10-Q 1 enva-10q_20140930.htm 10-Q

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014

OR

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                      

Commission File Number 1-35503

 

Enova International, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

45-3190813

(State or other jurisdiction of

Incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

200 West Jackson Blvd.

Chicago, Illinois

 

60606

(Address of principal executive offices)

 

(Zip Code)

(312) 568-4200

(Registrant’s telephone number, including area code)

NONE

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  ¨    No  x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes  ¨    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer

 

¨

  

Accelerated filer

 

¨

 

 

 

 

Non-accelerated filer

 

x  (Do not check if a smaller reporting company)

  

Smaller reporting company

 

¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  ¨    No  x

33,000,000 of the Registrant’s common shares, $.00001 par value, were issued and outstanding as of November 14, 2014. All of the Registrant’s common stock was owned by Cash America International, Inc. as of such date.

 

 

 

 


CAUTIONARY NOTE CONCERNING FACTORS THAT MAY AFFECT FUTURE RESULTS

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You should not place undue reliance on these statements. These forward-looking statements give current expectations or forecasts of future events and reflect the views and assumptions of senior management with respect to the business, financial condition, operations and prospects of Enova International, Inc. and its subsidiaries (collectively, the “Company”). When used in this report, terms such as “believes,” “estimates,” “should,” “could,” “would,” “plans,” “expects,” “intends,” “anticipates,” “may,” “forecast,” “project” and similar expressions or variations as they relate to the Company or its management are intended to identify forward-looking statements. Forward-looking statements address matters that involve risks and uncertainties that are beyond the ability of the Company to control and, in some cases, predict. Accordingly, there are or will be important factors that could cause the Company’s actual results to differ materially from those indicated in these statements. Key factors that could cause the Company’s actual financial results, performance or condition to differ from the expectations expressed or implied in such forward-looking statements include, but are not limited to, the following:

·

the effect of laws and regulations targeting our industry that directly or indirectly regulate or prohibit our operations or render them unprofitable or impractical;

·

the effect of and compliance with domestic and international consumer credit, tax and other laws and government rules and regulations applicable to our business, including changes in such laws, rules and regulations, or changes in the interpretation or enforcement thereof, and the regulatory and examination authority of the Consumer Financial Protection Bureau with respect to providers of consumer financial products and services in the United States and the Financial Conduct Authority in the United Kingdom;

·

changes in our U.K. business practices in response to the requirements of the Financial Conduct Authority;

·

the effect of and compliance with enforcement actions, orders and agreements issued by applicable regulators, such as the November 2013 Consent Order issued by the Consumer Financial Protection Bureau;

·

our ability to effectively operate as a stand-alone, public company following our separation from our parent company, Cash America International, Inc. (“Cash America”), as described elsewhere in this report;

·

our ability to process or collect consumer loans through the Automated Clearing House system;

·

the deterioration of the political, regulatory or economic environment in countries where we operate or in the future may operate;

·

the actions of third parties who provide, acquire or offer products and services to, from or for us;

·

public and regulatory perception of the consumer loan business and our business practices;

·

the effect of any current or future litigation proceedings and any judicial decisions or rule-making that affects us, our products or the legality or enforceability of our arbitration agreements;

·

changes in demand for our services, changes in competition and the continued acceptance of the online channel by our customers;

·

changes in our ability to satisfy our debt obligations or to refinance existing debt obligations or obtain new capital to finance growth;

·

a prolonged interruption in the operations of our facilities, systems and business functions, including our information technology and other business systems;

·

our ability to maintain an allowance or liability for estimated losses on consumer loans that is adequate to absorb credit losses;

·

compliance with laws and regulations applicable to our international operations, including anti-corruption laws such as the Foreign Corrupt Practices Act and the U.K. Bribery Act 2010 and international anti-money laundering, trade and economic sanctions laws;

·

our ability to attract and retain qualified officers;

·

cyber-attacks or security breaches;

·

acts of God, war or terrorism, pandemics and other events;

·

the ability to successfully integrate newly acquired businesses into our operations;

·

interest rate and foreign currency exchange rate fluctuations;

·

changes in the capital markets, including the debt and equity markets;

·

the effect of any of the above changes on our business or the markets in which we operate; and


·

other risks and uncertainties described herein.

The foregoing list of factors is not exhaustive and new factors may emerge or changes to these factors may occur that would impact the Company’s business and cause actual results to differ materially from those expressed in any of our forward looking statements. Additional information regarding these and other factors may be contained in the Company’s filings with the Securities and Exchange Commission (the “SEC”). Readers of this report are encouraged to review all of the Risk Factors contained in the Company’s filings with the SEC to obtain more detail about the Company’s risks and uncertainties. All forward-looking statements involve risks, assumptions and uncertainties. The occurrence of the events described, and the achievement of the expected results, depends on many events, some or all of which are not predictable or within the Company’s control. If one or more events related to these or other risks or uncertainties materialize, or if management’s underlying assumptions prove to be incorrect, actual results may differ materially from what the Company anticipates. The forward-looking statements in this report are made as of the date of this report, and the Company disclaims any intention or obligation to update or revise any forward-looking statements to reflect events or circumstances occurring after the date of this report. All forward-looking statements in this report are expressly qualified in their entirety by the foregoing cautionary statements.

 

 

 


ENOVA INTERNATIONAL, INC.

INDEX TO FORM 10-Q

 

 

 

 

  

Page

PART I. FINANCIAL INFORMATION

 

 

 

Item 1.

 

Financial Statements (Unaudited)

  

 

 

 

Consolidated Balance Sheets – September 30, 2014 and 2013 and December 31, 2013

  

1

 

 

Consolidated Statements of Income – Three and Nine Months Ended September 30, 2014 and 2013

  

2

 

 

Consolidated Statements of Comprehensive Income – Three and Nine Months Ended September 30, 2014
and 2013

  

3

 

 

Consolidated Statements of Stockholder’s Equity – Nine Months Ended September 30, 2014 and 2013

  

4

 

 

Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2014 and 2013

  

5

 

 

Notes to Consolidated Financial Statements

  

6

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

  

20

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

  

43

Item 4.

 

Controls and Procedures

  

43

 

 

PART II. OTHER INFORMATION

  

 

 

 

 

Item 1.

 

Legal Proceedings

  

44

Item 1A.

 

Risk Factors

  

44

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

  

44

Item 3.

 

Defaults upon Senior Securities

  

44

Item 4.

 

Mine Safety Disclosures

  

44

Item 5.

 

Other Information

  

44

Item 6.

 

Exhibits

  

44

 

 

SIGNATURES

  

45

 

 

 


PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share data)

(Unaudited)

 

 

 

September 30,

 

 

December 31,

 

 

 

2014

 

 

2013

 

 

2013

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

104,241

 

 

$

61,381

 

 

$

47,480

 

Consumer loans, net

 

 

303,694

 

 

 

272,001

 

 

 

303,467

 

Income taxes receivable

 

14

 

 

 

 

 

Prepaid expenses and other assets

 

 

12,738

 

 

 

7,996

 

 

 

8,686

 

Deferred tax assets

 

 

26,558

 

 

 

33,082

 

 

 

30,914

 

Total current assets

 

 

447,245

 

 

 

374,460

 

 

 

390,547

 

Property and equipment, net

 

 

35,598

 

 

 

40,178

 

 

 

39,405

 

Goodwill

 

 

255,865

 

 

 

255,869

 

 

 

255,869

 

Intangible assets, net

 

18

 

 

71

 

 

45

 

Other assets

 

 

21,712

 

 

 

6,269

 

 

 

6,286

 

Total assets

 

$

760,438

 

 

$

676,847

 

 

$

692,152

 

Liabilities and Stockholder’s Equity

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

71,373

 

 

$

43,448

 

 

$

49,614

 

Related party payable, net

 

 

13,369

 

 

 

 

 

Total current liabilities

 

 

84,742

 

 

 

43,448

 

 

 

49,614

 

Deferred tax liabilities

 

 

45,657

 

 

 

44,191

 

 

 

45,306

 

Other liabilities

 

105

 

 

7

 

 

51

 

Long-term debt

 

 

494,021

 

 

 

437,397

 

 

 

424,133

 

Total liabilities

 

 

624,525

 

 

 

525,043

 

 

 

519,104

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

Stockholder’s equity:

 

 

 

 

 

 

 

 

 

 

 

 

Common stock, $0.00001 par value, 250,000,000 shares authorized, 33,000,000 shares issued and outstanding

 

 

 

 

 

 

Preferred stock, $0.00001 par value, 25,000,000 shares authorized, no shares issued and outstanding

 

 

 

 

 

 

Retained earnings

 

 

134,975

 

 

 

150,427

 

 

 

169,947

 

Accumulated other comprehensive income

 

938

 

 

 

1,377

 

 

 

3,101

 

Total stockholder’s equity

 

 

135,913

 

 

 

151,804

 

 

 

173,048

 

Total liabilities and stockholder’s equity

 

$

760,438

 

 

$

676,847

 

 

$

692,152

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements.

 

 

 

1


ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

(Unaudited)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2014

 

 

2013

 

 

2014

 

 

2013

 

Revenue

 

$

205,168

 

 

$

198,098

 

 

$

615,115

 

 

$

556,553

 

Cost of Revenue

 

 

72,919

 

 

 

90,389

 

 

 

206,195

 

 

 

228,547

 

Gross Profit

 

 

132,249

 

 

 

107,709

 

 

 

408,920

 

 

 

328,006

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketing

 

 

33,393

 

 

 

36,523

 

 

 

92,699

 

 

 

94,592

 

Operations and technology

 

 

19,362

 

 

 

17,959

 

 

 

54,370

 

 

 

52,505

 

General and administrative

 

 

31,167

 

 

 

17,991

 

 

 

82,525

 

 

 

61,879

 

Depreciation and amortization

 

 

5,338

 

 

 

3,958

 

 

 

13,772

 

 

 

12,986

 

Total Expenses

 

 

89,260

 

 

 

76,431

 

 

 

243,366

 

 

 

221,962

 

Income from Operations

 

 

42,989

 

 

 

31,278

 

 

 

165,554

 

 

 

106,044

 

Interest expense, net

 

 

(13,136

)

 

 

(4,909

)

 

 

(25,201

)

 

 

(14,738

)

Foreign currency transaction loss

 

 

(155

)

 

 

(737

)

 

 

(555

)

 

 

(1,023

)

Income before Income Taxes

 

 

29,698

 

 

 

25,632

 

 

 

139,798

 

 

 

90,283

 

Provision for income taxes

 

 

11,213

 

 

 

8,544

 

 

 

50,629

 

 

 

31,959

 

Net Income

 

$

18,485

 

 

$

17,088

 

 

$

89,169

 

 

$

58,324

 

Earnings Per Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share, basic and diluted

 

$

0.56

 

 

$

0.52

 

 

$

2.70

 

 

$

1.77

 

Weighted average common shares outstanding, basic and diluted

 

 

33,000

 

 

 

33,000

 

 

 

33,000

 

 

 

33,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements.

 

 

 

2


ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(Unaudited)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2014

 

 

2013

 

 

2014

 

 

2013

 

Net Income

 

$

18,485

 

 

$

17,088

 

 

$

89,169

 

 

$

58,324

 

Other comprehensive (loss) gain, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation (loss) gain(a)

 

 

(5,228

)

 

 

3,501

 

 

 

(2,163

)

 

643

 

Total other comprehensive (loss) gain, net of tax

 

 

(5,228

)

 

 

3,501

 

 

 

(2,163

)

 

643

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive Income

 

$

13,257

 

 

$

20,589

 

 

$

87,006

 

 

$

58,967

 

 

(a)

Net of tax benefit (provision) of $2,927 and $(1,970) for the three months ended September 30, 2014 and 2013, respectively, and $1,211 and $(357) for the nine months ended September 30, 2014 and 2013, respectively.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements.

 

 

 

3


ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDER’S EQUITY

(in thousands, except per share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

Total

 

 

 

Common Stock

 

 

Retained

 

 

Comprehensive

 

 

Stockholder’s

 

 

 

Shares

 

 

Amount

 

 

Earnings

 

 

Income (Loss)

 

 

Equity

 

Balance at December 31, 2012

 

 

33,000

 

 

$

 

 

$

96,682

 

 

$

734

 

 

$

97,416

 

Net equity transactions with parent

 

 

 

 

 

 

 

 

 

 

(4,579

)

 

 

 

 

 

(4,579

)

Net income

 

 

 

 

 

 

 

 

 

 

58,324

 

 

 

 

 

 

58,324

 

Foreign currency translation gain, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

643

 

 

 

643

 

Balance at September 30, 2013

 

 

33,000

 

 

$

 

 

$

150,427

 

 

$

1,377

 

 

$

151,804

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2013

 

 

33,000

 

 

$

 

 

$

169,947

 

 

$

3,101

 

 

$

173,048

 

Net equity transactions with parent

 

 

 

 

 

 

 

 

 

 

(1,757

)

 

 

 

 

 

(1,757

)

Net income

 

 

 

 

 

 

 

 

 

 

89,169

 

 

 

 

 

 

89,169

 

Dividend paid to Cash America ($3.71 per share)

 

 

 

 

 

 

 

 

 

 

(122,384

)

 

 

 

 

 

(122,384

)

Foreign currency translation loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,163

)

 

 

(2,163

)

Balance at September 30, 2014

 

 

33,000

 

 

$

 

 

$

134,975

 

 

$

938

 

 

$

135,913

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements.

 

 

 

4


ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2014

 

 

2013

 

Cash Flows from Operating Activities

 

 

 

 

 

 

 

 

Net Income

 

$

89,169

 

 

$

58,324

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

13,772

 

 

 

12,986

 

Amortization of deferred loan costs and debt discount

 

 

1,161

 

 

 

 

Cost of revenue

 

 

206,195

 

 

 

228,547

 

Non-cash affiliate interest expense

 

 

7,629

 

 

 

14,738

 

Stock-based compensation

 

 

257

 

 

 

378

 

Deferred income taxes, net

 

 

5,997

 

 

 

3,224

 

Other

 

 

313

 

 

 

261

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Finance and service charges on consumer loans

 

 

1,773

 

 

 

(4,351

)

Prepaid expenses and other assets

 

 

(4,256

)

 

 

2,495

 

Accounts payable and accrued expenses

 

 

22,550

 

 

 

(853

)

Related party payable, net

 

 

13,369

 

 

 

 

Current intercompany income taxes payable

 

 

(129

)

 

 

118

 

Other operating assets and liabilities

 

 

 

 

 

3

 

Net cash provided by operating activities

 

 

357,800

 

 

 

315,870

 

Cash Flows from Investing Activities

 

 

 

 

 

 

 

 

Consumer loans originated or acquired

 

 

(987,575

)

 

 

(970,526

)

Consumer loans repaid

 

 

778,504

 

 

 

699,398

 

Purchases of property and equipment

 

 

(9,858

)

 

 

(11,544

)

Other investing activities

 

 

8

 

 

 

 

Net cash used in investing activities

 

 

(218,921

)

 

 

(282,672

)

Cash Flows from Financing Activities

 

 

 

 

 

 

 

 

Issuance of long-term debt

 

 

493,810

 

 

 

 

Dividend paid to parent

 

 

(122,384

)

 

 

 

Debt issuance costs paid

 

 

(16,323

)

 

 

 

Net equity transactions with parent

 

 

(2,015

)

 

 

(5,303

)

Payments for affiliate line of credit

 

 

(431,762

)

 

 

(5,231

)

Net cash used in financing activities

 

 

(78,674

)

 

 

(10,534

)

Effect of exchange rates on cash

 

 

(3,444

)

 

 

1,169

 

Net increase in cash and cash equivalents

 

 

56,761

 

 

 

23,833

 

Cash and cash equivalents at beginning of year

 

 

47,480

 

 

 

37,548

 

Cash and cash equivalents at end of period

 

$

104,241

 

 

$

61,381

 

 

 

 

 

 

 

 

 

 

Supplemental Disclosures

 

 

 

 

 

 

 

 

Consumer loans renewed

 

$

244,238

 

 

$

453,371

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements.

 

 

 

5


ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

1.

Significant Accounting Policies

Basis of Presentation

On September 7, 2011, Cash America International, Inc. (“Cash America”) formed a new company, Enova International, Inc. (the “Company”). On September 13, 2011, Cash America contributed to the Company all of the stock of its wholly-owned subsidiary, Enova Online Services, Inc., in exchange for 33 million shares of the Company’s common stock.

On November 13, 2014, Cash America completed the tax-free spin-off of approximately 80% of the outstanding shares of the Company to holders of Cash America’s common stock (the “Spin-off”). Cash America’s shareholders received 0.915 shares of Company common stock for every one share of Cash America common stock held at the close of business November 3, 2014, which was the record date for the distribution.  Following the Spin-off, the Company became an independent, publicly traded company, and the Company’s shares of common stock are listed on the New York Stock Exchange under the symbol “ENVA.”

The consolidated financial statements of the Company reflect the historical results of operations and cash flows of the Company during each respective period. The financial statements include goodwill and intangible assets arising from businesses previously acquired. The financial statements also include the allocation of certain assets and liabilities that have historically been held at the Cash America corporate level but which are specifically identifiable or allocable to the Company. Certain transactions with Cash America, such as stock-based compensation and foreign currency transactions, are considered to be effectively settled as net equity transactions with parent in “Retained earnings” in the consolidated balance sheets at the time the transaction is recorded. Certain other intercompany transactions between the Company and Cash America are reflected as a change in “Related party payable, net” in the consolidated balance sheets and are settled a month in arrears. Prior to May 30, 2014, all intercompany transactions between the Company and Cash America were considered to be effectively settled in the financial statements at the time the transaction is recorded. The net effect of the settlement of these transactions was primarily reflected as a change in “Long-term debt” in the consolidated balance sheets. In addition, the historical financial statements include allocations of costs relating to certain functions historically provided by Cash America, including corporate services such as executive oversight, insurance and risk management, government relations, internal audit, treasury, licensing, and to a limited extent finance, accounting, tax, legal, human resources, compensation and benefits, compliance and support for certain information systems related to financial reporting. The expense allocations have been determined on a basis that Cash America and the Company consider to be reasonable reflections of the utilization of services provided by Cash America. Also see Note 8 for additional information on the Company’s relationship with Cash America. The financial information included herein may not be indicative of the consolidated financial position, operating results, changes in stockholder’s equity and cash flows of the Company in the future, or if the Company had been a separate company during the periods presented.

The financial statements presented as of September 30, 2014 and 2013 and December 31, 2013 and for the three- and nine-month periods ended September 30, 2014 and 2013 are unaudited but, in management’s opinion, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for such interim periods. Operating results for the three- and nine-month periods are not necessarily indicative of the results that may be expected for the full fiscal year.

These financial statements and related notes should be read in conjunction with the Company’s audited consolidated financial statements as of December 31, 2013 and 2012 and for the years ended December 31, 2013, 2012 and 2011 and related notes, which are included in the Registration Statement on Form 10 filed with the SEC on July 31, 2014 (as subsequently amended and declared effective on October 24, 2014).

Goodwill

Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in each business combination. In accordance with Accounting Standards Codification (“ASC”) 350-20-35, Goodwill—Subsequent Measurement, the Company tests goodwill for potential impairment annually as of June 30 and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

The Company uses the income approach to complete its annual goodwill assessment. The income approach uses expected future cash flows and estimated terminal values for each of the Company’s reporting units that are discounted using a market participant perspective to determine the estimated fair value of each reporting unit, which is then compared to the carrying value of that reporting unit to determine if there is impairment. The income approach includes assumptions about revenue growth rates, operating margins and terminal growth rates discounted by an estimated weighted-average cost of capital derived from other publicly-traded companies that are similar but not identical from an operational and economic standpoint. The Company completed its annual assessment of

6


ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

goodwill as of June 30, 2014 and determined that the fair value of its goodwill is in excess of carrying value, and, as a result, no impairment existed at that date.

Adopted Accounting Standards

In April 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (“ASU 2014-08”). The amendments in ASU 2014-08 change the criteria for reporting discontinued operations and enhance disclosures in this area. The new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. The new guidance also requires disclosure of the pre-tax income or loss attributable to a disposal of an individually significant component of an organization that does not qualify for discontinued operations presentation in the financial statements. The Company is required to adopt ASU 2014-08 prospectively for all disposals (or classifications as held for sale) of components of an entity that occur within annual periods beginning on or after December 15, 2014 and interim periods within those years. Early adoption is permitted. The Company adopted ASU 2014-08 on June 30, 2014, and the adoption did not have a material effect on its financial position or results of operations.

In July 2013, the FASB issued ASU No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (“ASU 2013-11”), which provides guidance on the presentation of unrecognized tax benefits when net operating loss carryforwards, similar tax losses, or tax credit carryforwards exist. The amendments in this update are effective for fiscal years (and interim periods within those years) beginning after December 15, 2013. The amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted. The Company prospectively adopted ASU 2013-11 on January 1, 2014, and the adoption did not have a material effect on its financial condition or results of operations.

In March 2013, the FASB issued ASU No. 2013-05, Foreign Currency Matters (Topic 830): Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity (a consensus of the FASB Emerging Issues Task Force) (“ASU 2013-05”), which applies to the release of the cumulative translation adjustment into net income when a parent either sells all or a part of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a business (other than a sale of in substance real estate or conveyance of oil and gas mineral rights) within a foreign entity. ASU 2013-05 is effective prospectively for fiscal years (and interim reporting periods within those years) beginning after December 15, 2013. The Company adopted ASU 2013-05 on January 1, 2014, and the adoption did not have a material effect on its financial condition or results of operations.

In February 2013, the FASB issued ASU No. 2013-04, Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date (“ASU 2013-04”). ASU 2013-04 requires an entity to measure obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date as the amount the reporting entity agreed to pay plus additional amounts the reporting entity expects to pay on behalf of its co-obligors. The guidance further provides for disclosure of the nature and amount of the obligation. ASU 2013-04 is effective for interim and annual reporting periods beginning after December 15, 2013. The Company adopted ASU 2013-04 on January 1, 2014, and the adoption did not have a material effect on its financial condition or results of operations.

Accounting Standards to be Adopted in Future Periods

In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”), which requires management to evaluate, in connection with financial statement preparation for each annual and interim reporting period, whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date the financial statements are issued, and to provide related disclosures. ASU 2014-15 applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. The Company does not expect adoption of this guidance will have a material effect on its consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which supersedes the revenue recognition requirements in Accounting Standards Codification 605, Revenue Recognition. ASU 2014-09 is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09

7


ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

is effective retrospectively for fiscal years, and interim periods within those years, beginning after December 15, 2016. Early adoption is not permitted. The Company is still assessing the potential impact of ASU 2014-09 on its financial position and results of operations.

 

 

2.

Consumer Loans, Credit Quality Information and Allowances and Liabilities for Estimated Losses on Consumer Loans

Consumer loan fee revenue generated from the Company’s consumer loans for the three and nine months ended September 30, 2014 and 2013 was as follows (dollars in thousands):

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2014

 

 

2013

 

 

2014

 

 

2013

 

Interest and fees on short-term loans

 

$

61,885

 

 

$

92,508

 

 

$

200,570

 

 

$

310,550

 

Interest and fees on line of credit accounts

 

 

80,909

 

 

 

50,506

 

 

 

228,839

 

 

 

102,022

 

Interest and fees on installment loans

 

 

61,810

 

 

 

54,766

 

 

 

185,057

 

 

 

142,838

 

Total consumer loan revenue

 

 

204,604

 

 

 

197,780

 

 

 

614,466

 

 

 

555,410

 

Other

 

 

564

 

 

 

318

 

 

 

649

 

 

 

1,143

 

Total Revenue

 

$

205,168

 

 

$

198,098

 

 

$

615,115

 

 

$

556,553

 

 

Current and Delinquent Consumer Loans

The Company classifies its consumer loans as either current or delinquent. Short-term loans are considered delinquent when payment of an amount due is not made as of the due date. If a line of credit account or installment loan customer misses one payment, that payment is considered delinquent and the balance of the loan is considered current. The Company does not accrue interest on the delinquent payment portion of the loan but does continue to accrue interest on the remaining portion of the loan. If a line of credit account or installment loan customer does not make two consecutive payments, the entire account or loan is classified as delinquent. The Company allows for normal payment processing time before considering a payment or a loan delinquent but does not provide for any additional grace period.

The Company generally does not accrue interest on delinquent consumer loans and does not resume accrual of interest on a delinquent loan unless it is returned to current status. In addition, delinquent consumer loans generally may not be renewed, and if, during its attempt to collect on a delinquent consumer loan, the Company allows additional time for payment through a payment plan or a promise to pay, it is still considered delinquent. Generally, all payments received are first applied against accrued but unpaid interest and fees and then against the principal balance of the loan.

Allowance and Liability for Estimated Losses on Consumer Loans

The Company monitors the performance of its consumer loan portfolio and maintains either an allowance or liability for estimated losses on consumer loans (including fees and interest) at a level estimated to be adequate to absorb credit losses inherent in the portfolio. The allowance for losses on the Company’s owned consumer loans reduces the outstanding loan balance in the consolidated balance sheets. The liability for estimated losses related to loans guaranteed under its credit services organization programs (“CSO programs”) is initially recorded at fair value and is included in “Accounts payable and accrued expenses” in the consolidated balance sheets.

In determining the allowance or liability for estimated losses on consumer loans, the Company applies a documented systematic methodology. In calculating the allowance or liability for loan losses, outstanding loans are divided into discrete groups of short-term loans, line of credit accounts and installment loans and are analyzed as current or delinquent. Increases in either the allowance or the liability, net of charge-offs and recoveries, are recorded as a “Cost of revenue” in the consolidated statements of income.

The allowance or liability for short-term loans classified as current is based on historical loss rates adjusted for recent default trends for current loans. For delinquent short-term loans, the allowance or liability is based on a six-month rolling average of loss rates by stage of collection. For line of credit accounts and installment loan portfolios, the Company generally uses a migration analysis to estimate losses inherent in the portfolio. The allowance or liability calculation under the migration analysis is based on historical charge-off experience and the loss emergence period, which represents the average amount of time between the first occurrence of a loss event to the charge-off of a loan. The factors the Company considers to assess the adequacy of the allowance or liability include past due performance, historical behavior of monthly vintages, underwriting changes and recent trends in delinquency in the migration analysis.

8


ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

The Company fully reserves and generally charges off consumer loans once the loan or a portion of the loan has been classified as delinquent for 60 consecutive days. If a loan is deemed uncollectible before it is fully reserved, it is charged off at that point. Consumer loans classified as delinquent generally have an age of one to 59 days from the date any portion of the loan became delinquent, as defined above. Recoveries on loans previously charged to the allowance are credited to the allowance when collected.

The components of Company-owned consumer loan portfolio receivables at September 30, 2014 and 2013 and December 31, 2013 were as follows (dollars in thousands):

 

 

 

As of September 30, 2014

 

 

 

Short-term

 

 

Line of Credit

 

 

Installment

 

 

 

 

 

 

 

Loans

 

 

Accounts

 

 

Loans

 

 

Total

 

Current loans

 

$

32,509

 

 

$

118,329

 

 

$

176,651

 

 

$

327,489

 

Delinquent loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Delinquent payment amounts(1)

 

 

 

 

 

4,335

 

 

 

1,532

 

 

 

5,867

 

Loans on non-accrual status

 

 

18,313

 

 

 

5,611

 

 

 

16,413

 

 

 

40,337

 

Total delinquent loans

 

 

18,313

 

 

 

9,946

 

 

 

17,945

 

 

 

46,204

 

Total consumer loans, gross

 

 

50,822

 

 

 

128,275

 

 

 

194,596

 

 

 

373,693

 

Less: Allowance for losses

 

 

(17,415

)

 

 

(22,672

)

 

 

(29,912

)

 

 

(69,999

)

Consumer loans, net

 

$

33,407

 

 

$

105,603

 

 

$

164,684

 

 

$

303,694

 

 

 

 

As of September 30, 2013

 

 

 

Short-term

 

 

Line of Credit

 

 

Installment

 

 

 

 

 

 

 

Loans

 

 

Accounts

 

 

Loans

 

 

Total

 

Current loans

 

$

62,075

 

 

$

84,758

 

 

$

146,536

 

 

$

293,369

 

Delinquent loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Delinquent payment amounts(1)

 

 

 

 

 

2,242

 

 

 

1,592

 

 

 

3,834

 

Loans on non-accrual status

 

 

34,430

 

 

 

12,606

 

 

 

14,816

 

 

 

61,852

 

Total delinquent loans

 

 

34,430

 

 

 

14,848

 

 

 

16,408

 

 

 

65,686

 

Total consumer loans, gross

 

 

96,505

 

 

 

99,606

 

 

 

162,944

 

 

 

359,055

 

Less: Allowance for losses

 

 

(30,572

)

 

 

(24,405

)

 

 

(32,077

)

 

 

(87,054

)

Consumer loans, net

 

$

65,933

 

 

$

75,201

 

 

$

130,867

 

 

$

272,001

 

 

 

 

As of December 31, 2013

 

 

 

Short-term

 

 

Line of Credit

 

 

Installment

 

 

 

 

 

 

 

Loans

 

 

Accounts

 

 

Loans

 

 

Total

 

Current loans

 

$

57,368

 

 

$

112,969

 

 

$

160,585

 

 

$

330,922

 

Delinquent loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Delinquent payment amounts(1)

 

 

 

 

 

4,146

 

 

 

1,724

 

 

 

5,870

 

Loans on non-accrual status

 

 

23,385

 

 

 

8,687

 

 

 

16,921

 

 

 

48,993

 

Total delinquent loans

 

 

23,385

 

 

 

12,833

 

 

 

18,645

 

 

 

54,863

 

Total consumer loans, gross

 

 

80,753

 

 

 

125,802

 

 

 

179,230

 

 

 

385,785

 

Less: Allowance for losses

 

 

(20,466

)

 

 

(29,244

)

 

 

(32,608

)

 

 

(82,318

)

Consumer loans, net

 

$

60,287

 

 

$

96,558

 

 

$

146,622

 

 

$

303,467

 

 

(1)

Represents the delinquent portion of installment loans and line of credit account balances for customers that have only missed one payment. See “Current and Delinquent Consumer Loans” above for additional information.

9


ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

Changes in the allowance for losses for the Company-owned loans and the liability for losses on the Company’s guarantees of third-party lender-owned loans during the three and nine months ended September 30, 2014 and 2013 were as follows (dollars in thousands):

 

 

 

Three Months Ended September 30, 2014

 

 

 

Short-term

 

 

Line of Credit

 

 

Installment

 

 

 

 

 

 

 

Loans

 

 

Accounts

 

 

Loans

 

 

Total

 

Allowance for losses for Company-owned consumer loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

18,248

 

 

$

21,579

 

 

$

27,967

 

 

$

67,794

 

Cost of revenue

 

 

19,075

 

 

 

25,913

 

 

 

28,068

 

 

 

73,056

 

Charge-offs

 

 

(25,740

)

 

 

(29,316

)

 

 

(31,993

)

 

 

(87,049

)

Recoveries

 

 

6,110

 

 

 

5,024

 

 

 

6,373

 

 

 

17,507

 

Effect of foreign currency translation

 

 

(278

)

 

 

(528

)

 

 

(503

)

 

 

(1,309

)

Balance at end of period

 

$

17,415