CURO Group Holdings Corp. (CURO) Q2 2020 Earnings Call Transcript

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CURO Group Holdings Corp. (NYSE: CURO)
Q2 2020 Earnings Call
Aug 4, 2020, 3:15 p.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Good morning, and welcome to the CURO Group Holdings Second Quarter 2020 Conference Call. All participants will be in listen-only mode. [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please note this event is being recorded.

I would now like to turn the conference over to Mark Keating, Investor Relations for CURO. Please go ahead.

Matthew Keating -- Investor Relations

Thank you, and good morning, everyone. After the market closed yesterday, CURO released results for the second quarter of 2020, which are available on the Investors section of our website at

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 obligation to update these statements as a result of new information or future events. In addition to U.S. GAAP reporting, we report certain financial measures that do not conform to Generally Accepted Accounting Principles. We believe these non-GAAP measures enhance the understanding of our performance. Reconciliations 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.

Donald F. Gayhardt -- President and Chief Executive Officer & Director

Great. Thanks, Matt. Good morning, and thank you for joining our call today. I hope that you remain healthy and safe and are managing as well as possible. Before we begin our second quarter update, one administrative note. Given the rapid changes in our business resulting from recent events, we wanted to provide you with some slides focused on key weekly and monthly metrics that really tell our story for the second quarter. We'll be referencing this presentation in our remarks, and you can find it on the Events and Presentations section of our IR website.

As we speak today on August 4, we continue to face very uncertain public health and economic outlooks, and we'll try our best to explain how the confluence of these developments is having an impact on our business. On the health and economic front, when we last spoke in early May, there were some signs of the worst phase or at least what we had hoped was the worst phase of the health crisis in certain parts of the country had passed. However, virus has surged in many parts of the US, suggest that the broad impacts of this pandemic are likely to be felt for some time. I said then that we were business people and not doctors and the COVID trends have certainly proved that point.

On a relative basis, our neighbors in Canada appear to be curing better than the U.S. in terms of managing the virus, and we think that helps to explain with stronger performance, again on a relative basis than our U.S. business.

As discussed on our last earnings call and three investor updates during the second quarter, we created a customer care program in response to COVID-19. Through the end of last week, we provided payment relief to 12% of our active customers, including more than $4 million in principal and interest waivers. In addition, we also waived over $4 million in fees for returned items and for cashing over 30,000 stimulus checks at no costs. While the level of payment assistance request has tapered off to minimal level since peaking in mid-April, we remain dedicated to assisting our customers and managing their finances.

For our frontline employees, we continue to adhere to enhance cleaning and protection protocols for all of our stores. Consistent with these policies, we temporarily closed the number of stores for a limited amount of time for suspected or confirmed infections, which affected our total store volumes. With pay supplements to support full-time employees working reduced hours and no furloughs or layoffs, we effectively maintained full employment in the U.S. and Canada during the second quarter.

For most of our contact center and corporate support employees, we continue to work remotely as we evaluate best practices and timelines for returning to the office. Our top priority is to keep our valued employees ready and in place to serve more customers as demand improves.

On the social front, we're also operating in complicated times. The Black Lives Matter movement and social justice protests have brought to the forefront many long-standing issues and challenges.

In response, we're taking a proactive stance to support our customers and employees. Some preliminary actions included recognizing the June team holiday for our employees and making a contribution to the Thurgood Marshall College Fund, which provides scholarships, mentoring and career support to students, attending historically black colleges and universities.

To have more prominent and comprehensive plan that addresses diversity and inclusion, we've also formed a diversity and inclusion council comprised of employee representatives from the U.S. and Canada and across all company functions. The council will serve all employees with the goal of incorporating best practices throughout our organization. We're focused on promoting diversity, inclusion and equality to support our employees, to serve our customers, and to engage with our communities.

Fully implementing these plans may take some time, but we're determined. Based on our internal feedback, we're very optimistic that we'll cross the real improvement within our company and make a positive impact in the communities that we serve.

Turning to Q2 financial results. Our earnings supplement deck summarizes the trends that drove our financial results. As we said before, our customers entered March in historically good financial condition. Employment levels and wage growth for our customers were in record highs and they benefited from the normal federal income tax refund season in the U.S.

When COVID-19 hit in mid-March, the lockdowns limited spending options, and after an April lag, unemployment supplements and stimulus bridged the gap financially. Overall, these measures have the effect of reducing loan demand, increasing loan repayments, significantly reducing delinquencies, and improving credit quality in the second half of the quarter. The charts in our company presentation illustrate these dynamics pretty clearly.

As a result, our managed loan balances declined by 20.9% from the first quarter and 27.5% year-over-year. By comparison, sequential quarterly loan balances increased 10% in the second quarter of 2019. Offsetting the impact of lower loan volume and loan demand on our financial results has been unprecedented improvement in credit quality. Compared to mid-March levels, early stage delinquencies, which we define as one to 30 days late, increased by approximately 30%, peaking on April 12. However, at quarter end, early stage delinquencies were approximately 30% below that same mid-March level. Total past due loans peaked at over 20% as of April 12, which was a 12% increase from the same time in 2019. But through the weekend on August 1, early stage delinquencies are down 35% versus the same period last year.

As I said on our call last quarter, I've been in the small dollar lending industry for quite some time, and this is my fourth experience managing a business through an economic downturn. Well, this exact scenario was unlike anything I've seen before. In my experience, subprime and underbanked consumers have consistently shown a greater ability to manage credit as measured by the relative change in our delinquency and charge-off data during an economic downturn on prime and near-prime customers.

Moving by stimulus, our customers demonstrated a similar pattern of financial responsibility in the second quarter. The behavior of our customers through this pandemic has emphasized the value of our omnichannel platforms and the investments that we've made to allow for a seamless transition from our store to digital channels. In the U.S., 66% of total transactions occurred online during the second quarter of 2020 compared to 57% in the first quarter and this trend held through July.

In Canada, our online adoption has lagged the U.S. We saw a move to online with 35% of transactions conducted online through the second quarter versus 23% in the first quarter, and again, this shift held through July.

Regarding our loan portfolio, here's a brief update on our relationship with Stride Bank, which we believe provides an important competitive advantage. Stride Bank licenses are underwriting, origination and servicing platforms to generate online installment loans. Stride is offering loans in 10 states today, and we expect another nine states to go live by the end of the third quarter. In Q2, balances and revenues related to this relationship were immaterial due to the low demand that broadly affected the rest of our business. With that said, we remain optimistic about the future growth and contribution from this product.

Moving to our second quarter P&L results. For the quarter ended June 30, we posted a revenue decline of 30.9%, primarily due to COVID-19 impact on demand, as well as the year-over-year impact of the California regulatory changes that went into effect at the start of this year. Excluding the impact of our California Installment loans, revenue declined 28.3% versus the year-ago quarter, so obviously, COVID-19 was by far the primary driver.

Adjusted EBITDA declined just $2.6 million or 4.8%, while net revenue declined by $20.5 million year-over-year and was offset by $17.5 million of cost reductions, which Roger will cover in more detail. Adjusted diluted earnings per share grew 1.9% to $0.53 per share for the quarter.

Geographically, I'll start with Canada, where the year-over-year performance continues to stand out despite COVID headwinds. In Canada, revenue declined 16.7% versus the prior year quarter, entirely due to lower demand for the single-pay product as a result of COVID-19. Our open-end book in Canada declined only 3.5% sequentially and was up 5.8% from June 2019. Revenue for this product was up 14% over the comparable period a year ago. This year-over-year growth reflects a 120-basis point improvement in the net charge-off rate, which increased Canada's second quarter adjusted EBITDA to $16 million or 37.6% year-over-year.

In Canada, many of the same macro trends played out as in the U.S., but confirmed cases have stayed low as the U.S. has spiked. This has helped Canadian businesses reopen at a more consistent pace. Ontario moved into stage 3 of its provincial reopening plan on July 17, which permitted the reopening of all workplaces and initiated steps of relaxing restrictions.

I certainly hope that U.S. can manage COVID in a way that brings per capita infection and hospitalization rates in line with Canada. Obviously, this will help our business, but it will also help to reduce the unease, uncertainty, and sufferings so many are experiencing in the U.S.

In the U.S., the impact of COVID-19 was more pronounced with revenue down 34.6% from the prior year and adjusted EBITDA down $6.9 million or 16.5%. In addition to COVID impacts, U.S. comps were affected by the run-off of our California Installment portfolios. Excluding California, U.S. revenue declined year-over-year by 30.6%. Loss rates in the U.S. rose 80 basis points year-over-year, but rate comparisons were affected by the significant decline in AR balances during this year's Q2. Roger will talk more about that in a minute.

According to our 43% ownership of Catapult, which is an online virtual lease-to-own business that primarily serves online retailers, its leasing volumes have benefited dramatically from the shift to online shopping during the pandemic. During the height of COVID, Catapult posted record weekly origination volumes and higher approval rates, as stay-at-home consumers shopped online and as prime and near-prime online financing providers tightened credit and drove more customers to Catapult.

Through the end of June, Catapult originated approximately $100 million in leases compared to just $30 million for the first half of 2019. And even with this outsized growth, credit trends have continued to improve, allowing Catapult to turn meaningfully profitable through the first six months of 2020. We pick up our share of Catapult's income on a two-month lag, so we expect that its strong earnings trend will contribute considerably to our earnings in the back half of 2020.

Roger will highlight our very strong liquidity position. While we have a fair amount of caution around the economic environment, we are actively evaluating a number of M&A and investment opportunities that are focused around our key growth areas in Canada and cards, as well as perhaps adding to our ownership position in Catapult.

I'll turn next to regulatory developments in the U.S. On July 7, the CFPB rescinded the mandatory underwriting provisions of the 2017 CFPB rule. However, the CFPB did not rescind or alter the payment provisions of the final 2017 rule. That said, the final 2017 rule has currently stayed as a result of an industry legal challenge, so we cannot predict when its payment provisions will ultimately go into effect.

Overall, we're very pleased to see these rules finalized and are confident that we can adjust our customer payment practices to comply with the rules, while not materially impacting our financial results.

As we said before, we think the first step in addressing the economic crisis is solving the health crisis. Based on what we know today, we still can't accurately predict the duration or severity of the pandemic and its impact on businesses and communities. Taking the health, economic and clinical factors together, we're not in a position today to offer any specific guidance or estimates for future performance. However, as we did in Q2, we plan to provide business updates as we move through the quarter. On Page 11 of our supplemental investor presentation, we've highlighted the trends and uncertainties that we think will affect the rest of 2020 and into 2021.

In summary, we ended Q2 2020 successfully navigating the many challenges associated with the pandemic. I'll close by expressing my profound gratitude to our over 3,900 dedicated employees, who continue to serve our customers day in and day out, regardless of the challenges they face. We firmly believe that the strength of our company lies in our people and our culture, and I've never been more proud of our employees than I am today. We are working hard to meet the challenges of COVID-19, while continuing to care for our people and our customers.

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

Roger W. Dean -- Chief Financial Officer

Thanks, Don, and good morning. As Don mentioned earlier, consolidated revenue for the quarter was $182.5 million, down 30.9% compared with last year's second quarter. U.S. loan balances and revenue decreased 42.7% and 34.6% respectively year-over-year, primarily due to the impact of COVID and some additional pressure from the runoff of the California Installment portfolios.

Canada loan balances decreased 4.4%, reflecting a year-over-year $21 million decline in single-pay balances from COVID-19 impacts, offset by a $12.7 million increase in open-ended balances in Canada.

Consolidated adjusted EBITDA came in at $51.1 million, down $2.6 million or 4.8% as revenue declines were almost completely offset by a lower provision for loan losses and cost reductions.

Consolidated adjusted net income declined 9.3%, while adjusted earnings per share increased 1.9% year-over-year on a lower share count from share repurchases in the second half of last year.

Don mentioned the key macro drivers of our P&L and balance sheet performance earlier, and I'm going to expand on that just a bit. First, demand and loan volume. Page 4 of our deck recaps the weekly trends through last week, indexed to the week ended March 7. Application volume troughed in mid-May when it was down nearly 70% on an index basis. Since that time, application volumes have returned steadily to nearly 120% of what we experienced pre-COVID, and loan balances have begun to grow modestly week to week. However, we would normally expect application volume at this time of the year to be double what we see in early March seasonally. We also tightened underwriting in early March with approval rates less than half of the normal rates. As we move through July, we have selectively loosened credit criteria, particularly for existing customers, but approval rates are still lower than a year ago due to the relative quality of the application volume recently. The combination of these factors has resulted in gradually increasing origination volumes, as you can see on Page 4 of the deck and some sequential weekly loan growth, but volume remains historically low.

Secondly, I'll talk about delinquency and credit trends. Page 5 of our earnings supplement highlights weekly delinquency trends by bucket. After the spike that ended the week of April 12, delinquency levels have improved each week, and at the end of last week, were down over 30% versus the same period a year ago and at historic lows.

Our consolidated net charge-off rate declined 150 basis points year-over-year with a 240-basis point improvement in Canada, being partially offset by a flat NCO rate in the U.S. However, as we described in a lot of detail in our release and MD&A, the net charge-off comps are affected primarily by the relative sequential loan growth impact on the denominator in the net charge-off rate calculation.

Third, I'll talk about our provision for loan losses. The unprecedented second quarter sequential decline in loan balances affected our loan loss provisioning and the calculation of net charge-off rates as I mentioned a second ago. The loan loss provision is a function of the calculated required loan loss allowance coverage at the end of the period after replenishing net charge-offs.

Our allowance coverage rates declined modestly from the levels we saw after our Q1 allowance build. Consolidated allowance coverage was 16.7% at the end of Q2 versus 17.6% at the end of first quarter. The impact of dramatically lower delinquencies was offset qualitatively in our allowance evaluation by continued high levels of uncertainty for employment trends and expiring unemployment supplements as well as the impact of modified loans.

Under our customer care program, we modified loans totaling about 4.5% of balances as of June 30, 2020, and the resulting application of troubled debt restructuring, or TDR, accounting increased our allowance like-for-like by about $5.5 million. Notwithstanding these changes affecting the allowance coverage percentage, loan balances shrank 20.9% or $129.7 million sequentially from the first quarter of 2020. As a result, provision expense declined $61.3 million or 54.7% year-over-year.

Fourth and finally, I'll talk about our operating expense reductions. As discussed last quarter, 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 was $14.2 million this quarter, so we came in a little better than expected. We intend to keep these expense measures in place until business volumes and operations begin to return to normal.

We ended the quarter with $269 million in cash and $363 million of liquidity, including undrawn capacity on our revolving credit facilities. Of course, access to the revolving lines depends on continued collateral performance for the ABL facilities and covenant compliance. In addition, on July 31, we closed participation for an additional $100 million of commitments for our U.S. SPV facility, which also lowered the blended borrowing cost to 8.15% until we reached the draw level of $145.5 million.

As we move through the second half of 2020, we believe we are well positioned to deploy this capital to meet the needs of our customers we serve through responsible lending, while also filling the gaps created by other lenders exiting the market or limiting access to credit. And as Don mentioned, we continue to pursue strategic investments and partnerships in the U.S. and Canada that will provide long-term growth opportunities.

In summary, in what has been a very challenging in an unprecedented environment, year-to-date we have generated a little over $230 million in free cash flow from operations after considering loan funding and capital expenditures. We suspended our share repurchase program early in the pandemic and we also temporarily suspended all nonessential capital expenditures, including planned Canadian LendDirect store expansion.

Based on second quarter net income and our strong cash flows, our Board of Directors declared a quarterly dividend of $0.055 per share to be paid on August 24 to shareholders of record as of August 13. We will continue to evaluate quarterly dividends as we move through 2020. We believe that our strong liquidity position will allow us to manage the near-term impacts of COVID-19, while positioning us for market and strategic opportunities as we move closer to the eventual recovery.

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

Questions and Answers:


We will now begin the question-and-answer session. [Operator Instructions] The first question today comes from Bob Napoli of William Blair. Please go ahead.

Robert Napoli -- William Blair -- Analyst

Thank you and good morning.

Donald F. Gayhardt -- President and Chief Executive Officer & Director

Good morning, Bob.

Robert Napoli -- William Blair -- Analyst

I appreciate all the information and the charts. Don, Roger, Bill, good to talk to you guys. I guess the -- I mean, at the very tricky times, as you're starting to see growth in loans, obviously your balance sheet looks really, really good with all that cash. But how are you balancing? Or how do you feel about you have the stimulus that is out there, that has certainly been helpful? We may or may not have an extension of some of the stimulus and I know volumes are way down from a year ago, but starting to increase. What is your confidence, I guess, in the quality of the credit and the performance of those loans given the tricky environment that we're in? I mean is it early enough that you've seen any trend in first payment defaults from the ramp up you saw a month ago? Or just any color and thoughts on how you're managing the return to loan growth in this environment.

Donald F. Gayhardt -- President and Chief Executive Officer & Director

Hey, Bob. I'll start and let Roger and Bill chime in. I would also -- I guess, I would maybe not to argue the premise of the question, but when words or phrases like ramp up, I don't think we're quite -- I mean, on a relative basis, it's a bit more. But I think we're still -- I think we're proceeding with an overwhelming amount of caution. And we -- and all the data -- and it's not uniform across all the portfolios by state, by product, Canada, et cetera., but certainly, we're seeing just extraordinarily low.

And I guess I heard Jamie Dimon say that sometimes people are using the word unprecedented, it's not warranted, but this -- during what's going on now, the use of the word unprecedented is particularly appropriate. So, we're seeing the unprecedented levels, low levels of first payment defaults and then that's obviously rolling into zero to 30s and is still [Phonetic] -- obviously, nothing can become a charge-off if it isn't in the one to 30 bucket. So we're just seeing very, very low numbers, continued very low numbers there.

And also, we immediately made a lot of adjustments to our scoring models and added additional verification steps, including what we call a pending process and products where people have to actually speak to one of our customer service associates before a loan can be -- for additional verification for a loan to be closed. But I think if you look across the portfolios, it's a little different on open end, but because that's a borrow up or pay down kind of product. But for the most of the portfolio, you're looking at right now about half, as we see today -- about half of the portfolio, given the short duration was originated post-COVID. And those numbers are -- the credit performance in those numbers continue to be really, really strong.

So what additional stimulus may do for that? But obviously, there's U.S. potential stimulus, Canadian, and whether it's direct cash payments, additional unemployment, small business support, et cetera, it's hard to say. So that's, I think, why we continue to be cautious around -- we would expect something will get passed in the way of additional stimulus. In news this morning in the U.S., at least is a little more optimistic, a little more promising about something like that happens. We do believe that the consumer needs some additional stimulus to kind of build a bridge to maybe -- it's not a completely post-COVID environment, at least back-to-school has happened in a real way, the positive test rates. I mean in the U.S. -- the positive test rate in the U.S. is 8% and it's 1% in Canada.

So if you just look at those kinds of numbers and if you can bend the curve on those kinds of numbers to get the U.S. to look more like Canada, I think we'll be in pretty good shape, but it will take some additional signals. But we feel really good about the way our models are behaving and given the adjustments we've made including, as I said, some additional verification.

Robert Napoli -- William Blair -- Analyst

Okay. Thank you. Then just a follow-up question on capital. You talked about some of the card products, Catapult and the M&A. I mean how closely -- I mean how seriously are you looking? With the amount of cash you have on your balance sheet, are you very confident in making an investment at this point? And what areas are -- what are the priorities? What are the highest priority investments you would make on an M&A?

Donald F. Gayhardt -- President and Chief Executive Officer & Director

Yes. I don't -- I'd say that -- I mean, we are evaluating seriously a number of opportunities right now. It's obviously just the evaluation, it's quite a different exercise than it was pre-COVID, depending on the kind of business and the trajectory that it was on and the kind of products it has, et cetera. So, I think it's a lot harder to evaluate M&A deals. And I'm just -- sorry, I have to hang the phone up in my office, sorry, Bob.

Robert Napoli -- William Blair -- Analyst


Donald F. Gayhardt -- President and Chief Executive Officer & Director

It rings like once a month or just at bedtime. So anyway -- so -- but I think we're -- I guess, it's hard to say how confident are we that we'd be able to actually -- to get something done. It's hard to say obviously, some of that depends on -- you need a willing buyer and a willing seller. And I think we are a very interested buyer across, as I said, cards, Canada Catapult, we're an interested buyer. Whether or not we're able to get it done, it's hard to say. But we are, I think, taking advantage of the capital position we have and what we consider to be areas of real strategic importance for us.

Robert Napoli -- William Blair -- Analyst

Great. Thank you. I appreciate it.


The next question comes from Moshe Orenbuch of Credit Suisse. Please go ahead.

Moshe Ari Orenbuch -- Credit Suisse -- Analyst

Great. Thanks. And Don, maybe just building on Bob's question a little bit. You talked about managing through the liquidity position through COVID-19. I mean it feels like -- and I'm not making light of this at all, but it feels like the COVID-19 has been a source of liquidity rather than a use of liquidity. And I guess maybe just -- I mean, is there -- do you have like a negotiated price at which you can invest in Catapult? Like it just feels like this is an environment where you probably have strength relative to some others who need that liquidity. And I guess, wondering if there's any way to kind of expand on the last answer?

Donald F. Gayhardt -- President and Chief Executive Officer & Director

Yes. Moshe, thanks for the question. It's relatively kind of -- we don't have a specific price. We don't have any options or anything like that. So it's all kind of one-off investment. But as I said -- we said -- I think we've said for a couple of calls now in a row, it's something we'd like to, to the extent we can figure out how to invest more at the rate we consider to be a good valuation, we like the opportunity. It's a really good management team, doing really good things. And obviously, it's been a real beneficiary of work from home and shop from home, but we don't have any sort of set formula we can just kind of step into from an investment standpoint.

Moshe Ari Orenbuch -- Credit Suisse -- Analyst

Right. In terms of -- on the loan growth side, and I appreciate that volumes are down a lot from a year ago, could you just talk a little bit about what normally goes on seasonally around now? Are we beginning that back-to-school season? Are you seeing consumers in certain parts of the country? And perhaps, if it's not too much piling on, just talk about -- you mentioned a bunch of additional states for the Stride Bank partnership could that have an impact this year, kind of trying to expand and bring the volume back closer to historic levels?

William Baker -- Chief Operating Officer

Yes. Good morning. Moshe, this is Bill. I hope you're well. I'll take the first question. So historically, you would see right about this time, so late July, early August, you would see demand go up as is. To your point, it is different across the country as far as when schools start, but you see people go back and buying clothes and shoes and lunch boxes. And obviously, any child care that they had during the summer then goes away. So there's just a real need for cash. And so you would typically see loan balances and new customers increase this time of the year.

I think what we're seeing now, again it's just at the really beginning stage of when we'd see that, but it is very different across the country. Some school districts are fully going back to school, some are split between virtual. So I think we are certainly seeing -- we are seeing some demand come back, although it's certainly much different.

And I think the other relevant point is that it changes as we monitor the various school districts and states that we operate in, the plans have changed two or three times already, so we remain really flexible. The branches are a really nice source to monitor and get the news in pretty short order from our folks, but we would expect to see some -- continue to see some increases, although it may be somewhat muted from the historical back-to-school. And to the point Don made earlier, it's going to be very dependent on what kind of stimulus package gets passed and that may drive more demand depending on what it is or if it gets passed or kind of keep it more on the curve that it's on the trajectory that it's on.

As far as Stride goes, I mean, we're continuing to be really excited about it, and they're a terrific partner. As we kind of roll out these states, we're taking a cautious approach. One, just we want to make sure that the credit lines up with the models and that the bank is happy with how it's performing. And also just given the unprecedented times, we want to be really calculated and left the vintages season a little bit. But we do think it's an interesting opportunity, and we're already in the 10 states that we're in, there's already a couple of states that we've never operated in before.

So as we think about market share and being truly additive to the portfolio, that's a really exciting component. And some of the new states that we'll be launching with Stride are also brand new states for us. So I think this year, we've said, it's not going to be a big contributor, but we do think that it positions us very well for next year. And again, the last point is that the early results that we're seeing are very much in line with what we have forecasted with Stride and expected from a credit perspective.

Moshe Ari Orenbuch -- Credit Suisse -- Analyst

Great. Thanks very much.


The next question comes from Vincent Caintic of Stephens.

Vincent Albert Caintic -- Stephens Inc. -- Analyst

Great. Thank you very much for [Phonetic] taking my question.

Donald F. Gayhardt -- President and Chief Executive Officer & Director

Good morning.

Vincent Albert Caintic -- Stephens Inc. -- Analyst

First question -- Good morning. It's encouraging to see the application counts are now higher than pre-COVID. But maybe if you could talk about the quality of applications in more detail. I'm just kind of curious to see the discrepancy between the application counts you're getting versus the approval counts. And then broadly, an investor question we get frequently, but do we need to see the stimulus and unemployment benefits and to see the usual spike in loan growth that we would see usually in recession?

Donald F. Gayhardt -- President and Chief Executive Officer & Director

Vincent, I'll take the second half of the question, and I'll let Bill talk about the application stuff and the quality application part of the question. And I think on the stimulus side, it's really hard to tell based upon -- it somewhat relates to just obviously what is the nature of additional stimulus. And I would say -- and that holds true. I mean Canada is one-third of our business almost. So we obviously watch that stuff closely as well. It's that the need for additional stimulus doesn't seem as pronounced there, although unemployment in Canada typically runs about 2% higher, 200 basis points higher, said in other way than the U.S. number.

So their unemployment numbers are still above the U.S., although that's typically what you would see, although both have kind of trended down. Although Canada, let's say, continuing to trend down, while the U.S. may be kind of flat line based upon the continuing claims numbers that came out. So trying to sort of gauge what additional stimulus. I mean it just seems like every hour there's another article that's out about what's the progress in the negotiations and what's on the table and what's not, et cetera.

So I would say, broadly speaking, we think you probably need the -- if additional -- if the tapering off of stimulus is consistent and kind of concurrent with an increased level -- a decreased level of unemployment and those kind of run together, then we think that will eventually lead to additional demand that's of a quality where we can make really good loans.

But how that is actually going to happen? It's really hard to predict that. But I think as a longer-term matter absolutely, I think additional stimulus is clearly shown. And it's not just us and obviously kind of credit card balances are off, I saw there's $120 billion since March. So it's across consumer credit in general. So I think it should work out for us over long haul. How we kind of get from point A to point B in the U.S. and Canada is just really hard to sort of predict.

So Bill, do you want to talk about the application quality?

William Baker -- Chief Operating Officer

Yes. Good morning, Vincent. So interesting is we start to see applications grow and start to loosen some of the models to pre-COVID ranges. There is certainly some component, and this is also very channel specific. So as we think about affiliate or direct, it is a little different. But we do see a bit of a drop-down component where some people may be dropping out of the credit box of a lower rate or higher quality because they're tightening there. And so they come into our credit box, but there's also a component as well where some of the scores, like-for-like, aren't as high as what we saw pre-COVID, which is why even in some testing as we've gone back to pre-COVID model levels, the application approval rate is not the same. So, there's ways to work on it. I think -- we think it's encouraging because it sort of proves that the models are still working, and the tiers are still rank ordering as we would expect. With that said, even though some of there -- there are some leverage scores obviously, the credit performance is really, really good. So we continue to monitor and test. And I think in some geographies, in some states, we are back to pre-COVID levels. And even over the last few weeks, we've gotten much closer. Those lines are getting much closer, if not on top of each other. So I think some of that is sorting out.

And then last thing I would say is even if some of the lower scores are there, the need for credit right now is really unprecedented. It's difficult for the customers to go potentially access it elsewhere. So remaining in good standing and making their payments, so they have availability is more important than ever. And I think that is absolutely showing up in the numbers.

Vincent Albert Caintic -- Stephens Inc. -- Analyst

Okay. Great. Thank you for that. Second question on Catapult, specifically tremendous growths you've seen there at 250% year-over-year. I'm just wondering when you think about the next couple of years, how you plan to develop the Catapult business going forward. And then also, when I think about your 43% ownership, it doesn't seem like CURO's stock reflects that ownership or the revenue growth potential that Catapult is generating. And so just wanted to get your thoughts on that. Thank you.

Donald F. Gayhardt -- President and Chief Executive Officer & Director

So it's -- obviously, the company -- I mean, we're an investor in the company. We try to help from a strategic standpoint where we can. I think we've done a lot of good work there. But specifically kind of developing it, it's really a matter for the entire board of Catapult, which includes us and some DC investors to kind of work on that. I do think that -- I think obviously everybody has been really pleased with the way the team there has been able to sign on some really high quality merchants, and particularly, the focus which dates back a couple of years now to really focusing on the online channels and some of the really good technologies they had to integrate across some of these different platforms has really paid off a lot.

I think that the business is on a trajectory where it -- from a -- just from an earnings progression, operating leverage, kind of the key metrics, that it ought to start to perform. I think it is performing in a way where the -- if you took like originations and how that rolls into gross revenue and what operating margins look like in that sector, that the business is going to perform at or close to what are kind of comparable metrics across the industry.

So, I think that's the good news. And then from there, I think it's -- there's some -- we've kind of crossed -- I think there's sort of two thresholds as kind of we've gone one step function in terms of scaling up the business enough to get it to be profitable and get it to be consistently profitable. And then I think there's another step function of scale that gets you to sort of a consistent operating margin that you would see in some of the bigger companies in the industry. I think we're sort of -- we've clearly made step 1 and I think we're sort of, I would say, getting up the curve on mixing metaphors here, we're getting up the curve on step 2.

Vincent Albert Caintic -- Stephens Inc. -- Analyst

Thank you very much.


The next question comes from John Rowan of Janney. Please go ahead.

John J. Rowan -- Janney Montgomery Scott LLC -- Analyst

Good morning, guys.

Donald F. Gayhardt -- President and Chief Executive Officer & Director

Good morning, John.

John J. Rowan -- Janney Montgomery Scott LLC -- Analyst

Just to labor the Catapult point, but if you do bring up your ownership, when do you have to start consolidating your results?

Donald F. Gayhardt -- President and Chief Executive Officer & Director

You know, John, consolidation is not just a 50.1[Phonetics] kind of question. It's a lot of other things. And I wouldn't anticipate that for the foreseeable future that, regardless of how much we own, then it would be something we would consolidate. We'll try to make sure that investors have an appropriate amount of information, whether it's presented on a consolidated basis or whether it's presented in some -- in a table form in the fitment so people get a full appreciation for the financial performance of the business. And that we'll probably start doing some of that in our third quarter reporting. It's not [Indecipherable] versus the hard one to measure.

John J. Rowan -- Janney Montgomery Scott LLC -- Analyst

Okay. Looking toward the fall, are there any ballot initiatives that you're watching?

Donald F. Gayhardt -- President and Chief Executive Officer & Director

I'm not that I'm[Phonetics] particularly aware of. I think there were a couple that were surfaced. I know Arizona was talked about a lot, but that kind of went by the buy. I think in our -- I don't believe in our states to have any real -- that we do any real volume or there's any concern from a ballot standpoint.

John J. Rowan -- Janney Montgomery Scott LLC -- Analyst

Okay. And just lastly, Roger, what's the correct tax rate to use?

Roger W. Dean -- Chief Financial Officer

I'm sorry, John, the correct what?

John J. Rowan -- Janney Montgomery Scott LLC -- Analyst

What's the correct tax rate to use?

Roger W. Dean -- Chief Financial Officer

Going forward for the rest of the year, we'll still be in that range of 25% to 27%. Our rate this quarter was affected by several one-time items, both -- a couple of things in Canada, mostly in Canada, but 25% to 27% is still the right run rate.

John J. Rowan -- Janney Montgomery Scott LLC -- Analyst

Okay. Thank you.

Roger W. Dean -- Chief Financial Officer

Thanks, John.


The next question comes from John Hecht of Jefferies. Please go ahead.

John Hecht -- Jefferies -- Analyst

Yes. Thanks, guys. Good morning. [Indecipherable] Most of my questions have been asked. The first one is that as I look at the delinquency trends, and you guys gave a lot of great information out on the slides. It looks like the early stage delinquencies have been flat, call it, flattish, call it, since early June. But the later stage buckets looks like they're modestly declining since that period. So your roll rates are pretty positive. Do you guys have a sense for what's driving better roll rates? And how do you think -- when you look at the delinquency levels, how do you think about what that portends to, call it, the second half charge-off cadence? And then maybe even any thoughts into early next year.

William Baker -- Chief Operating Officer

Good morning, John, it's Bill. Hope you're well.

So I think your analysis is right on. I mean, I think the early stage delinquencies or first pay defaults have been very consistent since early June. But as you look through the different buckets that they continue to, so what does go delinquent is curing at an all-time rate? So even if people roll into the one to 30-day bucket, so many of them are curing, so many more than we've ever seen before. And that has continued really through every bucket. In fact, we did a full vintage analysis across anything, even things that were originated over a year ago.

As Don mentioned, 50% of what we have has been originated during COVID. But even customers that have been with us for a year, all of those vintages look better than they ever have. So it's really across the board performance. And obviously, we think that the stimulus plays a role in it, although it's really difficult to put that down to a number and determine what it is.

But as I said before and some of this is anecdotal that we hear from customers is just that other sources of liquidity are just not available. So having their account open, active and being able to get money is really important. So they're very focused on keeping up and keeping availability in their lines of credit and things like that. So I think as far as that looks like going forward, I mean, I think everybody is just waiting to see what that looks like from a stimulus perspective. And to the extent if it doesn't get done or it's at a lower level, you certainly may see delinquencies go up a bit, but that also would drive demand as well. So it's a little bit of a back and forth there. But as far as what we see today across the whole portfolio and all the buckets, it looks very, very healthy.

And the last thing I would say is that when you have fewer accounts and delinquency, your ability to contact customers through all of the various things we have in our collections or recovery folks, I mean, they're just even that much more effective because you've got capacity to talk to those customers and work with them and get them on payment plans. So very encouraging from that perspective.

Roger W. Dean -- Chief Financial Officer

And John, it's Roger. Good morning. I think diversification is also driving. Canada is just performing unbelievably well, as Don mentioned earlier, because of one, because they manage the pandemic better and are getting back to work and Ontario opened completely last week, I think, or two weeks ago. And so in that, combined with the payment protection insurance in Canada, it's just Canada is performing just at unbelievable levels from a credit perspective, and at this point, appears to be way less sensitive to stimulus and things like that. And so I think that provides a good balance to some of the uncertainty in the U.S.

John Hecht -- Jefferies -- Analyst

Okay. So if part of it seems geographical and then speaking back to Bill, I mean, some of the performance is tied to just better, maybe more focused interaction between the customers. Is that sort of the proper takeaway?

William Baker -- Chief Operating Officer

I think that's right. As Don mentioned in his prepared remarks, we haven't furloughed or laid off a single person. So our team is at full capacity. And when you just have fewer customers rolling into delinquency, that team's ability to contact them and work on a payment plan or some kind of arrangement to get them back into good standing just increase. There's just less inventory that they have to work. So the effectiveness of penetration rate and saturation rates are all really sort of off the charts right now, because all of those folks, although working remotely, are engaged in and trying to help customers each day.

John Hecht -- Jefferies -- Analyst

Okay. And then I mean just as much as out of curiosity than anything else, I mean, California, it's down, we would have expected that because of the regulatory changes in California that wanted to effect this year. To what degree has the current environment impacted that migration relative to what you would have expected, say, before it all went down?

Roger W. Dean -- Chief Financial Officer

Yes. It's interesting, John. The California portfolio performance by almost every metric has been almost exactly as we expected it through the first half of the year, both in terms of runoff and in terms of credit performance. I think it's because it was a longer-term product with very manageable -- on a relative basis, very manageable payments. And I think it's -- I would say, it has performed pretty much exactly as we almost -- nearly exactly as we expected it to as we've moved through the first half of the year.

John Hecht -- Jefferies -- Analyst

Okay. And then last question, and I think this question has been asked in a variety of ways because people talked about Catapult's support. But you're sitting on a lot of liquidity in cash and you talked about the difficulty to try to do a deal in this type of environment, that all makes sense. But I guess what I'm wondering is, at a point in time where you start to feel comfortable in a position to try to deploy that excess liquidity, would you look to be buying maybe -- would you prioritize maybe distressed branch-based renders differently than you might prioritize, call it, fintech-type lenders like Catapult? Or how do we think about how you're looking at those opportunities going forward, given the success of some of your recent investments?

Donald F. Gayhardt -- President and Chief Executive Officer & Director

Yes. John, it's a really good question. I think probably -- I think we talked about this a lot. From a retail standpoint, there just aren't that many people that have to operate the kind of retail that we do, large format stores, 10 to 12 windows, lots of signs, lots of parking, 2,500 square foot branches versus kind of, what we say, kind of middle of the block, middle and the center branches. So it doesn't mean that there aren't opportunities out there. But there's -- I'm guessing, in the industry today, in the states and booking the [Indecipherable], there's probably maybe 12,000 stores that are still in our -- in the small-dollar lendings or somewhere in that neighborhood. And I would guess you're probably looking at a number that's sub 15% to 20% of those that look and feel like our kind of branch network. So it's not a big universe, but it doesn't mean that there aren't some out there.

I think Canada, probably, given that more of the business is still branch based, then if you look at there, we give those stats on a relative amount of business that's in online versus branch base. We probably have a little bit more appetite in certain markets, maybe some of the rural markets, et cetera, in Canada to do some branch acquisition. But I think more so we'd be focused on, as I said, cards and within Canada, to the extent there's other online opportunities that they're going to focus -- they'll probably be more tilted to sort of, as you said, kind of fintech opportunities as opposed to branch opportunities. But we're not ruling anything out on that front.

John Hecht -- Jefferies -- Analyst

Great. Thanks guys very much for the color.

Donald F. Gayhardt -- President and Chief Executive Officer & Director

That's great[Phonetic]. Thanks, John.


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

Donald F. Gayhardt -- President and Chief Executive Officer & Director

Great. Thanks, everybody. Please stay safe and stay healthy. And we'll talk to you again after we finish up our third quarter. Thanks.


[Operator Closing Remarks]

Duration: 56 minutes

Call participants:

Matthew Keating -- Investor Relations

Donald F. Gayhardt -- President and Chief Executive Officer & Director

Roger W. Dean -- Chief Financial Officer

William Baker -- Chief Operating Officer

Robert Napoli -- William Blair -- Analyst

Moshe Ari Orenbuch -- Credit Suisse -- Analyst

Vincent Albert Caintic -- Stephens Inc. -- Analyst

John J. Rowan -- Janney Montgomery Scott LLC -- Analyst

John Hecht -- Jefferies -- Analyst

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