10-Q 1 enva-10q_20150331.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 March 31, 2015

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  x    No  ¨

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  x    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 May 4, 2015.

 

 

 

 


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;

·

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 rulemaking 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;

·

interest rate and foreign currency exchange rate fluctuations;

·

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;

·

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 – March 31, 2015 and 2014 and December 31, 2014

  

1

 

 

Consolidated Statements of Income – Three Months Ended March 31, 2015 and 2014

  

2

 

 

Consolidated Statements of Comprehensive Income – Three Months Ended March 31, 2015 and 2014

  

3

 

 

Consolidated Statements of Stockholders’ Equity – Three Months Ended March 31, 2015 and 2014

  

4

 

 

Consolidated Statements of Cash Flows – Three Months Ended March 31, 2015 and 2014

  

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

  

37

Item 4.

 

Controls and Procedures

  

37

 

 

PART II. OTHER INFORMATION

  

 

 

 

 

Item 1.

 

Legal Proceedings

  

39

Item 1A.

 

Risk Factors

  

39

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

  

39

Item 3.

 

Defaults upon Senior Securities

  

39

Item 4.

 

Mine Safety Disclosures

  

39

Item 5.

 

Other Information

  

39

Item 6.

 

Exhibits

  

39

 

 

SIGNATURES

  

40

 

 

 


PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share data)

(Unaudited)

 

 

 

March 31,

 

 

December 31,

 

 

 

2015

 

 

2014

 

 

2014

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

143,444

 

 

$

56,241

 

 

$

75,106

 

Consumer loans, net

 

 

279,055

 

 

 

280,186

 

 

 

323,611

 

Prepaid expenses and other assets

 

 

15,667

 

 

 

8,692

 

 

 

16,631

 

Deferred tax assets

 

 

19,728

 

 

 

26,757

 

 

 

25,427

 

Property and equipment, net

 

 

40,257

 

 

 

39,027

 

 

 

33,985

 

Goodwill

 

 

255,856

 

 

 

255,866

 

 

 

255,862

 

Intangible assets, net

 

 

33

 

 

 

23

 

 

 

39

 

Other assets

 

 

28,513

 

 

 

6,286

 

 

 

29,536

 

Total assets

 

$

782,553

 

 

$

673,078

 

 

$

760,197

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

54,175

 

 

$

36,396

 

 

$

57,277

 

Income taxes currently payable

 

 

8,445

 

 

 

 

 

 

6,802

 

Deferred tax liabilities

 

 

47,766

 

 

 

46,955

 

 

 

47,953

 

Other liabilities

 

 

 

 

 

58

 

 

 

 

Long-term debt

 

 

494,347

 

 

 

376,872

 

 

 

494,181

 

Total liabilities

 

 

604,733

 

 

 

460,281

 

 

 

606,213

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' 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

 

 

 

 

 

 

 

 

 

Additional paid in capital

 

 

2,006

 

 

 

 

 

 

294

 

Retained earnings

 

 

181,391

 

 

 

208,939

 

 

 

156,861

 

Accumulated other comprehensive (loss) income

 

 

(5,577

)

 

 

3,858

 

 

 

(3,171

)

Total stockholders' equity

 

 

177,820

 

 

 

212,797

 

 

 

153,984

 

Total liabilities and stockholders' equity

 

$

782,553

 

 

$

673,078

 

 

$

760,197

 

 

 

 

 

 

 

 

 

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

 

 

 

March 31,

 

 

 

2015

 

 

2014

 

Revenue

 

$

165,676

 

 

$

208,465

 

Cost of Revenue

 

 

38,570

 

 

 

66,436

 

Gross Profit

 

 

127,106

 

 

 

142,029

 

Expenses

 

 

 

 

 

 

 

 

Marketing

 

 

24,156

 

 

 

28,478

 

Operations and technology

 

 

18,012

 

 

 

17,885

 

General and administrative

 

 

25,566

 

 

 

24,427

 

Depreciation and amortization

 

 

5,283

 

 

 

4,118

 

Total Expenses

 

 

73,017

 

 

 

74,908

 

Income from Operations

 

 

54,089

 

 

 

67,121

 

Interest expense, net

 

 

(13,305

)

 

 

(4,754

)

Foreign currency transaction loss

 

 

(944

)

 

 

(101

)

Income before Income Taxes

 

 

39,840

 

 

 

62,266

 

Provision for income taxes

 

 

15,310

 

 

 

22,211

 

Net Income

 

$

24,530

 

 

$

40,055

 

Earnings Per Share:

 

 

 

 

 

 

 

 

Earnings per common share:

 

 

 

 

 

 

 

 

Basic

 

$

0.74

 

 

$

1.21

 

Diluted

 

$

0.74

 

 

$

1.21

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

33,000

 

 

 

33,000

 

Diluted

 

 

33,008

 

 

 

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

 

 

 

March 31,

 

 

 

2015

 

 

2014

 

Net Income

 

$

24,530

 

 

$

40,055

 

Other comprehensive (loss) gain, net of tax:

 

 

 

 

 

 

 

 

Foreign currency translation (loss) gain(1)

 

 

(2,406

)

 

 

757

 

Total other comprehensive (loss) gain, net of tax

 

 

(2,406

)

 

 

757

 

Comprehensive Income

 

$

22,124

 

 

$

40,812

 

 

(1)

Net of tax benefit (provision) of $1,190 and $(423) for the three months ended March 31, 2015 and 2014, respectively.

 

 

 

 

 

 

 

 

See notes to consolidated financial statements.

 

 

 

3


ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except per share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

Total

 

 

 

Common Stock

 

 

Paid in

 

 

Retained

 

 

Comprehensive

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Income (Loss)

 

 

Equity

 

Balance at December 31, 2013

 

 

33,000

 

 

$

 

 

$

 

 

$

169,947

 

 

$

3,101

 

 

$

173,048

 

Net equity transactions with Cash America

 

 

 

 

 

 

 

 

 

 

 

 

(1,063

)

 

 

 

 

 

(1,063

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

40,055

 

 

 

 

 

 

40,055

 

Foreign currency translation gain, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

757

 

 

 

757

 

Balance at March 31, 2014

 

 

33,000

 

 

$

 

 

$

 

 

$

208,939

 

 

$

3,858

 

 

$

212,797

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2014

 

 

33,000

 

 

$

 

 

$

294

 

 

$

156,861

 

 

$

(3,171

)

 

$

153,984

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

1,712

 

 

 

 

 

 

 

 

 

1,712

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

24,530

 

 

 

 

 

 

24,530

 

Foreign currency translation loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,406

)

 

 

(2,406

)

Balance at March 31, 2015

 

 

33,000

 

 

$

 

 

$

2,006

 

 

$

181,391

 

 

$

(5,577

)

 

$

177,820

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements.

 

 

 

4


ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2015

 

 

2014

 

Cash Flows from Operating Activities

 

 

 

 

 

 

 

 

Net Income

 

$

24,530

 

 

$

40,055

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

5,283

 

 

 

4,118

 

Amortization of deferred loan costs and debt discount

 

 

827

 

 

 

 

Cost of revenue

 

 

38,570

 

 

 

66,436

 

Non-cash affiliate interest expense

 

 

 

 

 

4,754

 

Stock-based compensation expense

 

 

1,712

 

 

 

85

 

Deferred income taxes, net

 

 

6,702

 

 

 

5,336

 

Other

 

 

944

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Finance and service charges on consumer loans

 

 

7,879

 

 

 

2,666

 

Prepaid expenses and other assets

 

 

373

 

 

 

245

 

Accounts payable and accrued expenses

 

 

(598

)

 

 

(11,706

)

Current income taxes payable

 

 

1,643

 

 

 

9

 

Net cash provided by operating activities

 

 

87,865

 

 

 

111,998

 

Cash Flows from Investing Activities

 

 

 

 

 

 

 

 

Consumer loans originated or acquired

 

 

(226,701

)

 

 

(325,227

)

Consumer loans repaid

 

 

221,901

 

 

 

277,696

 

Purchases of property and equipment

 

 

(11,572

)

 

 

(3,676

)

Net cash used in investing activities

 

 

(16,372

)

 

 

(51,207

)

Cash Flows from Financing Activities

 

 

 

 

 

 

 

 

Net equity transactions with Cash America

 

 

 

 

 

132

 

Payments on affiliate line of credit

 

 

 

 

 

(53,295

)

Net cash used in financing activities

 

 

 

 

 

(53,163

)

Effect of exchange rates on cash

 

 

(3,155

)

 

 

1,133

 

Net increase in cash and cash equivalents

 

 

68,338

 

 

 

8,761

 

Cash and cash equivalents at beginning of year

 

 

75,106

 

 

 

47,480

 

Cash and cash equivalents at end of period

 

$

143,444

 

 

$

56,241

 

 

 

 

 

 

 

 

 

 

Supplemental Disclosures

 

 

 

 

 

 

 

 

Consumer loans renewed

 

$

45,747

 

 

$

104,498

 

 

 

 

 

 

 

 

 

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. Prior to the Spin-off, the financial statements also included the allocation of certain assets and liabilities that had historically been held at the Cash America corporate level but which were specifically identifiable or allocable to the Company. Certain transactions with Cash America, such as stock-based compensation and foreign currency transactions, were considered to be effectively settled as net equity transactions with Cash America in “Retained earnings” in the consolidated balance sheets at the time the transaction was recorded. 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 transactions were 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 9 for additional information on the Company’s relationship with Cash America. The financial information included herein for the prior year period 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 prior year period presented.

The financial statements presented as of March 31, 2015 and 2014 and December 31, 2014 and for the three-month periods ended March 31, 2015 and 2014 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-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, 2014 and 2013 and for the years ended December 31, 2014, 2013 and 2012 and related notes, which are included on Form 10-K filed with the SEC on March 20, 2015.

Revenue Recognition

The Company recognizes revenue based on the loan products and services it offers. “Revenue” in the consolidated statements of income includes: interest income, finance charges, fees for services provided through the Company’s credit services organization and credit access business programs (“CSO programs”), or CSO fees, service charges, draw fees, minimum fees, late fees, nonsufficient funds fees and any other fees or charges permitted by applicable laws and pursuant to the agreement with the borrower. Direct costs associated with originating loans such as third-party customer acquisition costs are paid upfront and recognized on an effective yield basis over the term of the loan against revenue. For short-term loans that the Company offers, interest and finance charges are recognized on an effective yield basis over the term of the loan, and fees are recognized when assessed to the customer. CSO fees are recognized on an effective yield basis over the term of the loan. For line of credit accounts, interest is recognized over the reporting period based upon the balance outstanding and the contractual interest rate, and fees are recognized when assessed to the customer. For installment loans, interest is recognized on an effective yield basis over the term of the loan and fees are recognized when assessed to the customer. Unpaid and accrued interest and fees and deferred origination costs are included in “Consumer loans, net” in the consolidated balance sheets.

6


ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

Accounting Standards to be Adopted in Future Periods

In April 2015, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2015‑05, Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement (“ASU 2015-05”), which amends Accounting Standards Codification (“ASC”) 350‑40, Internal-Use Software, by providing customers with guidance on determining whether a cloud computing arrangement contains a software license that should be accounted for as internal-use software. ASU 2015-05 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015. The Company is still assessing the potential impact of ASU 2015-05 on its financial position and results of operations.

In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”), which amends existing guidance to require the presentation of debt issuance costs in the consolidated balance sheets as a deduction from the carrying amount of the related debt liability instead of a deferred charge (as an asset). ASU 2015-03 is effective for reporting periods beginning after December 15, 2015, but early adoption is permitted. When adopted, the new guidance will be applied retrospectively to all prior reporting periods presented. As of March 31, 2015, the Company had $14.1 million of unamortized debt issuance costs. These amounts are recorded in “Other assets” in the consolidated balance sheets.

In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810) - Amendments to the Consolidation Analysis (“ASU 2015-02”), which provides guidance for reporting entities that are required to evaluate whether they should consolidate certain legal entities. In accordance with ASU 2015-02, all legal entities are subject to reevaluation under the revised consolidation model. ASU 2015-02 is effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2015. Early adoption is permitted. The Company is still assessing the potential impact of ASU 2015-02 on its financial position and results of operations.

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 is effective retrospectively for fiscal years, and interim periods within those years, beginning after December 15, 2017, reflecting the FASB’s decision on April 1, 2015 to defer the effective date by one year. 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 months ended March 31, 2015 and 2014 was as follows (dollars in thousands):

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2015

 

 

2014

 

Interest and fees on short-term loans

 

$

50,861

 

 

$

72,978

 

Interest and fees on line of credit accounts

 

 

55,653

 

 

 

73,037

 

Interest and fees on installment loans

 

 

58,757

 

 

 

62,408

 

Total consumer loan revenue

 

 

165,271

 

 

 

208,423

 

Other

 

 

405

 

 

 

42

 

Total Revenue

 

$

165,676

 

 

$

208,465

 

 

7


ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

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 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 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.

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 March 31, 2015 and 2014 and December 31, 2014 were as follows (dollars in thousands):

 

 

 

As of March 31, 2015

 

 

 

Short-term

 

 

Line of Credit

 

 

Installment

 

 

 

 

 

 

 

Loans

 

 

Accounts

 

 

Loans

 

 

Total

 

Current loans

 

$

31,678

 

 

$

69,912

 

 

$

187,639

 

 

$

289,229

 

Delinquent loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Delinquent payment amounts(1)

 

 

 

 

 

3,158

 

 

 

1,302

 

 

 

4,460

 

Loans on non-accrual status

 

 

17,334

 

 

 

3,126

 

 

 

16,126

 

 

 

36,586

 

Total delinquent loans

 

 

17,334

 

 

 

6,284

 

 

 

17,428

 

 

 

41,046

 

Total consumer loans, gross

 

 

49,012

 

 

 

76,196

 

 

 

205,067

 

 

 

330,275

 

Less: Allowance for losses

 

 

(12,744

)

 

 

(12,340

)

 

 

(26,136

)

 

 

(51,220

)

Consumer loans, net

 

$

36,268

 

 

$

63,856

 

 

$

178,931

 

 

$

279,055

 

8


ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

 

 

 

As of March 31, 2014

 

 

 

Short-term

 

 

Line of Credit

 

 

Installment

 

 

 

 

 

 

 

Loans

 

 

Accounts

 

 

Loans

 

 

Total

 

Current loans

 

$

43,667

 

 

$

104,784

 

 

$

150,750

 

 

$

299,201

 

Delinquent loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Delinquent payment amounts(1)

 

 

 

 

 

4,108

 

 

 

1,252

 

 

 

5,360

 

Loans on non-accrual status

 

 

22,243

 

 

 

10,112

 

 

 

17,550

 

 

 

49,905

 

Total delinquent loans

 

 

22,243

 

 

 

14,220

 

 

 

18,802

 

 

 

55,265

 

Total consumer loans, gross

 

 

65,910

 

 

 

119,004

 

 

 

169,552

 

 

 

354,466

 

Less: Allowance for losses

 

 

(18,527

)

 

 

(26,669

)

 

 

(29,084

)

 

 

(74,280

)

Consumer loans, net

 

$

47,383

 

 

$

92,335

 

 

$

140,468

 

 

$

280,186

 

 

 

 

As of December 31, 2014

 

 

 

Short-term

 

 

Line of Credit

 

 

Installment

 

 

 

 

 

 

 

Loans

 

 

Accounts

 

 

Loans

 

 

Total

 

Current loans

 

$

35,378

 

 

$

110,519

 

 

$

194,496

 

 

$

340,393

 

Delinquent loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Delinquent payment amounts(1)

 

 

 

 

 

3,733

 

 

 

1,469

 

 

 

5,202

 

Loans on non-accrual status

 

 

20,920

 

 

 

4,428

 

 

 

17,616

 

 

 

42,964

 

Total delinquent loans

 

 

20,920

 

 

 

8,161

 

 

 

19,085

 

 

 

48,166

 

Total consumer loans, gross

 

 

56,298

 

 

 

118,680

 

 

 

213,581

 

 

 

388,559

 

Less: Allowance for losses

 

 

(14,324

)

 

 

(19,749

)

 

 

(30,875

)

 

 

(64,948

)

Consumer loans, net

 

$

41,974

 

 

$

98,931

 

 

$

182,706

 

 

$

323,611

 

 

(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.

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 months ended March 31, 2015 and 2014 were as follows (dollars in thousands):

 

 

 

Three Months Ended March 31, 2015

 

 

 

Short-term

 

 

Line of Credit

 

 

Installment

 

 

 

 

 

 

 

Loans

 

 

Accounts

 

 

Loans

 

 

Total

 

Allowance for losses for Company-owned consumer loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

14,324

 

 

$

19,749

 

 

$

30,875

 

 

$

64,948

 

Cost of revenue

 

 

12,512

 

 

 

7,813

 

 

 

18,876

 

 

 

39,201

 

Charge-offs

 

 

(19,778

)

 

 

(20,833

)

 

 

(29,882

)

 

 

(70,493

)

Recoveries

 

 

5,870

 

 

 

5,907

 

 

 

6,580

 

 

 

18,357

 

Effect of foreign currency translation

 

 

(184

)

 

 

(296

)

 

 

(313

)

 

 

(793

)

Balance at end of period

 

$

12,744

 

 

$

12,340

 

 

$

26,136

 

 

$

51,220

 

Liability for third-party lender-owned consumer loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

1,575

 

 

$

 

 

$

1

 

 

$

1,576

 

(Decrease) increase in liability

 

 

(669

)

 

 

 

 

 

38

 

 

 

(631

)

Balance at end of period

 

$

906

 

 

$

 

 

$

39

 

 

$

945

 

9


ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

 

 

 

Three Months Ended March 31, 2014

 

 

 

Short-term

 

 

Line of Credit

 

 

Installment

 

 

 

 

 

 

 

Loans

 

 

Accounts

 

 

Loans

 

 

Total

 

Allowance for losses for Company-owned consumer loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

20,466

 

 

$

29,244

 

 

$

32,608

 

 

$

82,318

 

Cost of revenue

 

 

17,168

 

 

 

23,913

 

 

 

26,203

 

 

 

67,284

 

Charge-offs

 

 

(29,135

)

 

 

(30,102

)

 

 

(34,549

)

 

 

(93,786

)

Recoveries

 

 

9,979

 

 

 

3,500

 

 

 

4,650

 

 

 

18,129

 

Effect of foreign currency translation

 

 

49

 

 

 

114

 

 

 

172

 

 

 

335

 

Balance at end of period

 

$

18,527

 

 

$

26,669

 

 

$

29,084

 

 

$

74,280

 

Liability for third-party lender-owned consumer loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

2,047

 

 

$

 

 

$

 

 

$

2,047

 

Decrease in liability

 

 

(848

)

 

 

 

 

 

 

 

 

(848

)

Balance at end of period

 

$

1,199

 

 

$

 

 

$

 

 

$

1,199

 

 

Guarantees of Consumer Loans

In connection with its CSO programs, the Company guarantees consumer loan payment obligations to unrelated third-party lenders for short-term and installment loans and is required to purchase any defaulted loans it has guaranteed. The guarantee represents an obligation to purchase specific loans that go into default. As of March 31, 2015 and 2014 and December 31, 2014, the amount of consumer loans guaranteed by the Company was $25.4 million, $29.6 million and $36.3 million, respectively, representing amounts due under consumer loans originated by third-party lenders under the CSO programs. The estimated fair value of the liability for estimated losses on consumer loans guaranteed by the Company of $0.9 million, $1.2 million and $1.6 million, as of March 31, 2015 and 2014 and December 31, 2014, respectively, is included in “Accounts payable and accrued expenses” in the accompanying consolidated balance sheets.

 

 

3.

Investment in Unconsolidated Subsidiary

The Company records an investment in the preferred stock of a privately-held developing consumer financial services entity under the cost method. The carrying value of the Company’s investment in this unconsolidated subsidiary was $6.7 million as of March 31, 2015 and December 31, 2014, and $6.0 million as of March 31, 2014, and was held in “Other assets” in the Company’s consolidated balance sheets. The Company evaluates this investment for impairment if an event occurs or circumstances change that would more likely than not reduce the fair value of the investment below carrying value. Based on the Company’s impairment evaluation of this investment as of March 31, 2015, it determined that no impairment existed.

 

 

4.

Long-term debt

$65.0 Million Revolving Credit Facility

On May 14, 2014, the Company and its domestic subsidiaries as guarantors entered into a credit agreement among the Company, the guarantors, Jefferies Finance, LLC as administrative agent and Jefferies Group, LLC as lender (the “Credit Agreement”). The Credit Agreement provided for an unsecured revolving credit facility of up to $75.0 million, including a multi-currency sub-facility that gives the Company the ability to borrow up to $25.0 million that may be specified in foreign currencies subject to the terms and conditions of the Credit Agreement. On March 25, 2015 an amendment to the Credit Agreement reduced the Company’s unsecured revolving line of credit to $65.0 million and increased an additional senior secured indebtedness basket to the greater of $20.0 million or 2.75% of consolidated total assets (as defined in the credit agreement) (from $15.0 million or 2% of consolidated total assets). In addition, the amendment revised certain definitions and provisions relating to limitations on indebtedness, investments, dispositions, fundamental changes and burdensome agreements to allow certain of the Company’s foreign subsidiaries, which opt to become guarantors of its obligations under the credit agreement, to be treated as domestic subsidiaries for purposes of those provisions. Interest on the amounts borrowed will be charged, at the Company’s option, at either the London Interbank Offered Rate (“LIBOR”) for one week or one-, two-, three- or six-month periods, as selected by the Company, plus a margin varying from 2.50% to 3.75% or at the agent’s base rate plus a margin varying from 1.50% to 2.75%. The margin for the borrowings under the Credit Agreement is dependent on the Company’s cash flow leverage ratios. The Company will also be required to pay a fee on the unused portion of the line of credit ranging from 0.25% to 0.50% (0.375% as of March 31, 2015) based on the Company’s cash flow leverage ratios. The Credit Agreement will mature on June 30, 2017. There were no outstanding borrowings under the Credit Agreement as of March 31, 2015.

10


ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

The Credit Agreement also includes a sub-limit of up to $20.0 million for standby or commercial letters of credit that is guaranteed by the Company’s domestic subsidiaries. In the event that an amount is paid by the issuing bank under a letter of credit, it will be due and payable by the Company on demand. Pursuant to the terms of the Credit Agreement, the Company agrees to pay fees equal to the LIBOR margin per annum on the undrawn amount of each outstanding standby letter of credit plus a one-time commercial letter of credit fee of 0.20% of the face amount of each commercial letter of credit plus 0.25% per annum on the average daily amount of the total letter of credit exposure. The Company had letters of credit of $6.6 million under its Credit Agreement as of March 31, 2015.

In connection with the issuance of the Credit Agreement, the Company incurred debt issuance costs of approximately $1.6 million, which primarily consisted of underwriting fees and legal expenses. The unamortized balance of these costs as of March 31, 2015 is included in “Other assets” in the consolidated balance sheets. These costs are being amortized to interest expense over a period of 37 months, the term of the Credit Agreement.

$500.0 Million 9.75% Senior Unsecured Notes

On May 30, 2014, the Company issued and sold $500.0 million in aggregate principal amount of 9.75% Senior Notes due 2021 (the “Senior Notes”). The Senior Notes bear interest at a rate of 9.75% annually on the principal amount payable semi-annually in arrears on June 1 and December 1 of each year, beginning on December 1, 2014. The Senior Notes were sold at a discount of the principal amount to yield 10.0% to maturity. The Senior Notes will mature on June 1, 2021. The Senior Notes are unsecured debt obligations of the Company, and are unconditionally guaranteed by all of the Company’s domestic subsidiaries. The Senior Notes were sold to qualified institutional buyers in accordance with Rule 144A under the Securities Act of 1933, as amended, or the Securities Act, and outside the United States pursuant to Regulation S under the Securities Act.

The Senior Notes are governed by an indenture (the “Senior Notes Indenture”), dated May 30, 2014, between the Company, the Company’s domestic subsidiaries, as guarantors, and the trustee. The Senior Notes Indenture contains certain covenants that, among other things, limit the Company’s, and certain of its subsidiaries, ability to incur additional debt, acquire or create new subsidiaries, create liens, engage in certain transactions with affiliates and consolidate or merge with or into other companies. The Senior Notes Indenture provides for customary events of default, including nonpayment and failure to comply with covenants or other agreements in the Senior Notes Indenture.

The Senior Notes are redeemable at the Company’s option, in whole or in part, (i) at any time prior to June 1, 2017 at 100% of the aggregate principal amount of Senior Notes redeemed plus the applicable “make whole” redemption price specified in the Senior Notes Indenture, plus accrued and unpaid interest, if any, to the redemption date and (ii) at any time on or after June 1, 2017 at a premium specified in the Senior Notes Indenture that will decrease over time, plus accrued and unpaid interest, if any, to the redemption date. In addition, prior to June 1, 2017, at its option, the Company may redeem up to 35% of the aggregate principal amount of the Senior Notes at a redemption price equal to 109.75% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date, with the proceeds of certain equity offerings as described in the Senior Notes Indenture. If a change of control occurs, as that term is defined in the Senior Notes Indenture, the holders of the Senior Notes will have the right, subject to certain conditions, to require the Company to repurchase their Senior Notes at a purchase price equal to 101% of the aggregate principal amount, plus accrued and unpaid interest, if any, as of the date of repurchase. The Spin-off did not constitute a change of control under the Senior Notes Indenture. See Note 1 for additional information on the Spin-off.

Additionally, on May 30, 2014, the Company entered into a registration rights agreement with Jefferies, LLC as the initial purchaser (the “Registration Rights Agreement”) of the Senior Notes, pursuant to which the Company agreed to use commercially reasonable efforts to cause a registration statement to be declared effective on or prior to the 360th day following the closing date relating to an exchange offer of the Senior Notes for identical new notes registered under the Securities Act. The Company caused a registration statement on Form S-4 to be declared effective by the Securities and Exchange Commission in April 2015 and has completed the exchange offer.

The Company used all of the net proceeds of the Senior Notes offering, or $479.0 million, to repay all of its intercompany indebtedness due to Cash America, which was $361.4 million as of May 30, 2014, and the remaining net proceeds were used to pay a significant portion of $122.4 million in cash dividends paid to Cash America, of which $120.7 million was paid on May 30, 2014 and $1.7 million was paid on June 30, 2014.

As of March 31, 2015, the carrying amount of the Senior Notes was $494.3 million, which included an unamortized discount of $5.7 million. The discount is being amortized to interest expense over a period of seven years, through the maturity date of June 1, 2021. The total interest expense recognized was $12.4 million for the three months ended March 31, 2015, of which $0.2 million represented the non-cash amortization of the discount. In connection with the issuance of the Senior Notes, the Company incurred approximately

11


ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

$14.7 million for issuance costs, which primarily consisted of underwriting fees, legal and other professional expenses. These costs are being amortized to interest expense over seven years and are included in “Other assets” in the consolidated balance sheets.

Prior to issuing the Senior Notes, the Company depended on Cash America’s support for a significant portion of its financing requirements and had in place a $450 million affiliate revolving credit agreement related to amounts outstanding with Cash America (the “Affiliate Line of Credit”). Borrowings under the Affiliate Line of Credit bore interest at a fluctuating interest rate equal to the prevailing LIBOR rate per annum (based upon a one month interest period) plus 4.5%, or in certain circumstances equal to the prevailing alternate base rate per annum plus 2.0%. The alternate base rate was equal to the greater of (a) the U.S. prime rate, (