the three months ended September 30, 2021 compared to Diluted
Earnings per Share of $0.31 for the three months ended September
30, 2020, primarily due to the loss on our extinguishment of debt
from our 8.25% Senior Secured Notes refinancing. Adjusted Diluted
Earnings per Share was $0.15 and $0.27 for the three months ended
September 30, 2021 and 2020, respectively.
-- Diluted Earnings per Share from continuing operations was $2.03
for the nine months ended September 30, 2021 compared to $1.68 for
the nine months ended September 30, 2020, primarily due to the
Katapult Holdings Inc. ("Katapult") merger in June 2021. Adjusted
Diluted Earnings per Share was $1.24 and $1.58 for the nine months
ended September 30, 2021 and 2020, respectively.
-- Other Highlights
-- On October 27, 2021, our Board of Directors declared an $0.11 per
share dividend payable on November 22, 2021 to stockholders of
record as of November 12, 2021.
-- On July 30, 2021, we closed $750.0 million of 7.50% Senior Secured
Notes due 2028. The proceeds were used: (i) to redeem our 8.25%
Senior Secured Notes due 2025, (ii) to pay related fees, expenses,
premiums and accrued interest and (iii) for general corporate
purposes. This refinancing extended maturities and increased our
borrowing capacity while maintaining related borrowing costs at
levels under the $690.0 million 8.25% Senior Secured Notes.
-- We closed and consolidated 49 U.S. stores, representing
approximately a quarter of all U.S. stores, during the second and
third quarters of 2021 to better align with changing customer
trends, preferences for online transactions and certain states'
regulatory considerations. The impacted locations generated only
8% of our U.S. store revenue in 2020.
-- Effective July 1, 2021, Flexiti commenced a 10-year agreement to
become the exclusive POS financing partner to LFL, which operates
over 300 stores in Canada under multiple banners including Leon's
and The Brick.
-- Katapult's merger with FinServ Acquisition Corp. ("FinServ")
closed on June 9, 2021. We received cash of $146.9 million and
recorded a one-time gain of $135.4 million. Our fully diluted
ownership of Katapult as of September 30, 2021 was 19.3%,
including potential earn-out shares.
-- Under the terms of our $50.0 million share repurchase program
announced in April 2021, we purchased 1,355,682 shares for $22.9
million through October 29, 2021.
-- We completed our acquisition of Flexiti on March 10, 2021.
From the second quarter of 2020 through the first half 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"). In the third quarter of 2021, our markets were less affected by COVID-19 Impacts, causing positive growth trends in revenue and receivables.
Consolidated Revenue by Product and Segment
The following table summarizes revenue by product, including revenue we earn from operating as a credit services organization ("CSO") by charging a customer a fee for arranging an unrelated third party to make a loan to that customer, which we refer to as "CSO fees", for the period indicated:
Three Months Ended
September 30, 2021 September 30, 2020
Canada Canada Canada Canada
(in thousands, Direct POS % of Direct POS % of
unaudited) U.S. Lending Lending Total Total U.S. Lending Lending Total Total
--------------- --------- -------- -------- --------- --------- --------- -------- ------- --------- ---------
Revolving LOC $ 27,377 $ 40,239 $ 10,646 $ 78,262 37.4% $ 30,431 $ 28,280 $ -- $ 58,711 32.2%
Installment 101,036 11,331 -- 112,367 53.7% 98,946 10,238 -- 109,184 60.0%
Ancillary 3,261 14,620 770 18,651 8.9% 3,471 10,637 -- 14,108 7.8%
--------- -------- -------- --------- ----- --------- -------- ------- --------- -----
Total revenue $ 131,674 $ 66,190 $ 11,416 $ 209,280 100.0% $ 132,848 $ 49,155 $ -- $ 182,003 100.0%
---------------- --------- -------- -------- --------- ----- --------- -------- ------- --------- -----
During the three months ended September 30, 2021, total revenue increased $27.3 million, or 15.0%, to $209.3 million, compared to the prior-year period. The year-over-year increase was primarily due to an increase in Canada Direct Lending revenue of $17.0 million, or 34.7%, and $11.4 million of Canada POS Lending revenue. This increase was partially offset by a decrease in U.S. revenue of $1.2 million, or 0.9%, as a result of regulatory changes in California impacting certain Installment products, effective January 1, 2020, and regulatory changes in Virginia impacting Revolving LOC products, effective January 1, 2021. Excluding the impacted California and Virginia loans, total U.S. revenue increased $14.2 million, or 12.9%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020.
Canada POS Lending revenue includes merchant discount revenue ("MDR"), which is recognized over the life of the underlying loan term. On March 10, 2021, we completed the acquisition of Flexiti. For the three months ended September 30, 2021, Canada POS Lending results were impacted by adjustments that reduced revenue by $1.8 million and net revenue by $4.3 million ("acquisition-related adjustments"). The acquisition included a loan portfolio with a fair value of approximately $196.1 million ("Acquired Portfolio"). The fair value discount of $12.5 million was 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 of $2.5 million for both revenue and loan loss provision for the three months ended September 30, 2021. The Acquired Portfolio also included $14.1 million of unearned MDR and annual and administrative fees, which are not amortized to revenue for the Acquired Portfolio because they do not represent future cash flows. For the third quarter of 2021, Canada POS Lending revenue and net revenue were both lower by $4.3 million ("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. 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 related to the unearned MDR annual and administrative fees will decline each quarter, until becoming fully amortized by the end of the first quarter of 2022.
The table below recaps acquisition-related adjustments to Flexiti's revenue and net revenue for the periods indicated:
Three months ended September 30, 2021 Nine months ended September 30, 2021
Canada Acquisition- Adjusted Canada Acquisition- Adjusted
(in thousands, POS related Canada POS POS related Canada POS
unaudited) Lending adjustments Lending Lending adjustments Lending
--------------- ------- -------------- --- ---------- ------- -------------- --- ------------
Interest income $ 7,409 $ (2,523) (1) $ 4,886 $14,414 $ (4,115) (1) $ 10,299
Other revenue 4,007 4,278 (2) 8,285 5,640 9,924 (2) 15,564
------- -------------- ---------- ------- -------------- ----------
Total revenue $11,416 $ 1,755 $ 13,171 $20,054 $ 5,809 $ 25,863
------ --- --------- ------ ------ --- --------- ------
Provision for
losses 8,285 (2,526) (1) 5,759 12,127 (3,945) (1) 8,182
------- -------------- ---------- ------- -------------- ----------
Net revenue $ 3,131 $ 4,281 $ 7,412 $ 7,927 $ 9,754 $ 17,681
--------------- ------ --- --------- --- ------ ------ --- --------- --- ------
(1) Acquisition-related adjustments for interest income and provision for losses relate to the
amortization of the fair value discount of the Acquired Portfolio.
(2) Acquisition-related adjustments for other revenue represents the unearned MDR and annual and
administrative fees, which were not included in the opening balance sheet as they did not represent
future cash flows as of March 10, 2021, and thus, are not amortized to revenue for the Acquired
Portfolio. The acquisition-related adjustments related to the unearned MDR and annual and
administrative fees will decline each quarter with the Acquired Portfolio and will be fully amortized
by the end of the first quarter of 2022.