0001564590-17-008393.txt : 20170503 0001564590-17-008393.hdr.sgml : 20170503 20170503162725 ACCESSION NUMBER: 0001564590-17-008393 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 78 CONFORMED PERIOD OF REPORT: 20170331 FILED AS OF DATE: 20170503 DATE AS OF CHANGE: 20170503 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Enova International, Inc. CENTRAL INDEX KEY: 0001529864 STANDARD INDUSTRIAL CLASSIFICATION: PERSONAL CREDIT INSTITUTIONS [6141] IRS NUMBER: 453190813 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-35503 FILM NUMBER: 17809588 BUSINESS ADDRESS: STREET 1: 175 WEST JACKSON BLVD. STREET 2: SUITE 1000 CITY: CHICAGO STATE: IL ZIP: 60604 BUSINESS PHONE: 312-568-4200 MAIL ADDRESS: STREET 1: 175 WEST JACKSON BLVD. STREET 2: SUITE 1000 CITY: CHICAGO STATE: IL ZIP: 60604 10-Q 1 enva-10q_20170331.htm 10-Q enva-10q_20170331.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended March 31, 2017

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      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      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

 

  (Do not check if a smaller reporting company)

  

Smaller reporting company

 

 

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes      No  

33,490,981 of the Registrant’s common shares, $.00001 par value, were outstanding as of May 1, 2017.

 

 


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 United Kingdom (“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 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;

 

the time and costs associated with our exit from the Canadian and Australian markets;

 

cyber-attacks or security breaches;

 

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

 

the ability to successfully integrate 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, 2017 and 2016 and December 31, 2016

  

1

 

 

Consolidated Statements of Income – Three Months Ended March 31, 2017 and 2016

  

2

 

 

Consolidated Statements of Comprehensive Income – Three Months Ended March 31, 2017 and 2016

  

3

 

 

Consolidated Statements of Stockholders’ Equity – Three Months Ended March 31, 2017 and 2016

  

4

 

 

Consolidated Statements of Cash Flows – Three Months Ended March 31, 2017 and 2016

  

5

 

 

Notes to Consolidated Financial Statements

  

6

Item 2.

 

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

  

32

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

  

50

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

  

52

Item 3.

 

Defaults upon Senior Securities

  

52

Item 4.

 

Mine Safety Disclosures

  

52

Item 5.

 

Other Information

  

52

Item 6.

 

Exhibits

  

53

 

 

SIGNATURES

  

54

 

 

 


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,

 

 

 

2017

 

 

2016

 

 

2016

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

97,030

 

 

$

112,211

 

 

$

39,934

 

Restricted cash and cash equivalents (includes restricted cash of consolidated VIEs of $17,815, $13,717 and $19,468 as of March 31, 2017 and 2016 and December 31, 2016, respectively)

 

 

25,610

 

 

 

20,908

 

 

 

26,306

 

Loans and finance receivables, net (includes loans of consolidated VIEs of $225,473, $150,427 and $234,497 and allowance for losses of $17,879, $12,172 and $17,731 as of March 31, 2017 and 2016 and December 31, 2016, respectively)

 

 

515,463

 

 

 

428,202

 

 

 

561,550

 

Income taxes receivable

 

 

3,004

 

 

 

7,436

 

 

 

 

Other receivables and prepaid expenses

 

 

18,059

 

 

 

18,810

 

 

 

19,524

 

Property and equipment, net

 

 

44,279

 

 

 

45,740

 

 

 

47,100

 

Goodwill

 

 

267,011

 

 

 

267,012

 

 

 

267,010

 

Intangible assets, net

 

 

5,136

 

 

 

6,221

 

 

 

5,404

 

Other assets

 

 

9,821

 

 

 

8,636

 

 

 

11,051

 

Total assets

 

$

985,413

 

 

$

915,176

 

 

$

977,879

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

70,485

 

 

$

74,278

 

 

$

71,671

 

Income taxes currently payable

 

 

 

 

 

 

 

 

282

 

Deferred tax liabilities, net

 

 

25,338

 

 

 

28,879

 

 

 

14,316

 

Long-term debt (includes long-term debt of consolidated VIEs of $145,449, $113,913 and $165,419 and debt issuance costs of $1,419, $3,714 and $1,869, as of March 31, 2017 and 2016 and December 31, 2016, respectively)

 

 

631,117

 

 

 

594,414

 

 

 

649,911

 

Total liabilities

 

 

726,940

 

 

 

697,571

 

 

 

736,180

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

 

 

 

 

Common stock, $0.00001 par value, 250,000,000 shares authorized, 33,596,007, 33,196,625 and 33,364,525 shares issued and 33,488,159, 33,158,148 and 33,293,100 outstanding as of March 31, 2017 and 2016 and December 31, 2016, respectively

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

Additional paid in capital

 

 

20,766

 

 

 

11,892

 

 

 

18,446

 

Retained earnings

 

 

249,307

 

 

 

210,716

 

 

 

235,455

 

Accumulated other comprehensive loss

 

 

(10,440

)

 

 

(4,758

)

 

 

(11,578

)

Treasury stock, at cost (107,848, 38,477 and 71,425 shares as of March 31, 2017 and 2016 and December 31, 2016, respectively)

 

 

(1,160

)

 

 

(245

)

 

 

(624

)

Total stockholders' equity

 

 

258,473

 

 

 

217,605

 

 

 

241,699

 

Total liabilities and stockholders' equity

 

$

985,413

 

 

$

915,176

 

 

$

977,879

 

 

 

 

 

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,

 

 

 

2017

 

 

2016

 

Revenue

 

$

192,263

 

 

$

174,653

 

Cost of Revenue

 

 

81,884

 

 

 

69,577

 

Gross Profit

 

 

110,379

 

 

 

105,076

 

Expenses

 

 

 

 

 

 

 

 

Marketing

 

 

19,583

 

 

 

21,181

 

Operations and technology

 

 

23,531

 

 

 

20,134

 

General and administrative

 

 

25,696

 

 

 

27,925

 

Depreciation and amortization

 

 

3,497

 

 

 

3,987

 

Total Expenses

 

 

72,307

 

 

 

73,227

 

Income from Operations

 

 

38,072

 

 

 

31,849

 

Interest expense, net

 

 

(17,222

)

 

 

(15,915

)

Foreign currency transaction gain

 

 

227

 

 

 

1,568

 

Income before Income Taxes

 

 

21,077

 

 

 

17,502

 

Provision for income taxes

 

 

7,225

 

 

 

7,639

 

Net Income

 

$

13,852

 

 

$

9,863

 

Earnings Per Share:

 

 

 

 

 

 

 

 

Earnings per common share:

 

 

 

 

 

 

 

 

Basic

 

$

0.42

 

 

$

0.30

 

Diluted

 

$

0.41

 

 

$

0.30

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

33,372

 

 

 

33,142

 

Diluted

 

 

34,036

 

 

 

33,187

 

 

 

 

 

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,

 

 

 

2017

 

 

2016

 

Net Income

 

$

13,852

 

 

$

9,863

 

Other comprehensive gain (loss), net of tax:

 

 

 

 

 

 

 

 

Foreign currency translation gain (loss)(1)

 

 

1,138

 

 

 

(136

)

Total other comprehensive gain (loss), net of tax

 

 

1,138

 

 

 

(136

)

Comprehensive Income

 

$

14,990

 

 

$

9,727

 

 

(1)

Net of tax (provision) benefit of $(643) and $77 for the three months ended March 31, 2017 and 2016, 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

 

 

Treasury Stock, at cost

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Loss

 

 

Shares

 

 

Amount

 

 

Equity

 

Balance at December 31, 2015

 

 

33,151

 

 

$

 

 

$

9,924

 

 

$

200,853

 

 

$

(4,622

)

 

 

(29

)

 

$

(187

)

 

$

205,968

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

1,968

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,968

 

Shares issued under stock-based plans

 

 

46

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

9,863

 

 

 

 

 

 

 

 

 

 

 

 

 

9,863

 

Foreign currency translation loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(136

)

 

 

 

 

 

 

 

 

 

(136

)

Purchases of treasury shares, at cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9

)

 

 

(58

)

 

 

(58

)

Balance at March 31, 2016

 

 

33,197

 

 

$

 

 

$

11,892

 

 

$

210,716

 

 

$

(4,758

)

 

 

(38

)

 

$

(245

)

 

$

217,605

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2016

 

 

33,365

 

 

$

 

 

$

18,446

 

 

$

235,455

 

 

$

(11,578

)

 

 

(71

)

 

$

(624

)

 

$

241,699

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

2,320

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,320

 

Shares issued under stock-based plans

 

 

231

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

13,852

 

 

 

 

 

 

 

 

 

 

 

 

 

13,852

 

Foreign currency translation gain, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,138

 

 

 

 

 

 

 

 

 

 

1,138

 

Purchases of treasury shares, at cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(37

)

 

 

(536

)

 

 

(536

)

Balance at March 31, 2017

 

 

33,596

 

 

$

 

 

$

20,766

 

 

$

249,307

 

 

$

(10,440

)

 

 

(108

)

 

$

(1,160

)

 

$

258,473

 

 

 

 

 

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,

 

 

 

2017

 

 

2016

 

Cash Flows from Operating Activities

 

 

 

 

 

 

 

 

Net Income

 

$

13,852

 

 

$

9,863

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

3,497

 

 

 

3,987

 

Amortization of deferred loan costs and debt discount

 

 

1,609

 

 

 

1,779

 

Cost of revenue

 

 

81,884

 

 

 

69,577

 

Stock-based compensation expense

 

 

2,320

 

 

 

1,968

 

Deferred income taxes, net

 

 

10,400

 

 

 

8,459

 

Other

 

 

 

 

 

(1,567

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Finance and service charges on loans and finance receivables

 

 

9,418

 

 

 

(3,065

)

Other receivables and prepaid expenses

 

 

1,203

 

 

 

3,274

 

Accounts payable and accrued expenses

 

 

(1,032

)

 

 

6,250

 

Current income taxes payable

 

 

(3,286

)

 

 

(1,933

)

Net cash provided by operating activities

 

 

119,865

 

 

 

98,592

 

Cash Flows from Investing Activities

 

 

 

 

 

 

 

 

Loans and finance receivables originated or acquired

 

 

(273,990

)

 

 

(276,847

)

Loans and finance receivables repaid

 

 

228,188

 

 

 

211,177

 

Change in restricted cash

 

 

1,651

 

 

 

(13,717

)

Purchases of property and equipment

 

 

(2,156

)

 

 

(2,230

)

Other investing activities

 

 

1,517

 

 

 

58

 

Net cash used in investing activities

 

 

(44,790

)

 

 

(81,559

)

Cash Flows from Financing Activities

 

 

 

 

 

 

 

 

Borrowings under revolving line of credit

 

 

 

 

 

10,000

 

Repayments under revolving line of credit

 

 

 

 

 

(68,400

)

Borrowings under securitization facility

 

 

22,700

 

 

 

135,061

 

Repayments under securitization facility

 

 

(42,670

)

 

 

(21,148

)

Debt issuance costs paid

 

 

 

 

 

(3,271

)

Treasury shares purchased

 

 

(536

)

 

 

(58

)

Net cash (used in) provided by financing activities

 

 

(20,506

)

 

 

52,184

 

Effect of exchange rates on cash

 

 

2,527

 

 

 

928

 

Net increase in cash and cash equivalents

 

 

57,096

 

 

 

70,145

 

Cash and cash equivalents at beginning of year

 

 

39,934

 

 

 

42,066

 

Cash and cash equivalents at end of period

 

$

97,030

 

 

$

112,211

 

 

 

 

 

 

 

 

 

 

Supplemental Disclosures

 

 

 

 

 

 

 

 

Loans and finance receivables renewed

 

$

68,183

 

 

$

73,456

 

 

 

 

 

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,” now known as FirstCash, Inc. due to its merger with First Cash Financial Services, Inc. on September 1, 2016), 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. The Company became an independent, publicly traded company on November 13, 2014 when 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”). The consolidated financial statements of the Company reflect the historical results of operations and cash flows of the Company during each respective period. The financial statements include goodwill and intangible assets arising from businesses previously acquired.

The Company consolidates any variable interest entity (“VIE”) where it has been determined it is the primary beneficiary. The primary beneficiary is the entity which has both the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance as well as the obligation to absorb losses or receive benefits of the entity that could potentially be significant to the VIE.

The financial statements presented as of March 31, 2017 and 2016 and for the three-month periods ended March 31, 2017 and 2016 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 three-month period are not necessarily indicative of the results that may be expected for the full fiscal year.

The Company operates an internet-based lending platform to serve customers in need of cash to fulfill their financial responsibilities. Through a network of direct and indirect marketing channels, the Company offers funds to its customers through a variety of unsecured loan and finance receivable products. The business is operated primarily through the internet to provide convenient, fully-automated financial solutions to its customers. The Company originates, arranges, guarantees or purchases consumer loans and provides financing to small businesses through a line of credit account or receivables purchase agreement product (“RPAs”). Consumer loans include short-term loans, line of credit accounts and installment loans. RPAs represent a right to receive future receivables from a small business. “Loans and finance receivables” include consumer loans, small business lines of credit and RPAs.

These financial statements and related notes should be read in conjunction with the Company’s audited consolidated financial statements as of December 31, 2016 and 2015 and for the years ended December 31, 2016, 2015 and 2014 and related notes, which are included on Form 10-K filed with the SEC on February 24, 2017.

Restricted Cash

The Company includes funds to be used for future debt payments relating to its securitization transactions and escrow deposits in restricted cash and cash equivalents.

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”) (“CSO fees”), revenue on RPAs, service charges, draw fees, minimum billing fees, purchase fees, late fees and non-sufficient funds fees as 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. For line of credit accounts, interest is recognized over the reporting period based upon the balance outstanding and the contractual interest rate, draw fees are recognized on an effective yield basis over the estimated outstanding period of the draw, and minimum billing 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. For RPAs, revenue and purchase fees are recognized on an effective yield basis over the projected delivery term of the agreements and fees are recognized when assessed. CSO fees are recognized on an effective yield basis over the term of the loan. Late and nonsufficient funds fees are recognized when assessed to the customer. 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 term of the loan or the projected delivery term of the 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.

6


ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

Adopted Accounting Standards

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09, Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). The amendments in ASU 2016-09 simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. ASU 2016-09 is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company adopted ASU 2016-09 on January 1, 2017. The adoption of ASU 2016-09 did not have a material impact on the Company’s financial statements.

Accounting Standards to be Adopted in Future Periods

In January 2017, the FASB issued ASU 2017-05, Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets (“ASU 2017-05”) to clarify the scope of Subtopic 610-20, Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets, and to add guidance for partial sales of nonfinancial assets. ASU 2017-05 is effective at the same time as the amendments in ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). Therefore, for public entities, the amendments are effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. The Company is currently evaluating the impact ASU 2017-05 will have on its consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350) – Simplifying the Test for Goodwill Impairment (“ASU 2017-04”) to simplify the accounting for goodwill impairment. ASU 2017-04 removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. Goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the impact ASU 2017-04 will have on its consolidated financial statements.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805) – Clarifying the Definition of a Business (“ASU 2017-01”). ASU 2017-01 provides a screen to determine when an asset or group of assets acquired is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This screen reduces the number of transactions that need to be further evaluated. ASU 2017-01 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017. The Company is currently evaluating the impact ASU 2017-01 will have on its consolidated financial statements.

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory (“ASU 2016-16”), which requires entities to recognize the income tax impact of an intra-entity sale or transfer of an asset other than inventory when the sale or transfer occurs, rather than when the asset has been sold to an outside party. ASU 2016-16 is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. Early adoption is permitted. The Company is currently evaluating the impact ASU 2016-16 will have on its consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force) (“ASU 2016-15”). The amendments in ASU 2016-15 provide guidance on eight specific cash flow issues, including debt prepayment or debt extinguishment costs, contingent consideration payments made after a business combination, distributions received from equity method investees and beneficial interests in securitization transactions. In addition, in November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230), Restricted Cash ("ASU 2016-18"). ASU 2016-18 clarifies certain existing principles in Accounting Standards Codification (“ASC”) 230, Statement of Cash Flows, including providing additional guidance related to transfers between cash and restricted cash and how entities present, in their statement of cash flows, the cash receipts and cash payments that directly affect the restricted cash accounts. ASU 2016-15 and ASU 2016-18 are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The adoption of ASU 2016-15 and ASU 2016-18 will modify the Company's current disclosures and classifications within the consolidated statement of cash flows but they are not expected to have a material effect on the Company’s consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (“ASU 2016‑13”). The amendments in ASU 2016‑13 replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016‑13 is effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods. Early adoption is permitted for annual periods beginning after December 15, 2018, and interim periods within those fiscal

7


ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

years. The Company is assessing the impact of ASU 2016‑13, which at the date of adoption will increase the allowance for credit losses with a resulting negative adjustment to retained earnings.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 requires lessee recognition on the balance sheet of a right-of-use asset and a lease liability, initially measured at the present value of the lease payments. It further requires recognition in the income statement of a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a generally straight-line basis. Finally, it requires classification of all cash payments within operating activities in the statement of cash flows. ASU 2016-02 is effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2018. Early adoption is permitted for all entities upon issuance. Upon adoption of ASU 2016-02, the Company expects to report higher assets and liabilities as a result of including additional leases on the consolidated balance sheet. The Company does not expect the adoption of ASU 2016-02 to have a material impact on the consolidated statements of income or the consolidated statements of stockholders' equity.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016‑01”), which requires that equity investments, except for those accounted for under the equity method or those that result in consolidation of the investee, be measured at fair value, with subsequent changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. ASU 2016-01 also impacts the presentation and disclosure requirements for financial instruments. ASU 2016-01 is effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted only for certain provisions. The Company does not expect that the adoption of ASU 2016-01 will have a material effect on its consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, which supersedes the revenue recognition requirements in ASC 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. 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. In March 2016, the FASB issued ASU 2016-08, Principal versus Agent Considerations (Reporting Revenue Gross versus Net), to clarify revenue recognition accounting when a third party is involved in providing goods or services to a customer. In April 2016, the FASB issued ASU 2016-10, Identifying Performance Obligations and Licensing, to clarify the implementation guidance on identifying performance obligations and licensing. Early adoption of ASU 2016‑10 is permitted only as of an annual reporting period beginning after December 15, 2016. In May 2016, the FASB issued ASU 2016-12, Narrow-Scope Improvements and Practical Expedients, to reduce the risk of diversity in practice for certain aspects in ASU 2014-09, including collectibility, noncash consideration, presentation of sales tax and transition. In December 2016, the FASB issued ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, which clarifies the guidance in Topic 606 on assessing certain aspects of the new revenue standard. The Company does not expect that the adoption of ASU 2014-09 will have a material impact on its consolidated financial statements.

 

 


8


ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

 

2.

Acquisitions

On June 23, 2015, the Company completed the purchase of certain assets of a company operating as The Business Backer, LLC, which purchases discounted future accounts receivables from small businesses in the United States through RPAs, which provide working capital for small businesses. The total consideration of $26.4 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 $5.7 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 contingent purchase consideration is revalued each reporting period with changes in fair value of the contingent consideration obligations recognized as a gain or loss on fair value remeasurement in our consolidated statements of income. The fair value of the contingent purchase consideration was remeasured as of December 31, 2016 and a gain from the fair value remeasurement of $3.3 million was recognized. There was no change in fair value measurement of contingent consideration for the three months ended March 31, 2017.

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 months ended March 31, 2017 and 2016 was as follows (dollars in thousands):

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2017

 

 

2016

 

Short-term loans

 

$

47,423

 

 

$

47,598

 

Line of credit accounts

 

 

59,459

 

 

 

48,973

 

Installment loans and RPAs

 

 

85,083

 

 

 

77,506

 

Total loans and finance receivables revenue

 

 

191,965

 

 

 

174,077

 

Other

 

 

298

 

 

 

576

 

Total revenue

 

$

192,263

 

 

$

174,653

 

 

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. 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 placed on a non-accrual status. The Company allows for normal payment processing time before considering 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.

Allowance and Liability for Estimated Losses on Loans and Finance Receivables

The Company monitors the performance of its loan and finance receivable 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 receivables 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.

9


ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

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 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 account, installment loan and RPA portfolios, the Company generally uses either a migration analysis or roll-rate based methodology to estimate losses inherent in the portfolio. The allowance or liability calculation under the migration analysis and roll-rate methodology 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 and the charge-off of a loan or RPA. 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 roll-rate methodology is based on delinquency status, payment history and recency factors to estimate future charge-offs.

The Company fully reserves for loans and finance receivables once the receivable or a portion of the receivable has been classified as delinquent for 60 consecutive days and generally charges off loans and finance receivables between 60 – 65 days delinquent. If a loan or finance receivable is deemed uncollectible before it is fully reserved, it is charged off at that point. Loans and finance receivables classified as delinquent generally have an age of one to 64 days from the date any portion of the receivable became delinquent, as defined above. Recoveries on loans and finance receivables previously charged to the allowance are credited to the allowance when collected.

The components of Company-owned loans and finance receivables at March 31, 2017 and 2016 and December 31, 2016 were as follows (dollars in thousands):

 

 

 

As of March 31, 2017

 

 

 

Short-term

 

 

Line of Credit

 

 

Installment Loans and

 

 

 

 

 

 

 

Loans

 

 

Accounts

 

 

RPAs

 

 

Total

 

Current receivables

 

$

33,272

 

 

$

114,820

 

 

$

391,117

 

 

$

539,209

 

Delinquent receivables:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Delinquent payment amounts(1)

 

 

 

 

 

3,869

 

 

 

2,397

 

 

 

6,266

 

Receivables on non-accrual status

 

 

19,933

 

 

 

5,809

 

 

 

27,500

 

 

 

53,242

 

Total delinquent receivables

 

 

19,933

 

 

 

9,678

 

 

 

29,897

 

 

 

59,508

 

Total loans and finance receivables, gross

 

 

53,205

 

 

 

124,498

 

 

 

421,014

 

 

 

598,717

 

Less: Allowance for losses

 

 

(15,161

)

 

 

(21,765

)

 

 

(46,328

)

 

 

(83,254

)

Loans and finance receivables, net

 

$

38,044

 

 

$

102,733

 

 

$

374,686

 

 

$

515,463

 

 

 

 

As of March 31, 2016

 

 

 

Short-term

 

 

Line of Credit

 

 

Installment Loans and

 

 

 

 

 

 

 

Loans

 

 

Accounts

 

 

RPAs

 

 

Total

 

Current receivables

 

$

36,263

 

 

$

91,482

 

 

$

317,467

 

 

$

445,212

 

Delinquent receivables:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Delinquent payment amounts(1)

 

 

 

 

 

3,105

 

 

 

1,469

 

 

 

4,574

 

Receivables on non-accrual status

 

 

16,118

 

 

 

3,764

 

 

 

26,238

 

 

 

46,120

 

Total delinquent receivables

 

 

16,118

 

 

 

6,869

 

 

 

27,707

 

 

 

50,694

 

Total loans and finance receivables, gross

 

 

52,381

 

 

 

98,351

 

 

 

345,174

 

 

 

495,906

 

Less: Allowance for losses

 

 

(11,693

)

 

 

(15,284

)

 

 

(40,727

)

 

 

(67,704

)

Loans and finance receivables, net

 

$

40,688

 

 

$

83,067

 

 

$

304,447

 

 

$

428,202

 

10


ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

 

 

 

As of December 31, 2016

 

 

 

Short-term

 

 

Line of Credit

 

 

Installment Loans and

 

 

 

 

 

 

 

Loans

 

 

Accounts

 

 

RPAs

 

 

Total

 

Current receivables

 

$

35,516

 

 

$

130,576

 

 

$

413,638

 

 

$

579,730

 

Delinquent receivables:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Delinquent payment amounts(1)

 

 

 

 

 

4,560

 

 

 

2,110

 

 

 

6,670

 

Receivables on non-accrual status

 

 

27,489

 

 

 

9,047

 

 

 

37,559

 

 

 

74,095

 

Total delinquent receivables

 

 

27,489

 

 

 

13,607

 

 

 

39,669

 

 

 

80,765

 

Total loans and finance receivables, gross

 

 

63,005

 

 

 

144,183

 

 

 

453,307

 

 

 

660,495

 

Less: Allowance for losses

 

 

(17,770

)

 

 

(26,594

)

 

 

(54,581

)

 

 

(98,945

)

Loans and finance receivables, net

 

$

45,235

 

 

$

117,589

 

 

$

398,726

 

 

$

561,550

 

 

(1)

Represents the delinquent portion of installment loans and line of credit account balances for customers that have only missed one payment and RPA customers who have not delivered agreed upon receivables. See “Current and Delinquent Loans and Finance Receivables” above for additional information.

Changes in the allowance for losses for the Company-owned loans and finance receivables and the liability for losses on the Company’s guarantees of third-party lender-owned loans during the three months ended March 31, 2017 and 2016 were as follows (dollars in thousands):

 

 

 

Three Months Ended March 31, 2017

 

 

 

Short-term

 

 

Line of Credit

 

 

Installment Loans and

 

 

 

 

 

 

 

Loans

 

 

Accounts

 

 

RPAs

 

 

Total

 

Allowance for losses for Company-owned loans and finance receivables:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

17,770

 

 

$

26,594

 

 

$

54,581

 

 

$

98,945

 

Cost of revenue

 

 

16,274

 

 

 

19,831

 

 

 

46,588