Diluted Earnings per Share to Adjusted Net Income and Adjusted Diluted Earnings per Share" for additional detail. The acquisition-related adjustments will decline each quarter with the Acquired Portfolio and will be fully amortized by the second quarter of 2022.

From a product perspective, Revolving LOC revenue for the three months ended June 30, 2021 increased $11.3 million, or 19.9%, year over year, primarily driven by growth in Canada Direct Lending revenue of $11.6 million, or 45.0%, and Canada POS lending of $6.5 million, partially offset by a decline in U.S. revenue of $6.8 million, or 22.1%. Excluding the effects of the Virginia runoff portfolio, U.S. Revolving LOC revenue decreased $0.3 million, or 1.3% for the three months ended June 30, 2021 compared to the prior-year period.

For the three months ended June 30, 2021, Installment revenue decreased $11.2 million, or 9.9%, compared to the prior-year period. Excluding the effects of the impacted California Installment loan portfolios, U.S. Installment revenue decreased $0.5 million, or 0.6%.

Ancillary revenue increased $5.1 million, or 38.4% versus the prior-year period, primarily due to the sale of insurance products to Revolving LOC and Installment loan customers in Canada.

The following table summarizes revenue by product, including CSO fees, for the period indicated:

Year-over-year comparisons were also influenced by COVID-19 Impacts. For the six months ended June 30, 2021, total revenue declined $79.1 million, or 17.1%, to $384.2 million, compared to the prior year. Geographically, U.S. revenues declined 28.9% while Canada Direct Lending revenues increased 15.4% due to the continued popularity and growth of Revolving LOC loans in Canada. For the six months ended June 30, 2021, Canada POS Lending revenue was $8.6 million, which included a $4.0 million reduction related to acquisition-related adjustments for the period.

From a product perspective, Revolving LOC revenues increased $3.1 million, or 2.4%, compared to the prior year, primarily due to growth in Canada Direct Lending revenue of $17.0 million, or 31.0%, and Canada POS Lending of $7.9 million, partially offset by declines in U.S. revenue of $21.9 million, or 30.0%. Excluding the effects of the Virginia runoff portfolio, U.S. Revolving LOC revenue decreased $7.2 million, or 13.7%, for the six months ended June 30, 2021 compared to the prior-year period.

For the six months ended June 30, 2021, Installment revenues decreased $88.7 million, or 28.9%, compared to the prior year. Excluding the effects of the impacted California Installment loan portfolios, Installment revenue decreased 23.1%.

Ancillary revenues increased $6.5 million, or 22.4%, versus the prior year from the sale of insurance products to Revolving LOC and Installment loan customers in Canada.

The following table presents online revenue and online transaction compositions, including CSO fees, of the products and services that we currently offer within the U.S. and Canada Direct Lending segments:

Online revenue as a percentage of consolidated revenue increased during the three and six months ended June 30, 2021 due to COVID-19 Impacts and the resulting transition of customers using our online channel which allows for a safe and contactless option.

Consolidated Loans Receivable

The following table reconciles Company Owned gross loans receivable, a GAAP-basis balance sheet measure, to Gross combined loans receivable, a non-GAAP measure(1). Gross combined loans receivable includes loans originated by third-party lenders through CSO programs, which are not included in the Condensed Consolidated Financial Statements but from which we earn revenue by providing a guarantee to the unaffiliated lender.

Gross combined loans receivable increased $315.7 million, or 64.4%, to $806.3 million as of June 30, 2021, from $490.6 million as of June 30, 2020. The increase was driven by Canada Direct Lending growth of $104.5 million, or 40.7%, and Canada POS Lending gross loans receivables of $221.5 million. Excluding Flexiti loan balances, gross combined loans receivable increased $94.3 million, or 19.2% year over year. U.S. gross combined loans receivable declined $10.2 million, or 4.4%, due to (i) COVID-19 Impacts, (ii) the runoff of California Installment and Virginia Revolving LOC loans as a result of regulatory impacts, and (iii) additional government stimulus in the first half of 2021. Excluding the California and Virginia runoff portfolios, U.S. gross combined loans receivable grew 24.2%.

Sequentially, gross combined loans receivable increased $42.9 million, or 5.6%, as markets continued to reopen and consumer demand increased. Geographically, U.S. and Canada grew sequentially by 2.5% and 6.9%, respectively, primarily driven by Canada POS Lending growth of $19.9 million, or 9.9% and Canada Direct Lending Revolving LOC growth of $18.4 million, or 5.8%. Gross combined loans receivable performance by product is described further in the following sections.

Results of Consolidated Operations

Condensed Consolidated Statements of Operations

Reconciliation of Net Income from Continuing Operations and Diluted Earnings per Share to Adjusted Net Income and Adjusted Diluted Earnings per Share, non-GAAP measures

Reconciliation of Net Income from Continuing Operations to EBITDA and Adjusted EBITDA, Non-GAAP Measures

For the Three Months Ended June 30, 2021 and 2020

Revenue and Net Revenue

Revenue increased $5.2 million, or 2.8%, to $187.7 million for the three months ended June 30, 2021, from $182.5 million for the three months ended June 30, 2020, due to an increase in Canada Direct Lending revenues of $16.7 million, or 36.9% ($9.6 million, or 21.4% on a constant currency basis), and $7.0 million of Canada POS Lending revenue from a full-post acquisition quarter for Flexiti, partially offset by a decrease in U.S. revenues of $18.5 million, or 13.5%. Excluding the impacted California and Virginia loans, total revenue increased $23.4 million and 15.0% for the three months ended June 30, 2021 compared to the three months ended June 30, 2020.

Provision for losses decreased by $5.5 million, or 10.9%, for the three months ended June 30, 2021 compared to the prior-year period. The decrease in provision for loan losses was due to (i) relative sequential change in loan balances, (ii) favorable adjustments to allowance for loan losses ("ALL") as a percentage of gross loans receivable ("allowance coverage") from continued improved credit quality, and (iii) significantly improved NCO rates year over year in both U.S. and Canada, as discussed in more detail in the "Segment Analysis" sections.

Cost of Providing Services

Advertising costs increased $1.3 million, or 22.5%, year over year in response to product demand changes during the three months ended June 30, 2021 compared to the three months ended June 30, 2020. Quarter-over-quarter application volume and quality improved this quarter as the prior-year quarter was influenced by April 2020 government stimulus and pandemic-induced lockdowns.

Non-advertising costs of providing services increased $1.3 million, or 2.6%, to $50.8 million in the three months ended June 30, 2021, compared to $49.6 million in the three months ended June 30, 2020. The increase was due to (i) volume-driven variable costs, such as underwriting data and financial services fees, (ii) timing and level of performance-based variable compensation and (iii) severance costs as described above in "Reconciliation of Net Income from Continuing Operations to EBITDA and Adjusted EBITDA." These increases were partially offset by lower store operating costs and collection costs.

Corporate, District and Other Expenses

Corporate, district and other expenses were $59.6 million for the three months ended June 30, 2021, an increase of $22.8 million, or 62.1%, compared to the three months ended June 30, 2020. The year-over-year increase was primarily due to (i) $5.8 million of restructuring costs as described above in "Reconciliation of Net Income from Continuing Operations to EBITDA and Adjusted EBITDA," (ii) $3.2 million of transaction costs related to the merger of Katapult and FinServ and the Flexiti acquisition also described previously, (iii) $9.9 million of Flexiti operating expenses and (iv) the timing and extent of performance-based variable compensation compared to the prior-year period. Refer to the "Segment Analysis" sections below for further details.

Equity Method Investment

Refer to the "Katapult Update for the Three and Six Months Ended June 30, 2021 and 2020" below for details.

Interest Expense

Interest expense for the three months ended June 30, 2021 increased $5.1 million, or 28.0%, primarily due to interest on debt acquired with the acquisition of Flexiti, and modestly higher year-over-year non-recourse borrowings in the U.S.

Provision for Income Taxes

The effective income tax rate for the three months ended June 30, 2021 was 24.6%. The effective income tax rate was lower compared to the federal and state/provincial statutory rates of approximately 26%, primarily as a result of proportionally more income in lower rate jurisdictions, driven by the gain on the Katapult transaction of $146.9 million. The transaction resulted in (i) a current cash tax liability related to the $146.9 million cash consideration and (ii) a deferred tax asset related to the recognized tax gain over book gain, combined with the release of the valuation allowance established prior to the gain. The effective income tax rate of adjusted tax expense included in the Adjusted Net Income for the three months ended June 30, 2021 was 18.6%.

For the Six Months Ended June 30, 2021 and 2020

Revenue and Net Revenue

Revenue decreased $79.1 million, or 17.1%, to $384.2 million for the six months ended June 30, 2021 from $463.3 million for the six months ended June 30, 2020 as a result of the declines in combined gross loans receivables in the U.S. from COVID-19 Impacts, partially offset by growth in Canada Direct Lending and the addition of Canada POS Lending as discussed previously. Year over year, U.S. revenue decreased 28.9%. Excluding the impacted California and Virginia loans, U.S. revenue decreased 20.7% for the six months ended June 30, 2021 compared to the prior-year period. Canada Direct Lending revenue increased 15.4% (5.6% on a constant-currency basis) as a result of growth in Revolving LOC loans. For the six months ended June 30, 2021, we also recognized $8.6 million of Canada POS Lending revenue, which included a $4.0 million reduction related to acquisition-related adjustments for the period.

Provision for losses decreased by $82.9 million, or 50.5%, for the six months ended June 30, 2021 compared to the prior year. The decrease in provision for loan losses was primarily due to (i) relative sequential change in loan balances, (ii) favorable adjustments to allowance coverage from continued improved credit quality, and (iii) improved NCO rates in both the U.S. and Canada as discussed in "Loan Volume and Portfolio Performance Analysis" and "Segment Analysis" sections.

Cost of Providing Services

Advertising costs decreased $2.8 million, or 15.8%, year over year, influenced by COVID-19 Impacts. Year over year, application volume and quality improved in the second quarter of 2021 while the second quarter of 2020 and first quarter of 2021 were influenced by U.S. government stimulus and pandemic-induced lockdowns.

Non-advertising costs of providing services decreased $3.8 million, or 3.6%, to $101.1 million in the six months ended June 30, 2021, compared to $104.9 million in the six months ended June 30, 2020. The decrease was primarily driven by lower collection costs resulting from stimulus-related pay-downs and lower variable costs as a result of lower demand in the U.S., partially offset by timing and level of performance-based variable compensation.

Corporate, District and Other Expenses

Corporate, district and other expenses were $108.5 million for the six months ended June 30, 2021, an increase of $28.9 million, or 36.3%, compared to the six months ended June 30, 2020. The year-over-year increase was primarily due to (i) $ 5.8 million of restructuring costs as described above in "Reconciliation of Net Income from Continuing Operations to EBITDA and Adjusted EBITDA," (ii) $ 6.3 million of transaction costs related to the merger of Katapult and FinServ and the acquisition of Flexiti also as described previously, and (iii) $12.5 million of Flexiti operating expenses post-closing. Excluding these costs, comparable corporate, district and other expenses increased $4.3 million, or 5.4% year over year, primarily due to the timing and level of performance-based variable compensation compared to the prior-year period. Refer to the "Segment Analysis" sections below for further details.

Equity Method Investment

Refer to the "Katapult Update for the Three and Six Months Ended June 30, 2021 and 2020" below for details.

Interest Expense

Interest expense for the six months ended June 30, 2021 increased $7.3 million, or 20.6%, primarily due to interest on debt acquired with the acquisition of Flexiti, and modestly higher year-over-year non-recourse borrowings in the U.S.

Provision for Income Taxes

The effective income tax rate for the six months ended June 30, 2021 was 24.7%. The effective income tax rate was lower compared to the federal and state/provincial statutory rates of approximately 26%, primarily as a result of proportionally more income in lower rate jurisdictions, driven by the gain on the Katapult transaction of $146.9 million. The transaction resulted in (i) a current cash tax liability related to the $146.9 million cash consideration and (ii) a deferred tax asset related to the recognized tax gain over book gain, combined with the release of the valuation allowance established prior to the gain. The effective income tax rate of adjusted tax expense included in Adjusted Net Income for the six-months ended June 30, 2021 was 23.3%.

Katapult Update for the Three and Six Months Ended June 30, 2021 and 2020

Katapult is accounted for using the equity method of accounting and is included in "Investments in Katapult" on the unaudited Condensed Consolidated Balance Sheet. Our share of Katapult's earnings was $1.7 million for the three months ended June 30, 2021 and $2.3 million for the six months ended June 30, 2021. We recognize our share of Katapult’s earnings on a one-quarter lag.

The Katapult and FinServ merger closed in June 2021. As part of the merger, we received cash consideration of $146.9 million and retained ownership through shares after the merger. Based on market prices as of July 27, 2021, the total market value of the retained shares is $192.0 million. As of June 30, 2021, our total cash investment in Katapult is $27.5 million. After closing of the merger, we now maintain a 20.7% fully diluted ownership in the newly formed public company.

The table below presents select financial information for Katapult for the periods indicated:

Segment Analysis

Following our acquisition of Flexiti on March 10, 2021, and beginning in the first quarter of 2021, we report financial results for three reportable segments: U.S., Canada Direct Lending and Canada POS Lending. Following is a summary of portfolio performance and results of operations for the segment and period indicated.

U.S. Portfolio Performance

U.S. Net Revenue

U.S. revenues decreased by $18.5 million, or 13.5%, to $118.8 million, compared to the prior-year period for the three months ended June 30, 2021, primarily as a result of the COVID-19 impacts on gross combined loans receivable and the runoff of California Installment and Virginia Revolving LOC loans due to regulatory changes. See the loan performance discussions below for further details.

The provision for losses decreased $7.9 million, or 19.0%, primarily as a result of (i) relative sequential change in loan balances, (ii) favorable adjustments to allowance coverage from continued improved credit quality and (iii) improved NCO rates year over year. U.S. NCOs, including loans Guaranteed by the Company, decreased by $27.8 million, or 42.3% year over year, and $1.4 million, or 3.6%, sequentially. For the three months ended June 30, 2021, U.S. NCO rate improved 550 bps, or 24.5% year over year, and increased 100 bps, or 5.9%, sequentially.

U.S. Revolving LOC loan performance

U.S. Revolving LOC loan balances as of June 30, 2021 decreased $6.0 million, or 11.2%, compared to the prior year, resulting in a related revenue decrease of $6.8 million, or 22.1%, primarily due to the runoff of Virginia Revolving LOC loans. Excluding the impacted Virginia loans, U.S. Revolving LOC gross loans receivable increased $4.9 million or 12.8%, year over year. The Revolving LOC allowance coverage decreased year over year from 35.3% to 28.9% for the three months ended June 30, 2021. The decrease was due to sustained favorable past-due rates and improved NCO trends. For the three months ended June 30, 2021, NCO rates improved from 31.7% to 16.0% year over year and from 20.0% to 16.0% sequentially.

U.S. Installment loan performance - Company Owned

U.S. Installment loan balances as of June 30, 2021 decreased $7.3 million, or 5.0%, and revenue decreased $9.2 million, or 14.1%, compared to the prior year, primarily due to COVID-19 Impacts and regulatory changes in California, effective January 1, 2020 that affected Installment products. Excluding the impacted California loans, U.S. Installment loans increased $30.9 million, or 35.1%, year over year, and related revenue increased $2.4 million, or 5.0%. The Installment loans allowance coverage decreased from 18.5% in the prior year to 15.3% as of June 30, 2021, largely due to sustained favorable trends in NCOs, which improved year over year by 335 bps. Sequentially, allowance coverage decreased from 18.1% to 15.3% primarily from a decline in troubled debt restructuring ("TDR") loans as a percentage of total gross loans receivable and the run-off of Verge Installment loans.

We launched Verge installment loans originated by Stride Bank in the fourth quarter of 2019 and executed pilot programs in several states. After testing various offers, rates, terms and approval criteria, Stride informed us in the first quarter of 2021 that it plans to focus on near-prime loans as they represent a larger addressable market and offer greater opportunity to scale. As a result, Stride discontinued new Verge Credit loans in April 2021. Verge loan balances totaled $21.5 million as of June 30, 2021. We expect an orderly run-off of these balances over the next 21 months. We continue to maintain various relationships with Stride and are working together to develop additional products that meet customer needs.

U.S. Installment loan performance - Guaranteed by the Company

U.S. Installment loans Guaranteed by the Company increased $3.0 million, or 8.8%, year over year. The allowance rate decreased 95 bps year over year due to sustained favorable NCO and past-due rates as a result of government stimulus-related pay-downs. Sequentially, allowance coverage declined from 14.6% to 14.2% for the three months ended June 30, 2021 primarily from a decline in TDR loans as a percentage of total gross loans receivable.

Following is a summary of results of operations for the U.S. segment for the periods indicated.

U.S. Results of Operations

U.S. Segment Results - For the Three Months Ended June 30, 2021 and 2020

For a discussion of revenue, provision for losses and related gross combined loans receivables, see "U.S. Portfolio Performance," above.

Advertising costs increased $0.8 million, or 15.6%, year over year in response to product demand changes during the three months ended June 30, 2021 compared to the three months ended June 30, 2020. Quarter-over-quarter application volume and quality improved this quarter as the prior-year quarter was influenced by April 2020 government stimulus and pandemic-induced lockdowns.

Non-advertising costs of providing services for the three months ended June 30, 2021 were $31.8 million, a decrease of $1.8 million, or 5.4%, compared to $33.7 million for the three months ended June 30, 2020, primarily driven by lower store operating and collection costs year over year.

Corporate, district and other expenses were $43.7 million for the three months ended June 30, 2021, an increase of $14.1 million, or 47.6%, compared to the prior-year period. The year-over-year increase was primarily due to (i) $ 5.8 million of restructuring costs as described further below and in "Reconciliation of Net Income from Continuing Operations to EBITDA and Adjusted EBITDA," (ii) $3.2 million of transaction costs related to the merger of Katapult and FinServ and the Flexiti acquisition also as described previously, and (iii) the timing and level of performance-based variable compensation compared to the prior-year period.

As previously announced, we closed or announced the intent to close 49 U.S. stores, 19 of which occurred in the second quarter, in response to evolving customer channel preferences that were accelerated by the impacts of COVID-19. The store closures represent nearly 25% of the Company’s U.S. stores and, other than Illinois, which were closed earlier in the year due to regulatory changes, reflect strategic consolidation of locations in dense local markets. As CURO’s omni-channel platform allows customers to transition seamlessly online, to an adjacent store or to contact centers, this consolidation reduces annual operating costs by approximately $20 million while maximizing the likelihood of retaining a large percentage of customers that had utilized the impacted stores.

The 19 U.S. stores closed during the second quarter of 2021 were in Illinois (8), Oregon (2), Colorado (2), Washington (1) and Texas (6) (“Q2 2021 U.S. Store Closures”). CURO exited Illinois given the legislative changes that eliminated its product offerings. The store closure decisions in other states were made after extensive analysis and in response to ongoing migration of customer transactions toward the online channel and the impact of COVID-19 on store traffic and profitability. CURO incurred $5.8 million of total one-time charges associated with the Q2 2021 U.S. Store Closures consisting of (i) severance and employee costs of $0.9 million, (ii) lease termination costs of $0.6 million and (iii) net accelerated depreciation and write-off of ROU assets and liabilities of $4.3 million.

During July 2021, we announced the remaining 30 of the 49 U.S. stores were closing in Texas (25), California (2), Louisiana (1), Nevada (1) and Tennessee (1) (“Q3 2021 U.S. Store Closures”). In connection with the Q3 2021 U.S. Store Closures, CURO currently expects to incur $5.7 million of total one-time charges consisting of (i) severance and employee costs of $2.5 million, (ii) lease termination costs of $0.9 million and (iii) net accelerated depreciation and write-off of ROU assets and liabilities of $2.3 million. These costs will be reflected in the third quarter 2021 results.

The store closure decisions followed an extensive evaluation that considered (i) comprehensive store-level score cards, (ii) market-level store density and the related addressable local market, (iii) the lingering and potential future COVID-19 impacts on store volume, traffic and profitability and (iv) continued migration of customer transactions toward the online channel. Of the stores closed in Texas in both quarters, 25 were from The Money Box acquisition in 2012. While historically successful, these stores did not have the high-profile, high-traffic advantages of our Speedy/Rapid Cash stores, so their profitability has declined more through COVID. All of the impacted stores are scheduled to be closed by the end of August 2021. Following these closures, CURO will operate 160 stores in the U.S. and 202 stores in Canada.

U.S. interest expense for the three months ended June 30, 2021 increased $1.2 million, or 7.6%, primarily related to the Non-Recourse U.S. SPV Facility, which we entered into in April 2020.

As previously described, we recognize our share of Katapult’s income on a one-quarter lag. We recorded income of $1.7 million for the three months ended June 30, 2021. As a result of the merger between Katapult and FinServ, which closed during the second quarter of 2021, we recorded an additional gain of $135.4 million for the three months ended June 30, 2021, which represents cash we received, net of the basis of our investment in Katapult.

U.S. Segment Results - For the Six Months Ended June 30, 2021 and 2020

U.S. revenues decreased $103.8 million, or 28.9%, compared to the prior-year period for the six months ended June 30, 2021 as a result of decreases in combined gross loans receivable from COVID-19 impacts and the continued run-off of California Installment loans due to regulatory changes. Excluding the aforementioned impact of California Installment and Virginia Revolving LOC loan runoff, U.S. revenues decreased $61.1 million, or 20.7%.

The provision for losses decreased $67.9 million, or 53.2%, for the six months ended June 30, 2021, compared to the prior-year period, primarily as a result of (i) relative sequential change in loan balances, (ii) favorable adjustments to allowance coverage from continued improved credit quality, and (iii) improved NCO rates year over year.

Non-advertising costs of providing services for the six months ended June 30, 2021 were $64.0 million, a decrease of $6.9 million, or 9.7%, compared to $70.9 million for the six months ended June 30, 2020. The decrease was primarily driven by lower collection costs resulting from stimulus-related pay-downs and lower variable costs as a result of lower demand, partially offset by higher performance-based variable compensation.

Advertising costs were $13.2 million for the six months ended June 30, 2021, a decrease of $3.0 million, or 18.4%, compared to the prior-year period as the full effect of COVID-19 did not impact our advertising spend until the second quarter of 2020.

Corporate, district and other expenses were $84.3 million for the six months ended June 30, 2021, an increase of $17.0 million, or 25.3%, compared to the six months ended June 30, 2020. For the six months ended June 30, 2021, as described in our Reconciliation of Net Income from Continuing Operations to EBITDA and Adjusted EBITDA, Non-GAAP Measures above, corporate, district and other costs included (i) $6.3 million of transaction costs (ii) $6.2 million of share-based compensation costs, and (iii) $5.8 million of restructuring costs. For the six months ended June 30, 2020, corporate, district and other expenses included (i) $1.8 million of legal and other costs and (ii) share-based compensation costs of $6.5 million. Excluding these items, comparable corporate, district and other expenses increased $7.0 million year over year, primarily due to the timing and level of performance-based variable compensation, partially offset by certain cost reductions, including work-from-home initiatives, to manage COVID-19 Impacts for the six months ended June 30, 2021.

As previously described, we recognize our share of Katapult’s income on a one-quarter lag and recorded income of $2.3 million for the six months ended June 30, 2021. As a result of the merger between Katapult and FinServ, which closed during the second quarter of 2021, we recorded an additional gain of $135.4 million as of June 30, 2021, which represents cash we received, net of the basis of our investment in Katapult.

U.S. interest expense for the six months ended June 30, 2021 increased $2.7 million, or 8.8%, as a result of higher borrowings year-over-year, including the new Non-Recourse U.S. SPV Facility, which we entered into in April 2020.

Canada Direct Lending and Canada POS Lending Portfolio Performance

Canada Direct Lending Net Revenue

Canada Direct Lending revenue increased year over year by $16.7 million, or 36.9%, ($9.6 million, or 21.4%, on a constant-currency basis), for the three months ended June 30, 2021, due to the continued popularity and growth of Revolving LOC loans in Canada. Sequentially, Canada Direct Lending revenue increased $3.4 million, or 5.9%, driven by increases in Revolving LOC and ancillary revenue, partially offset by a decrease in Installment revenue.

The provision for losses decreased $0.6 million, or 6.6%, ($1.6 million, or 17.1%, on a constant-currency basis), to $8.6 million for the three months ended June 30, 2021, compared to $9.2 million in the prior-year period. The decrease in provision for loan losses was the result of lower NCOs and the related impact of changes in allowance coverage due to improved credit quality for Revolving LOC loans. As of June 30, 2021, allowance coverage decreased sequentially by 140 basis points, or 15.0%. On a quarterly basis, NCO rates improved approximately 140 bps, or 28.1%, year over year.

Canada Direct Lending Revolving LOC loan performance

Canada Direct Lending Revolving LOC gross loans receivable increased $105.8 million, or 45.6%, ($75.1 million, or 32.4%, on a constant-currency basis) year over year and $18.4 million, or 5.8% ($14.0 million, or 4.4%, on a constant-currency basis) sequentially. Revolving LOC revenue increased $11.6 million, or 45.0%, year over year and $3.1 million, or 9.0%, sequentially ($7.4 million, or 28.5%, and $2.0 million, or 5.7%, respectively, on a constant-currency basis). The allowance coverage decreased year over year from 12.3% to 7.9% as of June 30, 2021 due to sustained favorable trends in NCOs and continued lower past-due balances as a percentage of total gross loans receivable. The year-over-year NCO rate and past-due rate for Revolving LOC gross loans receivable improved by 160 bps and 155 bps, respectively.

Canada Direct Lending Installment loan performance

Canada Direct Lending Installment revenue increased $0.8 million, or 8.7%, (and decreased $0.4 million, or 3.7%, on a constant-currency basis) year over year. Installment gross loans receivable decreased $1.3 million, or 5.2% ($3.4 million, or 13.8%, on a constant-currency basis) year over year. The decreases in Installment loans and related revenue were due to a continued shift to Revolving LOC loans, as well as COVID-19 related constraints on demand, particularly as related to store-driven Installment loans. The Installment allowance coverage decreased year over year from 8.1% to 7.5% as a result of favorable trends in past-due balances. The year-over-year past-due rate for Installment loans improved by 145 bps. Sequentially, Installment gross loans receivable decreased $0.8 million, or 3.4%, ($1.1 million, or 4.6%, on a constant-currency basis) and related revenue increased $0.1 million, or 0.9% (and decreased $0.2 million, or 1.9%, on a constant-currency basis).

Canada POS Lending Revolving LOC loan performance

Canada POS Lending Revolving LOC gross loans receivable as of June 30, 2021 was $221.5 million, including a discount of $8.9 million related to purchase accounting adjustments ($230.4 million prior to purchase accounting adjustments). For the three months ended June 30, 2021, Canada POS Lending revenue was $7.0 million, which included a $4.0 million reduction as a result of acquisition-related adjustments for the period. For a full discussion of the purchase accounting and acquisition-related adjustments, refer to "Consolidated Revenue by Product and Segment" earlier within this release. Revolving LOC gross loans receivable generally charge-off at 180 days past due. NCOs were $1.5 million for the three months ended June 30, 2021. The Canada Lending NCO and past-due rates for the quarter were 0.7% and 5.4%, respectively.

Originations for the three months ended June 30, 2021 were $103.9 million in Canadian dollars ("C$"), an increase of C$56.2 million, or 117.8%, from the prior-year period of C$47.7 million. Sequentially, Canada POS Revolving LOC gross loans receivable increased $19.9 million, or 9.9%.

Canada Direct Lending Results of Operations

Canada Direct Lending Segment Results - For the Three Months Ended June 30, 2021 and 2020

For a discussion of revenue, provision for losses and related gross combined loans receivables, see "Canada Direct Lending and Canada POS Lending Portfolio Performance," above.

Canada Direct Lending cost of providing services were $19.5 million for the three months ended June 30, 2021, an increase of $3.1 million, or 18.8% ($0.9 million or 5.2%, on a constant currency basis), compared to the prior year, primarily due to timing and level of performance-based variable compensation and higher store operating costs.

Canada Direct Lending operating expenses decreased to $8.5 million for the three months ended June 30, 2021 compared to $9.3 million for the three months ended June 30, 2020.

Canada Direct Lending Segment Results - For the Six Months Ended June 30, 2021 and 2020

Canada Direct Lending revenue increased $16.1 million, or 15.4% ($5.8 million, or 5.6%, on a constant currency basis), to $120.3 million for the six months ended June 30, 2021, from $ 104.2 million in the prior year, primarily due to higher consumer demand as COVID-19 Impacts lessen. Canada Direct Lending Revolving LOC gross loans receivable grew $105.8 million, or 45.6%, year over year, contributing to related revenue growth of $17.0 million, or 31.0% for the six months ended June 30, 2021 compared to the prior-year period.

The provision for losses decreased $18.9 million, or 51.5%, ($20.3 million, or 55.4% on a constant currency basis), to $17.8 million for the six months ended June 30, 2021, compared to $36.7 million in the prior-year period. The decrease in provision for loan losses was the result of lower NCOs and the related impact of changes in allowance coverage due to an increase in credit quality for Revolving LOC loans. Refer to "Canada Direct Lending and Canada POS Lending Portfolio Performance," above for additional details on quarterly loss and allowance rates.

Canada Direct Lending cost of providing services for the six months ended June 30, 2021 were $38.4 million, an increase of $2.7 million, or 7.5% ($0.6 million, or 1.7%, on a constant-currency basis), compared to $35.8 million for the six months ended June 30, 2020, primarily related to volume-driven variable costs, such as underwriting data and financial services fees and higher store operating costs for the six months ended June 30, 2021 compared to the six months ended June 30, 2020.

Canada Direct Lending operating expenses for the six months ended June 30, 2021 were $16.5 million for the six months ended June 30, 2021 compared to $17.0 million for the six months ended June 30, 2020.

Canada POS Lending Results of Operations

Canada POS Lending Segment Results - For the Three and Six Months Ended June 30, 2021

For a discussion of revenue, provision for losses and related gross loans receivables, see the "Canada Direct Lending and Canada POS Lending Portfolio Performance," above for the three months ended June 30, 2021. Canada POS Lending segment revenue includes revenue from merchant discounts and ancillary products. MDR represents the discount merchant partners provide to help facilitate customer credit card purchases at merchant locations. The fee is recognized over the estimated average loan term of 12 months. Ancillary revenue includes administrative fees, annual fees, insurance product fees and other fees charged to customers.

For the six months ended June 30, 2021, Canada POS Lending revenues were $8.6 million, and included a $4.0 million reduction as a result of acquisition-related adjustments. For a full discussion of acquisition-related adjustments, refer to "Consolidated Revenue by Product and Segment" earlier within this release.

Provision for losses for the six months ended June 30, 2021 was $3.8 million. Refer to "Canada Direct Lending and Canada POS Lending Portfolio Performance," above for additional details on quarterly loss and allowance rates.