10-Q 1 enva-10q_20150930.htm 10-Q enva-10q_20150930.htm

 

 

 

.

 

 

 

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, 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.)

 

 

175 West Jackson Blvd.

Chicago, Illinois

 

60604

(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 November 10, 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 process or collect payments 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, the receivables purchases industry 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 loans and finance receivables 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 – September 30, 2015 and 2014 and December 31, 2014

  

1

 

 

Consolidated Statements of Income – Three and Nine Months Ended September 30, 2015 and 2014

  

2

 

 

Consolidated Statements of Comprehensive Income – Three and Nine Months Ended September 30, 2015 and 2014

  

3

 

 

Consolidated Statements of Stockholders’ Equity – Nine Months Ended September 30, 2015 and 2014

  

4

 

 

Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2015 and 2014

  

5

 

 

Notes to Consolidated Financial Statements

  

6

Item 2.

 

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

  

27

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

  

49

Item 4.

 

Controls and Procedures

  

50

 

 

PART II. OTHER INFORMATION

  

 

 

 

 

Item 1.

 

Legal Proceedings

  

51

Item 1A.

 

Risk Factors

  

51

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

  

54

Item 3.

 

Defaults upon Senior Securities

  

54

Item 4.

 

Mine Safety Disclosures

  

54

Item 5.

 

Other Information

  

54

Item 6.

 

Exhibits

  

55

 

 

SIGNATURES

  

56

 

 

 


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,

 

 

 

2015

 

 

2014

 

 

2014

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

34,310

 

 

$

104,241

 

 

$

75,106

 

Loans and finance receivables, net

 

 

380,805

 

 

 

303,694

 

 

 

323,611

 

Income taxes receivable

 

 

5,683

 

 

 

14

 

 

 

 

Other receivables and prepaid expenses

 

 

19,778

 

 

 

12,738

 

 

 

16,631

 

Deferred tax assets

 

 

28,100

 

 

 

26,558

 

 

 

25,427

 

Property and equipment, net

 

 

48,814

 

 

 

35,598

 

 

 

33,985

 

Goodwill

 

 

271,568

 

 

 

255,865

 

 

 

255,862

 

Intangible assets, net

 

 

3,698

 

 

 

18

 

 

 

39

 

Other assets

 

 

27,398

 

 

 

21,712

 

 

 

29,536

 

Total assets

 

$

820,154

 

 

$

760,438

 

 

$

760,197

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

79,081

 

 

$

71,478

 

 

$

57,277

 

Related party payable, net

 

 

 

 

 

13,369

 

 

 

 

Income taxes currently payable

 

 

 

 

 

 

 

 

6,802

 

Deferred tax liabilities

 

 

47,107

 

 

 

45,657

 

 

 

47,953

 

Long-term debt

 

 

494,690

 

 

 

494,021

 

 

 

494,181

 

Total liabilities

 

 

620,878

 

 

 

624,525

 

 

 

606,213

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

6,835

 

 

 

 

 

 

294

 

Retained earnings

 

 

196,672

 

 

 

134,975

 

 

 

156,861

 

Accumulated other comprehensive (loss) income

 

 

(4,231

)

 

 

938

 

 

 

(3,171

)

Total stockholders' equity

 

 

199,276

 

 

 

135,913

 

 

 

153,984

 

Total liabilities and stockholders' equity

 

$

820,154

 

 

$

760,438

 

 

$

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

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Revenue

 

$

165,227

 

 

$

205,168

 

 

$

477,183

 

 

$

615,115

 

Cost of Revenue

 

 

65,614

 

 

 

72,919

 

 

 

145,720

 

 

 

206,195

 

Gross Profit

 

 

99,613

 

 

 

132,249

 

 

 

331,463

 

 

 

408,920

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketing

 

 

35,568

 

 

 

33,393

 

 

 

84,431

 

 

 

92,699

 

Operations and technology

 

 

18,590

 

 

 

19,362

 

 

 

54,156

 

 

 

54,370

 

General and administrative

 

 

22,627

 

 

 

31,167

 

 

 

75,282

 

 

 

82,525

 

Depreciation and amortization

 

 

3,882

 

 

 

5,338

 

 

 

14,198

 

 

 

13,772

 

Total Expenses

 

 

80,667

 

 

 

89,260

 

 

 

228,067

 

 

 

243,366

 

Income from Operations

 

 

18,946

 

 

 

42,989

 

 

 

103,396

 

 

 

165,554

 

Interest expense, net

 

 

(13,292

)

 

 

(13,136

)

 

 

(39,501

)

 

 

(25,201

)

Foreign currency transaction loss

 

 

(212

)

 

 

(155

)

 

 

(1,187

)

 

 

(555

)

Income before Income Taxes

 

 

5,442

 

 

 

29,698

 

 

 

62,708

 

 

 

139,798

 

Provision for income taxes

 

 

1,025

 

 

 

11,213

 

 

 

22,897

 

 

 

50,629

 

Net Income

 

$

4,417

 

 

$

18,485

 

 

$

39,811

 

 

$

89,169

 

Earnings Per Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.13

 

 

$

0.56

 

 

$

1.21

 

 

$

2.70

 

Diluted

 

$

0.13

 

 

$

0.56

 

 

$

1.21

 

 

$

2.70

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

33,000

 

 

 

33,000

 

 

 

33,000

 

 

 

33,000

 

Diluted

 

 

33,022

 

 

 

33,000

 

 

 

33,015

 

 

 

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,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Net Income

 

$

4,417

 

 

$

18,485

 

 

$

39,811

 

 

$

89,169

 

Other comprehensive loss, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation loss(1)

 

 

(2,852

)

 

 

(5,228

)

 

 

(1,060

)

 

 

(2,163

)

Total other comprehensive loss, net of tax

 

 

(2,852

)

 

 

(5,228

)

 

 

(1,060

)

 

 

(2,163

)

Comprehensive Income

 

$

1,565

 

 

$

13,257

 

 

$

38,751

 

 

$

87,006

 

 

(1)

Net of tax benefit of $1,624 and $2,927 for the three months ended September 30, 2015 and 2014, respectively, and $394 and $1,211 for the nine months ended September 30, 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

 

 

 

 

 

 

 

 

 

 

 

 

(1,757

)

 

 

 

 

 

(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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2014

 

 

33,000

 

 

$

 

 

$

294

 

 

$

156,861

 

 

$

(3,171

)

 

$

153,984

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

6,541

 

 

 

 

 

 

 

 

 

6,541

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

39,811

 

 

 

 

 

 

39,811

 

Foreign currency translation loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,060

)

 

 

(1,060

)

Balance at September 30, 2015

 

 

33,000

 

 

$

 

 

$

6,835

 

 

$

196,672

 

 

$

(4,231

)

 

$

199,276

 

 

 

 

 

 

 

 

 

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,

 

 

 

2015

 

 

2014

 

Cash Flows from Operating Activities

 

 

 

 

 

 

 

 

Net Income

 

$

39,811

 

 

$

89,169

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

14,198

 

 

 

13,772

 

Amortization of deferred loan costs and debt discount

 

 

2,518

 

 

 

1,161

 

Cost of revenue

 

 

145,720

 

 

 

206,195

 

Non-cash affiliate interest expense

 

 

 

 

 

7,629

 

Stock-based compensation expense

 

 

6,541

 

 

 

257

 

Deferred income taxes, net

 

 

(3,125

)

 

 

5,997

 

Other

 

 

1,187

 

 

 

313

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Finance and service charges on loans and finance receivables revenue

 

 

(2,133

)

 

 

1,773

 

Other receivables and prepaid expenses

 

 

(3,830

)

 

 

(4,256

)

Accounts payable and accrued expenses

 

 

17,139

 

 

 

22,550

 

Related party payable, net

 

 

 

 

 

13,369

 

Current income taxes payable

 

 

(12,485

)

 

 

(129

)

Net cash provided by operating activities

 

 

205,541

 

 

 

357,800

 

Cash Flows from Investing Activities

 

 

 

 

 

 

 

 

Loans and finance receivables originated or acquired

 

 

(829,653

)

 

 

(987,575

)

Loans and finance receivables repaid

 

 

630,969

 

 

 

778,504

 

Acquisitions

 

 

(17,735

)

 

 

 

Purchases of property and equipment

 

 

(28,684

)

 

 

(9,858

)

Other investing activities

 

 

10

 

 

 

8

 

Net cash used in investing activities

 

 

(245,093

)

 

 

(218,921

)

Cash Flows from Financing Activities

 

 

 

 

 

 

 

 

Issuance of long-term debt

 

 

 

 

 

493,810

 

Dividend paid to Cash America

 

 

 

 

 

(122,384

)

Debt issuance costs paid

 

 

 

 

 

(16,323

)

Net equity transactions with Cash America

 

 

 

 

 

(2,015

)

Payments on affiliate line of credit

 

 

 

 

 

(431,762

)

Net cash used in financing activities

 

 

 

 

 

(78,674

)

Effect of exchange rates on cash

 

 

(1,244

)

 

 

(3,444

)

Net increase in cash and cash equivalents

 

 

(40,796

)

 

 

56,761

 

Cash and cash equivalents at beginning of year

 

 

75,106

 

 

 

47,480

 

Cash and cash equivalents at end of period

 

$

34,310

 

 

$

104,241

 

 

 

 

 

 

 

 

 

 

Supplemental Disclosures

 

 

 

 

 

 

 

 

Loans and finance receivables renewed

 

$

175,197

 

 

$

244,238

 

Promissory note issued

 

 

3,000

 

 

 

 

 

 

 

 

 

 

 

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 10 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.

In June 2015, the Company completed the purchase of certain assets of The Business Backer, a company that offers a receivables purchase agreement product (“RPAs”). Under RPAs, small businesses receive capital in exchange for a portion of the business’s future receivables at an agreed upon discount. In contrast, lending is a commitment to repay principal and interest. “Loans and finance receivables” include consumer loans, small business loans, and RPAs.

The financial statements presented as of September 30, 2015 and 2014 and December 31, 2014 and for the three- and nine-month periods ended September 30, 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- 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, 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 financing 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, revenue on RPAs, service charges, draw fees, minimum fees, late fees, non-sufficient funds fees and any other fees or charges permitted by applicable laws and pursuant to the agreement with the customer. 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. For RPAs, revenue is

6


ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

recognized on an effective yield basis over the projected delivery term of the agreements and fees are recognized when assessed. Direct costs associated with originating loans and purchasing RPAs, such as third-party customer acquisition costs, are deferred and amortized against revenue on an effective yield basis over the projected delivery term of the loan or finance receivable. Short-term loans, line of credit accounts, installment loans, RPAs, unpaid and accrued interest, fees and revenue and deferred origination costs are included in “Loans and finance receivables, net” in the consolidated balance sheets.

Recent Accounting Standards

In September 2015, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2015-16, Simplifying the Accounting for Measurement-Period Adjustments (“ASU 2015-16”). ASU 2015-16 requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. ASU 2015-16 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015, although early adoption is permitted. The Company does not anticipate that the adoption of this standard will have a material impact on its financial position or results of operations.

In June 2015, the FASB issued ASU 2015-10, Technical Corrections and Improvements (“ASU 2015-10”). ASU 2015-10 covers a wide range of topics in the Codification. The amendments in this update represent changes to clarify the Codification, correct unintended application of guidance, or make minor improvements to the Codification that are not expected to have a significant effect on current accounting practice or create a significant administrative cost on most entities. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The Company does not anticipate that the adoption of this standard will have a material impact on its financial position or results of operations.

In April 2015, the FASB issued 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 2015-15, Presentation and subsequent measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, was issued subsequently to permit costs associated with a line of credit arrangement to be presented as an asset and amortized ratably over the term of the arrangement. 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. The Company will adopt ASU 2015-03 on January 1, 2016, however, as of September 30, 2015, the Company had $11.9 million of unamortized debt issuance costs that would be required to be presented as a deduction from the carrying amount of the related debt liability instead of a deferred charge. 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

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ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

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. In August 2015, the FASB issued ASU No. 2015-14 Deferral of the Effective Date, deferring the effective date of ASU 2014-09 to annual reporting periods beginning after December 15, 2017. Early adoption is permitted only as of an annual reporting period beginning after December 15, 2016. The Company is still assessing the potential impact of ASU 2014-09 on its financial position and results of operations.

 

2.

Acquisitions

On June 23, 2015, the Company completed the purchase of certain assets of The Business Backer, LLC, a company that purchases discounted future accounts receivables from small businesses throughout the United States through RPAs, which provide working capital for small businesses in exchange for a portion of the business’s future receivables at an agreed upon discount. The total consideration of $26.8 million was comprised of $17.7 million in cash at closing, a $3.0 million promissory note (included in “Accounts payable and accrued expenses” in the consolidated balance sheets) and estimated contingent consideration of $6.1 million based on future earn-out opportunities. The contingent purchase consideration was recorded at its estimated fair value at the date of acquisition based upon the Company’s assessment of the probable earnings attributable to the business as defined in the purchase agreement. To the extent operating results exceed the Company’s estimate, additional contingent consideration would be due, however the total consideration paid may not exceed $71 million.

The purchase price allocation is provisional, pending completion of the valuation of the acquired assets. The final valuation, which will be determined after further analysis and consultation with third party advisors, may change the allocation of the purchase price and could affect the fair values assigned to the assets.

This purchase was not material to the Company’s consolidated financial statements. The operating results of the purchased assets, which were not material, have been included in the Company’s consolidated financial statements from the date of acquisition.

 

 

3.

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

Revenue generated from the Company’s loans and finance receivables for the three and nine months ended September 30, 2015 and 2014 was as follows (dollars in thousands):

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Short-term loans

 

$

54,549

 

 

$

61,885

 

 

$

153,905

 

 

$

200,570

 

Line of credit accounts

 

 

43,832

 

 

 

80,909

 

 

 

140,400

 

 

 

228,839

 

Installment loans and RPAs

 

 

66,409

 

 

 

61,810

 

 

 

181,604

 

 

 

185,057

 

Total loans and finance receivables revenue

 

 

164,790

 

 

 

204,604

 

 

 

475,909

 

 

 

614,466

 

Other

 

 

437

 

 

 

564

 

 

 

1,274

 

 

 

649

 

Total revenue

 

$

165,227

 

 

$

205,168

 

 

$

477,183

 

 

$

615,115

 

 

Current and Delinquent Loans and Finance Receivables

The Company classifies its loans and finance receivables 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 and on a non-accrual status. 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 loans and does not resume accrual of interest on a delinquent loan unless it is returned to current status. In addition, delinquent loans generally may not be renewed, and if, during its attempt to collect on a delinquent 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.

8


ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

Allowance and Liability for Estimated Losses on Loans and Finance Receivables

The Company monitors the performance of its loan and RPA portfolios and maintains either an allowance or liability for estimated losses on loans and finance receivables (including revenue, fees and/or interest) at a level estimated to be adequate to absorb losses inherent in the portfolio. The allowance for losses on the Company’s owned loans and finance receivables reduces the outstanding loans and finance receivable 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 loans and finance receivables, the Company applies a documented systematic methodology. In calculating the allowance or liability for receivable losses, outstanding loans and finance receivables are divided into discrete groups of short-term loans, line of credit accounts, installment loans and RPAs 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 of 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 account 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 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. Loans classified as delinquent generally have an age of one to 59 days from the date any portion of the receivable 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 loans and finance receivables at September 30, 2015 and 2014 and December 31, 2014 were as follows (dollars in thousands):

 

 

 

As of September 30, 2015

 

 

 

Short-term

 

 

Line of Credit

 

 

Installment Loans and

 

 

 

 

 

 

 

Loans

 

 

Accounts

 

 

RPAs

 

 

Total

 

Current receivables

 

$

40,832

 

 

$

82,117

 

 

$

269,129

 

 

$

392,078

 

Delinquent receivables:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Delinquent payment amounts(1)

 

 

 

 

 

3,354

 

 

 

1,351

 

 

 

4,705

 

Receivables on non-accrual status

 

 

21,376

 

 

 

3,671

 

 

 

23,717

 

 

 

48,764

 

Total delinquent receivables

 

 

21,376

 

 

 

7,025

 

 

 

25,068

 

 

 

53,469

 

Total loans and finance receivables, gross

 

 

62,208

 

 

 

89,142

 

 

 

294,197

 

 

 

445,547

 

Less: Allowance for losses

 

 

(14,895

)

 

 

(12,873

)

 

 

(36,974

)

 

 

(64,742

)

Loans and finance receivables, net

 

$

47,313

 

 

$

76,269

 

 

$

257,223

 

 

$

380,805

 

 

 

 

As of September 30, 2014

 

 

 

Short-term

 

 

Line of Credit

 

 

Installment Loans and

 

 

 

 

 

 

 

Loans

 

 

Accounts

 

 

RPAs

 

 

Total

 

Current receivables

 

$

32,509

 

 

$

118,329

 

 

$

176,651

 

 

$

327,489

 

Delinquent receivables:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Delinquent payment amounts(1)

 

 

 

 

 

4,335

 

 

 

1,532

 

 

 

5,867

 

Receivables on non-accrual status

 

 

18,313

 

 

 

5,611

 

 

 

16,413

 

 

 

40,337

 

Total delinquent receivables

 

 

18,313

 

 

 

9,946

 

 

 

17,945

 

 

 

46,204

 

Total loans and finance receivables, gross

 

 

50,822

 

 

 

128,275

 

 

 

194,596

 

 

 

373,693

 

Less: Allowance for losses

 

 

(17,415

)

 

 

(22,672

)

 

 

(29,912

)

 

 

(69,999

)

Loans and finance receivables, net

 

$

33,407

 

 

$

105,603

 

 

$

164,684

 

 

$

303,694

 

9


ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

 

 

 

As of December 31, 2014

 

 

 

Short-term

 

 

Line of Credit

 

 

Installment Loans and

 

 

 

 

 

 

 

Loans

 

 

Accounts

 

 

RPAs

 

 

Total

 

Current receivables

 

$

35,378

 

 

$

110,519

 

 

$

194,496

 

 

$

340,393

 

Delinquent receivables:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Delinquent payment amounts(1)

 

 

 

 

 

3,733

 

 

 

1,469

 

 

 

5,202

 

Receivables on non-accrual status

 

 

20,920

 

 

 

4,428

 

 

 

17,616

 

 

 

42,964

 

Total delinquent receivables

 

 

20,920

 

 

 

8,161

 

 

 

19,085

 

 

 

48,166

 

Total loans and finance receivables, gross

 

 

56,298

 

 

 

118,680

 

 

 

213,581

 

 

 

388,559

 

Less: Allowance for losses

 

 

(14,324

)

 

 

(19,749

)

 

 

(30,875

)

 

 

(64,948

)

Loans and finance receivables, net

 

$

41,974

 

 

$

98,931

 

 

$

182,706