10-Q 1 enva-10q_20180331.htm 10-Q enva-10q_20180331.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, 2018

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, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth 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  

33,876,781 of the Registrant’s common shares, $.00001 par value, were outstanding as of April 30, 2018.

 

 


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, 2018 and 2017 and December 31, 2017

  

1

 

 

Consolidated Statements of Income – Three Months Ended March 31, 2018 and 2017

  

2

 

 

Consolidated Statements of Comprehensive Income – Three Months Ended March 31, 2018 and 2017

  

3

 

 

Consolidated Statements of Stockholders’ Equity – Three Months Ended March 31, 2018 and 2017

  

4

 

 

Consolidated Statements of Cash Flows – Three Months Ended March 31, 2018 and 2017

  

5

 

 

Notes to Consolidated Financial Statements

  

6

Item 2.

 

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

  

34

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

  

51

Item 4.

 

Controls and Procedures

  

51

 

 

PART II. OTHER INFORMATION

  

 

 

 

 

Item 1.

 

Legal Proceedings

  

53

Item 1A.

 

Risk Factors

  

53

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)

 

 

 

March 31,

 

 

December 31,

 

 

 

2018

 

 

2017

 

 

2017

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

69,900

 

 

$

97,030

 

 

$

68,684

 

Restricted cash (includes restricted cash of consolidated VIEs of $26,746, $17,815 and $21,696 as of March 31, 2018 and 2017 and December 31, 2017, respectively)

 

 

34,765

 

 

 

25,610

 

 

 

29,460

 

Loans and finance receivables, net (includes loans of consolidated VIEs of $302,743, $225,473 and $282,724 and allowance for losses of $24,471, $17,879 and $22,728 as of March 31, 2018 and 2017 and December 31, 2017, respectively)

 

 

703,076

 

 

 

515,463

 

 

 

704,705

 

Income taxes receivable

 

 

 

 

 

3,004

 

 

 

4,092

 

Other receivables and prepaid expenses

 

 

22,164

 

 

 

18,059

 

 

 

23,817

 

Property and equipment, net

 

 

47,698

 

 

 

44,279

 

 

 

48,525

 

Goodwill

 

 

267,013

 

 

 

267,011

 

 

 

267,015

 

Intangible assets, net

 

 

4,058

 

 

 

5,136

 

 

 

4,325

 

Other assets

 

 

9,526

 

 

 

9,821

 

 

 

8,837

 

Total assets

 

$

1,158,200

 

 

$

985,413

 

 

$

1,159,460

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

70,473

 

 

$

70,485

 

 

$

77,123

 

Income taxes currently payable

 

 

257

 

 

 

 

 

 

 

Deferred tax liabilities, net

 

 

17,087

 

 

 

25,338

 

 

 

12,108

 

Long-term debt (includes long-term debt of consolidated VIEs of $217,125, $145,449 and $211,406 and debt issuance costs of $2,666, $1,419 and $3,271, as of March 31, 2018 and 2017 and December 31, 2017, respectively)

 

 

754,650

 

 

 

631,117

 

 

 

788,542

 

Total liabilities

 

 

842,467

 

 

 

726,940

 

 

 

877,773

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

 

 

 

 

Common stock, $0.00001 par value, 250,000,000 shares authorized, 34,340,242, 33,596,007 and 33,932,673 shares issued and 33,862,388, 33,488,159 and 33,504,555 outstanding as of March 31, 2018 and 2017 and December 31, 2017, respectively

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

Additional paid in capital

 

 

32,671

 

 

 

20,766

 

 

 

29,781

 

Retained earnings

 

 

294,215

 

 

 

249,307

 

 

 

264,695

 

Accumulated other comprehensive loss

 

 

(4,322

)

 

 

(10,440

)

 

 

(7,086

)

Treasury stock, at cost (477,854, 107,848 and 428,118 shares as of March 31, 2018 and 2017 and December 31, 2017, respectively)

 

 

(6,831

)

 

 

(1,160

)

 

 

(5,703

)

Total stockholders' equity

 

 

315,733

 

 

 

258,473

 

 

 

281,687

 

Total liabilities and stockholders' equity

 

$

1,158,200

 

 

$

985,413

 

 

$

1,159,460

 

 

 

 

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,

 

 

 

2018

 

 

2017

 

Revenue

 

$

254,298

 

 

$

192,263

 

Cost of Revenue

 

 

108,553

 

 

 

81,884

 

Gross Profit

 

 

145,745

 

 

 

110,379

 

Expenses

 

 

 

 

 

 

 

 

Marketing

 

 

27,736

 

 

 

19,583

 

Operations and technology

 

 

25,538

 

 

 

23,531

 

General and administrative

 

 

26,921

 

 

 

25,696

 

Depreciation and amortization

 

 

3,838

 

 

 

3,497

 

Total Expenses

 

 

84,033

 

 

 

72,307

 

Income from Operations

 

 

61,712

 

 

 

38,072

 

Interest expense, net

 

 

(19,673

)

 

 

(17,222

)

Foreign currency transaction (loss) gain

 

 

(2,088

)

 

 

227

 

Loss on early extinguishment of debt

 

 

(4,710

)

 

 

 

Income before Income Taxes

 

 

35,241

 

 

 

21,077

 

Provision for income taxes

 

 

7,343

 

 

 

7,225

 

Net Income

 

$

27,898

 

 

$

13,852

 

Earnings Per Share:

 

 

 

 

 

 

 

 

Net income per common share:

 

 

 

 

 

 

 

 

Basic

 

$

0.83

 

 

$

0.42

 

Diluted

 

$

0.81

 

 

$

0.41

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

33,669

 

 

 

33,372

 

Diluted

 

 

34,572

 

 

 

34,036

 

 

 

 

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,

 

 

 

2018

 

 

2017

 

Net Income

 

$

27,898

 

 

$

13,852

 

Other comprehensive gain (loss), net of tax:

 

 

 

 

 

 

 

 

Foreign currency translation gain(1)

 

 

4,386

 

 

 

1,138

 

Reclassification of certain deferred tax effects

 

 

(1,622

)

 

 

 

Total other comprehensive gain, net of tax

 

 

2,764

 

 

 

1,138

 

Comprehensive Income

 

$

30,662

 

 

$

14,990

 

 

(1)

Net of tax provision of $(1,601) and $(643) for the three months ended March 31, 2018 and 2017, respectively.

 

 

 

See notes to consolidated financial statements.

 

 

3


ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

(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, 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 loss, 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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2017

 

 

33,933

 

 

$

 

 

$

29,781

 

 

$

264,695

 

 

$

(7,086

)

 

 

(428

)

 

$

(5,703

)

 

$

281,687

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

2,433

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,433

 

Shares issued under stock-based plans

 

 

407

 

 

 

 

 

 

457

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

457

 

Net income

 

 

 

 

 

 

 

 

 

 

 

27,898

 

 

 

 

 

 

 

 

 

 

 

 

27,898

 

Foreign currency translation gain, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,386

 

 

 

 

 

 

 

 

 

4,386

 

Purchases of treasury shares, at cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(50

)

 

 

(1,128

)

 

 

(1,128

)

Reclassification of certain deferred tax effects

 

 

 

 

 

 

 

 

 

 

 

1,622

 

 

 

(1,622

)

 

 

 

 

 

 

 

 

 

Balance at March 31, 2018

 

 

34,340

 

 

$

 

 

$

32,671

 

 

$

294,215

 

 

$

(4,322

)

 

 

(478

)

 

$

(6,831

)

 

$

315,733

 

 

 

 

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,

 

 

 

2018

 

 

2017

 

Cash Flows from Operating Activities

 

 

 

 

 

 

 

 

Net Income

 

$

27,898

 

 

$

13,852

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

3,838

 

 

 

3,497

 

Amortization of deferred loan costs and debt discount

 

 

1,541

 

 

 

1,609

 

Cost of revenue

 

 

108,553

 

 

 

81,884

 

Stock-based compensation expense

 

 

2,433

 

 

 

2,320

 

Loss on early extinguishment of debt

 

 

4,710

 

 

 

 

Deferred income taxes, net

 

 

3,388

 

 

 

10,400

 

Other

 

 

55

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Finance and service charges on loans and finance receivables

 

 

2,346

 

 

 

9,418

 

Other receivables and prepaid expenses

 

 

2,015

 

 

 

1,203

 

Accounts payable and accrued expenses

 

 

(8,124

)

 

 

(1,032

)

Current income taxes

 

 

4,349

 

 

 

(3,286

)

Net cash provided by operating activities

 

 

153,002

 

 

 

119,865

 

Cash Flows from Investing Activities

 

 

 

 

 

 

 

 

Loans and finance receivables originated or acquired

 

 

(378,099

)

 

 

(273,990

)

Loans and finance receivables repaid

 

 

270,018

 

 

 

228,188

 

Purchases of property and equipment

 

 

(3,349

)

 

 

(2,156

)

Other investing activities

 

 

24

 

 

 

2,367

 

Net cash used in investing activities

 

 

(111,406

)

 

 

(45,591

)

Cash Flows from Financing Activities

 

 

 

 

 

 

 

 

Borrowings under revolving line of credit

 

 

32,000

 

 

 

 

Repayments under revolving line of credit

 

 

(24,000

)

 

 

 

Borrowings under securitization facility

 

 

55,300

 

 

 

22,700

 

Repayments under securitization facility

 

 

(49,581

)

 

 

(42,670

)

Repayments of senior notes

 

 

(50,000

)

 

 

 

Debt prepayment penalty paid

 

 

(3,656

)

 

 

 

Proceeds from exercise of stock options

 

 

457

 

 

 

 

Treasury shares purchased

 

 

(1,128

)

 

 

(536

)

Net cash used in financing activities

 

 

(40,608

)

 

 

(20,506

)

Effect of exchange rates on cash, cash equivalents and restricted cash

 

 

5,533

 

 

 

2,632

 

Net increase in cash, cash equivalents and restricted cash

 

 

6,521

 

 

 

56,400

 

Cash, cash equivalents and restricted cash at beginning of year

 

 

98,144

 

 

 

66,240

 

Cash, cash equivalents and restricted cash at end of period

 

$

104,665

 

 

$

122,640

 

 

 

 

 

 

 

 

 

 

Supplemental Disclosures

 

 

 

 

 

 

 

 

Loans and finance receivables renewed

 

$

84,544

 

 

$

68,183

 

 

 

 

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

The consolidated financial statements of the Company reflect the historical results of operations and cash flows of the Company during each respective period. The consolidated financial statements include goodwill and intangible assets arising from businesses previously acquired. The financial information included herein may not be indicative of the consolidated financial position, operating results, changes in stockholders’ equity and cash flows of the Company in the future. Intercompany transactions are eliminated. Certain amounts in the consolidated financial statements for prior years have been reclassified to conform to the current consolidated financial statement presentation.

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, installment loan 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, small business installment loans and RPAs.

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 consolidated financial statements presented as of March 31, 2018 and 2017 and for the three-month periods ended March 31, 2018 and 2017 are unaudited but, in management’s opinion, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for such interim periods. Operating results for the three-month period are not necessarily indicative of the results that may be expected for the full fiscal year.

These consolidated financial statements and related notes should be read in conjunction with the Company’s audited consolidated financial statements as of December 31, 2017 and 2016 and for the years ended December 31, 2017, 2016 and 2015 and related notes, which are included on Form 10-K filed with the SEC on February 26, 2018.

Restricted Cash

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

Cash, Cash Equivalents and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts reported within the consolidated balance sheet (in thousands):

 

 

 

March 31,

 

 

 

2018

 

 

2017

 

Cash and cash equivalents

 

$

69,900

 

 

$

97,030

 

Restricted cash

 

 

34,765

 

 

 

25,610

 

Total cash, cash equivalents and restricted cash

 

$

104,665

 

 

$

122,640

 

Revenue Recognition

The Company recognizes revenue based on the financing products and services it offers and on loans it acquires. “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, origination 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

6


ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

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 and origination fees are 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.

Goodwill

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

The Company first assesses qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. In assessing the qualitative factors, management considers relevant events and circumstances including but not limited to macroeconomic conditions, industry and market environment, overall financial performance of the Company, cash flow from operating activities, market capitalization and stock price. If the Company determines that the two-step quantitative impairment test is required, management uses the income approach to complete its annual goodwill assessment. The income approach uses future cash flows and estimated terminal values for the Company that are discounted using a market participant perspective to determine the fair value, which is then compared to the carrying value to determine if there is impairment. The income approach includes assumptions about revenue growth rates, operating margins and terminal growth rates discounted by an estimated weighted-average cost of capital derived from other publicly-traded companies that are similar but not identical from an operational and economic standpoint. The Company completed its annual assessment of goodwill as of June 30, 2017 based on qualitative factors and determined that the fair value of its goodwill exceeded carrying value, and, as a result, no impairment existed at that date. Although no goodwill impairment was noted, there can be no assurances that future goodwill impairments will not occur.

Reclassification of Accumulated Other Comprehensive Income to Net Income

In May 2009 and October 2009, the Company began providing services in Australia and Canada under the brand name DollarsDirect. Due to the small size of the Australian and Canadian markets and our limited operations there, we decided to exit those markets in 2016 and reallocate our resources to our other existing businesses. As a result, we stopped originating loans in those countries and have wound down our loan portfolios. During the quarter ended March 31, 2018, the Company continued the liquidation process of the legal entities related to Australia and Canada and recorded a $2.3 million loss to “Foreign currency transaction (loss) gain” in the consolidated statements of income to recognize the cumulative translation adjustment balance that had been previously recorded to “Accumulated other comprehensive loss” on the consolidated balance sheets.

Adopted Accounting Standards

In February 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-02, Income Statement - Reporting Comprehensive Income, (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (“ASU 2018-02”) which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the newly enacted federal corporate income tax rate under the Tax Cuts and Jobs Act. The amount of the reclassification would be the difference between the historical corporate income tax rate and the newly enacted 21 percent corporate income tax rate. ASU 2018-02 is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2018 with early adoption in any interim period permitted. The Company adopted this ASU in the first quarter of 2018 and, as a result, reclassified $1.6 million of accumulated other comprehensive income to retained earnings. The amount of the reclassification is reported as “Reclassification of certain deferred tax effects” on the consolidated statements of comprehensive income and the consolidated statements of stockholders’ equity.

In May 2017, the FASB issued ASU 2017-09, Compensation–Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU 2017-09”) clarifying when a change to the terms or conditions of a share-based payment award must be accounted for as a modification. The new guidance requires modification accounting if the fair value, vesting condition or the classification of the award

7


ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

is not the same immediately before and after a change to the terms and conditions of the award. The new guidance is effective on a prospective basis for annual periods beginning after December 15, 2017, and interim periods within those annual periods, with early adoption permitted. The Company adopted ASU 2017-09 as of January 1, 2018. The adoption of ASU 2017-09 did not have a material impact on the Company’s financial statements.

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 adopted ASU 2017-05 as of January 1, 2018. The adoption of ASU 2017-05 did not have a material effect on the Company’s 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 adopted ASU 2017-01 as of January 1, 2018. The adoption of ASU 2017-01 did not have a material effect on the Company’s consolidated financial statements.

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 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 2016-18 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company adopted ASU 2016-18 as of January 1, 2018. The adoption of ASU 2016-18 resulted in a $0.8 million increase in net cash used in investing activities and a $0.1 million increase in the effect of exchange rates on cash for the three months ended March 31, 2017.

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. The Company adopted ASU 2016-16 as of January 1, 2018. The adoption of ASU 2016-16 did not have a material effect on the Company’s consolidated financial statements.

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. The Company adopted ASU 2016-01 as of January 1, 2018. The adoption of ASU 2016-01 did not have a material effect on the Company’s consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which supersedes the revenue recognition requirements in Accounting Standards Codification 605, Revenue Recognition. ASU 2014-09 is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The Company adopted this ASU under the modified-retrospective method effective January 1, 2018. The Company completed its assessment of the

8


ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

guidance and determined its loan and finance receivables are excluded from the scope of ASU 2014-09. As a result of this scope exception, the adoption of this ASU was not material to the Company’s consolidated financial statements.

Accounting Standards to be Adopted in Future Periods

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 does not expect that the adoption of ASU 2017-04 will have a material effect on its 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 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.

 

 

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. Based on future expected earnings, the Company did not expect to pay any additional contingent consideration and recorded an adjustment to write-off the remaining liability in 2017. There was no change in fair value measurement of contingent consideration for the three months ended March 31, 2018.

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.

 

 

9


ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

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, 2018 and 2017 was as follows (dollars in thousands):

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2018

 

 

2017

 

Short-term loans

 

$

53,375

 

 

$

47,423

 

Line of credit accounts

 

 

78,309

 

 

 

59,459

 

Installment loans and RPAs

 

 

122,108

 

 

 

85,083

 

Total loans and finance receivables revenue

 

 

253,792

 

 

 

191,965

 

Other

 

 

506

 

 

 

298

 

Total revenue

 

$

254,298

 

 

$

192,263

 

 

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.

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

10


ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

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, 2018 and 2017 and December 31, 2017 were as follows (dollars in thousands):

 

 

 

As of March 31, 2018

 

 

 

Short-term

 

 

Line of Credit

 

 

Installment Loans and

 

 

 

 

 

 

 

Loans

 

 

Accounts

 

 

RPAs

 

 

Total

 

Current receivables

 

$

39,339

 

 

$

152,114

 

 

$

543,435

 

 

$

734,888

 

Delinquent receivables:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Delinquent payment amounts(1)

 

 

 

 

 

6,624

 

 

 

2,143

 

 

 

8,767

 

Receivables on non-accrual status

 

 

26,519

 

 

 

2,185

 

 

 

45,000

 

 

 

73,704

 

Total delinquent receivables

 

 

26,519

 

 

 

8,809

 

 

 

47,143

 

 

 

82,471

 

Total loans and finance receivables, gross

 

 

65,858

 

 

 

160,923

 

 

 

590,578

 

 

 

817,359

 

Less: Allowance for losses

 

 

(19,136

)

 

 

(27,120

)

 

 

(68,027

)

 

 

(114,283

)

Loans and finance receivables, net

 

$

46,722

 

 

$

133,803

 

 

$

522,551

 

 

$

703,076

 

 

 

 

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 December 31, 2017

 

 

 

Short-term

 

 

Line of Credit

 

 

Installment Loans and

 

 

 

 

 

 

 

Loans

 

 

Accounts

 

 

RPAs

 

 

Total

 

Current receivables

 

$

45,552

 

 

$

161,070

 

 

$

537,634

 

 

$

744,256

 

Delinquent receivables:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Delinquent payment amounts(1)

 

 

 

 

 

7,696

 

 

 

3,635

 

 

 

11,331

 

Receivables on non-accrual status

 

 

28,120

 

 

 

1,302

 

 

 

42,740

 

 

 

72,162

 

Total delinquent receivables

 

 

28,120

 

 

 

8,998

 

 

 

46,375

 

 

 

83,493

 

Total loans and finance receivables, gross

 

 

73,672

 

 

 

170,068

 

 

 

584,009

 

 

 

827,749

 

Less: Allowance for losses

 

 

(19,917

)