annual
report
2016
6 growth
businesses
u.s. subprime
brazil
u.s. near-prime
u.s. small business
TM
u.k. consumer
enova decisions
(cid:423)(cid:421)(cid:422)(cid:25)(cid:3)(cid:72)(cid:81)(cid:82)(cid:89)(cid:68)(cid:3)(cid:68)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)
Dear Fellow Stockholders,
Since Enova was founded 12
years ago, we have consistently
delivered on our mission to
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(cid:83)(cid:71)(cid:68)(cid:72)(cid:81)(cid:3)(cid:421)(cid:77)(cid:64)(cid:77)(cid:66)(cid:72)(cid:64)(cid:75)(cid:3)(cid:81)(cid:68)(cid:82)(cid:79)(cid:78)(cid:77)(cid:82)(cid:72)(cid:65)(cid:72)(cid:75)(cid:72)(cid:83)(cid:72)(cid:68)(cid:82)(cid:3)
with fast, trustworthy credit.
(cid:54)(cid:68)(cid:343)(cid:85)(cid:68)(cid:3)(cid:65)(cid:81)(cid:78)(cid:84)(cid:70)(cid:71)(cid:83)(cid:3)(cid:72)(cid:77)(cid:77)(cid:78)(cid:85)(cid:64)(cid:83)(cid:72)(cid:85)(cid:68)(cid:3)
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(cid:66)(cid:78)(cid:77)(cid:82)(cid:84)(cid:76)(cid:68)(cid:81)(cid:82)(cid:3)(cid:64)(cid:77)(cid:67)(cid:3)(cid:65)(cid:84)(cid:82)(cid:72)(cid:77)(cid:68)(cid:82)(cid:82)(cid:68)(cid:82)(cid:3)(cid:86)(cid:71)(cid:72)(cid:75)(cid:68)(cid:3)
successfully managing credit
quality through multiple economic
cycles, competitor shakeouts and
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Additionally, over the last several
years, we’ve made progress
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core of our sustained success is
the extensive experience of our
talented team, our commitment to
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our sophisticated technology and
analytics.
In 2016, Enova generated revenue
of $745.6 million, an increase from
$652.6 million in 2015. Our total
1(cid:17)(cid:15)(cid:16)(cid:20)(cid:3)(cid:37)(cid:68)(cid:67)(cid:68)(cid:81)(cid:64)(cid:75)(cid:3)(cid:49)(cid:68)(cid:82)(cid:68)(cid:81)(cid:85)(cid:68)(cid:3)(cid:33)(cid:78)(cid:64)(cid:81)(cid:67)(cid:3)(cid:50)(cid:84)(cid:81)(cid:85)(cid:68)(cid:88)(cid:13)
(cid:75)(cid:78)(cid:64)(cid:77)(cid:3)(cid:65)(cid:78)(cid:78)(cid:74)(cid:3)(cid:70)(cid:81)(cid:68)(cid:86)(cid:3)(cid:17)(cid:24)(cid:4)(cid:3)(cid:88)(cid:68)(cid:64)(cid:81)(cid:12)(cid:78)(cid:85)(cid:68)(cid:81)(cid:12)(cid:88)(cid:68)(cid:64)(cid:81)(cid:11)
primarily due to the growth of our
NetCredit and line of credit products.
(cid:40)(cid:77)(cid:82)(cid:83)(cid:64)(cid:75)(cid:75)(cid:76)(cid:68)(cid:77)(cid:83)(cid:3)(cid:75)(cid:78)(cid:64)(cid:77)(cid:82)(cid:11)(cid:3)(cid:81)(cid:68)(cid:66)(cid:68)(cid:72)(cid:85)(cid:64)(cid:65)(cid:75)(cid:68)(cid:82)(cid:3)
purchase agreements and lines of
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total revenue and total loan portfolio.
Throughout the year, we executed
on our strategy of Focused Growth
and delivered strong results. And
while competitors faltered due to
credit and liquidity challenges, we
used our depth of experience and
(cid:82)(cid:78)(cid:75)(cid:72)(cid:67)(cid:3)(cid:67)(cid:72)(cid:85)(cid:68)(cid:81)(cid:82)(cid:72)(cid:421)(cid:68)(cid:67)(cid:3)(cid:69)(cid:84)(cid:77)(cid:67)(cid:72)(cid:77)(cid:70)(cid:3)(cid:83)(cid:78)(cid:3)(cid:76)(cid:64)(cid:72)(cid:77)(cid:83)(cid:64)(cid:72)(cid:77)
growth and achieve our targets.
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(cid:82)(cid:68)(cid:68)(cid:3)(cid:67)(cid:81)(cid:72)(cid:85)(cid:72)(cid:77)(cid:70)(cid:3)(cid:75)(cid:78)(cid:77)(cid:70)(cid:12)(cid:83)(cid:68)(cid:81)(cid:76)(cid:3)(cid:82)(cid:71)(cid:64)(cid:81)(cid:68)(cid:71)(cid:78)(cid:75)(cid:67)(cid:68)(cid:81)
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(cid:65)(cid:84)(cid:82)(cid:72)(cid:77)(cid:68)(cid:82)(cid:82)(cid:3)(cid:421)(cid:77)(cid:64)(cid:77)(cid:66)(cid:72)(cid:77)(cid:70)(cid:11)(cid:3)(cid:78)(cid:84)(cid:81)(cid:3)(cid:72)(cid:77)(cid:82)(cid:83)(cid:64)(cid:75)(cid:75)(cid:76)(cid:68)(cid:77)(cid:83)(cid:3)
(cid:75)(cid:78)(cid:64)(cid:77)(cid:3)(cid:65)(cid:84)(cid:82)(cid:72)(cid:77)(cid:68)(cid:82)(cid:82)(cid:3)(cid:72)(cid:77)(cid:3)(cid:33)(cid:81)(cid:64)(cid:89)(cid:72)(cid:75)(cid:3)(cid:64)(cid:77)(cid:67)(cid:3)(cid:36)(cid:77)(cid:78)(cid:85)(cid:64)(cid:3)
Decisions, our Analytics as a Service
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113%
3-year
compound
annual growth
rate for
netcredit
46%
of Americans
said they didn’t
(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:86)(cid:88)(cid:419)(cid:70)(cid:76)(cid:72)(cid:81)(cid:87)(cid:3)
savings to cover
an emergency
of $4001
Cumulative Originations
22.5 M
$ 10.5 B
17.9 M
13.9 M
$8.0 B
$6.0 B
1.1 M
$0.4 B
3.2 M
$1.3 B
9.1 M
5.7 M
$2.5 B
$3.9 B
39.3 M
35.5 M
31.9 M
27.4 M
$15.3 B
$13.1 B
$17.3 B
$19.3 B
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Cumulative Originations $
Cumulative Originations #
$745.6
million
2016 annual
revenue
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generated another strong year of
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(cid:65)(cid:68)(cid:66)(cid:78)(cid:76)(cid:68)(cid:3)(cid:76)(cid:78)(cid:81)(cid:68)(cid:3)(cid:67)(cid:72)(cid:85)(cid:68)(cid:81)(cid:82)(cid:72)(cid:421)(cid:68)(cid:67)(cid:11)(cid:3)(cid:86)(cid:72)(cid:83)(cid:71)(cid:3)(cid:78)(cid:84)(cid:81)(cid:3)
(cid:52)(cid:13)(cid:50)(cid:13)(cid:3)(cid:82)(cid:84)(cid:65)(cid:79)(cid:81)(cid:72)(cid:76)(cid:68)(cid:3)(cid:79)(cid:78)(cid:81)(cid:83)(cid:69)(cid:78)(cid:75)(cid:72)(cid:78)(cid:3)(cid:66)(cid:78)(cid:77)(cid:82)(cid:72)(cid:82)(cid:83)(cid:72)(cid:77)(cid:70)(cid:3)
(cid:78)(cid:69)(cid:3)(cid:19)(cid:19)(cid:4)(cid:3)(cid:75)(cid:72)(cid:77)(cid:68)(cid:3)(cid:78)(cid:69)(cid:3)(cid:66)(cid:81)(cid:68)(cid:67)(cid:72)(cid:83)(cid:3)(cid:79)(cid:81)(cid:78)(cid:67)(cid:84)(cid:66)(cid:83)(cid:82)(cid:11)(cid:3)
(cid:18)(cid:16)(cid:4)(cid:3)(cid:72)(cid:77)(cid:82)(cid:83)(cid:64)(cid:75)(cid:75)(cid:76)(cid:68)(cid:77)(cid:83)(cid:3)(cid:79)(cid:81)(cid:78)(cid:67)(cid:84)(cid:66)(cid:83)(cid:82)(cid:3)(cid:64)(cid:77)(cid:67)(cid:3)(cid:78)(cid:77)(cid:75)(cid:88)(cid:3)
(cid:17)(cid:20)(cid:4)(cid:3)(cid:82)(cid:72)(cid:77)(cid:70)(cid:75)(cid:68)(cid:3)(cid:79)(cid:64)(cid:88)(cid:3)(cid:79)(cid:81)(cid:78)(cid:67)(cid:84)(cid:66)(cid:83)(cid:82)(cid:13)(cid:3)(cid:32)(cid:83)(cid:3)(cid:83)(cid:71)(cid:68)(cid:3)
same time, we navigated through
changes in paid search marketing
while increasing our marketing
(cid:68)(cid:423)(cid:66)(cid:72)(cid:68)(cid:77)(cid:66)(cid:88)(cid:3)(cid:64)(cid:66)(cid:81)(cid:78)(cid:82)(cid:82)(cid:3)(cid:76)(cid:84)(cid:75)(cid:83)(cid:72)(cid:79)(cid:75)(cid:68)(cid:3)(cid:66)(cid:71)(cid:64)(cid:77)(cid:77)(cid:68)(cid:75)(cid:82)(cid:13)(cid:3)
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NetCredit, maintained rapid
growth in 2016, with originations
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(cid:65)(cid:64)(cid:77)(cid:74)(cid:3)(cid:79)(cid:81)(cid:78)(cid:70)(cid:81)(cid:64)(cid:76)(cid:3)(cid:86)(cid:72)(cid:83)(cid:71)(cid:3)(cid:49)(cid:68)(cid:79)(cid:84)(cid:65)(cid:75)(cid:72)(cid:66)(cid:3)(cid:33)(cid:64)(cid:77)(cid:74)(cid:3)
in early 2016, increasing our U.S.
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(cid:65)(cid:88)(cid:3)(cid:76)(cid:78)(cid:81)(cid:68)(cid:3)(cid:83)(cid:71)(cid:64)(cid:77)(cid:3)(cid:21)(cid:15)(cid:4)(cid:13)(cid:3)(cid:32)(cid:67)(cid:67)(cid:72)(cid:83)(cid:72)(cid:78)(cid:77)(cid:64)(cid:75)(cid:75)(cid:88)(cid:11)(cid:3)
(cid:86)(cid:68)(cid:3)(cid:66)(cid:78)(cid:76)(cid:79)(cid:75)(cid:68)(cid:83)(cid:68)(cid:67)(cid:3)(cid:83)(cid:86)(cid:78)(cid:3)(cid:82)(cid:68)(cid:66)(cid:84)(cid:81)(cid:72)(cid:83)(cid:72)(cid:89)(cid:64)(cid:83)(cid:72)(cid:78)(cid:77)(cid:82)(cid:3)
to help NetCredit further expand
and meet high customer demand.
(cid:32)(cid:82)(cid:3)(cid:64)(cid:3)(cid:81)(cid:68)(cid:82)(cid:84)(cid:75)(cid:83)(cid:3)(cid:78)(cid:69)(cid:3)(cid:78)(cid:84)(cid:81)(cid:3)(cid:68)(cid:420)(cid:78)(cid:81)(cid:83)(cid:82)(cid:11)(cid:3)(cid:45)(cid:68)(cid:83)(cid:34)(cid:81)(cid:68)(cid:67)(cid:72)(cid:83)(cid:3)
(cid:68)(cid:87)(cid:66)(cid:68)(cid:68)(cid:67)(cid:68)(cid:67)(cid:3)(cid:78)(cid:84)(cid:81)(cid:3)(cid:68)(cid:87)(cid:79)(cid:68)(cid:66)(cid:83)(cid:64)(cid:83)(cid:72)(cid:78)(cid:77)(cid:82)(cid:3)(cid:65)(cid:88)(cid:3)
generating over $25 million of
(cid:36)(cid:33)(cid:40)(cid:51)(cid:35)(cid:32)(cid:3)(cid:66)(cid:78)(cid:77)(cid:83)(cid:81)(cid:72)(cid:65)(cid:84)(cid:83)(cid:72)(cid:78)(cid:77)(cid:3)(cid:72)(cid:77)(cid:3)(cid:17)(cid:15)(cid:16)(cid:21)(cid:11)(cid:3)(cid:64)(cid:77)(cid:67)(cid:3)
we anticipate meaningfully higher
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(cid:40)(cid:77)(cid:3)(cid:83)(cid:71)(cid:68)(cid:3)(cid:52)(cid:13)(cid:42)(cid:13)(cid:11)(cid:3)(cid:86)(cid:68)(cid:3)(cid:66)(cid:78)(cid:77)(cid:83)(cid:72)(cid:77)(cid:84)(cid:68)(cid:3)(cid:83)(cid:78)(cid:3)
(cid:67)(cid:68)(cid:76)(cid:78)(cid:77)(cid:82)(cid:83)(cid:81)(cid:64)(cid:83)(cid:68)(cid:3)(cid:78)(cid:84)(cid:81)(cid:3)(cid:64)(cid:65)(cid:72)(cid:75)(cid:72)(cid:83)(cid:88)(cid:3)(cid:83)(cid:78)(cid:3)(cid:70)(cid:81)(cid:78)(cid:86)(cid:3)(cid:64)(cid:3)
(cid:79)(cid:81)(cid:78)(cid:421)(cid:83)(cid:64)(cid:65)(cid:75)(cid:68)(cid:3)(cid:65)(cid:84)(cid:82)(cid:72)(cid:77)(cid:68)(cid:82)(cid:82)(cid:3)(cid:69)(cid:78)(cid:75)(cid:75)(cid:78)(cid:86)(cid:72)(cid:77)(cid:70)(cid:3)(cid:83)(cid:71)(cid:68)(cid:3)
regulatory changes that were
implemented in 2014 and 2015.
(cid:46)(cid:77)(cid:3)(cid:64)(cid:3)(cid:66)(cid:78)(cid:77)(cid:82)(cid:83)(cid:64)(cid:77)(cid:83)(cid:3)(cid:66)(cid:84)(cid:81)(cid:81)(cid:68)(cid:77)(cid:66)(cid:88)(cid:3)(cid:65)(cid:64)(cid:82)(cid:72)(cid:82)(cid:11)(cid:3)(cid:75)(cid:78)(cid:64)(cid:77)(cid:3)
(cid:78)(cid:81)(cid:72)(cid:70)(cid:72)(cid:77)(cid:64)(cid:83)(cid:72)(cid:78)(cid:77)(cid:82)(cid:3)(cid:72)(cid:77)(cid:66)(cid:81)(cid:68)(cid:64)(cid:82)(cid:68)(cid:67)(cid:3)(cid:17)(cid:21)(cid:4)(cid:3)(cid:72)(cid:77)(cid:3)(cid:17)(cid:15)(cid:16)(cid:21)(cid:3)
over the prior year period, while
(cid:75)(cid:78)(cid:64)(cid:77)(cid:3)(cid:65)(cid:64)(cid:75)(cid:64)(cid:77)(cid:66)(cid:68)(cid:82)(cid:3)(cid:81)(cid:78)(cid:82)(cid:68)(cid:3)(cid:16)(cid:21)(cid:4)(cid:13)(cid:3)(cid:40)(cid:77)(cid:3)(cid:68)(cid:64)(cid:81)(cid:75)(cid:88)(cid:3)
(cid:17)(cid:15)(cid:16)(cid:21)(cid:11)(cid:3)(cid:86)(cid:68)(cid:3)(cid:81)(cid:68)(cid:66)(cid:68)(cid:72)(cid:85)(cid:68)(cid:67)(cid:3)(cid:69)(cid:84)(cid:75)(cid:75)(cid:3)(cid:64)(cid:84)(cid:83)(cid:71)(cid:78)(cid:81)(cid:72)(cid:89)(cid:64)(cid:83)(cid:72)(cid:78)(cid:77)(cid:3)
from our regulator for all of our
(cid:52)(cid:13)(cid:42)(cid:13)(cid:3)(cid:65)(cid:84)(cid:82)(cid:72)(cid:77)(cid:68)(cid:82)(cid:82)(cid:68)(cid:82)(cid:13)(cid:3)(cid:51)(cid:78)(cid:67)(cid:64)(cid:88)(cid:3)(cid:86)(cid:68)(cid:3)(cid:64)(cid:81)(cid:68)(cid:3)(cid:83)(cid:71)(cid:68)(cid:3)
(cid:77)(cid:84)(cid:76)(cid:65)(cid:68)(cid:81)(cid:3)(cid:78)(cid:77)(cid:68)(cid:3)(cid:75)(cid:68)(cid:77)(cid:67)(cid:68)(cid:81)(cid:3)(cid:65)(cid:88)(cid:3)(cid:76)(cid:64)(cid:81)(cid:74)(cid:68)(cid:83)(cid:3)(cid:82)(cid:71)(cid:64)(cid:81)(cid:68)(cid:3)
(cid:72)(cid:77)(cid:3)(cid:83)(cid:71)(cid:68)(cid:3)(cid:52)(cid:13)(cid:42)(cid:13)(cid:11)(cid:3)(cid:86)(cid:72)(cid:83)(cid:71)(cid:3)(cid:18)(cid:20)(cid:4)(cid:3)(cid:83)(cid:78)(cid:83)(cid:64)(cid:75)(cid:3)(cid:82)(cid:71)(cid:64)(cid:81)(cid:68)(cid:3)(cid:72)(cid:77)(cid:3)
(cid:78)(cid:84)(cid:81)(cid:3)(cid:64)(cid:67)(cid:67)(cid:81)(cid:68)(cid:82)(cid:82)(cid:64)(cid:65)(cid:75)(cid:68)(cid:3)(cid:76)(cid:64)(cid:81)(cid:74)(cid:68)(cid:83)(cid:11)(cid:3)(cid:84)(cid:79)(cid:3)(cid:69)(cid:81)(cid:78)(cid:76)(cid:3)(cid:83)(cid:71)(cid:68)(cid:3)
(cid:77)(cid:84)(cid:76)(cid:65)(cid:68)(cid:81)(cid:3)(cid:83)(cid:71)(cid:81)(cid:68)(cid:68)(cid:3)(cid:75)(cid:68)(cid:77)(cid:67)(cid:68)(cid:81)(cid:3)(cid:79)(cid:81)(cid:72)(cid:78)(cid:81)(cid:3)(cid:83)(cid:78)(cid:3)(cid:83)(cid:71)(cid:68)
(cid:81)(cid:68)(cid:70)(cid:84)(cid:75)(cid:64)(cid:83)(cid:78)(cid:81)(cid:88)(cid:3)(cid:66)(cid:71)(cid:64)(cid:77)(cid:70)(cid:68)(cid:82)(cid:13)(cid:3)(cid:46)(cid:84)(cid:81)(cid:3)(cid:52)(cid:13)(cid:42)(cid:13)(cid:3)(cid:65)(cid:84)(cid:82)(cid:72)(cid:77)(cid:68)(cid:82)(cid:82)(cid:3)
(cid:81)(cid:68)(cid:76)(cid:64)(cid:72)(cid:77)(cid:82)(cid:3)(cid:79)(cid:81)(cid:78)(cid:421)(cid:83)(cid:64)(cid:65)(cid:75)(cid:68)(cid:11)(cid:3)(cid:70)(cid:68)(cid:77)(cid:68)(cid:81)(cid:64)(cid:83)(cid:72)(cid:77)(cid:70)(cid:3)
approximately $25 million in
(cid:36)(cid:33)(cid:40)(cid:51)(cid:35)(cid:32)(cid:3)(cid:66)(cid:78)(cid:77)(cid:83)(cid:81)(cid:72)(cid:65)(cid:84)(cid:83)(cid:72)(cid:78)(cid:77)(cid:3)(cid:72)(cid:77)(cid:3)(cid:17)(cid:15)(cid:16)(cid:21)(cid:13)(cid:3)
(cid:423)(cid:421)(cid:422)(cid:25)(cid:3)(cid:72)(cid:81)(cid:82)(cid:89)(cid:68)(cid:3)(cid:68)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)
(cid:38)(cid:82)(cid:80)(cid:69)(cid:76)(cid:81)(cid:72)(cid:71)(cid:3)(cid:53)(cid:72)(cid:70)(cid:72)(cid:76)(cid:89)(cid:68)(cid:69)(cid:79)(cid:72)(cid:86)1
(in millions)
(cid:53)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:3)(cid:39)(cid:76)(cid:89)(cid:72)(cid:85)(cid:86)(cid:76)(cid:425)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:69)(cid:92)(cid:3)(cid:51)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:3)(cid:55)(cid:92)(cid:83)(cid:72)
$693
$
$536
Line of
(cid:70)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:3)(cid:20)(cid:8)
Short-term
99%
Line of
(cid:70)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)
30%
term
26%
44%
Installment
(cid:3)(cid:3)(cid:3)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:53)(cid:51)(cid:36)(cid:86)
FY 2008
FY 2016
$700
$600
$500
$400
$300
$265
$427
$425
$359
$200
$100
$
2011
2012
2013
2014
2015
2016
Short-term loans
(cid:47)(cid:76)(cid:81)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:86)
Other installment loans
(cid:54)(cid:80)(cid:68)(cid:79)(cid:79)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)
(cid:49)(cid:72)(cid:68)(cid:85)(cid:16)(cid:83)(cid:85)(cid:76)(cid:80)(cid:72)(cid:3)(cid:76)(cid:81)(cid:86)(cid:87)(cid:68)(cid:79)(cid:79)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:79)(cid:82)(cid:68)(cid:81)(cid:86)
(cid:49)(cid:72)(cid:87)(cid:38)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:3)(cid:38)(cid:88)(cid:80)(cid:88)(cid:79)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:85)(cid:76)(cid:74)(cid:76)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)2
(in millions)
$723
$662
$564
$477
$425
$349
$283
$230
$188
$141
$91
$10
$15
$31
$47
$61
Q1
2013
Q2
2013
Q3
2013
Q4
2013
Q1
2014
Q2
2014
Q3
2014
Q4
2014
Q1
2015
Q2
2015
Q3
2015
Q4
2015
Q1
2016
Q2
2016
Q3
2016
Q4
2016
1(cid:40)(cid:77)(cid:66)(cid:75)(cid:84)(cid:67)(cid:68)(cid:82)(cid:3)(cid:64)(cid:76)(cid:78)(cid:84)(cid:77)(cid:83)(cid:82)(cid:3)(cid:68)(cid:87)(cid:83)(cid:68)(cid:77)(cid:67)(cid:68)(cid:67)(cid:3)(cid:65)(cid:88)(cid:3)(cid:83)(cid:71)(cid:72)(cid:81)(cid:67)(cid:3)(cid:79)(cid:64)(cid:81)(cid:83)(cid:72)(cid:68)(cid:82)(cid:13)(cid:3)
2(cid:46)(cid:81)(cid:72)(cid:70)(cid:72)(cid:77)(cid:64)(cid:83)(cid:72)(cid:78)(cid:77)(cid:82)(cid:3)(cid:65)(cid:68)(cid:70)(cid:72)(cid:77)(cid:77)(cid:72)(cid:77)(cid:70)(cid:3)(cid:72)(cid:77)(cid:3)(cid:48)(cid:16)(cid:3)(cid:17)(cid:15)(cid:16)(cid:21)(cid:3)(cid:83)(cid:71)(cid:81)(cid:78)(cid:84)(cid:70)(cid:71)(cid:3)(cid:83)(cid:71)(cid:68)(cid:3)(cid:79)(cid:81)(cid:68)(cid:82)(cid:68)(cid:77)(cid:83)(cid:3)(cid:72)(cid:77)(cid:66)(cid:75)(cid:84)(cid:67)(cid:68)(cid:3)(cid:75)(cid:78)(cid:64)(cid:77)(cid:82)(cid:3)(cid:78)(cid:81)(cid:72)(cid:70)(cid:72)(cid:77)(cid:64)(cid:83)(cid:68)(cid:67)(cid:3)(cid:65)(cid:88)(cid:3)(cid:65)(cid:78)(cid:83)(cid:71)(cid:3)(cid:36)(cid:77)(cid:78)(cid:85)(cid:64)(cid:3)(cid:64)(cid:77)(cid:67)(cid:3)(cid:64)(cid:82)(cid:3)(cid:79)(cid:64)(cid:81)(cid:83)(cid:3)(cid:78)(cid:69)(cid:3)(cid:83)(cid:71)(cid:68)(cid:3)(cid:49)(cid:68)(cid:79)(cid:84)(cid:65)(cid:75)(cid:72)(cid:66)(cid:3)(cid:33)(cid:64)(cid:77)(cid:74)(cid:3)(cid:79)(cid:81)(cid:78)(cid:70)(cid:81)(cid:64)(cid:76)(cid:13)
(cid:54)(cid:72)(cid:83)(cid:71)(cid:3)(cid:78)(cid:84)(cid:81)(cid:3)(cid:77)(cid:68)(cid:86)(cid:68)(cid:81)(cid:3)(cid:33)(cid:81)(cid:64)(cid:89)(cid:72)(cid:75)(cid:3)(cid:65)(cid:84)(cid:82)(cid:72)(cid:77)(cid:68)(cid:82)(cid:82)(cid:3)
(cid:64)(cid:77)(cid:67)(cid:3)(cid:82)(cid:76)(cid:64)(cid:75)(cid:75)(cid:3)(cid:65)(cid:84)(cid:82)(cid:72)(cid:77)(cid:68)(cid:82)(cid:82)(cid:3)(cid:79)(cid:81)(cid:78)(cid:67)(cid:84)(cid:66)(cid:83)(cid:82)(cid:11)(cid:3)(cid:86)(cid:68)(cid:3)
(cid:66)(cid:78)(cid:77)(cid:83)(cid:72)(cid:77)(cid:84)(cid:68)(cid:67)(cid:3)(cid:83)(cid:78)(cid:3)(cid:81)(cid:68)(cid:421)(cid:77)(cid:68)(cid:3)(cid:78)(cid:84)(cid:81)(cid:3)(cid:78)(cid:420)(cid:68)(cid:81)(cid:72)(cid:77)(cid:70)(cid:82)
and underwriting models, and
we have seen positive results.
(cid:46)(cid:84)(cid:81)(cid:3)(cid:33)(cid:81)(cid:64)(cid:89)(cid:72)(cid:75)(cid:72)(cid:64)(cid:77)(cid:3)(cid:75)(cid:78)(cid:64)(cid:77)(cid:3)(cid:79)(cid:78)(cid:81)(cid:83)(cid:69)(cid:78)(cid:75)(cid:72)(cid:78)(cid:3)(cid:76)(cid:78)(cid:81)(cid:68)
than tripled to almost $17 million.
We continue to see encouraging
unit economics and expect to see
additional growth in 2017, and we
continue to ramp up our originations
(cid:83)(cid:71)(cid:68)(cid:81)(cid:68)(cid:3)(cid:64)(cid:77)(cid:67)(cid:3)(cid:75)(cid:68)(cid:85)(cid:68)(cid:81)(cid:64)(cid:70)(cid:68)(cid:3)(cid:78)(cid:84)(cid:81)(cid:3)(cid:421)(cid:81)(cid:82)(cid:83)(cid:12)(cid:76)(cid:78)(cid:85)(cid:68)(cid:81)
(cid:64)(cid:67)(cid:85)(cid:64)(cid:77)(cid:83)(cid:64)(cid:70)(cid:68)(cid:3)(cid:72)(cid:77)(cid:3)(cid:83)(cid:71)(cid:72)(cid:82)(cid:3)(cid:665)(cid:19)(cid:17)(cid:3)(cid:65)(cid:72)(cid:75)(cid:75)(cid:72)(cid:78)(cid:77)(cid:3)(cid:76)(cid:64)(cid:81)(cid:74)(cid:68)(cid:83)(cid:13)(cid:3)
(cid:50)(cid:76)(cid:64)(cid:75)(cid:75)(cid:3)(cid:65)(cid:84)(cid:82)(cid:72)(cid:77)(cid:68)(cid:82)(cid:82)(cid:3)(cid:421)(cid:77)(cid:64)(cid:77)(cid:66)(cid:72)(cid:77)(cid:70)(cid:3)(cid:70)(cid:81)(cid:68)(cid:86)(cid:3)(cid:83)(cid:78)(cid:3)
(cid:81)(cid:68)(cid:79)(cid:81)(cid:68)(cid:82)(cid:68)(cid:77)(cid:83)(cid:3)(cid:16)(cid:17)(cid:4)(cid:3)(cid:78)(cid:69)(cid:3)(cid:78)(cid:84)(cid:81)(cid:3)(cid:83)(cid:78)(cid:83)(cid:64)(cid:75)(cid:3)(cid:75)(cid:78)(cid:64)(cid:77)(cid:3)
(cid:64)(cid:77)(cid:67)(cid:3)(cid:81)(cid:68)(cid:66)(cid:68)(cid:72)(cid:85)(cid:64)(cid:65)(cid:75)(cid:68)(cid:3)(cid:79)(cid:84)(cid:81)(cid:66)(cid:71)(cid:64)(cid:82)(cid:68)(cid:3)(cid:64)(cid:70)(cid:81)(cid:68)(cid:68)(cid:76)(cid:68)(cid:77)(cid:83)
(cid:65)(cid:78)(cid:78)(cid:74)(cid:3)(cid:64)(cid:83)(cid:3)(cid:83)(cid:71)(cid:68)(cid:3)(cid:68)(cid:77)(cid:67)(cid:3)(cid:78)(cid:69)(cid:3)(cid:17)(cid:15)(cid:16)(cid:21)(cid:13)(cid:3)(cid:54)(cid:72)(cid:83)(cid:71)
improved unit economics and
an anticipated drop in acquisition
costs from the ongoing competitor
shakeout, we enter 2017 poised to
capture a greater share of this $82
(cid:65)(cid:72)(cid:75)(cid:75)(cid:72)(cid:78)(cid:77)(cid:3)(cid:76)(cid:64)(cid:81)(cid:74)(cid:68)(cid:83)(cid:13)
55%
1-Year growth
rate in gross
accounts
receivable
for our small
business
portfolio
272%
1-year growth rate
in gross accounts
receivable for Brazil
(cid:423)(cid:421)(cid:422)(cid:426)(cid:3)(cid:72)(cid:81)(cid:82)(cid:89)(cid:68)(cid:3)(cid:68)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)
(cid:423)(cid:421)(cid:422)(cid:25)(cid:3)(cid:72)(cid:81)(cid:82)(cid:89)(cid:68)(cid:3)(cid:68)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)
real time analytics-driven decisioning platform
Colossus™ Platform
Common Reusable Elements
I
P
A
I
P
A
Applications
External Data Sources
• Social Data
• Credit Report Data
• Banking Data
• Real-Time Feeds
• Public Records
• Device Data
Internal Data Sources
16 TB
Enova Customer
Records
Data from over
300 million unique
Customer Interactions
(cid:33)(cid:68)(cid:71)(cid:72)(cid:77)(cid:67)(cid:3)(cid:64)(cid:75)(cid:75)(cid:3)(cid:78)(cid:69)(cid:3)(cid:78)(cid:84)(cid:81)(cid:3)(cid:79)(cid:81)(cid:78)(cid:67)(cid:84)(cid:66)(cid:83)(cid:82)(cid:3)(cid:64)(cid:81)(cid:68)(cid:3)(cid:78)(cid:84)(cid:81)
(cid:16)(cid:17)(cid:3)(cid:88)(cid:68)(cid:64)(cid:81)(cid:82)(cid:3)(cid:78)(cid:69)(cid:3)(cid:68)(cid:87)(cid:79)(cid:68)(cid:81)(cid:72)(cid:68)(cid:77)(cid:66)(cid:68)(cid:11)(cid:3)(cid:86)(cid:78)(cid:81)(cid:75)(cid:67)(cid:12)(cid:66)(cid:75)(cid:64)(cid:82)(cid:82)
technology and analytics. Our
(cid:66)(cid:64)(cid:79)(cid:64)(cid:65)(cid:72)(cid:75)(cid:72)(cid:83)(cid:72)(cid:68)(cid:82)(cid:3)(cid:72)(cid:77)(cid:3)(cid:83)(cid:71)(cid:68)(cid:82)(cid:68)(cid:3)(cid:64)(cid:81)(cid:68)(cid:64)(cid:82)(cid:3)(cid:71)(cid:64)(cid:85)(cid:68)
(cid:68)(cid:77)(cid:64)(cid:65)(cid:75)(cid:68)(cid:67)(cid:3)(cid:84)(cid:82)(cid:3)(cid:83)(cid:78)(cid:3)(cid:76)(cid:64)(cid:74)(cid:68)(cid:3)(cid:72)(cid:77)(cid:66)(cid:81)(cid:68)(cid:76)(cid:68)(cid:77)(cid:83)(cid:64)(cid:75)
improvements to all areas of our
(cid:65)(cid:84)(cid:82)(cid:72)(cid:77)(cid:68)(cid:82)(cid:82)(cid:11)(cid:3)(cid:72)(cid:77)(cid:66)(cid:75)(cid:84)(cid:67)(cid:72)(cid:77)(cid:70)(cid:3)(cid:84)(cid:77)(cid:67)(cid:68)(cid:81)(cid:86)(cid:81)(cid:72)(cid:83)(cid:72)(cid:77)(cid:70)(cid:11)
marketing and customer service.
(cid:43)(cid:68)(cid:85)(cid:68)(cid:81)(cid:64)(cid:70)(cid:72)(cid:77)(cid:70)(cid:3)(cid:78)(cid:84)(cid:81)(cid:3)(cid:79)(cid:81)(cid:78)(cid:85)(cid:68)(cid:77)(cid:11)(cid:3)(cid:82)(cid:66)(cid:64)(cid:75)(cid:64)(cid:65)(cid:75)(cid:68)(cid:11)(cid:3)
(cid:81)(cid:68)(cid:64)(cid:75)(cid:12)(cid:83)(cid:72)(cid:76)(cid:68)(cid:3)(cid:67)(cid:68)(cid:66)(cid:72)(cid:82)(cid:72)(cid:78)(cid:77)(cid:12)(cid:76)(cid:64)(cid:74)(cid:72)(cid:77)(cid:70)(cid:3)
(cid:66)(cid:64)(cid:79)(cid:64)(cid:65)(cid:72)(cid:75)(cid:72)(cid:83)(cid:72)(cid:68)(cid:82)(cid:11)(cid:3)(cid:86)(cid:68)(cid:3)(cid:75)(cid:64)(cid:84)(cid:77)(cid:66)(cid:71)(cid:68)(cid:67)(cid:3)(cid:78)(cid:84)(cid:81)
(cid:32)(cid:77)(cid:64)(cid:75)(cid:88)(cid:83)(cid:72)(cid:66)(cid:82)(cid:3)(cid:64)(cid:82)(cid:3)(cid:64)(cid:3)(cid:50)(cid:68)(cid:81)(cid:85)(cid:72)(cid:66)(cid:68)(cid:3)(cid:65)(cid:84)(cid:82)(cid:72)(cid:77)(cid:68)(cid:82)(cid:82)(cid:11)
Enova Decisions, in early 2016.
Throughout the year, we have
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traction with Enova Decisions;
(cid:86)(cid:68)(cid:3)(cid:71)(cid:64)(cid:85)(cid:68)(cid:3)(cid:82)(cid:72)(cid:70)(cid:77)(cid:68)(cid:67)(cid:3)(cid:64)(cid:3)(cid:77)(cid:84)(cid:76)(cid:65)(cid:68)(cid:81)(cid:3)(cid:78)(cid:69)(cid:3)(cid:75)(cid:64)(cid:81)(cid:70)(cid:68)(cid:3)
clients across several industries
and generated meaningful revenue
(cid:72)(cid:77)(cid:3)(cid:78)(cid:84)(cid:81)(cid:3)(cid:421)(cid:81)(cid:82)(cid:83)(cid:3)(cid:88)(cid:68)(cid:64)(cid:81)(cid:3)(cid:78)(cid:69)(cid:3)(cid:78)(cid:79)(cid:68)(cid:81)(cid:64)(cid:83)(cid:72)(cid:78)(cid:77)(cid:13)
We have a strong pipeline for Enova
(cid:35)(cid:68)(cid:66)(cid:72)(cid:82)(cid:72)(cid:78)(cid:77)(cid:82)(cid:3)(cid:64)(cid:77)(cid:67)(cid:3)(cid:81)(cid:68)(cid:76)(cid:64)(cid:72)(cid:77)(cid:3)(cid:68)(cid:87)(cid:66)(cid:72)(cid:83)(cid:68)(cid:67)(cid:3)(cid:64)(cid:65)(cid:78)(cid:84)(cid:83)(cid:3)
(cid:83)(cid:71)(cid:68)(cid:3)(cid:78)(cid:79)(cid:79)(cid:78)(cid:81)(cid:83)(cid:84)(cid:77)(cid:72)(cid:83)(cid:88)(cid:3)(cid:69)(cid:78)(cid:81)(cid:3)(cid:83)(cid:71)(cid:72)(cid:82)(cid:3)(cid:65)(cid:84)(cid:82)(cid:72)(cid:77)(cid:68)(cid:82)(cid:82)(cid:13)
Proprietary Models
Overall, 2016 was a strong year
for Enova, and we remain optimistic
(cid:71)(cid:68)(cid:64)(cid:67)(cid:72)(cid:77)(cid:70)(cid:3)(cid:72)(cid:77)(cid:83)(cid:78)(cid:3)(cid:17)(cid:15)(cid:16)(cid:22)(cid:13)(cid:3)(cid:40)(cid:3)(cid:69)(cid:68)(cid:68)(cid:75)(cid:3)(cid:66)(cid:78)(cid:77)(cid:421)(cid:67)(cid:68)(cid:77)(cid:83)
(cid:72)(cid:77)(cid:3)(cid:78)(cid:84)(cid:81)(cid:3)(cid:67)(cid:72)(cid:81)(cid:68)(cid:66)(cid:83)(cid:72)(cid:78)(cid:77)(cid:3)(cid:64)(cid:77)(cid:67)(cid:3)(cid:65)(cid:68)(cid:75)(cid:72)(cid:68)(cid:85)(cid:68)(cid:3)(cid:83)(cid:71)(cid:64)(cid:83)(cid:3)
(cid:78)(cid:84)(cid:81)(cid:3)(cid:86)(cid:78)(cid:81)(cid:75)(cid:67)(cid:12)(cid:66)(cid:75)(cid:64)(cid:82)(cid:82)(cid:3)(cid:83)(cid:68)(cid:64)(cid:76)(cid:11)(cid:3)(cid:69)(cid:78)(cid:66)(cid:84)(cid:82)(cid:68)(cid:67)
growth strategy, strong competitive
(cid:79)(cid:78)(cid:82)(cid:72)(cid:83)(cid:72)(cid:78)(cid:77)(cid:3)(cid:64)(cid:77)(cid:67)(cid:3)(cid:82)(cid:78)(cid:75)(cid:72)(cid:67)(cid:3)(cid:65)(cid:64)(cid:75)(cid:64)(cid:77)(cid:66)(cid:68)(cid:3)(cid:82)(cid:71)(cid:68)(cid:68)(cid:83)
will drive continued success. We
(cid:86)(cid:72)(cid:75)(cid:75)(cid:3)(cid:68)(cid:87)(cid:68)(cid:66)(cid:84)(cid:83)(cid:68)(cid:11)(cid:3)(cid:72)(cid:77)(cid:77)(cid:78)(cid:85)(cid:64)(cid:83)(cid:68)(cid:11)(cid:3)(cid:65)(cid:68)(cid:3)(cid:65)(cid:78)(cid:75)(cid:67) (cid:64)(cid:77)(cid:67)
move fast to deliver on our
promises. I’m looking forward to
another successful year as we work
to serve our customers and create
value for shareholders.
We appreciate your support.
David Fisher
(cid:34)(cid:71)(cid:72)(cid:68)(cid:69)(cid:3)(cid:36)(cid:87)(cid:68)(cid:66)(cid:84)(cid:83)(cid:72)(cid:85)(cid:68)(cid:3)(cid:46)(cid:423)(cid:66)(cid:68)(cid:81)
Enova International, Inc.
mission
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(cid:87)(cid:75)(cid:72)(cid:76)(cid:85)(cid:3)(cid:417)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:82)(cid:81)(cid:86)(cid:76)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)
fast, trustworthy credit
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(cid:95) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
OR
(cid:133) 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
(State or other jurisdiction
of incorporation or organization)
175 West Jackson Blvd.
Chicago, Illinois
(Address of principal executive offices)
45-3190813
(I.R.S. Employer
Identification No.)
60604
(Zip Code)
Registrant’s telephone number, including area code:
(312) 568-4200
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, $.00001 par value per share
Name of Each Exchange on Which Registered
New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:133) No (cid:95)
Indicate by check if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes (cid:133) No (cid:95)
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 (cid:95) No (cid:133)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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 time that the registrant was required to submit and post such files). Yes (cid:95) No (cid:133)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. (cid:133)
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
(cid:133)
Accelerated filer
Non-accelerated filer
(cid:133) (Do not check if a smaller reporting company)
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes (cid:133) No (cid:95)
The aggregate market value of 26,241,769 shares of the registrant’s common stock, par value $0.00001 per share, held by non-affiliates on
ff
(cid:95)
(cid:133)
June 30, 2016 was approximately $193,139,420.
At February 22, 2017 there were 33,293,100 shares of the registrant’s Common Stock, $0.00001 par value per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
ENOVA INTERNATIONAL, INC.
YEAR ENDED DECEMBER 31, 2016
INDEX TO FORM 10-K
PART I
1
Business................................................................................................................................................................
Item 1.
Item 1A. Risk Factors ..........................................................................................................................................................
19
Item 1B. Unresolved Staff Comments ................................................................................................................................ 42
Properties..............................................................................................................................................................
Item 2.
42
Legal Proceedings ................................................................................................................................................ 42
Item 3.
42
Mine Safety Disclosures .......................................................................................................................................
Item 4.
PART II
Item 5.
Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity
43
Securities ..............................................................................................................................................................
Selected Financial Data ........................................................................................................................................
46
Item 6.
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations ............................... 48
Item 7A. Quantitative and Qualitative Disclosures about Market Risk ............................................................................... 82
83
Financial Statements and Supplementary Data ....................................................................................................
Item 8.
130
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ...............................
Item 9A. Controls and Procedures .......................................................................................................................................
130
Item 9B. Other Information ................................................................................................................................................. 130
PART III
Item 10. Directors, Executive Officers and Corporate Governance ..................................................................................
Item 11. Executive Compensation .....................................................................................................................................
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters ............
Item 13. Certain Relationships and Related Transactions, and Director Independence ....................................................
Item 14. Principal Accountant Fees and Services ..............................................................................................................
t
131
131
131
131
132
PART IV
Item 15. Exhibits, Financial Statement Schedules .............................................................................................................
133
SIGNATURES .............................................................................................................................................................................
139
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-aa
looking statements include, but are not limited to, the following:
(cid:120) the effect of laws and regulations targeting our industry that directly or indirectly regulate or prohibit our operations or render
them unprofitable or impractical;
(cid:120) the effect of and compliance with domestic and international consumer credit, tax and other laws and government rules and
n
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;
(cid:120) changes in our U.K. business practices in response to the requirements of the Financial Conduct Authority;
(cid:120) 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;
(cid:120) our ability to process or collect loans and finance receivables through the Automated Clearing House system;
(cid:120) the deterioration of the political, regulatory or economic environment in countries where we operate or in the future may
operate;
(cid:120) the actions of third parties who provide, acquire or offer products and services to, from or for us;
(cid:120) public and regulatory perception of the consumer loan business, small business financing and our business practices;
(cid:120) the effect of any current or future litigation proceedings and any judicial decisions or rule-making that affects us, our products or
the legality or enforceability of our arbitration agreements;
(cid:120) changes in demand for our services, changes in competition and the continued acceptance of the online channel by our
customers;
(cid:120) changes in our ability to satisfy our debt obligations or to refinance existing debt obligations or obtain new capital to finance
growth;
(cid:120) a prolonged interruption in the operations of our facilities, systems and business functions, including our information technology
and other business systems;
(cid:120) our ability to maintain an allowance or liability for estimated losses that is adequate to absorb credit losses;
(cid:120) 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;
(cid:120) our ability to attract and retain qualified officers;
(cid:120) cyber-attacks or security breaches;
(cid:120) acts of God, war or terrorism, pandemics and other events;
(cid:120) the ability to successfully integrate newly acquired businesses into our operations;
(cid:120) interest rate and foreign currency exchange rate fluctuations;
(cid:120) changes in the capital markets, including the debt and equity markets;
(cid:120) the effect of any of the above changes on our business or the markets in which we operate; and
(cid:120) 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”), including on Forms 10-Q and 8-K. Readers of this report are encouraged to review all of the Risk Factor
contained in Part I, Item 1A. Risk Factors 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
actual
related to these or other risks or uncertainties materialize, or if management’s underlying assumptions prove to be incorrect,
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.
s
r
f
PART I
ITEM 1.
BUSINESS
Overview
We are a leading technology and analytics company focused on providing online financial services. In 2016, we extended
approximately $2.1 billion in credit to borrowers. As of December 31, 2016, we offered or arranged loans to consumers in 33 states in
the United States and in the United Kingdom and Brazil. We also offered financing to small businesses in all 50 states and
Washington D.C. in the United States. We use our proprietary technology, analytics and customer service capabilities to quickly
evaluate, underwrite and fund loans or provide financing, allowing us to offer consumers and small businesses credit or financing
when and how they want it. Our customers include the large and growing number of consumers who and small businesses which have
bank accounts but use alternative financial services because of their limited access to more traditional credit from banks, credit card
companies and other lenders. We were an early entrant into online lending, launching our online business in 2004, and through
December 31, 2016, we have completed over 39.3 million customer transactions and collected approximately 16 terabytes of currently
nn
accessible consumer behavior data, allowing us to better analyze and underwrite our specific customer base. We have significantly
diversified our business over the past several years having expanded the markets we serve and the financing products we offer. These
financing products include short-term loans, line of credit accounts, installment loans and receivables purchase agreements (“RPAs”).
We believe our customers highly value our products and services as an important component of their personal or business finances
because our products are convenient, quick and often less expensive than other available alternatives. We attribute the success of our
business to our advanced and innovative technology systems, the proprietary analytical models we use to predict the performance of
loans and finance receivables, our sophisticated customer acquisition programs, our dedication to customer service and our talented
employees.
We have developed proprietary underwriting systems based on data we have collected over our more than 12 years of experience.
These systems employ advanced risk analytics to decide whether to approve financing transactions, to structure the amount and terms
of the financings we offer pursuant to jurisdiction-specific regulations and to provide customers with their funds quickly and
efficiently. Our systems closely monitor collection and portfolio performance data that we use to continually refine the analytical
models and statistical measures used in making our credit, purchase, marketing and collection decisions.
Our flexible and scalable technology platforms allow us to process and complete customers’ transactions quickly and efficiently. In
2016, we processed approximately 3.8 million transactions, and we continue to grow our loan and finance receivables portfolio and
increase the number of customers we serve through desktop, tablet and mobile platforms. Our highly customizable technology
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platforms allow us to efficiently develop and deploy new products to adapt to evolving regulatory requirements and consumer
preference, and to enter new markets quickly. In 2012, we launched a new product in the United States designed to serve near-prime
customers, and in April 2014 we introduced a similar product in the United Kingdom. In June 2014, we launched our business in
Brazil, where we arrange financing for borrowers through a third party lender. In addition, in July 2014, we introduced a new line of
credit product in the United States to serve the needs of small businesses. In June 2015, we further expanded our product offering by
acquiring certain assets of a company that provides financing to small businesses by offering RPAs (see Note 3 in the Notes to
Consolidated Financial Statements). These new products have allowed us to further diversify our product offerings, customer base and
geographic scope. In 2016, we derived 83.6% of our total revenue from the United States and 16.4% of our total revenue
internationally, with 84.4% of international revenue (representing 13.9% of our total revenue) generated in the United Kingdom.
We have been able to consistently acquire new customers and successfully generate repeat business from returning customers when
they need financing. We believe our customers are loyal to us because they are satisfied with our products and services. We acquire
new customers from a variety of sources, including visits to our own websites, mobile sites or applications, and through direct
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marketing, affiliate marketing, lead providers and relationships with other lenders. We believe that the online convenience of our
products and our 24/7 availability to accept applications with quick approval decisions are important to our customers.
Once a potential customer submits an application, we quickly provide a credit or purchase decision. If a loan or financing is approved
we or our lending partner typically fund the loan or financing the next business day or, in some cases, the same day. During the entire
process, from application through payment, we provide access to our well-trained customer service team. All of our operations, from
customer acquisition through collections, are structured to build customer satisfaction and loyalty, in the event that a custom
need for our products in the future. We have developed a series of sophisticated proprietary scoring models to support our various
products. We believe that these models are an integral component of our operations and they allow us to complete a high volume of
customer transactions while actively managing risk and the related credit quality of our loan and finance receivable portfolios. We
believe our successful application of these technology innovations differentiates our capabilities relative to competitive platforms as
evidenced by our history of strong growth and stable credit quality.
er has a
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1
Products and Services
Our online financing products and services provide customers with a deposit of funds to their bank account in exchange for a
commitment to repay the amount deposited plus fees, interest and/or revenue on the receivables purchased. We originate, arrange,
guarantee or purchase short-term consumer loans, line of credit accounts, installment loans and RPAs. We have one reportable
segment that includes all of our online financial services.
Short-term consumer loans. Short-term consumer loans are unsecured loans written by us or by a third-party lender through our credit
services organization and credit access business programs, which we refer to as our CSO programs, that we arrange and guarantee. As
of December 31, 2016, we offered or arranged short-term consumer loans in 18 states in the United States and the United Kingdom.
Short-term consumer loans generally have terms of seven to 90 days, with proceeds typically deposited promptly in the customer’s
bank account in exchange for a pre-authorized debit from their account or debit card. Due to the credit risk and high transaction costs
of serving our customer segment, the interest and/or fees we charge are generally considered to be higher than the interest or fees
charged to consumers with superior credit histories by banks and similar lenders who are typically unwilling to make unsecured loans
to non-prime credit consumers. Our short-term consumer loans contributed approximately 26.3% of our total revenue in 2016, 31.4%
in 2015, and 31.7% in 2014.
Line of credit accounts. We offer consumer line of credit accounts in seven states in the United States and business line of credit
accounts in 24 states in the United States, which allow customers to draw on their unsecured line of credit in increments of their
choosing up to their credit limit. Customers may pay off their account balance in full at any time or make required minimum payments
in accordance with their terms of the line of credit account. As long as the customer’s account is in good standing and has credit
available, customers may continue to borrow on their line of credit. As a result of regulatory changes in 2014, we discontinued
offering line of credit accounts to new customers in the United Kingdom in late 2014 and effective January 1, 2015, we discontinued
draws on existing accounts. Our line of credit accounts contributed approximately 29.6% of our total revenue in 2016, 28.4% in 2015,
and 37.7% in 2014.
Installment loans. Installment loans are longer-term loans that generally require the outstanding principal balance to be paid down in
multiple installments. We offer, or arrange through our CSO Programs and in Brazil, multi-payment unsecured consumer installment nn
loan products in 17 states in the United States and in the United Kingdom and Brazil. Terms for our installment loan products r
d
between two and 60 months. These loans generally have higher principal amounts than short-term loans. The loan may be repaid early
at any time with no prepayment charges. Our installment loans contributed approximately 43.9% of our total revenue in 2016, 39.9%
in 2015, and 30.5% in 2014.
ange
We have been investing and will continue to invest in the growth of our near-prime installment lending portfolio, particularly loans
with an annual percentage rate(“APR”), at or below 36%, and those through loan programs that we are establishing with a small
number of banks.
Receivables purchase agreements. Under RPAs, small businesses receive funds in exchange for a portion of the business’s future
receivables at an agreed upon discount. In contrast, lending is a commitment to repay principal and interest. A small business
customer who enters into a RPA commits to delivering a percentage of its receivables through ACH or wire debits or by splitting
credit card receipts until all purchased receivables are delivered. We offer RPAs in all 50 states and in Washington D.C. in the United
States.
CSO Programs. Through our CSO programs, we provide services related to third-party lenders’ short-term and installment loan
products by acting as a credit services organization or credit access business on behalf of consumers in accordance with applicable
state laws. Services offered under our CSO programs include credit-related services such as arranging loans with independent third-
party lenders and assisting in the preparation of loan applications and loan documents (“CSO loans”). When a consumer executes an
agreement with us under our CSO programs, we agree, for a fee payable to us by the consumer, to provide certain services, one of
which is to guarantee the consumer’s obligation to repay the loan received by the consumer from the third-party lender if the
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consumer fails to do so. For CSO loans, each lender is responsible for providing the criteria by which the consumer’s application is
underwritten and, if approved, determining the amount of the consumer loan. We, in turn, are responsible for assessing whether or not
we will guarantee such loan. The guarantee represents an obligation to purchase specific short-term loans, which generally have terms
of less than 90 days, and specific installment loans, which have terms of four to 12 months, if they go into default.
Bank program. In March 2016, we launched a program with a state-chartered bank where we provide technology, loan servicing and
marketing services to the bank (the “Bank Program”). Our bank partner offers unsecured consumer installment loans with an APR at
or below 36%. We also have the ability to purchase loans originated through this program. We plan to grow this program through
expanding to more states and adding additional partners. Revenue generated from this program for the year ended December 31, 2016
was 0.6% of our total revenue.
2
As of December 31, 2016, 2015 and 2014, the outstanding amount of active short-term consumer loans originated by third-party
lenders under the CSO programs was $26.1 million, $25.2 million and $36.3 million, respectively, which were guaranteed by us.
The outstanding amount of active installment loans originated by third-party lenders under the CSO programs, which have terms of
four to 12 months, was $6.1 million, $9.0 million and $7 thousand as of December 31, 2016, 2015 and 2014, respectively, which were
guaranteed by us.
Our Markets
We currently provide our services in the following countries:
United States. We began our online business in the United States in May 2004. As of December 31, 2016, we provided services in all
50 states and Washington D.C. We market our financing products under the names CashNetUSA at www.cashnetusa.com, NetCredit
at www.netcredit.com, Headway Capital at www.headwaycapital.com and The Business Backer at www.businessbacker.com. The
United States represented 83.6% of our total revenue in 2016 and 78.2% of our total revenue in 2015.
United Kingdom. We provide services in the United Kingdom under the names QuickQuid at www.quickquid.co.uk, Pounds to Pocket
at www.poundstopocket.co.uk and On Stride Financial at www.onstride.co.uk. We began our QuickQuid short-term consumer loan
business in July 2007, our Pounds to Pocket installment loan business in September 2010, and our On Stride near-prime installment
loan business in April 2014. We offered a line of credit product from March 2013 to December 2014 under the brand name QuickQuid
FlexCredit. The United Kingdom represented 13.9% of our total revenue in 2016 and 19.9% of our total revenue in 2015.
Brazil. On June 30, 2014, we launched our business in Brazil where we arrange installment loans for a third party lender under the
name Simplic at www.simplic.com.br. We plan to continue to invest in and expand our lending in Brazil. Brazil represented 1.6%
total revenue in 2016 and 0.3% of total revenue in 2015.
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Exiting Australia and Canada Markets
We previously provided services under the name DollarsDirect at www.dollarsdirect.com.au in Australia, and we began providing
services there in May 2009. We previously provided services in Canada in the provinces of Ontario, British Columbia, Alberta and
Saskatchewan under the name DollarsDirect at www.dollarsdirect.ca, and we began providing services there in October 2009. 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 have stopped lending activities and have wound down our
loan portfolios.
Key Financial and Operating Metrics
We have achieved significant growth since we began our online business as we have expanded both our product offerings and the
geographic markets we serve. We measure our business using several financial and operating metrics. Our key metrics include
domestic and international combined loans and finance receivables outstanding, in addition to other measures described under
“Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
This growth in product offerings and geographic markets has resulted in significant revenue diversification, as set forth below:
Year ended December 31, 2016
Revenue by Geography
Year ended December 31, 2016
Revenue by Product
International
16%
Domestic
84%
Short-Term
26%
Line of Credit
30%
Installment
and RPAs
44%
Additional financial information regarding our operating segment and each of the geographic areas in which we do business is
provided in “Note 18. Operating Segment Information—Geographic Information” to our Audited Financial Statements in Part II,
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Item 8 of this report. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent
Regulatory Developments—Financial Conduct Authority” included in Part II, Item 7 of this report for a discussion about our
expectations for our U.K. business going forward.
Our Industry
The internet has transformed how consumers and small businesses shop for and acquire products and services. According to a study
by the United Nations, 47% of the world’s population had access to the internet in 2016, a 3% increase from a year before.
International Data Corporation reported that global internet usage is expected to increase at a pace of 2% annually through 2020.
Accompanying the rise in internet usage is the continued disruption of storefront retail by e-commerce companies like Amazon, as
consumers flock to purchase goods and interact with businesses online. According to the U.S. Census Bureau, U.S. e-commerce sales
as a percent of total quarterly retail sales increased threefold from the first quarter of 2006 to the third quarter of 2016, reaching 8.4%.
In addition, a number of traditional financial services such as banking, bill payment and investing have become widely available
online. A March 2016 report by the Consumer and Community Development Research Section of the Federal Reserve’s Board of
Division of Consumer and Community Affairs found that approximately 71% of bank customers in a U.S. sample have used online
banking as a means of accessing banking services. This level of use highlights the extent to which consumers now accept the internet
for conducting their financial transactions and are willing to entrust their financial information to online companies. We believe the
increased acceptance of online financial services has led to an increased demand for online lending and financing, the benefits of
which include customer privacy, easy access, security, 24/7 availability to apply for a loan or financing, speed of funding and
transparency of fees and interest.
We use the internet to serve the large and growing number of underbanked consumers and small businesses who have bank accounts
but use alternative financial services because of their limited access to more traditional credit from banks, credit card companies and
other lenders. Demand from these consumers has been fueled by several demographic and socioeconomic trends, including an overall
increase in the population and stagnant to declining growth in the household income for working-class individuals. The necessity for
alternative financial services was highlighted by a May 2016 report from the Federal Reserve, which found that 46% of respondents
could not cover an emergency expense of $400, or would cover it by selling something or borrowing money. The report also found a
sizeable portion of the population is unable to access credit through traditional financial channels, with 26 percent turning to
alternative financial services options in the prior year. Approximately 18% of respondents had been denied credit, were offered less
credit than they desired, or desired credit but did not apply for fear of denial.
Small businesses are also suffering from lack of access to credit from traditional lenders. Among a sample of small businesses
surveyed for the National Small Business Association’s 2016 Mid-Year Economic Report, 52% reported that capital availability was a
problem for their business. Similarly, according to a 2016 study by the Federal Reserve, only 50% of small employer firms that were
approved for financing received the full amount requested. Online lending and funding options are emerging as a solution for small
businesses which are seeking capital. According to data provided by small business credit tracker Paynet Inc. for a November 2015
Wall Street Journal article, banks issued only 43% of business loans up to $1 million through August of 2015 a decrease of 15% from
2009. Conversely, nonbank lenders increased their market share from 10% to 26%, and the Federal Reserve found that 20 percent of
small businesses surveyed used credit from online lenders. Aside from the need for capital, businesses seek out online lenders for their
often faster, easier application process. In the Federal Reserve study, approved applicants cited the long wait for a credit decision and
the difficult application process as top reasons for their dissatisfaction with banks, whereas online lenders performed the best in these
areas.
We believe that consumers and small businesses seek online lending services for numerous reasons, including because they often:
(cid:120) prefer the simplicity, transparency and convenience of these services;
(cid:120) require access to financial services outside of normal financial services storefront hours;
(cid:120) have an immediate need for cash for financial challenges and unexpected expenses;
(cid:120) have been unable to access certain traditional lending or other credit services;
(cid:120) seek an alternative to the high cost of bank overdraft fees, credit card and other late payment fees and utility late payment fees or
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disconnect and reconnection fees; and
(cid:120) wish to avoid potential negative credit consequences of missed payments with traditional creditors.
With increasing competition across industries, tightening regulations and higher expectations from consumers, businesses are seeking
solutions for faster, more accurate decision making. In 2016, we launched a product that uses our proprietary technology and analytics
capabilities to offer businesses a solution for real-time decisioning at scale. Based on our own analysis, the market size for analytics-
as-a-service was approximately $4 billion in 2014; the market has since expanded to more than $5 billion, with high potential for
future growth.
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Our Customers
Our U.S. sub-prime consumer customer base is comprised largely of individuals living in households that earn an average annual
income of $41,000 in the United States and £25,000 in the United Kingdom, and our U.S. near-prime customers earn an average
annual income of $61,000. Based on our analysis of industry data, we believe our addressable markets are approximately 68 million
and 7 million individuals in the United States and the United Kingdom, respectively. The short-term lending market is sizable in the
United States, the United Kingdom and Brazil. We estimate there is a $69 billion consumer lending opportunity market in the United
States. The U.K. Parliamentary Commission on Banking Standards estimated that the high-cost credit market, which includes short-
term lending, represented over $9 billion in loan volume as of September 2013. However, in its February 2015 final report following
its investigation of the U.K. payday lending industry, the Competition & Markets Authority found that revenue for the seven major
payday lenders was down 27% year over year for the first nine months of 2014. In Brazil, we estimate there to be 74 million class C
and D consumers and a $42 billion consumer loans market. Small business is also an attractive market opportunity, with total U.S.
small business loan market of $193 billion. Tighter banking regulations forced banks to vacate the market for loans under $1 million.
Loans under $100 thousand are the fastest growing loan segment and 66% of all small business loan growth.
Our small business customers who enter into RPAs average approximately $1.5 million in annual sales and 10 years of operating
history while those who obtain an open line of credit account average approximately $450 thousand in annual sales and 7 years of
operating history.
In 2016, we launched an analytics-as-a-service business that we believe has applications for multiple industries, including finance,
education, real estate, and insurance, for example.
Our Competitive Strengths
We believe that the following competitive strengths position us well for continued growth:
(cid:120) Significant operating history and first mover advantage. As an early entrant in the online lending sector, we have accumulated
approximately 16 terabytes of currently accessible consumer behavior data from more than 39 million transactions in our more
than twelve years of experience. This database allows us to market to a customer base with an established borrowing history as
a
well as to better evaluate and underwrite new customers, leading to better loan performance. In order to develop a comparable
database, we believe that competitors would need to incur high marketing and customer acquisition costs, overcome customer
brand loyalties and have sufficient capital to withstand higher early losses associated with unseasoned loan portfolios.
Additionally, we are licensed in all jurisdictions which require licensing and believe that it would be difficult and time
consuming for a new entrant to obtain such licenses. We have also created strong brand recognition over our more than twelve
years of operating history and we continue to invest in our brands, such as CashNetUSA, NetCredit, Pounds to Pocket,
QuickQuid, On Stride Financial, Headway Capital, The Business Backer and Simplic, to further increase our visibility.
(cid:120) Proprietary analytics, data and underwriting. We have developed a fully integrated decision engine that evaluates and rapidly
makes credit and other determinations throughout the customer relationship, including automated decisions regarding marketing,
underwriting, customer contact and collections. Our decision engine currently handles more than 100 algorithms and over 1,000
variables. These algorithms are constantly monitored, validated, updated and optimized to continuously improve our operations.
Our proprietary models are built on over twelve years of lending history, using advanced statistical methods that take into
account our experience with the millions of transactions we have processed during that time and the use of data from numerous
third-party sources. Since we designed our system specifically for our specialized products, we believe our system provides
more predictive assessments of future loan behavior than traditional credit assessments, such as the Fair Isaac Corporation score
(“FICO score”), and therefore, results in better evaluation of our customer base.
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(cid:120) Scalable and flexible technology platforms. Our proprietary technology platforms are designed to be powerful enough to
handle the large volume of data required to evaluate customer applications and flexible enough to capitalize on changing
customer preferences, market trends and regulatory requirements. These platforms have enabled us to achieve significant growth
over more than twelve years as we have expanded both our product offerings and the geographic markets we serve. We began
offering installment loans in the United States and United Kingdom in 2008 and 2010, respectively, and added line of credit
products in the United States and United Kingdom in 2010 and 2013, respectively. We have experienced significant growth in
these products, with revenue contribution from installment and line of credit products increasing from 11.7% of total revenue in
2010 to 73.5% of total revenue in 2016. Similarly, total revenue contribution from our international operations, primarily in the
United Kingdom, grew from $40.5 million, or 15.9% of total revenue in 2009, to $335.1 million, or 41.4% of total revenue in
2014, before declining to $142.4 million, or 21.8% of total revenue in 2015 due to regulatory changes in the United Kingdom.
International revenue was $122.6 million, or 16.4% of total revenue in 2016. Due to the scalability of our platform, we were
able to achieve this growth without significant investment in additional infrastructure, and over the past three years capital
expenditures have averaged only 2.8% of revenue per year. We expect our advanced technology and underwriting platform to
help continue to drive significant growth in our business.
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(cid:120) Focus on customer experience. We believe that non-prime credit consumers and small businesses are not adequately served by
traditional lenders. To better serve these consumers and small businesses, we use customer-focused business practices, including
extended-hours availability of our customer service team by phone, email, fax and web chat. We continuously work to improve
customer satisfaction by evaluating information from website analytics, customer surveys, call center feedback and focus groups.
Our call center teams receive training on a regular basis and are monitored by quality assurance managers. We believe
customers who wish to access credit again often return to us because of our dedication to customer service, the transparency of
our fees and interest charges and our adherence to trade association “best practices.”
(cid:120) Diligent regulatory compliance. We conduct our business in a highly regulated industry. We are focused on regulatory
compliance and have devoted significant resources to comply with laws that apply to us, while we believe many of our online
competitors have traditionally not done so. We tailor our lending products and services to comply with the specific requirements
of each of the jurisdictions in which we operate, including laws and regulations relating to fees, loan durations and renewals or
extensions, loan amounts, disclosures and underwriting requirements. Our compliance experience and proprietary technology
platform allow us to launch new products and to enter new geographic regions with a focus on compliance with applicable laws
and customer protection. We are members of industry trade groups, including the Online Lenders Alliance in the United States
and the Consumer Finance Association in the United Kingdom, which have promulgated “best practices” for our industry that
we have adopted. The flexibility of our online platform enables us to rapidly adapt our products as necessary to comply with
changes in regulation, without the need for costly and time consuming retraining of store-based employees and other expenses
faced by our storefront competitors.
(cid:120) Proven history of growth and profitability. Over the last six years, we grew our net loan and finance receivables, which are the
gross outstanding balances for our loan and finance receivables carried in the consolidated balance sheets net of the allowance
for estimated losses, at a compound annual growth rate of 28.1%, from $163.0 million as of December 31, 2011 to $561.6
million as of December 31, 2016. Over the same period, our revenue grew at a compound annual growth rate of 9.2%, from
$480.3 million in 2011 to $745.6 million in 2016, while Adjusted EBITDA grew at a compound annual growth rate of 10.1%,
from $87.7 million to $142.3 million. Adjusted EBITDA margin has likewise improved, increasing from 18.3% of revenue in
2011 to 19.1% of revenue in 2016. See note (a) in “Selected Financial Data—Part II, Item 6” of this report for a reconciliation of
Adjusted EBITDA to net income and Adjusted EBITDA as a percentage of total revenue (which is Adjusted EBITDA margin).
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(cid:120) Talented, highly educated employees. We believe we have one of the most skilled and talented teams of professionals in the
industry. Our employees have exceptional educational backgrounds, with numerous post-graduate and undergraduate degrees in
science, technology, engineering and mathematics fields. We hire and develop top talent from graduate and undergraduate
programs at institutions such as Carnegie Mellon University, Northwestern University and the University of Chicago. The
extensive education of our team is complemented by the experience our leadership team obtained at leading technology firms
and financial services companies such as optionsXpress, HSBC, Discover Financial Services, First American Bank and
JPMorgan Chase.
d
Our Growth Strategy
(cid:120) Increase penetration in existing markets through direct marketing. We believe that we have reached only a small number of
the potential customers for our products and services in the markets in which we currently operate. We continue to focus on our
direct customer acquisition channels, with direct marketing (traditional and digital) generating approximately 49% of our new
consumer transactions in 2016, as compared to 32% in 2009. We believe these channels will ultimately allow us to reach a
larger customer base at a lower acquisition cost than the traditional online lead purchasing model. Additionally, as our smaller
and less sophisticated competitors, both online and storefront, struggle to adapt to both regulatory developments and evolving
customer preference, we believe we have the opportunity to gain significant market share.
(cid:120) Expand globally to reach new markets. We are building on our global reach by entering new markets. In June 2014, we
launched our business in Brazil, where we arrange loans for borrowers through a third party lender. We also operated a pilot
program in China in 2014 and 2015 where we arranged loans for borrowers through a third party lender but in 2016 decided to
address the Chinese market as an analytics provider going forward. We believe that these countries have significant populations
of underserved consumers. When pursuing geographic expansion, factors we consider include, among others, whether there is
(i) widespread internet usage, (ii) an established and interconnected banking system and (iii) government policy that promotes
the extension of credit. Our business in Brazil and our previous pilot in China, as well as our launches into the United Kingdom
in 2007 and Australia and Canada in 2009, demonstrate that we can quickly and efficiently enter and explore new markets. Our
revenue from international operations has increased from $1.6 million in 2007, or 0.9% of our total revenue, to $122.6 million in
2016, or 16.4% of our total revenue.
(cid:120) Introduce new products and services. We plan to attract new categories of consumers and small businesses not served by
traditional lenders through the introduction of new products and services. We have introduced new products to expand our
businesses from solely single-payment consumer loans to installment loans, line of credit accounts and small business loans and
financing, using our analytics expertise and our flexible and scalable technology platform. In 2012, we launched NetCredit, a
longer duration installment loan product for near-prime consumers in the United States, and we launched On Stride Financial, a
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similar near-prime product, in the United Kingdom in April 2014. In July 2014 we launched Headway Capital, a line of credit
product in the United States that serves the needs of small businesses. On June 23, 2015, we completed the purchase of certain
assets of a company operating as The Business Backer, which now allows us to provide short-term financing to small businesses
throughout the United States through RPAs. In addition, we intend to continue to evaluate and
that complement our online specialty financial services in order to meet the growing needs of our consumers and small
businesses.
offer new products and services
d
Online Loan Process
Our consumer and small business loan transactions are conducted almost exclusively online. When a customer takes out a new loan,
nearly all customers choose to have funds promptly deposited in their bank account and choose to use a pre-authorized debit for
repayment from their bank account or debit card. Where permitted by law and approved by us, a customer may choose to renew a
short-term consumer loan before payment becomes due by agreeing to pay an additional finance charge. If a loan is renewed or
refinanced, the renewal or refinanced loan is considered a new loan.
We have created a quick and simple process for customers to apply for an online loan, as shown below:
Technology Platform
Our proprietary technology platforms are built for scalability and flexibility and are based on proven open source software. The
technology platforms were designed to be powerful enough to handle the large volumes of data required to evaluate customer and
small business applications and flexible enough to capitalize on changing customer preferences, market trends and regulatory changes.
The scalability and flexibility of our technology platforms allow us to enter new markets and launch new products quickly, typically
within three to six months from conception to launch.
We continually employ technological innovations to improve our technology platforms, which perform a variety of integrated and
core functions, including:
(cid:120) Front-end system, which includes external websites, landing pages and mobile sites and applications that customers use when
applying for loans or financing and managing their accounts;
(cid:120) Back-end and customer relationship management (“CRM, systems”), which maintain customer-level data and are used by our
call center employees to provide real-time information for all inquiries. Our back-end system and CRM system includes, among
other things, our contact management system, operational and marketing management system, automated phone system,
Interactive Voice Response and call center performance management system;
(cid:120) Decision engine, which rapidly evaluates and makes credit and financing decisions throughout the customer relationship; and
(cid:120) Financial system, which manages the external interface for funds transfers and provides daily accounting, reconciliation and
reporting functions.
The key elements of our technology platforms include:
(cid:120) Scalable Information Technology infrastructure. Our Information Technology infrastructure allows us to meet customer
demand and accommodate business growth. Our services rely on accessing, evaluating and creating large volumes of data
including, for example, information collected from approximately 52 million credit reports during 2016. This rich dataset has
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grown significantly over our more than twelve-year history and will continue to grow as our business expands. We believe that
our scalable IT infrastructure enables us to meet substantial growth demands.
(cid:120) Flexible software and integration systems. Our software system is designed to allow us to enter new markets and launch new
products rapidly, modify our business operations quickly and account for complex regulatory requirements imposed in the
jurisdictions in which we operate. We have developed a proprietary software solution that allows us to innovate quickly and to
improve the customer experience. Our integration system allows us to easily interface with banks and other strategic partners in
order to deliver the best financial products and services possible. Our software and integration systems and their flexibility allow
us much more control over the continually evolving aspects of our business.
(cid:120) Rapid development processes. Our software development life cycle is rapid and iterative to increase the efficiency of our
platform. We are able to implement software updates while maintaining our system stability.
(cid:120) Security. We collect and store personally identifiable customer information, including names, addresses, social security numbers
and bank account information. We have safeguards designed to protect this information. We also created controls to limit
employee access to that information and to monitor that access. Our safeguards and controls have been independently verified
through regular and recurring audits and assessments.
(cid:120) Redundant disaster recovery. Certain key parts of our technology platform, such as our phone system for handling U.S. and
U.K. customer service on consumer loans, are distributed across two different locations. In addition, critical components of our uu
platform are redundant. This provides redundancy, fault tolerance and disaster recovery functionality in case of a catastrophic
outage.
Proprietary Data and Analytics
Decision Engine
We have developed a fully integrated decision engine that evaluates and rapidly makes credit and other determinations throughout the
customer relationship, including automated decisions regarding marketing, underwriting, customer contact and collections. Our
decision engine currently handles more than 100 algorithms and over 1,000 variables. The algorithms in use are constantly monitored,
validated, updated and optimized to continuously improve our operations. In order to support the daily running and ongoing
improvement of our decision engine, we have assembled a highly skilled team of over 50 data and analytics professionals as of
December 31, 2016.
Proprietary Data, Models and Underwriting
Our proprietary models are built on more than twelve years of history, using advanced statistical methods that take into account our
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experience with the millions of transactions we have processed during that time and the use of data from numerous third-party
sources. We continually update our underwriting models to manage risk of defaults and to structure loan terms. Our system completes
these assessments within seconds of receiving the customer’s data.
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Our underwriting system is able to assess risks associated with each customer individually based on specific customer informati
on and
historical trends in our portfolio. We use a combination of numerous factors when evaluating a potential customer, which can include
a consumer’s income, rent or mortgage payment amount, employment history, external credit reporting agency scores, amount and
status of outstanding debt and other recurring expenditures, fraud reports, repayment history, charge-off history and the length of time
the customer has lived at his or her current address. While the relative weight or importance of the specific variables that we consider
when underwriting a loan changes from product to product, generally, the key factors that we consider for loans include monthly gross
income, disposable income, length of employment, duration of residency, credit report history and prior loan performance history if
the applicant is a returning customer. Similar factors are considered for small business applicants and also include length of time in
business, online business reviews, and sales volumes. Our customer base for consumer loans is predominantly in the low to fair range
of FICO scores, with scores generally between 500 and 680 for most of our loan products. We generally do not take into account a
potential customer’s FICO score when deciding whether to make a loan. A Vantage score is one of the factors in our credit models for
our near-prime installment product in the United States. Since we designed our system specifically for our specialized products, we
believe our system provides more predictive assessments of future payment behavior and results in better evaluation of our customer
base when compared to traditional credit assessments, such as a FICO score.
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Fraud Prevention
Our robust fraud prevention system is built from in-depth analysis of previous fraud incidences and information from third party data
sources. To ensure sustainable growth, our fraud prevention team has built rigorous systems and processes to detect fraud trends,
identify fraudulent applications and learn from past fraudulent cases.
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Working together with multiple vendors, our systems first determine whether the customer information submitted matches other
indicia regarding the application and that the applicant can authorize transactions for the submitted bank account. To prevent more
organized and systematic fraud, we have developed predictive models that incorporate signals from various sources that we have
found to be useful in identifying fraud. These models utilize advanced data mining algorithms and recent technologies to effectively
identify fraudulent applications with a very low false positive rate. In addition, we have built strong loan processing teams that handle
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suspicious activities efficiently while minimizing friction in customer experience. Our fraud prevention system incorporates
algorithms to differentiate customers in an effort to identify suspected fraudulent activity and to reduce our risks of loss from fraud.
We continuously develop and implement ongoing improvements to these systems and, while no system can completely protect against
losses from fraud, we believe our systems provide protection against significant fraud losses.
Marketing
We use a multi-channel approach to marketing our online loans and financing products, with both broad-reach and highly-targeted
channels, including television, digital, direct mail, telemarketing and partner marketing (which includes lead providers, independent
brokers and marketing affiliates). The goal of our marketing is to promote our brands and products in the online lending marketplace
and to directly acquire new customers at low cost. Our marketing has successfully built strong awareness of and preference for our
brands, as our products have achieved market leadership through the following:
(cid:120) Traditional advertising. We use television, direct mail, radio and outdoor advertisements, supported by technology
infrastructure and key vendors, to drive and optimize website traffic and loan volume. We believe our investments through these
channels have helped create strong brand awareness and preference in the customer segments and markets we serve.
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(cid:120) Digital acquisition. Our online marketing efforts include pay-per-click, keyword advertising, search engine optimization,
marketing affiliate partnerships, social media programs and mobile advertising integrated with our operating systems and
technology from vendors that allow us to optimize customer acquisition tactics within the daily operations cycle.
(cid:120) Partner Marketing. We purchase qualified leads for prospective new customers from a number of online lead providers and
independent brokers and through marketing affiliate partnerships. We believe that our rapid decision-making on lead purchases,
strong customer conversion rate and significant scale in each of our markets make us a preferred partner for lead providers,
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brokers and affiliates while at the same time our technology and analytics help us determine the right price for the right leads.
(cid:120) User experience and conversion. We measure and monitor website visitor usage metrics and regularly test website design
strategies to improve customer experience and conversion rates.
Our brand, technology and analytics-powered approach to marketing has enabled us to increase the percentage of consumer loans
sourced through direct marketing (where we have more visibility and control than in the lead purchase or affiliate channels) from
approximately 32% in 2009 to 49% in 2016, and we believe we have also improved customer brand loyalty during the same period.
Customer Service
We believe that our in-house call center and our emphasis on superior customer service are significant contributors to our growth. To
best serve our consumers and small businesses, we use customer-oriented business practices, such as offering extended-hours
customer service. We continuously work to improve our customers’ experience and satisfaction by evaluating information from
receive
website analytics, customer satisfaction surveys, call center feedback, call monitoring and focus groups. Our call center teams
training on a regular basis, are monitored by quality assurance managers and adhere to rigorous internal service-level agreements. We
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do not outsource our call center operations, except in Brazil. We have two call center facilities, one in our corporate offices in Chicago
and another in Gurnee, Illinois, a Chicago suburb. As of December 31, 2016, we had over 500 employees in our call centers
supporting our customers.
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Collections
We operate centralized collection teams within our two call centers to coordinate a consistent approach. We have implemented loan
and financing collection policies and practices designed to optimize regulatory compliant loan and financing repayment, while also
providing excellent customer service. Our collections employees are trained to help the customer understand available payment
alternatives and make arrangements to repay the loan or financing. We use a variety of collection strategies to satisfy a delinquent
loan, such as settlements and payment plans, or to adjust the delivery of finance receivables.
Call center employees contact customers following the first missed payment and periodically thereafter. Our primary methods of
contacting past due customers are through phone calls, letters and emails. At times, we sell loans that we are unable to collect to debt
collection companies or place the debt for collection with debt collection companies.
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Competition
We have many competitors. Our principal competitors are consumer loan companies, CSOs, online lenders, credit card companies,
consumer finance companies, auto title lenders, pawnshops and other financial institutions that offer similar financial products and
services, including loans on an unsecured as well as a secured basis. We believe that there is also indirect competition to some of our
products, including bank overdraft facilities and banks’ and retailers’ insufficient funds policies, many of which may be more
expensive alternative approaches for consumers and small businesses to cover their bills and expenses than the consumer and small
business loan and financing products we offer. Some of our U.S. competitors operate using other business models, including a “tribal
model” where the lender follows the laws of a Native American tribe regardless of the state in which the customer resides.
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We believe that the principal competitive factors in the consumer and small business loan and financing industry consist of the ability
to provide sufficient loan size to meet customers’ loan requests, speed of funding, customer privacy, ease of access, transparency of
fees and interest and customer service. We believe we have a significant competitive advantage as an early mover in many of the
markets that we serve. New entrants face obstacles typical to launching new lending operations, such as successfully implementing
underwriting and fraud prevention processes, incurring high marketing and customer acquisition costs, overcoming customer brand
loyalty and having or obtaining sufficient capital to withstand early losses associated with unseasoned loan portfolios. In addition,
there are substantial regulatory and compliance costs, including the need for expertise to customize products and obtain licenses to
lend in various states in the United States and in international jurisdictions. Our proprietary technology, analytics expertise, scale,
international reach, brand recognition and regulatory compliance would be difficult for a new competitor to duplicate.
Because numerous competitors offer consumer and small business loan and financing products, and many of our competitors are
privately held, it is difficult for us to determine our exact competitive position in the market. However, we believe our principal online
competitors in the United States include Avant, Elevate, LendUp and Speedy Cash. Storefront consumer loan lenders that offer loans
online or in storefronts are also a source of competition in some of the markets where we offer consumer loans, including Advance
America, Ace Cash Express, Check Into Cash, Check ‘n Go, Dollar Financial and One Main Financial. For online small business
financing, we believe our main competitors are CAN Capital, OnDeck and Kabbage. In the United Kingdom, we believe that our
principal online competitors include 118118, Amigo, Avant, Lending Stream, Mr. Lender, PaydayUK, Satsuma, Sunny and Wonga.
Our products also compete with those of other financial institutions, such as banks, credit unions, pawn shops, credit services
organizations, auto title lenders and consumer finance companies, which can offer loans on an unsecured as well as a secured basis.
Intellectual Property
Protecting our rights to our intellectual property is critical, as it enhances our ability to offer distinctive services and products to our
customers, which differentiates us from our competitors. We rely on a combination of trademark
laws and trade secret protections in
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the United States and other jurisdictions, as well as confidentiality procedures and contractual provisions, to protect the intellectual
property rights related to our proprietary analytics, predictive underwriting models and software systems. We have several registered
trademarks, including CashNetUSA, QuickQuid and our “e” logo. These trademarks have varying expiration dates, and we believe
they are materially important to us and we anticipate maintaining them and renewing them.
Seasonality
Demand for our consumer loan products and services in the United States has historically been highest in the third and fourth quarters
of each year, corresponding to the holiday season, and lowest in the first quarter of each year, corresponding to our customers
’ receipt
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of income tax refunds. Typically, our cost of revenue for our consumer loan products, which represents our loan loss provision, is
lowest as a percentage of revenue in the first quarter of each year, corresponding to our customers’ receipt of income tax refunds, and
increases as a percentage of revenue for the remainder of each year. Consequently, we experience seasonal fluctuations in our
domestic operating results and cash needs.
Financial Information on Segments and Areas
Additional financial information regarding our operating segment and each of the geographic areas in which we do business is
provided in “Item 8. Financial Statements and Supplementary Data—Note 18” of this report.
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Operations
Management and Personnel
Executive Officers
Our executive officers, and information about each as of December 31, 2016, are listed below.
POSITION WITH ENOVA
NAME
David A. Fisher ...................................... President & Chief Executive Officer
Greg Zeeman.......................................... Executive Vice President—Chief Operating Officer
Kirk Chartier .......................................... Executive Vice President—Chief Marketing Officer
Steven Cunningham ............................... Executive Vice President—Chief Financial Officer and Treasurer
Joseph DeCosmo .................................... Vice President—Chief Analytics Officer
John J. Higginson ................................... Vice President—Chief Technology Officer
Sean Rahilly ........................................... Vice President—Chief Compliance Officer
Jim Salters .............................................. Vice President – Operations
Lisa M. Young ....................................... Vice President—General Counsel & Secretary
AGE
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48
53
47
51
49
43
39
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There are no family relationships among any of the officers named above. Each officer of Enova holds office from the date of
appointment until removal or termination of employment with Enova. Set forth below is additional information regarding the
executive officers identified above.
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David A. Fisher has served as our President and Chief Executive Officer since March 29, 2013. Mr. Fisher has served as our Chief
Executive Officer since January 29, 2013 when he joined Enova. Mr. Fisher has also served as our Director since February 11, 2013.
Prior to joining Enova, Mr. Fisher was Chief Executive Officer of optionsXpress Holdings, Inc., or optionsXpress, from October 2007
until The Charles Schwab Corporation (“Schwab”), acquired the business in September 2011. Following the acquisition, Mr. Fisher
served as President of optionsXpress until March 2012. Mr. Fisher also served as the President of optionsXpress from March 2007 to
October 2007 and as the Chief Financial Officer of optionsXpress from August 2004 to March 2007. Prior to joining optionsXpress,
Mr. Fisher served as Chief Financial Officer of Potbelly Sandwich Works from February 2001 to July 2004, and before that in the
roles of Chief Financial Officer and General Counsel for Prism Financial Corporation. In addition, Mr. Fisher has served on the Board
of Directors of InnerWorkings, Inc. since November 2011 and has served on the Board of Directors of GrubHub, Inc. since May 2012.
Mr. Fisher also served on the Boards of Directors of optionsXpress from October 2007 until September 2011 and CBOE Holdings,
Inc. from January 2007 until October 2011. Mr. Fisher received a Bachelor of Science degree in Finance from the University of
Illinois and a law degree from Northwestern University School of Law.
Greg Zeeman has served as our Executive Vice President and Chief Operating Officer since October 2015. From September 2014 to
October 2015, Mr. Zeeman served as Chief Executive Officer of Main Street Renewal, a firm specializing in the acquisition and
leasing of single-family properties. From March 2012 to July 2014, Mr. Zeeman served as Chief Operating Officer and Senior
Executive Vice President of HSBC USA. From March 2011 to March 2012, Mr. Zeeman served as Executive Vice President and
Head, Change Delivery, HSBC Americas, and from January 2009 to March 2011, Mr. Zeeman served as Deputy Chief Executive
Officer, HSBC Singapore. From 1999 to 2010, Mr. Zeeman held various roles with Household Credit Card Services and HSBC
Consumer & Mortgage Lending. From 1995 to 1999, Mr. Zeeman was a consultant with Boston Consulting Group. Mr. Zeeman holds
a Master of Business Administration degree from Harvard University and a Bachelor of Arts degree in Economics and Political
Science from the University of North Carolina – Chapel Hill.
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Kirk Chartier has served as our Executive Vice President—Chief Marketing Officer since February 2016. Mr. Chartier joined Enova
in April 2013 as our Senior Vice President—Chief Marketing Officer. Prior to joining Enova, Mr. Chartier was the Executive Vice
President & Chief Marketing Officer of optionsXpress Holdings from January 2010 until Schwab acquired the business in
September 2011. Following the acquisition, Mr. Chartier served as Vice President of Schwab through May 2012. From 2004 to 2010,
Mr. Chartier was the Senior Managing Principal and Business Strategy Practice Leader for the Zyman Group, a marketing and
strategy consultancy owned by MDC Partners, where he also served in interim senior marketing executive roles for Fortune 500
companies, including Safeco Insurance. Mr. Chartier has held executive roles at technology companies including as Senior Vice
President of Business Services & eCommerce for CommerceQuest, as Vice President of Online Marketing & Strategy for THINK
New Ideas and as a Corporate Auditor for the General Electric Company. He started his career as a combat pilot with the U.S. Marine
Corps and is a veteran of Desert Storm. Mr. Chartier received a Master of Business Administration from Syracuse University, a
Bachelor of Arts in Economics from the College of the Holy Cross, and a Bachelor of Science in Engineering from Worcester
Polytechnic Institute.
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Steven Cunningham has served as our Executive Vice President—Chief Financial Officer and Treasurer since he joined Enova in
June 2016. Mr. Cunningham joined Enova from Discover Financial Services, where he most recently served as Executive Vice
President and Chief Risk Officer for Discover’s $8.7 billion direct banking and payment services business. He joined Discover a
s its
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Corporate Treasurer in 2010. Prior to Discover, Mr. Cunningham was the CFO of Harley-Davidson Financial Services, a $7 billion
receivables business, and spent eight years at Capital One Financial in various corporate and line of business finance leadership
positions, including CFO for the Auto Finance segment, a $20 billion receivables business, and CFO for the company’s banking
segment. Mr. Cunningham also has experience as a bank regulator with the FDIC. Mr. Cunningham received a bachelor’s degree in
Corporate Finance and Investment Management from the University of Alabama and a Master of Business Administration from
George Washington University. He also holds the professional designation of Chartered Financial Analyst.
Joseph DeCosmo has served as our Vice President—Chief Analytics Officer since joining Enova in January of 2014. Prior to joining
Enova, from October 2012 until January 2014, Mr. DeCosmo served as a Director of West Monroe Partners, a management and
technology consulting firm, where he led their Advanced Analytics practice. From September 2011 until October 2012, Mr. DeCosmo
was Vice President of Analytics for HAVI Global Solutions located in suburban Chicago. Mr. DeCosmo also served as Executive
Vice President of Analytics and Consulting Services for The Allant Group from 2005 to September 2011. Prior to The Allant Group,
Mr. DeCosmo founded and led an independent analytics firm called DeCosmo and Associates from 1995 to 2005, when the business
was acquired by The Allant Group. Mr. DeCosmo began his career in 1987 at Argonne National Laboratory, spent three years in
regulatory and business research at Illinois Bell, and three years at Donnelley Marketing. Mr. DeCosmo is a current board member
and President-Elect of the Chicago Chapter of the American Statistical Association, a Past-President of The Chicago Association of
Direct Marketing, and a member of the Advisory Board of the University of Illinois at Chicago’s College of Business Administration.
Mr. DeCosmo holds a Bachelor of Arts in Economics from Lewis University and a Master of Arts in Economics from The University
of Illinois at Chicago.
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John J. Higginson has served as our Vice President—Chief Technology Officer since joining Enova in December of 2014. Prior to
joining Enova, from December 2013 until December 2014, Mr. Higginson served as Chief Technology Officer of Wheels, Inc., an
automotive fleet leasing and management company for Fortune 500 companies. From March 2010 until December 2013,
Mr. Higginson was Executive Vice President—Chief Technology Officer of FTD Companies, Inc. the leading provider of consumer
flower and gift products in the U.S., Canada, the U.K. and Ireland. He also served as FTD Companies, Inc.’s Senior Vice President—
Software Development from 2006 to 2009. Mr. Higginson began his career with Applied Systems, Inc., the premier developer of
solutions for the independent agent/broker industry in North America, holding various roles from 1990 to 2004, including Executive
Vice President—Technology. Mr. Higginson holds a Bachelor of Arts in English from Northern Illinois University and a Master of
Science in Information Technology and Privacy Law, with honors, from The John Marshall Law School.
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Sean Rahilly has served as our Vice President—Chief Compliance Officer since joining Enova in October 2013. Mr. Rahilly
previously served as Assistant General Counsel and Compliance Officer of First American Bank from September 2006 to September
2013. He also served as First American Bank’s Vice President—Community Reinvestment Act and Compliance Officer from January
2006 to September 2006, Vice President—Compliance Manager from November 2003 to January 2006 and Assistant Vice
President—Compliance and Community Reinvestment Act from July 2002 to November 2003. Prior to joining First American Bank,
Mr. Rahilly served as an attorney with the Law Offices of Victor J. Cacciatore, a project assistant with Schiff Hardin & Waite
and in
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various roles with Pullman Bank and Trust Company. He received a Bachelor of Science in Accountancy from DePaul University
College of Commerce and a Juris Doctor from DePaul University College of Law.
Jim Salters has served as our Vice President—Operations since June 2015. Mr. Salters previously served as Chief Executive Officer
of Alta Financial, LLC (“Alta”), operating as The Business Backer, from January 2009 to June 2015. Prior to joining Alta, Mr. Salters
was a strategy consultant with Glenbrook Partners from January 2006 to December 2008. From July 2000 to December 2005, Mr.
Salters was the Director of Technology Initiatives and Project Development for the Financial Services Technology Consortium, and
from July 1999 to July 2000, he was an Associate with Princeton Consultants. Mr. Salters received a Bachelor of Science degree in
Electrical Engineering, with honors, from Princeton University.
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Lisa M. Young has served as our Vice President—General Counsel and Secretary since September 2011. Ms. Yo
(then known as CashNetUSA) in June 2009 as General Counsel and became Vice President—General Counsel in August 2011.
Ms. Young previously served as Vice President—Assistant General Counsel of JPMorgan Chase following the merger of Bank One
and JPMorgan Chase in July 2004, and she served in this position until she joined us in 2009. From May 2003 to June 2004, she
served as Senior Counsel with Bank One. Prior to joining Bank One, Ms. Young served as an attorney in the Consumer Financial
Services Litigation practice groups of McGuireWoods LLP and Lovells LLP (currently known as Hogan Lovells US LLP) and as a
litigation attorney at Goldberg Kohn Ltd. She received a Bachelor of Science degree in Electrical Engineering from the University of
Notre Dame and a Juris Doctor from Northwestern University.
ung joined Enova
Personnel
As of December 31, 2016, we had 1,099 employees.
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Market and Industry Data
The market and industry data contained in this Annual Report on Form 10-K, including trends in our markets and our position within
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such markets, are based on a variety of sources, including our good faith estimates, which are derived from our review of internal
surveys, information obtained from customers and publicly available information, as well as from independent industry publications,
reports by market research firms and other published independent sources. Although we believe these sources are reliable, we have not
independently verified the information. None of the independent industry publications used in this report were prepared on our behalf.
REGULATION
Our operations are subject to extensive regulation, supervision and licensing under various federal, state, local and international
statutes, ordinances and regulations.
U.S. Federal Regulation
Consumer Lending Laws. Our consumer loan business is subject to the federal Truth in Lending Act (“TILA”), and its underlying
regulations, known as Regulation Z, and the Fair Credit Reporting Act (“FCRA”). These laws require us to provide certain disclosures
to prospective borrowers and protect against unfair credit practices. The principal disclosures required under TILA are intended to
promote the informed use of consumer credit. Under TILA, when acting as a lender, we are required to disclose certain material terms
related to a credit transaction, including, but not limited to, the annual percentage rate, finance charge, amount financed, total of
payments, the number and amount of payments and payment due dates to repay the indebtedness. The FCRA regulates the collection,
dissemination and use of consumer information, including consumer credit information. The federal Equal Credit Opportunity Act
(“ECOA”), prohibits us from discriminating against any credit applicant on the basis of any protected category, such as race, color,
religion, national origin, sex, marital status or age, and requires us to notify credit applicants of any action taken on the individual’s
credit application.
Consumer Reports and Information. The use of consumer reports and other personal data used in credit underwriting is governed by
the FCRA and similar state laws governing the use of consumer credit information. The FCRA establishes requirements that apply to
the use of “consumer reports” and similar data, including certain notifications to consumers where their loan application has been
denied because of information contained in their consumer report. The FCRA requires us to promptly update any credit information
reported to a credit reporting agency about a consumer and to allow a process by which consumers may inquire about credit
information furnished by us to a consumer reporting agency.
Information-Sharing Laws. We are also subject to the federal Fair and Accurate Credit Transactions Act, which limits the sharing of
information with affiliates for marketing purposes and requires us to adopt written guidance and procedures for detecting, preventing
and responding appropriately to mitigate identity theft and to adopt various policies and procedures and provide training and materials
that address the importance of protecting non-public personal information and aid us in detecting and responding to suspicious
activity, including suspicious activity that may suggest a possible identity theft red flag, as appropriate.
Marketing Laws. Our advertising and marketing activities are subject to several federal laws and regulations including the Federal
Trade Commission Act (the “FTC Act”), which prohibits unfair or deceptive acts or practices and
false or misleading advertisements
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in all aspects of our business. As a financial services company, any advertisements related to our products must also comply with the
advertising requirements set forth in TILA. Also, any of our telephone marketing activities must comply with the Telephone
Consumer Protection Act (the “TCPA”), and the Telephone Sales Rule (the “TSR”). The TCPA prohibits the use of automatic
telephone dialing systems for communications with wireless phone numbers without express consent of the consumer, and the TSR
established the Do Not Call Registry and sets forth standards of conduct for all telemarketing. Our advertising and marketing activities
are also subject to the CAN-SPAM Act of 2003 which establishes certain requirements for commercial email messages and specifies
penalties for the transmission of commercial email messages that are intended to deceive the recipient as to the source of content.
Protection of Military Members and Dependents. Federal law also limits the annual percentage rate to 36% on certain consumer loans
made to active duty members of the U.S. military, reservists and members of the National Guard and their immediate families. This
36% annual percentage rate cap applies to a variety of consumer loan products, including short-term consumer loans. Therefore, due
to these rate restrictions, we are unable to offer certain short-term consumer loans to active duty military personnel, active reservists
and members of the National Guard and their immediate dependents. Federal law also limits the annual percentage rate on existing
loans when the borrower, or spouse of the borrower, becomes an active-duty member of the military during the life of a loan. Pursuant
to federal law, the interest rate must be reduced to 6% per year on amounts outstanding during the time in which the servicemember is
on active duty.
uu
m
On July 22, 2015, the Department of Defense published its final rule amending the MLA’s implementing regulation. The new rule
expands the scope of the credit products covered by the MLA. The rules under the MLA will restrict us from offering consumer lo n an
pproducts to covered borrowers above the military annual percentage rate, which is defined by the rules as 36%, and contain various
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disclosure requirements, limitations on renewals and refinancing, as well as restrictions on the use of prepayment penalties, a
pprovisions and certain waivers of rights. The rule provides that a lender is subject to fines and other penalties if it extends credit to a
covered borrower on prohibited terms. The new rule provides a safe harbor for a lender if it verifies an applicant’s status as
a covered
bborrower before extending credit by checking the Department of Defense’s database or a database of a national credit reporting
agency that provides military status information. The rule became effective on October 3, 2016.
rbitration
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Funds Transfer and Signature Authentication Laws. The consumer loan business is also subject to the federal Electronic Funds
Transfer Act (“EFTA”), and various other laws, rules and guidelines relating to the procedures and disclosures required in debiting or
crediting a debtor’s bank account relating to a consumer loan (i.e., Automated Clearing House (“ACH”) funds transfer). Furthermore,
we are subject to various state and federal e-signature rules mandating that certain disclosures be made and certain steps be followed
in order to obtain and authenticate e-signatures.
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Debt Collection Practices. Additionally, our collection activities related to our CSO programs and our Bank Program are required to
comply with the federal Fair Debt Collection Practices Act (“FDCPA”), and we also use the FDCPA as a guide in connection with
operating our other collection activities. We are also required to comply with all applicable state collection practices laws.
Privacy and Security of Non-Public Customer Information. We are also subject to various federal and state laws and regulations
relating to privacy and data security. Under these laws, including the federal Gramm-Leach-Bliley Act (“GLBA”), we must disclose to
consumers our privacy policy and practices, including those policies relating to the sharing of consumers’ nonpublic personal
information with third parties. This disclosure must be made to consumers when the customer relationship is established and, in some
cases, at least annually thereafter. These regulations also require us to ensure that our systems are designed to protect the
confidentiality of consumers’ nonpublic personal information. These regulations also dictate certain actions that we must take to notify
consumers if their personal information is disclosed in an unauthorized manner.
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Anti-Money Laundering and Economic Sanctions. We are also subject to certain provisions of the USA PATRIOT Act and the Bank
Secrecy Act under which we must maintain an anti-money laundering compliance program covering certain of our business activities.
In addition, the Office of Foreign Assets Control (“OFAC”), prohibits us from engaging in financial transactions with specially
designated nationals. Certain of our subsidiaries are also registered as money services businesses with the U.S. Treasury Department
and must re-register with the Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) at least every two years.
Anticorruption. We are also subject to the U.S. Foreign Corrupt Practices Act, (the “FCPA”), which generally prohibits companies
and their agents or intermediaries from making improper payments to foreign officials for the purpose of obtaining or keeping
business and/or other benefits.
CFPB
In July 2010, the U.S. Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and
Title X of the Dodd-Frank Act created the Consumer Financial Protection Bureau (the “CFPB”), which regulates consumer financial
products and services, including consumer loans that we offer. The CFPB has regulatory, supervisory and enforcement powers over
providers of consumer financial products and services, including explicit supervisory authority to examine and require registration of
such providers. Pursuant to these powers, the CFPB has examined our lending products, services and practices, and we expect to
continue to be examined on a regular basis by the CFPB.
On November 20, 2013, Cash America International, Inc. (“Cash America”), our parent company at the time, consented to the
issuance of a Consent Order by the CFPB pursuant to which it agreed, without admitting or denying any of the facts or conclusions
made by the CFPB from its 2012 examination of Cash America and us, to pay a civil money penalty of $5 million. The Consent Order
relates in part to issues self-disclosed to the CFPB by us, including the making of a limited number of loans to consumers who may
have been active-duty members of the military at the time of the loan at rates in excess of the annual percentage rate permitted by the
federal Military Lending Act, and for which we have made refunds of approximately $33,500, and for certain failures to timely
provide and preserve records and information in connection with the CFPB’s examination of us. In addition, as a result of the CFPB’s
review, we have enhanced and continue to enhance our compliance management system and have implemented additional policies and
procedures to address the issues identified by the CFPB. These new policies, procedures and other initiatives are in many cases subject
to review and potential objection by the CFPB. We remain subject to the restrictions and obligations of the Consent Order, including
the CFPB’s order that we ensure compliance with federal consumer financial laws and develop more robust compliance policies and
procedures.
On May 5, 2016, the CFPB issued proposed rules prohibiting the use of mandatory arbitration clauses and class action waiver
provisions in consumer financial services contracts. We do not currently know the nature and extent of the final rule that the CFPB
will adopt. Any final rule would apply to consumer financial services entered into after the final rule becomes effective (and will not
apply to prior arbitration agreements).
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On June 2, 2016, the CFPB issued its Notice of Proposed Rulemaking (the “Proposed Rule”) on Payday, Vehicle Title, and Certain
High-Cost Installment Loans. The Proposed Rule would impose significant limitations on all short-term and installment loans with
APRs above 36%, including all of our short-term loan products and certain of our installment loan products. Among other provisions,
the Proposed Rule requires lenders to conduct a specific assessment regarding a borrower’s ability to repay, including a requirement to
verify borrowers’ income and major financial obligations. The Proposed Rule also includes limitations on the number of loans that
certain borrowers can have within a specified time frame and requires additional disclosures in loan documents and notices regarding
payments. The Proposed Rule was published in the Federal Register on July 22, 2016, and comments on the Proposed Rule were due
to the CFPB by October 7, 2016. The CFPB will review all submitted comments before issuing a final rule. We do not currently know
the nature and extent of the final rule that the CFPB will adopt.
a
On July 28, 2016, the CFPB, pursuant to the authority provided in the Dodd-Frank Act, issued an outline of proposals pertaining to
third-party debt collectors and others covered by the FDCPA that is intended to increase consumer protection during debt collection
(“Debt Collection Outline”). In the Debt Collection Outline, the CFPB is considering substantive rules under the FDCPA that would,
among other proposals: (i) require collectors to substantiate the debt and confirm that they have sufficient consumer information
before starting collection; (ii) limit communication attempts to six per week through any point of contact; (iii) make it easie
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consumers to stop specific ways collectors are contacting them; (iv) prohibit collectors from communicating with certain parties for 30
days after a consumer’s death; (v) make it easier for consumers to dispute debts by, among other proposals, requiring collectors to
include more specific information about the debt in the initial collection notices sent to consumers as well as a “tear-off” portion of the
notice that consumers could send back to the collector; (vi) require collectors to verify a debt through a written report if the debt is
disputed in writing by a consumer; (vii) prohibit collectors from continuing collection efforts or suing for debt until the necessary
documentation is checked if a consumer disputes the debt; and (viii) require a subsequent holder of a debt to resolve any outstanding
dispute about the debt before attempting to collect.
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The proposals in the Debt Collection Outline would apply to our collection of debt originated by other lenders, including under our
CSO programs and our Bank Program. The proposals in the Debt Collection Outline would not apply to our collection of debt that we
originate; however, the CFPB has announced that it plans to address consumer protection issues involving first-party debt collectors
and creditors separately. The CFPB published its Debt Collection Outline in preparation for convening a Small Business Review Panel
to determine whether its proposal could have a significant economic impact on small businesses. The Debt Collection Outline does not
include proposed or final rules, and any future rules could be significantly different from those in the Debt Collection Outline. The
CFPB has not yet defined a date for any proposed rules related to debt collection nor has it defined the effective date for the
implementation of final rules.
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For further discussion of the CFPB and its regulatory, supervisory and enforcement powers, see “Risk Factors—Risks Related to Our
Business and Industry— The Consumer Financial Protection Bureau has examination authority over our U.S. consumer lending
business that could have a significant impact on our U.S. business” in Part I, Item 1A of this report.
—
U.S. State Regulation
Our consumer lending business is regulated under a variety of enabling state statutes, all of which are subject to change and whichw
may impose significant costs or limitations on the way we conduct or expand our business. As of the date of this report, we offer or
arrange consumer loans in 33 states that have specific statutes and regulations that enable us to offer economically viable products.
We currently do not offer consumer loans in the remaining states or in the District of Columbia because we do not believe it is
economically feasible to operate in those jurisdictions due to specific statutory or regulatory restrictions, such as interest rate ceilings,
caps on the fees that may be charged, or costly operational requirements. However, we may later offer our consumer products or
services in any of these states or the District of Columbia if we believe doing so may become economically viable because of ch
in applicable statutes or regulations or if we determine we can broaden our product offerings to operate under existing laws and
regulations.
anges
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The scope of state regulation of consumer loans, including the fees and terms of our products and services, varies from state to state.
The terms of our products and services vary from state to state in order to comply with the laws and regulations of the states in which
we operate. In addition, our advertising and marketing activities and disclosures are subject to review under various state consumer
protection laws and other applicable laws and regulations. The states with laws that specifically regulate our consumer products and
services typically limit the principal amount of a consumer loan and set maximum fees or interest rates customers may be charged.
Some states also limit a customer’s ability to renew a short-term consumer loan and require various disclosures to consumers. State
statutes often specify minimum and maximum maturity dates for short-term consumer loans such as ours and, in some cases, specify ff
mandatory cooling-off periods between transactions. Our collection activities regarding past due amounts are subject to consumer
protection laws and state regulations relating to debt collection practices. In addition, some states require certain disclosures or content
to accompany our advertising or marketing materials. Also, some states require us to report short-term consumer loan activity to state-
wide databases and restrict the number and/or principal amount of loans a consumer may have outstanding at any particular time or
over the course of a particular period of time, typically twelve months.
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In Texas and Ohio, where we offer our CSO programs, we comply with the applicable jurisdiction’s Credit Services Organization Act
or a similar statute. These laws generally define the services that we can provide to consumers and require us to provide a contract to
the customer outlining our services and the cost of those services to the customer. In addition, these laws may require additional
disclosures to consumers and may require us to be registered with the jurisdiction and/or be bonded.
We must also comply with state restrictions on the use of lead providers. In 2013, California began enforcing its short-term lending
statute to require lead providers to be licensed in order to provide leads to licensed lenders. As a result, we discontinued using lead
providers to generate leads for short-term consumer loans in California. In April 2014, the Attorney General of the State of Illinois
filed a lawsuit against a lead provider, alleging that the lead provider offered and arranged payday loans without a license. As a result,
we discontinued the use of lead providers in Illinois. In December 2015, in a complaint filed in federal court, the CFPB alleged that
T3Leads bought and sold personal information from payday and installment loan applications without properly vetting buyers and
sellers. Although we cannot predict what measures will be taken, we expect that other states may propose or enact similar restrictions
on lead providers in the future.
Over the last few years, legislation that prohibits or severely restricts our consumer loan products and services has been intr
oduced or
adopted in a number of states. As a result, we have ceased making consumer loans in five states where we formerly made such loans,
and we have also modified our business operations in other states where restrictive legislation has been enacted. Additional legislation
or regulations targeting or otherwise directly affecting our products and services have also been recently passed in several states. We
regularly monitor proposed legislation or regulations that could affect our business.
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Local Regulation—United States
In addition to state and federal laws and regulations, the short-term loan industry is subject to various local rules and regulations. These
local rules and regulations are subject to change and vary widely from city to city. Local jurisdictions’ efforts to restrict s
lending have been increasing. Typically, these local ordinances apply to storefront operations, however, local jurisdictions could attempt
to enforce certain business conduct and registration requirements on online lenders lending to residents of that jurisdiction. Actions taken
in the future by local governing bodies to impose other restrictions on short-term lenders such as us could impact our business.
hort-term
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International Regulation
United Kingdom
In the United Kingdom, we are subject to regulation by the Financial Conduct Authority, (“FCA”), and must comply with the FCA’s
rules and regulations set forth in the FCA Handbook, the Financial Services and Markets Act 2000 (“FSMA”), the Consumer Credit
Act 1974, as amended (the “CCA”), and secondary legislation passed under the CCA, among other rules and regulations. We must
also follow the Irresponsible Lending Guidance, or the Guidance, of the Office of Fair Trading (the “OFT”), which provides grea
ter
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clarity for lenders as to business practices that the OFT (and now the FCA) believes constitute irresponsible lending under the CCA. In
January 2016, we received full authorization from the FCA to provide consumer credit and to perform related activities. We will be
required to continue to satisfy certain minimum standards set out in the FSMA, which will result in additional costs to us.
The FCA regulates consumer credit and related activities in accordance with the guidance of the FSMA and the FCA Handbook,
which includes prescriptive regulations and carries across many of the standards set out in the CCA and its secondary legislati
on as
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well as the Guidance. The FSMA gives the FCA the power to authorize, supervise, examine and bring enforcement actions against
providers of consumer credit such as us, as well as to make rules for the regulation of consumer credit. On February 28, 2014, the
FCA issued the Consumer Credit Sourcebook (“CONC”), which incorporates prescriptive regulations for lenders such as us, including
mandatory affordability checks on borrowers, limiting the number of rollovers on short-term loans to two, restricting how lenders can
advertise, banning advertisements that the FCA deems misleading, and introducing a limit of two unsuccessful attempts on the use of
continuous payment authority (which provides a creditor the ability to directly debit a customer’s account for payment when
authorized by the customer to do so) to pay off a loan. Certain provisions of the CONC took effect on April 1, 2014, and other
provisions for high cost short-term credit providers such as us, such as the limits on rollovers, continuous payment authority and
advertising, took effect on July 1, 2014.
On January 2, 2015, the FCA implemented a cap on the total cost of high-cost short-term credit, which includes a maximum rate of
0.8% of principal per day, and limits the total fees, interest (including post-default interest) and charges (including late fees which are
capped at £15) to an aggregate amount not to exceed 100% of the principal amount loaned. The final rule required us to make changes
to all of our high-cost short-term products in the United Kingdom. As a result of the final rule, we discontinued offering line of credit
accounts to new customers in the United Kingdom in late 2014 and effective January 1, 2015, we discontinued draws on existing line
of credit accounts in the United Kingdom.
Due to the transfer of the consumer credit regime to the FCA and implementation of the rate cap, we made significant modifications to
many of our business practices to address the FCA’s requirements. These modifications included adjustments to our affordability
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assessment practices and underwriting standards that govern who will qualify for a loan from us, reductions in certain maximum loan
amounts, alterations to our advertising practices and adjustments to our collections processes (including our practices relating to
continuous payment authority) and debt forbearance processes (or our practices regarding customers who have indicated that they are
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experiencing financial difficulties), all of which resulted in a significant year-over-year decrease in our U.K. consumer loan volume,
U.K. loan balances and U.K. revenue for the second half of 2014 and the first half of 2015 as a result of our adapting our U.K.
business practices in response to the requirements of the FCA. The implementation of stricter affordability assessments and
underwriting standards resulted in a decrease in the number of consumer loans written, the average consumer loan amount and the
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total amount of consumer loans written to new and returning customers. Additionally, the changes we made to our collections and debt
forbearance practices in the United Kingdom could result in lower collection rates on delinquent loans, and we have experienced and
will continue to experience an increase in compliance- and administrative-related costs for our U.K. operations.
The FCA conducted a consultation in 2015 and published its response on September 28, 2015, allowing firms to use continuous
payment authority to collect repayments where a customer is in arrears or default and the lender is exercising forbearance. The FCA
also imposed a number of regulatory changes on credit brokers and lenders operating in the high-cost-short-term credit market in the
United Kingdom. The FCA also implemented a provision that requires providers of high-cost short-term credit include a risk warning
in all financial promotions, including previously exempted size-limited ads like SMS text messages and pay-per-click ads. The
majority of these changes came into force on November 2, 2015.
On November 29, 2016, the FCA issued a Call for input, seeking evidence and feedback to further inform its previous reviews of the
high-cost credit market, including a review of the payday loan
luding
payday loans, rent-to-own, pawnbroking loans, guarantor loans, credit cards and installment loans, as well as overdrafts. The CMA
has previously identified a number of competition issues with overdrafts, including poor price transparency and the nature and level of
charges, especially for unarranged overdrafts. The FCA will look in more detail at overdrafts from a consumer protection and a
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competition perspective. The FCA will also review the price cap that was implemented on January 2, 2015 to assess whether there is
evidence that suggests the price cap should be changed and to determine whether there is any evidence of consumers turning to illegal
money lenders as a result of being excluded from the high-cost credit market because of the price cap. The FCA will also continue to
monitor the impact that repeat and multiple borrowing has on the market and consumers. The FCA has requested responses to the Call
for input by February 15, 2017 and expects to publish its findings on the review of the price cap by mid-2017.
The Call for input covers all high-cost products, inc
price cap.
The FCA has stated that previous measures taken by it with respect to the payday loan industry will likely force about a quarter of the
firms out of the industry in the United Kingdom. For recent developments related to the FCA, including serious concerns that were
previously expressed by the FCA regarding our compliance with U.K. legal and regulatory requirements, such as the requirement that our
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business be capable of being effectively supervised by the FCA and compliance with FCA rules and principles and our affordability
assessment and debt forbearance practices, see “Risk Factors—Risks Related to Our Business and Industry— Our primary regulators in
the United Kingdom have previously expressed serious concerns about our compliance with applicable U.K. regulations, which caused
us to make significant changes to our U.K. business that have impacted and will continue to negatively impact our operations and results,
and this impact has been and will continue to be significant,” and “— The United Kingdom has imposed, and continues to impose,
increased regulation of the short-term high-cost credit industry with the stated expectation that some firms will exit the market,” “—
Competition regulators in the United Kingdom have reviewed and may in the future again review our industry and, together with the
FCA, could require lenders to implement changes to their operations, which could have a negative effect on our operations in the United
Kingdom. in Part I, Item 1A of this report.
—
”
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In June 2013, the OFT referred the payday lending industry in the United Kingdom to the Competition Commission, which is now the
Competition & Markets Authority (“CMA”), for a market investigation. The CMA has gathered data from industry participants,
including us, in connection with its review of the U.K. payday lending industry to determine whether certain features of the payday
lending industry prevent, restrict or distort competition (which is also referred to as having an adverse effect on competition) and, if
so, what remedial action should be taken. On August 13, 2015, the CMA published its final order which requires online lenders to
provide details of their products on at least one price comparison website which is authorized by the FCA once the FCA publishes
rules concerning price comparison websites. The CMA also requires online and storefront lenders to provide existing customers with a
summary of their cost of borrowing as of August 13, 2016.
Furthermore, we are subject to the Bribery Act, which prohibits the giving or receiving of a bribe to any person, including but not
limited to public officials, and makes failing to prevent bribery by relevant commercial organizations a criminal offense. This offense
applies when any person associated with the organization offers or accepts bribes anywhere in the world intending to obtain or retain a
business advantage for the organization or in the conduct of business. The Bribery Act is applicable to businesses that operate in the
United Kingdom such as us. The Bribery Act is broader in scope than the FCPA in the United States in that it directly addresses
commercial bribery in addition to bribery of government officials and it does not recognize certain exceptions, notably facilitation
payments that are permitted by the U.S. FCPA.
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In the United Kingdom, we are also subject to the requirements of the Data Protection Act 1988 (“DPA”) and are required to be fully
registered as a data-controller under the DPA. The DPA controls how organizations, businesses and/or the government use personal
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data and how they should process it. The current Data Protection regime will be strengthened by changes from the EU General Data
Protection Regulation (“GDPR”), a regulation by which the European Parliament, the European Council and the European
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Commission intend to strengthen and unify data protection for individuals within the European Union (“EU”). It also addresses export
of personal data outside the EU. The primary objectives of the GDPR are to give citizens back the control of their personal data and to
simplify the regulatory environment for international business by unifying the regulation within the EU. When the GDPR takes effect,
it will replace the data protection directive from 1995.
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The GDPR contains a number of new protections for EU data subjects and threatens significant fines and penalties for non-compliant
data controllers and processors once it comes into effect. The regulation was adopted on April 27, 2016. It is effective May 25, 2018
after a two-year transition period and, unlike a directive, it does not require any enabling legislation to be passed by national
governments.
On October 6, 2015, the European Court of Justice invalidated the so-called “Safe Harbor” framework, which previously evidenced
compliance with the U.K. Data Protection Act and the European Union Data Protection Directive and allowed companies to pass
European Union data to non-European Union countries if certain certification requirements were met by the company. Although many
companies, including us, had Safe Harbor certification, the European Union and the United Kingdom provide other guidance
regarding compliance with data protection laws and regulations for companies who pass data outside the European Union. In addition,
there are circumstances under which a company is exempt from complying with those laws and regulations. Despite the invalidation
of the Safe Harbor framework, we believe we are exempt from and/or in compliance with all E.U. and U.K. privacy laws and
regulations.
On February 2, 2016, the European Commission and the United States agreed on a new framework for transatlantic data flows, the
“EU-US Privacy Shield”, which will replace the invalidated Safe Harbor framework. The EU-US Privacy Shield is a framework
designed by the U.S. Department of Commerce (the “Commerce Department”) and European Commission to provide companies on
both sides of the Atlantic with a mechanism to comply with EU personal data from the European Union to the United States in support
of transatlantic commerce. On July 12, 2016, the European Commission adopted the EU-US Privacy Shield, which consists of four
components: (i) the privacy shield principles, which is a code of conduct outlining protections for the handling of personal data; (ii)
oversight and enforcement; (iii) ombudsperson mechanism; and (iv) safeguards and limitations. The Commerce Department began
accepting certifications to the EU-US Privacy Shield on August 1, 2016. We expect to apply for certification to the EU-US Privacy
Shield, and in the interim, despite the invalidation of the Safe Harbor framework, we believe we are exempt from and/or are in
compliance with all E.U. and U.K. privacy laws and regulations
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In the United Kingdom, we are also subject to specific anti-money laundering and counter terrorist financing requirements that
us to develop and maintain anti-money laundering and counter terrorist financing policies and procedures including reporting
suspicious activity to the Serious Organised Crime Agency (“SOCA”), pursuant to the Proceeds of Crime Act 2002 and the Terrorism
Act 2000. The National Crime Agency (“NCA”), is a law enforcement agency created in 2013 to reduce the harm caused to people
and communities in the UK by serious and organized crime. The NCA replaced the SOCA and is charged with strengthening the UK’s
borders, fighting fraud and cyber-crime and protecting children and young people from sexual abuse and exploitation. The NCA has
the mandate and powers to work in partnership with other law enforcement organizations and has an international role of liaising with
overseas law enforcement agencies. It has a “four pillars” approach to fighting crime: pursue, prevent, protect and prepare.
require
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Our U.K. operations are also overseen by the Financial Ombudsman Service (“FOS”), a public body established by the U.K.
Parliament to carry out statutory functions on a non-commercial, not-for-profit basis. The FOS is the statutory dispute-resolution
scheme set up under the FSMA. The FOS works closely with other U.K. regulators governing the financial services market.
In international jurisdictions where we operate, our advertising and marketing activities and disclosures are subject to regulation under
various consumer protection laws and other applicable laws and regulations.
Separation from Cash America
Prior to November 13, 2014, we were a wholly-owned subsidiary of Cash America. On October 22, 2014, the Board of Directors of
Cash America, after receiving a private letter ruling from the Internal Revenue Service, an opinion from Cash America’s tax counsel
and a solvency opinion from an independent financial advisor, approved a tax-free spin-off (the “Spin-off”) for our separation. Since
2011, we have owned all of the assets and incurred all of the liabilities related to Cash America’s e-commerce business, with some
limited exceptions, in which case such assets were transferred to us and such liabilities were assumed by us pursuant to a Separation
and Distribution Agreement upon completion of the Spin-off. The Spin-off occurred on November 13, 2014. Following the Spin-off,
we became an independent, publicly traded company, and our shares of common stock are listed on the New York Stock Exchange
under the symbol “ENVA.” On September 1, 2016, Cash America merged with First Cash Financial Services, Inc. and is now known
as FirstCash, Inc. (“First Cash”).
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Our Post-Separation Relationship with Cash America
As part of the Spin-off, we entered into several agreements with Cash America that governed the relationship between us and Cash
America (and any successors) after the Spin-off. The agreements provided for the allocation between us and Cash America (and any
successors) of various assets, liabilities, rights and obligations (including insurance and tax-related assets and liabilities). Our
guarantees of Cash America’s long-term indebtedness were released in connection with the Spin-off. These agreements also included
arrangements with respect to certain transitional services to be provided by Cash America to us and vice versa.
For additional information regarding the Separation and Distribution Agreement, see the section entitled “Risk Factors—Risks Related
to the Spin-off.”
Company and Website Information
Our principal executive offices are located at 175 West Jackson Blvd., Chicago, Illinois 60604, and our telephone number is
(312) 568-4200.
Our website is located at www.enova.com. Through our website, we provide free access to our Annual Report on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports filed or furnished pursuant to
Sections 13(a) and 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after such reports are electronically
filed with or furnished to the SEC. These reports may be obtained by visiting the Public Reference Room of the SEC at 100 F Street,
NE, Washington, D.C. 20549, or by calling the SEC at 1-800-SEC-0330. The SEC maintains an internet site that contains reports,
proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov.
ITEM 1A. RISK FACTORS
Our business and future results may be affected by a number of risks and uncertainties that should be considered carefully in
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evaluating us. In addition, this report also contains forward-looking statements that involve risks and uncertainties. Our actual results
could differ materially from those anticipated in such forward-looking statements as a result of certain factors, including the risks
faced by us described below. The occurrence of one or more of the events listed below could also have a material adverse effect on
our business, prospects, results of operations, financial condition and cash flows.
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Risks Related to Our Business and Industry
Our business is highly regulated, and if we fail to comply with applicable laws, regulations, rules and guidance, our business could
be adversely affected.
Our products and services are subject to extensive regulation, supervision and licensing under various federal, state, local and
international statutes, ordinances, regulations, rules and guidance. For example, our loan products may be subject to requirements that
generally mandate licensing or authorization as a lender or as a credit services organization or credit access business (“CSO”),
establish limits on the amount, duration, renewals or extensions of and charges for (including interest rates and fees) various
categories of loans, direct the form and content of our loan contracts and other documentation, restrict collection practices, outline
underwriting requirements and subject us to periodic examination and ongoing supervision by regulatory authorities, among other
things. We must comply with federal laws, such as TILA, ECOA, FCRA, EFTA, GLBA and Title X of the Dodd-Frank Act and the
FDCPA, among other laws, as well as regulations adopted to implement those laws. In addition, our marketing and disclosure efforts
and the representations made about our products and services are subject to unfair and deceptive practice statutes, including the FTC
Act, the TCPA and the CAN-SPAM Act of 2003 in the United States and analogous state statutes under which the Federal Trade
Commission (the “FTC”), the CFPB, state attorneys general or private plaintiffs may bring legal actions.
We are also subject to various international laws, licensing or authorization requirements and disciplinary actions in connection with
the products or services we offer in Brazil and the United Kingdom, which are discussed below. Compliance with applicable laws,
regulations, rules and guidance requires forms, processes, procedures, training, controls and the infrastructure to support these
requirements. Compliance may also create operational constraints, be costly or adversely affect operating results. See “Business—
Regulation” of Part I, Item 1 of this report for further discussion of the laws applicable to us.
The regulatory environment in which we conduct our business is extensive and complex. From time to time we become aware of
instances where our products and services have not fully complied with requirements under applicable laws and regulations or
applicable contracts. Determinations of compliance with applicable requirements or contracts, such as those discussed above, can be
highly technical and subject to varying interpretations. When we become aware of such an instance, whether as a result of our
compliance reviews, regulator inquiry, customer complaint or otherwise, we generally conduct a review of the activity in question and
determine how to address it, such as modifying the product, making customer refunds or providing additional disclosure. We also
evaluate whether reports or other notices to regulators are required and provide notice to regulators whenever required. In some cases
19
we have decided and will decide to take corrective action even after applicable statutory or regulatory cure periods have expired, and
in some cases we have notified regulators even where such notification may not have been required. Regulators or customers
reviewing such incidents or remedial activities may interpret the laws, regulations and customer contracts differently than we have, or
may choose to take regulatory action against us or bring private litigation against us notwithstanding the corrective measures we have
taken. This may be the case even if we no longer offer the product or service in question.
State, federal and international regulators, as well as the plaintiffs’ bars, have subjected our industry to intense scrutiny in recent years.
In addition, our contracts for certain products and services are governed by the law applicable in a state other than the state in which
the customer resides. If a court were to reject our choice of law and determine that a contract was governed by the laws of another
state, the contract may be unenforceable. Failure to comply with applicable laws, regulations, rules and guidance, or any finding that
our past forms, practices, processes, procedures, controls or infrastructure were insufficient or not in compliance, could subject us to
regulatory enforcement actions, result in the assessment against us of civil, monetary, criminal or other penalties (some of which could
be significant in the case of knowing or reckless violations), result in the issuance of cease and desist orders (which can include orders
for restitution, as well as other kinds of affirmative relief), require us to refund payments, interest or fees, result in a determination that
certain financial products are not collectible, result in a suspension or revocation of licenses or authorization to transact business,
result in a finding that we have engaged in unfair and deceptive practices, limit our access to services provided by third-party financial
institutions or cause damage to our reputation, brands and valued customer relationships. We may also incur additional, substantial
expenses to bring those products and services into compliance with the laws of various jurisdictions or stop offering certain products
and services in certain jurisdictions.
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Our failure to comply with any regulations, rules or guidance applicable to our business could have a material adverse effect o
business, prospects, results of operations, financial condition and cash flows and could prohibit or directly or indirectly impair our
ability to continue current operations.
n our
The lending and financing industry continues to be targeted by new laws or regulations in many jurisdictions that could restrict
the lending and financing products and services we offer, impose additional compliance costs on us, render our current operations
unprofitable or even prohibit our current operations.
Governments at the national, state and local levels, as well as international governments, may seek to impose new laws, regulatory
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restrictions or licensing requirements that affect the products or services we offer, the terms on which we may offer them, and
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disclosure, compliance and reporting obligations we must fulfill in connection with our lending and financing business. They may also
interpret or enforce existing requirements in new ways that could restrict our ability to continue our current methods of operation or to
expand operations, impose significant additional compliance costs, and may have a negative effect on our business, prospects, results
of operations, financial condition and cash flows. In some cases these measures could even directly prohibit some or all of our current
business activities in certain jurisdictions, or render them unprofitable and/or impractical to continue.
the
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In recent years, consumer loans, and in particular the category commonly referred to as “payday loans,” which includes certain of our
short-term loan products, have come under increased regulatory scrutiny that has resulted in increasingly restrictive regulations and
legislation that makes offering such loans in certain states in the United States or the international countries where we opera
further described below) less profitable or unattractive. Laws or regulations in some states in the United States require that all
borrowers of certain short-term loan products be reported to a centralized database and limit the number of loans a borrower may
receive or have outstanding. Other laws limit the availability of some of our consumer loan products in the United States to active duty
military personnel, active members of the National Guard or members on active reserve duty and their spouses and immediate
dependents.
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Certain consumer advocacy groups and federal and state legislators and regulators have advocated that laws and regulations should be
resulted in
tightened so as to severely limit, if not eliminate, the type of loan products and services we offer to consumers, and this has
both the executive and legislative branches of the U.S. federal government and state governmental bodies exhibiting an interest in
debating legislation that could further regulate consumer loan products and services such as those that we offer. The U.S. Congress, as
well as other similar federal, state and local bodies and similar international governmental authorities, have debated, and may in the
future adopt, legislation or regulations that could, among other things, place a cap (or decrease a current cap) on the interest or fees
that we can charge or a cap on the effective annual percentage rate that limits the amount of interest or fees that may be charged, ban
or limit loan renewals or extensions of short-term loans (where the customer agrees to pay the current finance charge on a loan for the
right to make payment of the outstanding principal balance of such loan at a later date plus an additional finance charge), including the
rates to be charged for loan renewals or extensions, require us to offer an extended payment plan, limit origination fees for loans,
require changes to our underwriting or collections practices, require lenders to be bonded or to report consumer loan activity to
databases designed to monitor or restrict consumer borrowing activity, impose “cooling off” periods between the time a loan is paid
off and another loan is obtained or prohibit us from providing any of our consumer loan products in the United States to active duty
military personnel, active members of the National Guard or members on active reserve duty and their spouses and immediate
dependents.
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We cannot currently assess the likelihood of any future unfavorable federal, state, local or international legislation or regulations being
proposed or enacted that could affect our products and services. We closely monitor proposed legislation in jurisdictions where we
offer our loan products. Additional legislative or regulatory provisions could be enacted that could severely restrict, prohibit or
eliminate our ability to offer a consumer or small business loan or financing product. In addition, under statutory authority, U.S. state
regulators have broad discretionary power and may impose new licensing requirements, interpret or enforce existing regulatory
requirements in different ways or issue new administrative rules, even if not contained in state statutes, that could adversely affect the
way we do business and may force us to terminate or modify our operations in particular states or affect our ability to obtain new
licenses or renew the licenses we hold.
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Significant new laws and regulations have also been adopted in the United Kingdom, and further new laws and regulations will
continue to be imposed. See “— The United Kingdom has imposed, and continues to impose, increased regulation of the short-term
high-cost credit industry with the stated expectation that some firms will exit the market” below for additional information.
—
Furthermore, legislative or regulatory actions may be influenced by negative perceptions of us and our industry, even if such n
perceptions are inaccurate, attributable to conduct by third parties not affiliated with us (such as other industry members), or
attributable to matters not specific to our industry. Any of these or other legislative or regulatory actions that affect our lending and
financing business at the national, state, international and local level could, if enacted or interpreted differently, have a material
adverse impact on our business, prospects, results of operations, financial condition and cash flows and could prohibit or directly or
indirectly impair our ability to continue current operations.
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egative
The Consumer Financial Protection Bureau has examination authority over our U.S. consumer lending business that could have a
significant impact on our U.S. business.
In July 2010, the U.S. Congress passed the Dodd-Frank Act, and Title X of the Dodd-Frank Act created the CFPB, which regulates
U.S. consumer financial products and services, including consumer loans offered by us. The CFPB has regulatory, supervisory and
enforcement powers over providers of consumer financial products and services, such as us, including explicit supervisory authority to
examine and require registration of such providers.
The CFPB has begun exercising supervisory review over and examining certain non-bank providers of consumer financial products
and services, including providers of consumer loans such as us. The CFPB has examined our lending products, services and practices,
and we expect to continue to be examined on a regular basis by the CFPB. The CFPB’s examination authority permits CFPB
examiners to inspect the books and records of providers of short-term, small dollar lenders, and ask questions about their business
practices, and the examination procedures include specific modules for examining marketing activities; loan application and
origination activities; payment processing activities and sustained use by consumers; collections, accounts in default, and consumer
reporting activities as well as third-party relationships. As a result of these examinations, we could be required to change our products,
services or practices, whether as a result of another party being examined or as a result of an examination of us, or we could be subject
to monetary penalties, which could materially adversely affect us.
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Furthermore, because the CFPB is a relatively new entity, its practices and procedures regarding examination, enforcement and other
matters relevant to us and other CFPB-regulated entities are subject to further development and change. Where the CFPB holds
powers previously assigned to other regulators, the CFPB may not continue to apply such powers or interpret relevant concepts
consistent with previous regulators’ practice. This may adversely affect our ability to anticipate the CFPB’s expectations or
interpretations in our interaction with the CFPB.
The CFPB also has broad authority to prohibit unfair, deceptive and abusive acts and practices and to investigate and penalize
financial institutions that violate this prohibition. In addition to having the authority to obtain monetary penalties for violations of
applicable federal consumer financial laws (including the CFPB’s own rules), the CFPB can require remediation of practices, pursue
administrative proceedings or litigation and obtain cease and desist orders (which can include orders for restitution or rescis
sion of
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contracts, as well as other kinds of affirmative relief). Also, where a company has violated Title X of the Dodd-Frank Act or CFPB
regulations implemented thereunder, the Dodd-Frank Act empowers state attorneys general and state regulators to bring civil actions
to remedy violations of state law. If the CFPB or one or more state attorneys general or state regulators believe that we have violated
any of the applicable laws or regulations, they could exercise their enforcement powers in ways that could have a material adverse
effect on our business, prospects, results of operations, financial condition and cash flows.
We are subject to a Consent Order issued by the Consumer Financial Protection Bureau, and any noncompliance would materially
adversely affect our business.
On November 20, 2013, Cash America, our parent company at the time, consented to the issuance of a Consent Order by the CFPB
pursuant to which it agreed, without admitting or denying any of the facts or conclusions made by the CFPB from its 2012 review of w
Cash America and us, to pay a civil money penalty of $5 million. The Consent Order also relates, in part, to issues self-disclosed to the
CFPB during its 2012 examination of us, including the making of a limited number of loans to consumers who may have been active
21
duty members of the military at the time of the loan at rates in excess of the interest rate permitted by the federal Military Lending
Act, for which we have made refunds of approximately $33,500, and for certain failures to timely provide and preserve records and
information in connection with the CFPB’s examination of us. In addition, as a result of the CFPB’s review, we enhanced our
compliance management system and are implementing additional policies and procedures to address the issues identified by the
CFPB. We remain subject to the restrictions and obligations of the Consent Order, including the CFPB’s order that we ensure
compliance with federal consumer financial laws and develop more robust compliance policies and procedures. These new policies,
procedures and other initiatives are in many cases subject to review and potential objection by the CFPB, and no guarantee can be
made regarding the timing, substance or effect of any such measures the CFPB may decide to take. Furthermore, the compliance plan
mandated by the Consent Order requires us to perform a formal consumer protection compliance risk review before introducing or
implementing new or changed products or services. This requirement could result in additional delay or cost when introducing or
implementing new or changed products or services, or a decision not to proceed with such initiatives. Any noncompliance with the
Consent Order or similar orders or agreements from other regulators could lead to further regulatory penalties and could have a
material adverse impact on our business, prospects, results of operations, financial condition and cash flows and could prohibit or
directly or indirectly impair our ability to continue current operations.
The CFPB could soon promulgate a new rule affecting the consumer lending industry, and this rule or a subsequent new rule and
regulations may significantly restrict the conduct of our U.S. consumer lending business.
On June 2, 2016, the CFPB issued its Notice of Proposed Rulemaking (the “Proposed Rule”) on Payday, Vehicle Title, and Certain
High-Cost Installment Loans. The Proposed Rule would impose significant limitations on all short-term loans and on installment loans
with an APR above 36%, including our short-term loan products and certain of our installment loan and line of credit products.
Among other requirements, the Proposed Rule obligates lenders to conduct a specific assessment regarding a borrower’s ability to
repay, including a requirement to verify borrowers’ income and major financial obligations. The Proposed Rule also includes
limitations on the number of loans that certain borrowers can have within a specified time frame and requires additional disclosures in
loan documents and notices regarding payments.
The Proposed Rule was published in the Federal Register on July 22, 2016, and comments on the Proposed Rule were due to the
CFPB by October 7, 2016. The CFPB will review all submitted comments before issuing a final rule. If the CFPB adopts a final rule
that significantly restricts the conduct of our business, any such rule could have a material adverse effect on our business, p
rospects,
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results of operations, financial condition and cash flows or could make the continuance of all or part of our U.S. business impractical
or unprofitable. Any new rule adopted by the CFPB could also result in significant compliance costs.
Election of a new U.S. president supported by a majority of the U.S. Congress from the same political party could significantly
change regulatory, legal or other policies that could affect our business.
In January 2017, a majority of both the U.S. House of Representatives and the U.S. Senate was won by a Republican Party majority.
In addition, a Republican was sworn in as the 45th President of the United States. The President and certain Republicans in the U.S.
Congress have made statements regarding the desire to lessen the regulatory burden on businesses to create job growth and regarding
the status of the Dodd-Frank Act, and the many rules adopted thereunder. The Dodd-Frank Act created the CFPB, which regulates
consumer financial products and services including consumer loans that we offer. Until specific laws are passed, executive actions are
taken or federal regulatory action is enacted, it is unclear what impact changes to regulatory, legal or other policies will have on our
business.
aa
The United Kingdom has imposed, and continues to impose, increased regulation of the short-term high-cost credit industry with
the stated expectation that some firms will exit the market.
In the United Kingdom, the FCA regulates consumer credit and related activities pursuant to the FSMA and the FCA Handbook,
which includes prescriptive rules and regulations and carries across many of the standards set out in the CCA and its secondary
legislation as well as previous guidance initially set out by the OFT. The regulations under the FCA consumer credit regime are more
prescriptive than the former U.K. consumer credit regime. The FSMA gives the FCA the power to authorize, supervise, examine and
bring enforcement actions against providers of consumer credit, as well as to make rules for the regulation of consumer credit. On
February 28, 2014, the FCA issued the CONC contained in the FCA Handbook. The CONC incorporates prescriptive regulations for
consumer loans such as those that we offer, including mandatory affordability checks on borrowers, limiting the number of rollovers
on short-term loans to two, restricting how lenders can advertise, banning advertisements that the FCA deems misleading, and
introducing a limit of two unsuccessful attempts on the use of continuous payment authority (which provides a creditor the ability to
directly debit a customer’s account for payment when authorized by the customer to do so) to pay off a loan. Certain provisions of the
CONC took effect on April 1, 2014, and other provisions for high-cost short-term credit providers, such as the limits on rollovers,
continuous payment authority and advertising, took effect on July 1, 2014. As a result of the FCA’s requirements, we made significant
adjustments to many of our business practices in the United Kingdom, as discussed below under “— Our primary regulators in the
United Kingdom have previously expressed serious concerns about our compliance with applicable U.K. regulations, which caused us
—
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to make significant changes to our U.K. business that have impacted and will continue to negatively impact our operations and
results, and this impact has been and will continue to be significant.”
On January 2, 2015, the FCA implemented a cap on the total cost of high-cost short-term credit, which includes a maximum rate of
0.8% of principal per day and limits the total fees, interest (including post-default interest) and charges (including late fees which are
capped at £15) to an aggregate amount not to exceed 100% of the principal amount loaned. The final rule required us to make changes
to all of our high-cost short-term products in the United Kingdom. As a result of the final rule, we discontinued offering line of credit
accounts to new customers in the United Kingdom in late 2014 and effective January 1, 2015, we discontinued draws on existing line
of credit accounts in the United Kingdom.
The FCA conducted a consultation in 2015 and published its response on September 28, 2015, allowing firms to use continuous
payment authority to collect repayments where a customer is in arrears or default and the lender is exercising forbearance. The FCA
also imposed a number of regulatory changes on credit brokers and lenders operating in the high-cost-short-term credit market in the
United Kingdom. The FCA also implemented a provision that requires providers of high-cost short-term credit include a risk warning
in all financial promotions, including previously exempted size-limited ads like SMS text messages and pay-per-click ads. The
majority of these changes came into force on November 2, 2015.
On November 29, 2016, the FCA issued a Call for input, seeking evidence and feedback to further inform its previous reviews of the
high-cost credit market, including a review of the payday loan price cap. The Call for input covers all high-cost products, including
payday loans, rent-to-own, pawnbroking loans, guarantor loans, credit cards and installment loans, as well as overdrafts. The CMA
has previously identified a number of competition issues with overdrafts, including poor price transparency and the nature and level of
charges, especially for unarranged overdrafts. The FCA will look in more detail at overdrafts from a consumer protection and a
competition perspective. The FCA will also review the price cap that was implemented on January 2, 2015 to assess whether there is
evidence that suggests the price cap should be changed and to determine whether there is any evidence of consumers turning to illegal
money lenders as a result of being excluded from the high-cost credit market because of the price cap. The FCA will also continue to
monitor the impact that repeat and multiple borrowing has on the market and consumers. The FCA has requested responses to the Call
for input by February 15, 2017 and expects to publish its findings on the review of the price cap by mid-2017.
During the years ended December 31, 2016 and 2015, our U.K. operations represented 13.9% and 19.9%, respectively, of our
consolidated total revenue.
These changes that we have implemented or are required to implement in the future as a result of such legislative and regulatory
activities could have a material adverse effect on our U.K. business, as further described below under “— Our primary regulators in
the United Kingdom have previously expressed serious concerns about our compliance with applicable U.K. regulations, which
caused us to make significant changes to our U.K. business that have impacted and will continue
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and results, and this impact has been and will continue to be significant,” and “— Due to restructuring of the consumer credit
regulatory framework in the United Kingdom, we are required to obtain full authorization from our U.K. regulators to continue
providing consumer credit and perform related activities in the United Kingdom, and there is no guarantee that we will receive full
authorization to continue offering consumer loans in the United Kingdom.” We cannot give any assurances that the result of the
FCA’s review of the high-cost credit market and the payday loan rate cap and any potential new rules will not have a material impact
on our U.K. products and services.
to negatively impact our operations
—
—
Our primary regulators in the United Kingdom have previously expressed serious concerns about our compliance with applicable
U.K. regulations, which caused us to make significant changes to our U.K. business that have impacted and will continue to
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negatively impact our operations and results, and this impact has been and will continue to be significant.
In February 2012, the OFT launched a review of the payday lending sector and conducted examinations of a number of payday lenders
in the United Kingdom, including us. In May 2013, the OFT sent us a letter of findings related to its examination of our U.K. short
term consumer loan (or payday) business, which indicated that we may not have been in full compliance with all relevant laws and
guidance. In July 2013, we provided the OFT with an independent audit report setting out the steps taken to address each concern the
OFT had identified.
On April 1, 2014, the FCA assumed the supervision and regulation of us, and we are subject to ongoing examination and review by
the FCA. In 2014, the FCA informed us that it had serious concerns regarding our compliance with the FCA’s rules and principles,
including those with respect to our affordability assessment process and our debt forbearance practices (or our practices regarding
customers who have indicated they are experiencing financial difficulty). The FCA also noted concerns regarding certain of our
advertising practices. The FCA appointed an independent auditor to undertake a review of certain of our practices as well as our
ability to be effectively supervised. That review identified activities that were deemed to have potentially caused consumer detriment
or were not in full compliance with the FCA’s rules and guidance. On November 4, 2015, the FCA announced the final redress
program, in which we provided 3,940 customers total redress of approximately $2.6 million through a combination of loan balance
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waivers and cash refunds of interest and fees paid. The skilled person oversaw the execution of the redress program, which was
concluded in the fourth quarter of 2015.
We made significant adjustments to many of our business practices, including modifying our affordability assessments and
underwriting standards, reducing certain maximum loan amounts, changing our collections processes (including our practices relating
to continuous payment authority) and debt forbearance practices and altering certain advertising practices, all of which resulted in a
significant year-over-year decrease in our U.K. loan volume, U.K. loan balances and U.K. revenue in the second half of 2014 and the
first half of 2015. The implementation of stricter affordability assessments and underwriting standards resulted in a decrease in the
number of consumer loans written, the average consumer loan amount and the total amount of consumer loans written to new and
returning customers. Additionally, we experienced and will continue to experience an increase in compliance- and administrative-
related costs for our U.K. operations. In addition, the FCA, in its supervisory role, could subject us to periodic or ongoing examination
and review by the FCA, and as such, the FCA could require us to make additional changes to our business that could further
negatively affect future results for our U.K. operations. We are continuing to assess the impact of the changes we have made to our
U.K. operations, but the impact of these changes was significant, and future changes to our operations as a result of FCA oversight of
our business could result in a material adverse effect on our U.K. business and our prospects, results of operation, financial condition
and cash flows.
Competition regulators in the United Kingdom have reviewed and may in the future again review our industry and, together with
the FCA, could require lenders to implement changes to their operations, which could have a negative effect on our operations in ii
the United Kingdom.
In June 2013, the OFT referred the payday lending industry in the United Kingdom to the Competition Commission, which is now the
Competition & Markets Authority (“CMA”), for a market investigation. The CMA gathered data from industry participants, including
us, in connection with its review of the U.K. payday lending industry to determine whether certain features of the payday lending
industry prevent, restrict or distort competition (which is also referred to as having an adverse effect on competition) and, if so, what
remedial action should be taken.
On June 11, 2014, the CMA released a provisional findings report in which it indicated that it believes that many payday lenders fail
to compete on price and indicated that it will look at potential ways to increase price competition. The CMA also announced the
expansion of its review of the payday lending industry to include lead generators. The CMA announced its provisional decision on
remedies on October 9, 2014, and published its final report on February 24, 2015. On August 13, 2015, the CMA published its final
order which requires online lenders to provide details of their products on at least one price comparison website. The CMA also
requires online and storefront lenders to provide existing customers with a summary of their cost of borrowing as of August 13, 2016.
The impact of the CMA’s August 13, 2015 order on our operations has not been significant. However, we do not know whether future
actions by the CMA and the FCA could impact consumer acceptance of our products or the consumer experience in obtaining loans or
if any future actions could otherwise significantly restrict the conduct of our business or otherwise have a material adverse effect on
our business, prospects, results of operations, financial condition and cash flows.
Customer complaints to the Financial Ombudsman Service could increase, which could have a negative effect on our operations in
the United Kingdom.
We have experienced an increased volume of complaints about loans issued prior to changes we implemented in 2014, and the FOS
has taken a very consumer friendly approach to its complaint handling process and in dispute resolutions. If the FOS continues to issue
findings in favor of consumers, such findings could have a material adverse effect on our business, prospects, results of operations,
financial condition and cash flows.
Our advertising and marketing materials and disclosures have been and continue to be subject to regulatory scrutiny, particularlyr
in the United Kingdom.
In the jurisdictions where we operate, our advertising and marketing activities and disclosures are subject to regulation under various
industry standards, consumer protection laws, and other applicable laws and regulations. Consistent with the consumer lending
industry as a whole, our advertising and marketing materials have come under increased scrutiny. In the United Kingdom, for
example, consumer credit firms are subject to the financial promotions regime set out in the FSMA (Financial Promotions) Order 2005
and specific rules in the CONC, such as the inclusion of a risk warning on certain advertising materials. The FCA has also decided to
adopt certain elements of industry codes as FCA rules on a case by case basis. Our advertising and marketing materials in the United
Kingdom are reviewed both by the FCA and the Advertising Standards Authority. We have in some cases been ordered to withdraw,
amend or add disclosures to such materials, or have done so voluntarily in response to inquiries or complaints. In addition, the FCA
now requires that providers of high-cost short-term credit include a risk warning in all financial promotions, including previously
exempted size-limited ads like SMS text messages and pay-per-click ads.
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Going forward, there can be no guarantee that we will be able to advertise and market our business in the United Kingdom or
elsewhere in a manner we consider effective. Any inability to do so could have a material adverse effect on our business, prospects,
results of operations, financial condition and cash flows.
Significant changes in international laws or regulations or a deterioration of the political, regulatory or economic environment of
the United Kingdom or Brazil, or any other country in which we begin operations, could affect our operations in these countries.
We offer, arrange and/or service online consumer loans to customers in Brazil and the United Kingdom. The United Kingdom has
recently increased regulation of our industry as well as demonstrated an increasing interest in legislation or regulations that could
further regulate or restrict the consumer loan products we offer.
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Significant changes in international laws or regulations or a deterioration of the political, regulatory or economic environment of
Brazil or the United Kingdom could restrict our ability to sustain or expand our operations in these countries. Similarly, a significant
change in laws, regulations or overall treatment (including an interpretation or application of such laws and regulations not anticipated
when exploring or initiating business) or a deterioration of the political, regulatory or economic environment of any other country in
which we may decide to do business, could also materially adversely affect our prospects and could restrict our ability to initiate a
pilot program or develop a pilot program into full business operations.
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We have previously ceased business in certain jurisdictions due to regulatory restrictions and, if we are forced to exit many keykk
jurisdictions due to regulatory restrictions, it could adversely affect our business as a whole.
In the past we have ceased business in, restricted our operations in, or chosen not to begin business in, certain jurisdictions due to
regulatory restrictions which render our operations impermissible, unprofitable or impractical. In addition, because we are in some
cases subject to state/provincial and local regulation in addition to federal/national regulation, we may restrict or discontinue business
in certain jurisdictions within countries where we are otherwise active. For example, as of December 31, 2016, we did not offer or
arrange consumer loans in 17 U.S. states or in the District of Columbia because we do not believe it is economically feasible t
operate in those jurisdictions due to specific statutory or regulatory restrictions, such as interest rate ceilings or caps on the fees that
may be charged.
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The adoption of state regulatory measures cannot be predicted, but we expect that other states may propose or enact similar
restrictions on our consumer or small business loan or financing products in the future, which could affect our operations in such
states. Legislation or regulations targeting or otherwise directly affecting our products and services have been introduced or adopted in
a number of states over the last few years, and we regularly monitor proposed legislation or regulations that could affect our business.
For more information, see “Regulation and Legal Proceedings—U.S. State Regulation.”
If we are forced to exit many key jurisdictions due to such concerns, we cannot guarantee that we will be able to find suitably
attractive additional business opportunities elsewhere, which could have a material adverse effect on our business, prospects, results of
operations, financial condition and cash flows.
Our access to payment processing systems to disburse and collect loan and financing pr
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oceeds and repayment
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Automated Clearing House, is critical to our business, and any interruption or limitation on our ability to utilize any of the
available means of processing deposits or payments could materially adversely affect our business.
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When making loans and providing financing in the United States, we use several means of depositing proceeds into and collecting
repayments from our customers’ bank accounts, including the use of ACH and remotely-created check processing. Our business,
including loans made through the CSO programs, depends on payment processing systems to collect amounts due by repayments from
our customers’ bank accounts when we have obtained authorization to do so from the customer. Our transactions are processed by
banks, and if these banks cease to provide any of the available means of payment processing services, we would have to materially
alter, or possibly discontinue, some or all of our business if alternative processing methods are not as effective or not available.
It has been reported that actions by the U.S. Department of Justice (the “Justice Department”), the Federal Deposit Insurance
Corporation (“FDIC”) and certain state regulators, referred to as Operation Choke Point, appear to be intended to discourage banks
and ACH payment processors from providing access to the ACH system for certain short-term consumer loan providers that they
believe are operating illegally, cutting off their access to the ACH system to either debit or credit customer accounts (or both). This
heightened regulatory scrutiny by the Justice Department, the FDIC and other regulators has caused banks and ACH payment
processors to cease doing business with consumer lenders who are operating legally, without regard to whether those lenders are
complying with applicable laws, simply to avoid the risk of heightened scrutiny or even litigation.
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In addition, the National Automated Clearinghouse Association (“NACHA”) (which oversees the ACH network) has certain operating
rules that govern the use of the ACH system. Amendments to the rules were adopted by NACHA’s members in August 2014 and
became effective in 2015 and 2016. These amendments, among other things (1) established certain ACH return rate levels, including
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an overall ACH return rate level of 15% of the originator’s debit entries (and if any of the specified return rate levels are exceeded, the
origination practices and activities of the originator would be subject to a new preliminary inquiry process by NACHA), (2) enhanced
limitations on certain ACH reinitiation activities, (3) imposed fees on certain unauthorized ACH returns and (4) allowed for increased
flexibility in how NACHA rules violation investigations can be initiated, which does not change the rules enforcement process, but
defines additional circumstances under which NACHA may initiate a risk investigation or rules enforcement proceeding based on the
origination of unauthorized entries. The revised rules provide clarification that certain industries deal with customers who are more
likely to experience an insufficient funds scenario and that the review of an originator with returns in excess of certain of the specified
thresholds would take into account the originator’s business model in conjunction with its ACH origination practices. We have
implemented processes and procedures to address the amendments to the ACH operating rules and that has had an adverse effect on
our ability to collect on our loans. As a result of these amendments, our access to the ACH system could be restricted, our ACH costs
could increase and we may need to make changes to our business practices.
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Our access to payment processing systems could be impaired as a result of actions by regulators to cut off the access to payment
processing systems to payday lenders or the NACHA rule amendments. The limited number of financial institutions we depend on
may choose to discontinue providing ACH processing, remotely created check processing and similar services to us. If our access to
any of these means of payment processing is impaired, we may find it difficult or impossible to continue some or all of our business,
which could have a material adverse effect on our business, prospects, results of operations, financial condition and cash flows. If we
are unable to maintain access to needed services on favorable terms, we would have to materially alter, or possibly discontinue, some
or all of our business if alternative processors are not available.
The failure to comply with debt collection regulations could subject us to fines and other liabilities, which could harm our
reputation and business.
The FDCPA regulates persons who regularly collect or attempt to collect, directly or indirectly, consumer debts owed or asserted to be
owed to another person. Many states impose additional requirements on persons collecting or attempting to collect consumer debts
owed to them and on debt collection communications, and some of those requirements may be more stringent than the federal
requirements. Moreover, regulations governing debt collection are subject to changing interpretations that differ from jurisdiction to
jurisdiction.
In addition, on July 28, 2016, the CFPB issued an outline of proposals intended to increase consumer protection pertaining to third-
party debt collectors and others covered by the FDCPA, which would apply to our attempts to collect debt originated by other lenders,
including under our CSO programs and our Bank Program. The proposals would not apply to our attempts to collect debt that we
originate; however, the CFPB has announced that it plans to address consumer protection issues involving first-party debt collectors
and creditors separately. The CFPB outline does not include proposed or final rules, and any future rules could be significantly
different from those in the outline. The CFPB has not yet defined a date for any proposed rules related to debt collection nor has it
defined the effective date for the implementation of final rules. We cannot give any assurances that the effect of such rules will not
have a material impact on our U.S. products and services.
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Non-U.S. jurisdictions also regulate debt collection. For example, in the United Kingdom, due to new rules under the CONC we have
made adjustments to some of our business practices, including our collections processes, which could possibly result in lower
collections on loans made by us and has resulted in a decrease in the number of new customers that we are able to approve. In
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addition, the concerns previously expressed to us by the OFT and the FCA related in part to debt collection. We could be subject to
fines, written orders or other penalties if we, or parties working on our behalf, are determined to have violated the FDCPA, the CONC
or analogous state or international laws, which could have a material adverse effect on our reputation, business, prospects, results of
operations, financial condition and cash flows.
We use lead providers and marketing affiliates to assist us in obtaining new customers, and if lead providers or marketing affiliates
do not comply with an increasing number of applicable laws and regulations, or if our ability to use such lead providers or
marketing affiliates is otherwise impaired, it could adversely affect our business.
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We are dependent on third parties, referred to as lead providers (or lead generators) and marketing affiliates, as a source of new
customers. Our marketing affiliates place our advertisements on their websites that direct potential customers to our websites.
Generally, lead providers operate, and also work with their own marketing affiliates who operate, separate websites to attract
prospective customers and then sell those “leads” to online lenders. As a result, the success of our business depends substantially on
the willingness and ability of lead providers or marketing affiliates to provide us customer leads at acceptable prices.
If regulatory oversight of lead providers or marketing affiliates is increased, through the implementation of new laws or regulations or
the interpretation of existing laws or regulations, our ability to use lead providers or marketing affiliates could be restricted or
eliminated. For example, the CFPB has indicated its intention to examine compliance with federal laws and regulations by lead
providers and to scrutinize the flow of non-public, private consumer information between lead providers and lead buyers, such as us.
In December 2015, in a complaint filed in federal court, the CFPB alleged that T3Leads bought and sold personal information from
payday and installment loan applications without properly vetting buyers and sellers. In addition, during 2013, the State of California
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began enforcing its short-term lending statute to require lead providers to be licensed in order to provide leads to licensed lenders. As
a result, we discontinued using lead providers to generate leads for short-term consumer loans in California. In April 2014, the
Attorney General of the State of Illinois filed a lawsuit against a lead provider, alleging that the lead provider offered and arranged
payday loans without a license. As a result, we discontinued the use of lead providers in Illinois. While these discontinuations did not
have a material adverse effect on us, we expect that other states may propose or enact similar restrictions on lead providers and
potentially on marketing affiliates in the future, and if other states adopt similar restrictions, our ability to use lead providers or
marketing affiliates in those states would also be interrupted. Although we cannot predict what measures will be taken, we expect that
other states may propose or enact similar restrictions on lead providers in the future.
We also expect that the ongoing regulatory review of consumer lending in the United Kingdom may lead to increased restrictions on
the operations and/or use of lead providers. On December 1, 2014, the FCA published a policy statement which set out its concerns
about the practices of some credit brokers which charge upfront fees to consumers. It also introduced new rules targeted at en
suring
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that key features of brokers’ relationships with consumers are transparent, which came into effect on January 2, 2015. In addition, in
its report regarding the payday industry, the CMA recommended that the FCA take steps to ensure that lead generators explain how
they operate much more clearly to customers, including that lead generators be required to state that application details are referred to
the lender that offers the lead generator the best commercial deal rather than to the lender that offers the most suitable loan for the
customer’s needs. On September 28, 2015, the FCA published its policy statement confirming its retention of the credit broking rules
previously introduced as well as imposing minor changes to CONC rules on credit brokers, which became effective on January 2,
2016.
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Lead providers’ or marketing affiliates’ failure to comply with applicable laws or regulations, or any changes in laws or regulations
applicable to lead providers or marketing affiliates’ or changes in the interpretation or implementation of such laws or regulations,
could have an adverse effect on our business and could increase negative perceptions of our business and industry. Additionally, the
use of lead providers and marketing affiliates could subject us to additional regulatory cost and expense. If our ability to use lead
generators or marketing affiliates were to be impaired, our business, prospects, results of operations, financial condition and cash
flows could be materially adversely affected.
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The use of personal data for credit underwriting is highly regulated.
In the United States the FCRA regulates the collection, dissemination and use of consumer information, including consumer credit
information. Compliance with the FCRA and related laws and regulations concerning consumer reports has recently been under
regulatory scrutiny. The FCRA requires us to provide a Notice of Adverse Action to a consumer loan applicant when we deny an
application for credit, which, among other things, informs the applicant of the action taken regarding the credit application and the
specific reasons for the denial of credit. The FCRA also requires us to promptly update any credit information reported to a consumer
reporting agency about a consumer and to allow a process by which consumers may inquire about credit information furnished by us
to a consumer reporting agency. Historically, the FTC has played a key role in the implementation, oversight, enforcement and
interpretation of the FCRA. Pursuant to the Dodd-Frank Act, the CFPB has primary supervisory, regulatory and enforcement authority
of FCRA issues, although the FTC also retains its enforcement role regarding the FCRA but shares that role in many respects with the
CFPB. The CFPB has taken a more active approach than the FTC, including with respect to regulation, enforcement and supervision
of the FCRA. Changes in the regulation, enforcement or supervision of the FCRA may materially affect our business if new
regulations or interpretations by the CFPB or the FTC require us to materially alter the manner in which we use personal data in our
credit underwriting.
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In the United Kingdom, we are also subject to the requirements of the Data Protection Act 1988 (the “DPA”) and are required to be
fully registered as a data-controller under the DPA. On October 6, 2015, the European Court of Justice invalidated the so-called “Safe
Harbor” framework, which previously evidenced compliance with the DPA and the European Union Data Protection Directive and
allowed companies to pass European Union data to non-European Union countries if certain certification requirements were met by
the company. Although many companies, including us, had Safe Harbor certification, the European Union and the United Kingdom
provide other guidance regarding compliance with their data protection laws and regulations for companies who pass data outside the
European Union. In addition, there are circumstances under which a company is exempt from complying with those laws and
regulations. Despite the invalidation of the Safe Harbor framework, we believe we are exempt from and/or in compliance with all E.U.
and U.K. privacy laws and regulations.
On February 2, 2016, the European Commission and the United States agreed on a new framework for transatlantic data flows: the
“EU-US Privacy Shield”, which will replace the invalided Safe harbor framework. The EU-US Privacy Shield is a framework
designed by the U.S. Department of Commerce (the “Commerce Department”) and European Commission to provide companies on
both sides of the Atlantic with a mechanism to comply with EU personal data from the European Union to the United States in support
of transatlantic commerce. On July 12, 2016, the European Commission adopted the EU-US Privacy Shield, which consists of four
components: (i) the privacy shield principles, which is a code of conduct outlining protections for the handling of personal data; (ii)
oversight and enforcement; (iii) ombudsperson mechanism; and (iv) safeguards and limitations. The Commerce Department began
accepting certifications to the EU-US Privacy Shield on August 1, 2016. We expect to apply for certification to the EU-US Privacy
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Shield, and in the interim, despite the invalidation of the Safe Harbor framework, we believe we are exempt from and/or are in
compliance with all E.U. and U.K. privacy laws and regulations.
On June 23, 2016, the United Kingdom voted to exit the European Union. The details and timeline of the exit have not yet been
finalized. When the United Kingdom exits the European Union, it is expected that the United Kingdom will establish a new
framework for data flow between the United Kingdom and the United States or will agree to continue the protections of the EU-US
Privacy Shield for the transfer of personal data into and out of the United Kingdom. We expect to comply with any framework
established by the United Kingdom for the transfer of personal data into and out of the United Kingdom.
The oversight of the FCRA by both the CFPB and the FTC and any related investigation or enforcement activities or our failure to
comply with the DPA may have a material adverse impact on our business, including our operations, our mode and manner of
conducting business and our financial results.
Negative public perception of our business could cause demand for our products to significantly decrease.
In recent years, consumer advocacy groups and some media reports have advocated governmental action to prohibit or place severe
restrictions on short-term and high-cost consumer loans. Such consumer advocacy groups and media reports generally focus on the
annual percentage rate for this type of consumer loan, which is compared unfavorably to the interest typically charged by banks to
consumers with top-tier credit histories. The fees and/or interest charged by us and others in the industry attract media publicity about
the industry and can be perceived as controversial. If the negative characterization of these types of loans becomes increasingly
accepted by consumers, demand for any or all of the consumer loan products that we offer could significantly decrease, which could
materially affect our business, prospects, results of operations, financial condition and cash flows. Additionally, if the negative
characterization of these types of loans is accepted by legislators and regulators, we could become subject to more restrictive laws and
regulations applicable to short-term loans or other consumer loan products that we offer that could materially adversely affect our
business, prospects, results of operations, financial condition and cash flows and could impair our ability to continue current
operations.
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In addition, our ability to attract and retain customers is highly dependent upon the external perceptions of our level of service,
trustworthiness, business practices, financial condition and other subjective qualities. Negative perceptions or publicity regarding
these matters—even if related to seemingly isolated incidents, or even if related to practices not specific to short-term loans, such as
debt collection—could erode trust and confidence and damage our reputation among existing and potential customers, which could
make it difficult for us to attract new customers and retain existing customers and could significantly decrease the demand for our
products, could materially adversely affect our business, prospects, results of operations, financial condition and cash flows and could
impair our ability to continue current operations.
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Current and future litigation or regulatory proceedings could have a material adverse effect on our business, prospects, results of
operations, financial condition and cash flows.
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We have been and are currently subject to lawsuits (including purported class actions) that could cause us to incur substantial
expenditures, generate adverse publicity and could significantly impair our business, force us to cease doing business in one or more
jurisdictions or cause us to cease offering or alter one or more products. We are also likely to be subject to further litigation in the
future. An adverse ruling in or a settlement of any current or future litigation against us or another provider or loans or financings
could cause us to have to refund fees and/or interest collected, forego collection of the principal amount of loans or the delivery of
purchased receivables, pay treble or other multiple damages, pay monetary penalties and/or modify or terminate our operations in
particular jurisdictions.
Defense of any lawsuit, even if successful, could require substantial time and attention of our management and could require the
expenditure of significant amounts for legal fees and other related costs. We and others are also subject to regulatory proceedings, and
we could suffer losses as a result of interpretations of applicable laws, rules and regulations in those regulatory proceedings, even if
we are not a party to those proceedings. Any of these events could have a material adverse effect on our business, prospects, results of
operations, financial condition and cash flows and could impair our ability to continue current operations.
Judicial decisions, CFPB rule-making or amendments to the Federal Arbitration Act could render the arbitration agreements we
use illegal or unenforceable.
We include arbitration provisions in our consumer and business loan and financing agreements. These provisions are designed to
allow us to resolve any customer disputes through individual arbitration rather than in court and explicitly provide that all arbitrations
will be conducted on an individual and not on a class basis. Thus, our arbitration agreements, if enforced, have the effect of shielding
us from class action liability. Our arbitration agreements do not generally have any impact on regulatory enforcement proceedings. We
take the position that the arbitration provisions in loan and financing agreements, including class action waivers, are valid and
enforceable; however, the enforceability of arbitration provisions is often challenged in court. If those challenges are successful, our
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arbitration and class action waiver provisions could be unenforceable, which could subject us to additional litigation, including
additional class action litigation.
In addition, the U.S. Congress has considered legislation that would generally limit or prohibit mandatory arbitration agreements in
consumer contracts and has enacted legislation with such a prohibition with respect to certain mortgage loan agreements and also
certain consumer loan agreements to members of the military on active duty and their dependents. Further, the Dodd-Frank Act
directed the CFPB to study consumer arbitration and report to the U.S. Congress, and it authorized the CFPB to adopt rules limiting or
prohibiting consumer arbitration, consistent with the results of its study.
On May 5, 2016, the CFPB issued proposed rules prohibiting the use of mandatory arbitration clauses and class action waiver
provisions in consumer financial services contracts. We do not currently know the nature and extent of the final rule that the CFPB
will adopt. As a result, it is not currently possible to predict the ultimate scope, extent, nature, timing or effect of any rule eventually
adopted and made effective by the CFPB. Any final rule would apply to consumer financial services contracts entered into only after
the compliance date (and will not apply to prior contracts that contain arbitration agreements). We cannot give any assurances that the
effect of such rules will not have a material impact on our U.S. products and services.
Any judicial decisions, legislation or other rules or regulations that impair our ability to enter into and enforce consumer arbitration
agreements and class action waivers could significantly increase our exposure to class action litigation as well as litigation in plaintiff-
friendly jurisdictions, which would be costly and could have a material adverse effect on our business, prospects, results of operations,
financial condition and cash flows.
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The failure of third parties who provide products, services or support to us to maintain their products, services or support could
disrupt our operations or result in a loss of revenue.
A portion of our short-term consumer loan and installment loan revenue depends in part on the willingness and ability of unaffiliated
third-party lenders, through the CSO programs, to make loans to customers. We also utilize many other third parties to provide
services to facilitate our lending and financing, including in our underwriting and payment processing. In addition, we rely on a third
party lender in connection with our lending business in Brazil. The loss of the relationship with any of these third parties, and an
inability to replace them or the failure of these third parties to maintain quality and consistency in their programs or services or to have
the ability to provide their products and services, could cause us to lose customers and substantially decrease the revenue and earnings
of our business. Our revenue and earnings could also be adversely affected if any of those third-party providers make material changes
to the products or services that we rely on. We also use third parties to support and maintain certain of our communication systems
and information systems. If a third-party provider fails to provide its products or services, makes material changes to such products
and services, does not maintain its quality and consistency or fails to have the ability to provide its products and services, our
operations could be disrupted. Any of these events could result in a loss of revenue and could have a material adverse effect o
business, prospects, results of operations, financial condition and cash flows.
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Our business depends on the uninterrupted operation of our systems and business functions, including our information technology
and other business systems, as well as the ability of such systems to support compliance with applicable legal and regulatory
requirements.
Our business is highly dependent upon our employees’ ability to perform, in an efficient and uninterrupted fashion, necessary business
functions, such as internet support, call center activities, and processing and servicing of our loans and receivables purchase
agreements. A shut-down of or inability to access the facilities in which our internet operations and other technology infrastructure are
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based, such as a power outage, a failure of one or more of our information technology, telecommunications or other systems, or
sustained or repeated disruptions of such systems could significantly impair our ability to perform such functions on a timely basis and
could result in a deterioration of our ability to underwrite, approve and process loans and finance receivables, provide customer
service, perform collections activities, or perform other necessary business functions. Any such interruption could have a materially
adverse effect on our business, prospects, results of operations, financial condition and cash flows.
In addition, our systems and those of third parties on whom we rely must consistently be capable of compliance with applicable legal
and regulatory requirements and timely modification to comply with new or amended requirements. For example, we believe that the
federal Military Lending Act compliance issues involved in the CFPB’s Consent Order were related in part to system errors. Any such
systems problems going forward could have a material adverse effect on our business, prospects, results of operations, financial
conditions and cash flows and could impair or prohibit our ability to continue current operations.
Decreased demand for our products and specialty financial services and our failure to adapt to such decrease could result in a loss
of revenue and could have a material adverse effect on us.
The demand for a particular product or service may decrease due to a variety of factors, such as regulatory restrictions that reduce
customer access to particular products, the availability of competing or alternative products or changes in customers’ financial
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conditions. Should we fail to adapt to a significant change in our customers’ demand for, or access to, our products, our revenue could
decrease significantly. Even if we make adaptations or introduce new products to fulfill customer demand, customers may resist or
may reject products whose adaptations make them less attractive or less available. In any event, the effect of any product chan
ge on
the results of our business may not be fully ascertainable until the change has been in effect for some time. In particular, we have
changed, and will continue to change, some of our operations and the products we offer. Any of these events could result in a loss of
revenue and could have a material adverse effect on our business, prospects, results of operations, financial condition and cash flows.
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Potential union activities could have an adverse effect on our relationship with our workforce.
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None of our employees are currently covered by a collective bargaining agreement or represented by an employee union. Occasionally
we experience union organizing activities. In addition, on April 14, 2015, the National Labor Relations Board’s new representation
election rules became effective, which may make it easier for unions to organize. If our employees become represented by an
employee union or become subject to a collective bargaining agreement, it may make it more difficult for us to manage our business
and to attract and retain new employees and may increase our cost of doing business. Having our employees become represented by an
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employee union, having a collective bargaining agreement or having additional requirements related to our employees imposed on us
could result in work stoppages and higher employee costs and could have a material adverse effect on our business, prospects, results
of operations, financial condition and cash flows and could impair our ability to continue current operations.
If our allowance for losses and liability for estimated losses on third-party lender-owned consumer loans is not adequate to absorb
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losses or if we do not successfully manage our credit risk for our unsecured loans or financings, our business, prospects, resu
operations, financial condition and cash flows may be adversely affected.
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As more fully described under Note 1 to our consolidated financial statements for the year ended December 31, 2016 included in Part
II, Item 8, Financial Statements and Supplementary Data in this report, we utilize a variety of underwriting criteria, monitor the
performance of our loan portfolios and maintain either an allowance or liability for estimated losses on loans (including fees and
interest) at a level estimated to be adequate to absorb credit losses inherent in the receivables portfolio and expected losses from loans
guaranteed under the CSO programs. The allowance deducted from the carrying value of consumer loans was $98.9 million at
December 31, 2016, and the liability for estimated losses on third-party lender-owned consumer loans was $2.0 million at
December 31, 2016. These reserves are estimates, and if actual loan losses or losses on our receivables purchase agreements are
materially greater than our reserves, our results of operations and financial condition could be adversely affected. In addition, if we do
not successfully manage credit risk for our unsecured loans and receivables purchase agreements through our underwriting, we could
incur substantial credit losses due to customers being unable to repay their loans or financings. Any failure to manage credit risk could
materially adversely affect our business, prospects, results of operations, financial condition and cash flows.
We are subject to impairment risk.
At December 31, 2016, we had goodwill totaling $267.0 million on our consolidated balance sheets,
all of which represents assets
capitalized in connection with acquisitions and business combinations. Accounting for goodwill requires significant management
estimates and judgment. Events may occur in the future, and we may not realize the value of our goodwill. Management performs
periodic reviews of the carrying values of our goodwill to determine whether events and circumstances indicate that impairment in
value may have occurred. A variety of factors could cause the carrying value of goodwill or an intangible asset to become impaired.
Should a review indicate impairment, a write-down of the carrying value of the goodwill or intangible asset would occur, resulting in a
non-cash charge, which could adversely affect our results of operations and could also lead to our inability to comply with certain
covenants in our financing documents, which could cause a default under those agreements.
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We are subject to anticorruption laws including the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act 2010, anti-moneye
laundering laws and economic sanctions laws, and our failure to comply therewith, particularly as we continue to expand
internationally, could result in penalties that could harm our reputation and have a material adverse effect on our business,
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prospects, results of operations, financial condition and cash flows.
Anticorruption Laws. We are subject to the FCPA, which generally prohibits companies and their agents or intermediaries from
making improper payments to foreign officials for the purpose of obtaining or keeping business and/or other benefits. Although we
have policies and procedures designed to ensure that we, our employees, agents and intermediaries comply with the FCPA and othe
anticorruption laws, such policies or procedures may not work effectively all of the time or protect us against liability for actions taken
by our employees, agents and intermediaries with respect to our business or any businesses that we may acquire. In the event that we
believe, or have reason to believe, that our employees, agents or intermediaries have or may have violated applicable anti-corr
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laws, including the FCPA, we may be required to investigate or have a third party investigate the relevant facts and circumstances,
which can be expensive and require significant time and attention from senior management. Our continued operation and expansion
outside the United States could increase the risk of such violations in the future.
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We are subject to other anti-corruption laws, such as the Bribery Act, which prohibit the giving or receiving of a bribe to any
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including but not limited to public officials, and make failing to prevent bribery by relevant commercial organizations a criminal
offense. This offense applies when any person associated with the organization offers or accepts bribes anywhere in the world
intending to obtain or retain a business advantage for the organization or in the conduct of business. The Bribery Act is applicable to
businesses that operate in the United Kingdom such as us. The Bribery Act is broader in scope than the FCPA in that it directly
addresses commercial bribery in addition to bribery of government officials and it does not allow certain exceptions, notably
facilitation payments that are permitted by the FCPA.
person,
Other countries in which we operate or have operated, including Brazil and other countries where we intend to operate also have
anticorruption laws, which we are, have been or will be subject to.
If we are not in compliance with the FCPA, the Bribery Act and other laws governing the conduct of business with government
entities (including local laws), we may be subject to criminal and civil penalties and other remedial measures, which could have an
adverse effect on our business, reputation, results of operations and financial condition. Any investigation of any potential violations
of the FCPA, the Bribery Act or other anticorruption laws by U.S. or foreign authorities could harm our reputation and could have a
material adverse effect on our business, reputation, prospects, results of operations, financial condition and cash flows.
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Anti–Money Laundering Laws. We are also subject to anti-money laundering laws and related compliance obligations in the United
States and other jurisdictions in which we do business. In the United States, the USA PATRIOT Act and the Bank Secrecy Act require
us to maintain an anti-money laundering compliance program covering certain of our business activities. The program must include:
(1) the development of internal policies, procedures and controls; (2) designation of a compliance officer; (3) an ongoing employee
training program; and (4) an independent audit function to test the program. Furthermore, certain of our subsidiaries are registered as
money services businesses with the U.S. Treasury Department and must re-register with the Financial Crimes Enforcement Network
(“FinCEN”) at least every two years. If we are not in compliance with U.S. or other anti-money laundering laws, we may be subject to
criminal and civil penalties and other remedial measures, which could have an adverse effect on our business, results of operations,
financial condition and cash flows. Any investigation of any potential violations of anti-money laundering laws by U.S. or
international authorities could harm our reputation and could have a material adverse effect on our business, prospects, results of
operations, financial condition and cash flows. In the United Kingdom, we are also subject to specific anti-money laundering and
counter terrorist financing requirements that require us to develop and maintain anti-money laundering and counter terrorist financing
policies and procedures, including reporting suspicious activity to the Serious Organised Crime Agency pursuant to the Proceeds of
Crime Act 2002 and the Terrorism Act 2000.
Economic Sanctions Laws. The United States has imposed economic sanctions that affect transactions with designated foreign
countries, nationals and others. In particular, the United States prohibits U.S. persons from engaging with individuals and entities
identified as “Specially Designated Nationals,” such as terrorists and narcotics traffickers. These prohibitions are administered by the
U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”). OFAC rules prohibit U.S. persons from engaging in
financial transactions with or relating to the prohibited individual, entity or country, require the blocking of assets in which the
individual, entity or country has an interest. Blocked assets (e.g., property or bank deposits) cannot be paid out, withdrawn, set off or
transferred in any manner without a license from OFAC. Other countries in which we operate also maintain economic and financial
sanctions regimes. In the event that we believe, or have reason to believe, that our employees, agents or intermediaries have or may
have violated applicable laws or regulations, we may be required to investigate or have a third party investigate the relevant facts and
circumstances, which can be expensive and require significant time and attention from senior management. If we are not in
compliance with OFAC regulations and other economic and financial sanctions regulations, we may be subject to criminal and civil
penalties and other remedial measures, which could have an adverse effect on our business, prospects, results of operations, financial
condition and cash flows. Any investigation of any potential violations of OFAC regulations or other economic sanctions by U.S. or
foreign authorities could harm our reputation and could have a material adverse effect on our business, prospects, results of operations,
financial condition and cash flows.
Our continued international expansion could increase the risk of violations of FCPA, the Bribery Act, anti-money laundering laws,
OFAC regulations, or similar applicable laws and regulations in the future.
Increased competition from banks, credit card companies, other consumer lenders, and other entities offering similar financial
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products and services could adversely affect our business, prospects, results of operations, financial condition and cash flows
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We have many competitors. Our principal competitors are consumer loan companies, CSOs, online lenders, credit card companies,
consumer finance companies, pawnshops and other financial institutions that offer similar financial services. Many other financial
institutions or other businesses that do not now offer products or services directed toward our traditional customer base, many of
whom may be much larger than us, could begin doing so. Significant increases in the number and size of competitors for our business
could result in a decrease in the number of loans that we fund, resulting in lower levels of revenue and earnings in these categories.
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Competitors of our business may operate, or begin to operate, under business models less focused on legal and regulatory compliance,
which could put us at a competitive disadvantage. Some of our U.S. competitors operate using other business models, including a
“tribal model” where the lender follows the laws of a Native American tribe regardless of the state in which the customer resides.
Competitors using these models may be able to lend in jurisdictions where we do not and may have higher revenue per customer and
significantly less burdensome compliance requirements, among other advantages. Additionally, negative perceptions about these
models could cause legislators or regulators to pursue additional industry restrictions that could affect the business model under which
we operate. To the extent that these models or other new lending models gain acceptance among consumers, small businesses and
investors or that they face less onerous regulatory restrictions than we do, we may be unable to replicate their business practices or
otherwise compete with them effectively, which could cause demand for our products to decline substantially. We may be unable to
compete successfully against any or all of our current or future competitors. As a result, we could lose market share and our revenue
could decline, thereby affecting our ability to generate sufficient cash flow to service our indebtedness and fund our operations. Any
such changes in our competition could materially adversely affect our business, prospects, results of operations, financial condition
and cash flows.
Our success is dependent, in part, upon our officers, and if we are not able to attract and retain qualified officers, our business
could be materially adversely affected.
ii
Our success depends, in part, on our officers, which are a relatively small group of individuals. Many members of the senior
management team have significant industry experience, and we believe that our senior management would be difficult to replace, if
necessary. Because the market for qualified individuals is highly competitive, we may not be able to attract and retain qualified
officers or candidates. In addition, increasing regulations on and negative publicity about the consumer financial services industry
could affect our ability to attract and retain qualified officers. If we are unable to attract or retain qualified officers, it could materially
adversely affect our business.
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Our international operations subject us to foreign exchange risk.
We are subject to the risk of unexpected changes in foreign currency exchange rates by virtue of our loans to residents of Brazil and
the United Kingdom. In 2016, 16.4% of our total revenue was derived from our international operations (including loans to residents
of Australia and Canada before our wind-down of those businesses). Our results of operations and certain of our intercompany
balances associated with our Brazil and United Kingdom businesses are denominated in their respective currencies and are, as a result,
exposed to foreign exchange rate fluctuations. Upon consolidation, as exchange rates vary, gross profit and other operating results
may differ materially from expectations, and we may record significant gains or losses on the remeasurement of intercompany
balances.
A sustained deterioration in the economy could reduce demand for our products and services and result in reduced earnings.
A sustained deterioration in the economy could cause deterioration in the performance of our loan and finance receivables portfolios.
An economic slowdown could result in a decreased number of loans and financing being made to customers due to higher
unemployment or an increase in defaults in our products. During an economic slowdown, we could be required to tighten our
underwriting standards, which would likely reduce loan and finance receivable balances, and we could face more difficulty in
collecting defaulted receivables, which could lead to an increase in losses.
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We may be unable to protect our proprietary technology and analytics or keep up with that of our competitors.
The success of our business depends to a significant degree upon the protection of our software, fraud defenses, underwriting
algorithms and other proprietary intellectual property rights. We may be unable to deter misappropriation of our proprietary
information, detect unauthorized use or take appropriate steps to enforce our intellectual property rights. In addition, competitors
could, without violating our proprietary rights, develop technologies that are as good as or better than our technology. Our failure to
protect our software and other proprietary intellectual property rights or to develop technologies that are as good as our competitors’
could put us at a disadvantage relative to our competitors. Any such failures could have a material adverse effect on our business.
We may be subject to intellectual property disputes, which are costly to defend and could harm our business and operating results.
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From time to time, we face, and we expect to face in the future, allegations that we have infringed the trademarks, copyrights, patents
or other intellectual property rights of third parties, including from our competitors or non-practicing entities. Patent and other
intellectual property litigation may be protracted and expensive, and the results are difficult to predict and may require us to stop
offering certain products or product features, acquire licenses, which may not be available at a commercially reasonable price or at all,
or modify our products, product features, processes or websites while we develop non-infringing substitutes.
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In addition, we use open source software in our technology platform and plan to use open source software in the future. From time to
time, we may face claims from parties claiming ownership of, or demanding release of, the source code, potentially including ouruu
valuable proprietary code, or derivative works that were developed using such software, or otherwise seeking to enforce the terms of
the applicable open source license. These claims could also result in litigation, require us to purchase a costly license or require us to
devote additional research and development resources to change our platform, any of which could have a negative effect on our
business and operating results.
We are subject to cyber security risks and security breaches and may incur increasing costs in an effort to minimize those risks and
to respond to cyber incidents.
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Our business involves the storage and transmission of consumers’ and businesses’ proprietary information, and security breaches
could expose us to a risk of loss or misuse of this information, litigation, and potential liability. We are entirely dependent on the
secure operation of our websites and systems as well as the operation of the internet generally. While we have incurred no material
cyber-attacks or security breaches to date, a number of other companies have disclosed cyber-attacks and security breaches, some of
which have involved intentional attacks. Attacks may be targeted at us, our customers, or both. Although we devote significant
resources to maintain and regularly upgrade our systems and processes that are designed to protect the security of our computer
systems, software, networks and other technology assets and the confidentiality, integrity and availability of information belonging to
us and our customers, our security measures may not provide absolute security. Despite our efforts to ensure the integrity of our
systems, it is possible that we may not be able to anticipate or to implement effective preventive measures against all security breaches
of these types, especially because the techniques used change frequently or are not recognized until launched, and because cyber-
attacks can originate from a wide variety of sources, including third parties outside the company such as persons who are involved
with organized crime or associated with external service providers or who may be linked to terrorist organizations or hostile foreign
governments. These risks may increase in the future as we continue to increase our mobile and other internet-based product offerings
and expand our internal usage of web-based products and applications or expand into new countries. If an actual or perceived breach
of security occurs, customer and/or supplier perception of the effectiveness of our security measures could be harmed and could result
in the loss of customers, suppliers or both. Actual or anticipated attacks and risks may cause us to incur increasing costs, including
costs to deploy additional personnel and protection technologies, train employees, and engage third party experts and consultants.
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A successful penetration or circumvention of the security of our systems could cause serious negative consequences, including
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significant disruption of our operations, misappropriation of our confidential information or that of our customers, or damage to our
computers or systems or those of our customers and counterparties, and could result in violations of applicable privacy and other laws,
financial loss to us or to our customers, loss of confidence in our security measures, customer dissatisfaction, significant litigation
exposure, and harm to our reputation, all of which could have a material adverse effect on us. In addition, our applicants provide
sensitive information, including bank account information when applying for loans or financing. We rely on encryption and
authentication technology licensed from third parties to provide the security and authentication to effectively secure transmission of
confidential information, including customer bank account and other personal information. Advances in computer capabilities, new
discoveries in the field of cryptography or other developments may result in the technology used by us to protect transaction data
being breached or compromised. Data breaches can also occur as a result of non-technical issues.
Our servers are also vulnerable to computer viruses, physical or electronic break-ins, and similar disruptions, including “denial-of-
service” type attacks. We may need to expend significant resources to protect against security breaches or to address problems caused
by breaches. Security breaches, including any breach of our systems or by persons with whom we have commercial relationships that
result in the unauthorized release of consumers’ personal information or businesses’ proprietary information, could damage our
reputation and expose us to a risk of loss or litigation and possible liability. In addition, many of the third parties who provide
products, services or support to us could also experience any of the above cyber risks or security breaches, which could impact
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customers and our business and could result in a loss of customers, suppliers or revenue.
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Any of these events could result in a loss of revenue and could have a material adverse effect on our business, prospects, results of
operations, financial condition and cash flows.
If internet search engine providers change their methodologies for organic rankings or paid search results, or our organic
rankings or paid search results decline for other reasons, our new customer growth or volume from returning customers could
decline.
Our new customer acquisition marketing and our returning customer relationship management is partly dependent on search engines
such as Google, Bing and Yahoo! to direct a significant amount of traffic to our desktop and mobile websites via organic ranking and
paid search advertising. Our competitors’ paid search activities, pay per click or search engine marketing may result in their sites
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receiving higher paid search results than ours and significantly increasing the cost of such advertising for us.
Our paid search activities may not produce (and in the past have not always produced) the desired results. Internet search engines
often revise their methodologies, which could adversely affect our organic rankings or paid search results, resulting in a decline in our
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new customer growth or existing customer retention, difficulty for our customers in using our web and mobile sites, more successful
organic rankings, paid search results or tactical execution efforts for our competitors than for us, a slowdown in overall growth in our
customer base and the loss of existing customers, and higher costs for acquiring returning customers, which could adversely impact
our business. In addition, search engines could implement policies that restrict the ability of consumer finance companies such as us to
advertise their services and products, which could preclude companies in our industry from appearing in a favorable location or any
location in the organic rankings or paid search results when certain search terms are used by the consumer. For example, on July 20,
2016, Google implemented a new policy that prohibits lenders, lead providers and affiliates from advertising certain financial products
on Google AdWords. Advertisements for personal loans which require repayment within 60 days, or U.S. loans with an APR of 36
percent or more, are no longer allowed on Google paid search advertising. In addition, Google requires that advertisements for
personal loans contain or link to information about the features, fees, risks and benefits of the advertised loan product.
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Our online marketing efforts are also susceptible to actions by third parties that negatively impact our search results such as spam link
attacks, which are often referred to as “black hat” tactics. Our sites have experienced meaningful fluctuations in organic rankings and
paid search results in the past, and we anticipate similar fluctuations in the future. Any reduction in the number of consumers or small
businesses directed to our web and mobile sites could harm our business and operating results.
Our operations could be subject to natural disasters and other business disruptions, which could adversely impact our future
revenue and financial condition and increase our costs and expenses.
Our services and operations are vulnerable to damage or interruption from tornadoes, hurricanes, earthquakes, fires, floods, power
losses, telecommunications failures, terrorist attacks, acts of war, human errors and similar events. A significant natural disaster, such
as a tornado, hurricane, earthquake, fire or flood, could have a material adverse impact on our ability to conduct business, and our
insurance coverage may be insufficient to compensate for losses that may occur. Acts of terrorism, war, civil unrest, violence or
human error could cause disruptions to our business or the economy as a whole. Any of these events could cause consumer and sma
business confidence to decrease, which could result in a decreased number of loans and financing being made to customers. Any of
these occurrences could have a material adverse effect on our business, prospects, results of operations, financial condition and cash
flows.
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Failure to keep up with the rapid changes in e-commerce and the uses and regulation
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of the internet could harm our business.
The business of providing products and services such as ours over the internet is dynamic and relatively new. We must keep pace with
rapid technological change, consumer and small business use habits, internet security risks, risks of system failure or inadequacy, and
governmental regulation and taxation, and each of these factors could adversely impact our business. In addition, concerns about uu
fraud, computer security and privacy and/or other problems may discourage additional consumers and small businesses from adopting
or continuing to use the internet as a medium of commerce. In countries such as the United States and the United Kingdom, where
e-
commerce generally has been available for some time and the level of market penetration of our online financial services is relatively
high, acquiring new customers for our services may be more difficult and costly than it has been in the past. In order to expand our
customer base, we must appeal to and acquire customers who historically have used traditional means of commerce to conduct their
financial services transactions. If these customers prove to be less profitable than our previous customers, and we are unable to gain
efficiencies in our operating costs, including our cost of acquiring new customers, our business could be adversely impacted.
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Our business is subject to complex and evolving U.S. and international laws and regulations regarding privacy, data protection,
and other matters. Many of these laws and regulations are subject to change and uncertain interpretation, and could result in
claims, changes to our business practices, monetary penalties, increased cost of operations, or declines in user growth or
engagement, or otherwise harm our business.
Our business is subject to a variety of laws and regulations in the United States and internationally that involve user privacy issues,
data protection, advertising, marketing, disclosures, distribution, electronic contracts and other communications, consumer protection
and online payment services. The introduction of new products or expansion of our activities in certain jurisdictions may subject us to
additional laws and regulations. In addition, international data protection, privacy, and other laws and regulations can be more
restrictive than those in the United States. U.S. federal and state and international laws and regulations, which can be enforced by
private parties or government entities, are constantly evolving and can be subject to significant change, and the U.S. government,
including the FTC and the Department of Commerce, has announced that it is reviewing the need for greater regulation of the
collection of information concerning consumer behavior on the internet, including regulation aimed at restricting certain targeted
advertising practices. In addition, the application and interpretation of these laws and regulations are often uncertain, particularly in
the new and rapidly evolving e-commerce industry in which we operate, and may be interpreted and applied inconsistently from
country to country and inconsistently with our current or past policies and practices. A number of proposals are pending before
federal, state, and international legislative and regulatory bodies that could significantly affect our business. For example, the
European Commission is currently considering a data protection regulation that may include operational requirements for companies
that receive personal data that are different than those currently in place in the European Union, and that may also include significant
penalties for non-compliance. Similarly, there have been a number of recent legislative proposals in the United States, at both the
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federal and state level, that could impose new obligations in areas such as privacy. In addition, some countries are considering
legislation requiring local storage and processing of data that, if enacted, would increase the cost and complexity of delivering our
services. These existing and proposed laws and regulations can be costly to comply with and can delay or impede the development of
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new products, the expansion into new markets, result in negative publicity, increase our operating costs, require significant
management time and attention, and subject us to inquiries or investigations, claims or other remedies, including demands that we
modify or cease existing business practices or pay fines, penalties or other damages.
Growth may place significant demands on our management and our infrastructure and could be costly.
We have experienced substantial growth in our business. This growth has placed and may continue to place significant demands on
our management and our operational and financial infrastructure. Expanding our products or entering into new jurisdictions with new
or existing products can be costly and require significant management time and attention. Additionally, as our operations grow in size,
scope and complexity and our product offerings increase, we will need to enhance and upgrade our systems and infrastructure to offer
an increasing number of enhanced solutions, features and functionality. The expansion of our systems and infrastructure will require
us to commit substantial financial, operational and technical resources in advance of an increase in the volume of business, with no
assurance that the volume of business will increase. Continued growth could also strain our ability to maintain reliable service levels
for our customers, develop and improve our operational, financial and management controls, develop and enhance our legal and
compliance controls and processes, enhance our reporting systems and procedures and recruit, train and retain highly skilled
personnel. Competition for these personnel is intense and is particularly intense for technology and analytics professionals. We may
not be successful in attracting and retaining qualified personnel. We have from time to time in the past experienced, and we expect to
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experience in the future, difficulty in hiring and retaining highly skilled employees with appropriate qualifications. Many of the
companies with which we compete for experienced personnel have greater resources or more attractive compensation mixes than we
have had. Managing our growth will require significant expenditures and allocation of valuable management resources. Failure to
achieve the necessary level of efficiency in our organization as it grows could materially adversely affect our business, prospects,
results of operations, financial condition and cash flows and could impair our ability to continue current operations.
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New top level domain names may allow the entrance of new competitors or dilution of our brands, which may reduce the value of
our domain name assets.
We have invested heavily in promoting our brands, including our website addresses. The Internet Corporation for Assigned Names
and Numbers, the entity responsible for administering internet protocol addresses, has introduced, and has proposed the introduction
of, additional new domain name suffixes in different formats, many of which may be more attractive than the formats held by us and
which may allow the entrance of new competitors at limited cost. It may also permit other operators to register websites with
addresses similar to ours, causing customer confusion and dilution of our brands, which could materially adversely affect our business,
prospects, results of operations, financial condition and cash flows. Any defensive domain registration strategy or attempts to protect
our trademarks or brands could become a large and recurring expense and may not be successful.
Future acquisitions could disrupt our business and harm our financial condition and operating results.
Our success will depend, in part, on our ability to expand our product and service offerings and markets and grow our business in
response to changing customer demands, regulatory environments, technologies and competitive pressures. In some circumstances, we
may expand our offerings through the acquisition of complementary businesses, solutions or technologies rather than through internal
development. The identification of suitable acquisition candidates can be difficult, time-consuming and costly, and we may not be able
to successfully complete identified acquisitions. Furthermore, even if we successfully complete an acquisition, we may not be able to
successfully assimilate and integrate the business, technologies, solutions, personnel or operations of the business that we acquire,
particularly if key personnel of an acquired company decide not to work for us. In addition, we may issue equity securities to complete
an acquisition, which would dilute our stockholders’ ownership and could adversely affect the price of our common stock.
Acquisitions may also involve the entry into geographic or business markets in which we have little or no prior experience or may
expose us to additional material liabilities. Consequently, we may not achieve anticipated benefits of the acquisitions, which could
harm our operating results.
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We may incur property, casualty or other losses not covered by insurance.
We maintain a program of insurance coverage for various types of property, casualty and other risks. The types and amounts of
insurance that we obtain will vary from time to time, depending on availability, cost and management’s decisions with respect to risk
retention. The policies are subject to deductibles and exclusions that could result in our retention of a level of risk on a self-insurance
basis. Losses not covered by insurance could be substantial and may increase our expenses, which could harm our results of operations
and financial condition.
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The preparation of our financial statements and certain tax positions taken by us require the judgment of management, and we
could be subject to risks associated with these judgments or could be adversely affected by the implementation of new, or chang
in the interpretation of existing, accounting principles, financial reporting requirements or tax rules.
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The preparation of our financial statements requires management to make estimates and assumptions that affect the reported amountsuu
of assets and liabilities, and disclosure of contingent assets and liabilities, at the dates of the consolidated financial statements and the
reported amounts of revenue and expenses during the reporting periods. In addition, management’s judgment is required in
determining the provision for income taxes, the deferred tax assets and liabilities and any valuation allowance recorded against
deferred tax assets. Management’s judgment is also required in evaluating whether tax benefits meet the more-likely-than-not
threshold for recognition under Accounting Standards Codification 740-10-25, Income Taxes. Upon audit, if the ultimate
determination of the taxes owed by us is for an amount in excess of amounts previously accrued, we could be required to make certain
additional tax payments, which could materially adversely affect our results of operations and cash flows.
In addition, we prepare our financial statements in accordance with generally accepted accounting principles (“GAAP”) and its
interpretations are subject to change over time. If new rules or interpretations of existing rules require us to change our financial
reporting, our results of operations and financial condition could be materially adversely affected, and we could be required to restate
historical financial reporting.
Our U.S. consumer loan businesses are seasonal in nature, which causes our revenue and earnings to fluctuate.
Our U.S. consumer loan businesses are affected by fluctuating demand for our products and services and fluctuating collection rates
throughout the year. Demand for our consumer loan products in the United States has historically been highest in the third and fourth
quarters of each year, corresponding to the holiday season, and lowest in the first quarter of each year, corresponding to our
customers’ receipt of income tax refunds. Typically, our cost of revenue for our consumer loan products in the United States, w
f
represents our loan loss provision, is lowest as a percentage of revenue in the first quarter of each year, corresponding to our uu
customers’ receipt of income tax refunds, and increases as a percentage of revenue for the remainder of each year. This seasonality
requires us to manage our cash flows over the course of the year. If our revenue or collections were to fall substantially below what we
would normally expect during certain periods, our ability to service debt and meet our other liquidity requirements may be adversely
affected, which could have a material adverse effect on our business, prospects, results of operations, and financial condition.
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Risks Related to the Spin-Off
We may be responsible for U.S. federal and state income tax liabilities that relate to the distribution.
The Tax Matters Agreement that we entered into with Cash America in connection with the Spin-off allocates the responsibility for
taxes for periods prior to the distribution among Cash America and us. For periods prior to the distribution, generally we are required
to reimburse Cash America (and its successor) with respect to any U.S. federal, state or local or international income taxes reportable
on returns that include us that are attributable to us. We are responsible for filing and paying all U.S. federal, state or local or
international income taxes that are reportable on returns that only include us. We and Cash America (and its successor) are responsible
for certain non-income taxes, such as property, excise, sales and use taxes, attributable to each company and its respective
subsidiaries.
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Under the Tax Matters Agreement, we are generally required to indemnify Cash America (and its successor) against any tax resulting
from the distribution to the extent that such tax resulted from (i) an acquisition of all or a portion of our stock or assets, whether by
merger or otherwise, (ii) other actions or failures to act by us or (iii) any of our representations or undertakings being incorrect. Our
indemnification obligations to Cash America (and its successor) and its officers and directors are not limited by any maximum
amount. If we are required to indemnify Cash America or such other persons under the circumstances set forth in the Tax Matters
Agreement, we may be subject to substantial liabilities.
As a result of our Spin-off from Cash America, our historical consolidated financial information is not necessarily indicative of
our future prospects. We may be unable to achieve some or all of the benefits th
publicly traded company.
at we expected to achieve as an independent,
e
We may not realize the potential benefits we expected from our Spin-off from Cash America. In addition, we have incurred and will
continue to incur significant costs, including those described below, which may exceed our estimates, and we have incurred and will
incur some negative effects from our Spin-off from Cash America, including loss of access to some of the financial, managerial and
professional resources from which we benefited in the past.
The historical consolidated financial information included in this report for periods prior to consummation of the Spin-off may not
necessarily reflect what our financial position, results of operations or cash flows would have been had we been an independent entity
during the periods presented or those that we will achieve in the future. The costs and expenses reflected in such historical
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36
consolidated financial information for periods prior to the separation and distribution include an allocation for certain corporate
functions historically provided by Cash America, including executive oversight, insurance and risk management, government
relations, internal audit, treasury, licensing, and to a limited extent finance, accounting, tax, legal, human resources, compensation and
benefits, compliance and support for certain information systems related to financial reporting that may be different from the
comparable expenses that we would have incurred had we operated as a stand-alone company. We have not adjusted our historical
consolidated financial information for periods prior to the Spin-off to reflect changes that have occurred in our cost structure and
operations as a result of our transition to becoming a stand-alone public company, including changes in our employee base, any
increased costs associated with reduced economies of scale and increased costs associated with SEC reporting and the requirements of
the New York Stock Exchange (“NYSE”). Therefore, our historical consolidated financial information for periods prior to the Spin-off
may not necessarily be indicative of what our financial position, results of operations or cash flows will be in the future. Please refer to
Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our historical
consolidated financial statements and the notes to those statements included elsewhere in this report.
The one-time and ongoing costs of the distribution and operating as a stand-alone public company have been and may continue to
be significant.
We have incurred and are incurring costs in connection with our transition to being a stand-alone public company that relate primarily
to accounting, tax, legal and other professional costs; compensation, such as modifications to certain incentive awards upon
completion of the distribution; recruiting and relocation costs associated with hiring additional senior management personnel; and
costs to separate assets and information systems. In addition, in 2014 we incurred costs of approximately $16.3 million in connection
with obtaining independent financing that we needed in order to operate as a separate stand-alone company. These costs may continue
to be significant and could have a material adverse effect on our business, financial condition, results of operations and cash flows.
h
We have a limited history operating as an independent public company. We have incurred and will continue to incur significant
costs to create the corporate infrastructure necessary to operate as an independent public
regulatory compliance requirements. We may be unable to continue to make, on a timely or cost-effective basis, the changes
necessary to operate as an independent company and meet our legal and regulatory compliance requirements.
company and meet our legal and
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Prior to our Spin-off from Cash America, we used Cash America’s corporate infrastructure to support some of our business functions,
including services related to executive oversight, insurance and risk management, government relations, internal audit, treasury,rr
licensing, and to a limited extent finance, accounting, tax, legal, human resources, compensation and benefits, compliance and support
for certain information systems related to financial reporting. The expenses related to establishing and maintaining this infrastructure
were spread among all of Cash America’s businesses. Following the Spin-off and after the expiration of the transition arrangements
described below, we no longer had access to Cash America’s infrastructure and have had to establish our own. We are incurring costs
to establish the necessary infrastructure and expect to continue to incur such costs.
Cash America was contractually obligated to provide to us certain transition services specified in the Transition Services Agreement
and the other agreements we entered into with Cash America in connection with the Spin-off, generally for a period not longer than 12
months from the distribution date. We may be unable to continue to replace in a timely manner or on comparable terms the services or
other benefits that Cash America previously provided to us. Since the expiration of our agreements with Cash America, many of the
services that were covered in such agreements are now provided internally or by unaffiliated third parties. We have and expect to
continue to incur higher costs for such services than we incurred prior to the Spin-off or under the terms of such agreements.
Furthermore, we face significant ongoing legal and regulatory compliance requirements arising from the heavily regulated industry in
which we operate, which continues to be targeted by legislators and regulators, and also from 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. In particular, the Consent Order requires us to allocate resources to ensure that we have a compliance function that
is commensurate with our size, complexity, product lines, and business operations to ensure the implementation of an adequate
compliance program, including appropriate staffing levels with qualified and experienced personnel. If, as a stand-alone company, we
are unable to maintain these resources in a timely manner or on comparable terms, we may face an increased risk of noncompliance
with the Consent Order and other regulatory requirements or additional enforcement actions. These risks could have a material
adverse impact on our business, prospects, results of operations, financial condition and could prohibit or directly or indirectly impair
our ability to continue current operations.
tt
In connection with our Spin-off from Cash America, we and Cash America (and our successors) agreed to indemnify each other
for certain liabilities. If we are required to act on our indemnities, we may need to divert cash to meet those obligations, and Cash
America’s (or its successors) indemnity could be insufficient or Cash America (or its successors) could be unable to satisfy itstt
indemnification obligations.
Pursuant to the Separation and Distribution Agreement and other agreements with Cash America, Cash America (and any successor)
agreed to indemnify us for certain liabilities related to tax, regulatory, litigation or other liabilities, and we agreed to indemnify Cash
37
America (and any successor) for certain similar liabilities, in each case for uncapped amounts. Indemnities that we may be required to
provide Cash America (and any successor) are not subject to any cap, may be significant and could negatively impact our business,
also seek to
particularly indemnities relating to our actions that could impact the tax-free nature of the distribution. Third parties could
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hold us responsible for any of the liabilities that Cash America (and any successor) agreed to retain. Further, the indemnity from Cash
America (and any successor) could be insufficient to protect us against the full amount of such liabilities, or Cash America (and any
successor) may be unable to fully satisfy its indemnification obligations. Moreover, even if we ultimately succeed in recovering from
Cash America (and any successor) any amounts for which we are held liable, we may be temporarily required to bear these losses
ourselves and could suffer reputational risks if the losses are related to regulatory, litigation or other matters. Each of these risks could
have a material adverse effect on our business, prospects, results of operations, financial condition and cash flows.
aa
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We are subject to certain contingent liabilities of Cash America.
There are several significant areas where the liabilities of Cash America may become our obligations. For example, under the Code
and the related rules and regulations, each corporation that was a member of the Cash America consolidated U.S. federal income tax
reporting group during any taxable period or portion of any taxable period ending on or before the effective time of the distribution is
jointly and severally liable for the U.S. federal income tax liability of the entire Cash America consolidated tax reporting group for
that taxable period. In connection with the Spin-off, we entered into a Tax Matters Agreement with Cash America that allocates the
responsibility for prior period taxes of the Cash America consolidated tax reporting group between us and Cash America (and any
successor). However, if Cash America (or its successor) is unable to pay any prior period taxes for which it is responsible, we could be
required to pay the entire amount of such taxes.
The Spin-off may expose us to potential liabilities arising out of state and federal fraudulent conveyance laws and legal
distribution requirements.
The Spin-off could be challenged under various state and federal fraudulent conveyance laws. An unpaid creditor or an entity vested
with the power of such creditor (such as a trustee or debtor-in-possession in a bankruptcy) could claim that the distribution left Cash
America insolvent or with unreasonably small capital or that Cash America intended or believed it would incur debts beyond its ability
to pay such debts as they mature and that Cash America did not receive fair consideration or reasonably equivalent value in the Spin-
off. If a court were to agree with such a claim, then such court could void the distribution as a fraudulent transfer and could impose a
number of different remedies, including without limitation, returning our assets or the distributed shares of our stock to Cash America,
voiding our liens and claims against Cash America, or providing Cash America with a claim for money damages against us in an
amount equal to the difference between the consideration received by Cash America and the fair market value of our Company at the
time of the distribution.
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The measure of insolvency for purposes of the fraudulent conveyance laws will vary depending on which jurisdiction’s law is applied.
Generally, however, an entity would be considered insolvent if either the fair saleable value of its assets is less than the amount of its
liabilities (including the probable amount of contingent liabilities), or it is unlikely to be able to pay its liabilities as they become due.
We do not know what standard a court would apply to determine insolvency. Further, a court could determine that Cash America was
insolvent at the time of or after giving effect to the distribution of Enova common stock.
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Under the Separation and Distribution Agreement, we are responsible for the debts, liabilities and other obligations related to the
business or businesses which we own and operate. Although we do not expect to be liable for any obligations not expressly assumed
by us pursuant to the Separation and Distribution Agreement, it is possible that we could be required to assume responsibility for
certain obligations retained by Cash America should Cash America (or its successor) fail to pay or perform its retained obligations.
We have incurred significant indebtedness, which could adversely affect our financial condition and prevent us from fulfilling our
obligations under anticipated agreements governing our indebtedness.
Risks Related to our Indebtedness
On January 15, 2016, we entered into a receivables securitization (the “2016-1 Securitization Facility”) with certain purchasers,
Jefferies Funding LLC, as administrative agent and Bankers Trust Company, as indenture trustee and securities intermediary. The
2016-1 Securitization Facility securitizes unsecured consumer installment loans that have been, or will be, originated or acquired
under our NetCredit brand and that meet specified eligibility criteria. Under the 2016-1 Securitization Facility, Receivables are sold to
a wholly-owned special purpose subsidiary and serviced by another subsidiary. The maximum principal amount of notes of the special
purpose subsidiary that may be outstanding at any time under the 2016-1 Securitization Facility is $275 million. On December 1, 2016,
we and certain of our subsidiaries entered into another receivables securitization (the “2016-2
Capital Asset Funding, LLC, as lender. The 2016-2 Facility securitizes unsecured consumer installment loans that have been, or
bbe, originated or acquired under our NetCredit brand and that meet certain eligibility criteria. Under the 2016-2 Facility, the
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receivables are sold to a wholly-owned special purpose subsidiary and serviced by another subsidiary of ours. The special purpo
subsidiary has issued a revolving note with an initial maximum principal balance of $20.0 million. The facility size may be increased
Securitization Facility”) with
Redpoint
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will
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to $40.0 million.
Capital Resources—Consumer Loan Securitization.”
f
See “Management’s Discussion and Analysis of
Financial Condition and Results
of Operations—Liquidity and
On May 30, 2014 we issued and sold $500 million in aggregate principal amount of 9.75% Senior Notes, due 2021 (the “Notes”), in a n
private offering. The Notes bear interest at a rate of 9.75% and were sold at a discount of the principal amount thereof to yield 10.0%
to maturity. All of the net proceeds from the Notes offering were paid to Cash America to repay all of our intercompany indebtedness
and to pay a significant portion of a cash dividend to Cash America.
In addition, on May 14, 2014 we entered into the Credit Agreement (as amended on March 25, 2015, November 5, 2015, December 29,
2015, June 30, 2016 and September 30, 2016) that provides for our unsecured revolving line of credit in an aggregate principal amount
of up to $35 million as of December 31, 2016. Interest on the loans taken under the Credit Agreement will be charged, at our option, at
either the London Interbank Offered Rate for one week or one-, two-, three- or six-month periods, as selected by us, plus a margin
varying from 2.50% to 3.75% or at the agent’s base rate plus a margin varying from 1.50% to 2.75%. The margin for the Credit
Agreement borrowings is dependent on our cash flow leverage ratios. We will also be required to pay a fee on the unused portion of
n
our revolving line of credit ranging from 0.25% to 0.50% based on our cash flow leverage ratios. The revolving line of credit had no
outstanding balance at December 31, 2016 and had outstanding standby letters of credit of $6.6 million as of such date. For additional
information regarding the Notes and our Credit Agreement, see “Management’s Discussion and Analysis of Financial Condition and
Results of Operations—Liquidity and Capital Resources— Consumer Loan Securitization,” “—Senior Notes” and “—Credit
Agreement” in Part II, Item 7 of this report.
Our level of debt could have important consequences to our stockholders, including:
(cid:120) limiting our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions or other
general corporate requirements;
(cid:120) requiring a substantial portion of our cash flows to be dedicated to debt service payments instead of other purposes, thereby
reducing the amount of cash flows available for working capital, capital expenditures, acquisitions and other general corporate
purposes;
(cid:120) increasing our vulnerability to general adverse economic and industry conditions;
(cid:120) exposing us to the risk of increased interest rates to the extent that our borrowings are at variable rates of interest;
(cid:120) limiting our flexibility in planning for and reacting to changes in the industry in which we compete;
(cid:120) placing us at a disadvantage compared to other, less leveraged competitors or competitors with comparable debt and more
favorable terms and thereby affecting our ability to compete; and
(cid:120) increasing our cost of borrowing.
We and our subsidiaries may incur significant additional indebtedness in the future. If new indebtedness is added to our current nn
indebtedness levels, the related risks that we face would increase.
The terms of the agreements governing our indebtedness restrict our current and future operations, particularly our ability to
respond to changes or to take certain actions, which could harm our long-term interests.
The agreements governing our indebtedness (including the indenture governing the Notes and the Credit Agreement) contain various
restrictive covenants and, in the case of the Credit Agreement, require that we maintain certain financial ratios that impose operating
and financial restrictions on us and limit our ability to engage in actions that may be in our long-term best interests. These restrictive
covenants, among other things, restrict our ability to:
(cid:120) incur additional debt;
(cid:120) incur or permit certain liens to exist;
(cid:120) make certain investments;
(cid:120) merge or consolidate with or into, or convey, transfer, lease or dispose of all or substantially all of our assets to, another
company;
(cid:120) make certain dispositions;
(cid:120) make certain payments; and
(cid:120) engage in certain transactions with affiliates.
39
As a result of all of these covenants and restrictions, we may be:
(cid:120) limited in how we conduct our business;
(cid:120) unable to raise additional debt or equity financing to operate during general economic or business downturns; or
(cid:120) unable to compete effectively or to take advantage of new business opportunities.
Any failure to comply with any of these financial and other affirmative and negative covenants could constitute an event of default
under our debt agreements, entitling the lenders to, among other things, terminate future credit availability under our Credit
Agreement, and/or increase the interest rate on outstanding debt, and/or accelerate the maturity of outstanding obligations under our
debt agreements. Any such default could materially adversely affect our business, prospects, results of operations, financial condition
and cash flows and could impair our ability to continue current operations. See “Management’s Discussion and Analysis of Financial
Condition and Results of Operations—Liquidity and Capital Resources” in Part II, Item 7 of this report for additional information
concerning our indebtedness.
ff
We may not be able to generate sufficient cash to service our indebtedness and may be forced to take other actions to satisfy our
obligations under our indebtedness, which may not be successful.
Our ability to make scheduled payments on or refinance our debt obligations will depend on our financial condition and operating
performance and our ability to enter into other debt financings, which are subject to prevailing economic and competitive conditions
and to financial, business, legislative, regulatory, capital markets and other factors beyond our control. We might not be able to
maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our
indebtedness. For information regarding the risks to our business that could impair our ability to satisfy our obligations under our
indebtedness, see “Risk Factors—Risks Related to Our Business and Industry.” If our cash flows and capital resources are insufficient
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to fund our debt service obligations, we could face substantial liquidity problems and could be forced to reduce or delay investments
and capital expenditures or to dispose of material assets or operations, seek additional debt or equity capital or restructure or refinance
our indebtedness. We may not be able to affect any such alternative measures on commercially reasonable terms or at all and, even if
successful, those alternative actions may not allow us to meet our scheduled debt service obligations. If we cannot make scheduled
payments on our debt, we will be in default, and lenders could declare all outstanding principal and interest to be due and payable, the
lenders under our Credit Agreement could terminate their commitments to loan money and we could be forced into bankruptcy or
liquidation. The agreements governing our indebtedness restrict our ability to dispose of assets and use the proceeds from those
dispositions and also restrict our ability to raise debt or equity capital to be used to repay other indebtedness when it becomes due. We
may not be able to consummate those dispositions or to obtain proceeds in an amount sufficient to meet any debt service obligations
then due. Our inability to generate sufficient cash flows to satisfy our debt obligations, or to refinance our indebtedness on
commercially reasonable terms or at all, would materially and adversely affect our financial condition, liquidity, results of operations
and cash flows and our ability to satisfy our obligations under our indebtedness.
Changes in our financial condition or a potential disruption in the capital markets could reduce available capital.
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If funds are not available from our operations and any excess cash or from our Credit Agreement, we will be required to rely on the
banking and credit markets to meet our financial commitments and short-term liquidity needs. We also expect to periodically access
the debt capital markets to obtain capital to finance growth. Efficient access to the debt capital markets will be critical to our ongoing
financial success; however, our future access to the debt capital markets could become restricted due to a variety of factors, including
a deterioration of our earnings, cash flows, balance sheet quality, or overall business or industry prospects, adverse regulatory
changes, a disruption to or deterioration in the state of the capital markets or a negative bias toward our industry by market
participants. Disruptions and volatility in the capital markets may cause banks and other credit providers to restrict availability of new
credit. Due to the negative bias toward our industry, commercial banks and other lenders have restricted access to available credit to
participants in our industry, and we may have more limited access to commercial bank lending than other businesses. Our ability to
obtain additional financing in the future will depend in part upon prevailing capital market conditions, and a potential disruption in the
capital markets may adversely affect our efforts to arrange additional financing on terms that are satisfactory to us, if at all. If adequate
funds are not available, or are not available on acceptable terms, we may not have sufficient liquidity to fund our operations, make
future investments, take advantage of acquisitions or other opportunities, or respond to competitive challenges and this, in turn, could
adversely affect our ability to advance our strategic plans. Additionally, if the capital and credit markets experience volatility, and the
availability of funds is limited, third parties with whom we do business may incur increased costs or business disruption and this could
adversely affect our business relationships with such third parties.
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Risks Related to our Common Stock and the Securities Market
Certain provisions of our amended and restated certificate of incorporation, amended and restated bylaws and Delaware law may
discourage takeovers.
Our amended and restated certificate of incorporation authorizes our Board of Directors to issue preferred stock and to determine the
designations, powers, preferences, and relative, participating, optional, or other special rights, if any, and the qualifications,
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limitations, or restrictions of our preferred stock, including the number of shares, in any series, without any further vote or action by
the stockholders. The rights of the holders of our common stock will be subject to the rights of the holders of any preferred stock that
may be issued in the future. The issuance of preferred stock could delay, deter, or prevent a change in control and could adversely
affect the voting power or economic value of our stock.
In addition, some provisions of our amended and restated certificate of incorporation and amended and restated bylaws could make it
more difficult for a third party to acquire control of us, even if the change of control would be beneficial to our stockholders, including:
(cid:120) limitations on the ability of our stockholders to call special meetings;
(cid:120) limitations on the ability of our stockholders to act by written consent;
(cid:120) a separate vote of 80% of the voting power of the outstanding shares of capital stock in order for stockholders to amend the
bylaws; and
(cid:120) advance notice provisions for stockholder proposals and nominations for elections to the Board of Directors to be acted upon at
meetings of stockholders.
The market price of our shares may fluctuate widely.
The market price of our common stock may be influenced by many factors, some of which are beyond our control, including, among
other things:
(cid:120) changes in federal, state or international laws and regulations affecting our industry;
(cid:120) actual or anticipated variations in quarterly and annual operating results;
(cid:120) changes in financial estimates and recommendations by research analysts following our common stock or the failure of research
analysts to cover our common stock;
(cid:120) actual or anticipated changes in the United States or international economies;
(cid:120) terrorist acts or wars;
(cid:120) announcements by us or our competitors of significant acquisitions, strategic partnerships, divestitures, joint ventures, or other
strategic initiatives;
(cid:120) the trading volume of our common stock; and
(cid:120) the other risks and uncertainties described herein.
The stock markets have experienced price and volume fluctuations that have affected and continue to affect the market price of equity
securities of many companies. These fluctuations have often been unrelated or disproportionate to the operating performance of these
companies. These broad market fluctuations, as well as general economic, systemic, political, and market conditions, such as
recessions, loss of investor confidence, or interest rate changes, may negatively affect the market price of our common stock.
If securities or industry analysts publish research that is unfavorable about our business, our stock price and trading volume could
decline.
The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish about
us or our business. We currently have a limited number of analysts who are publishing research about us. In the event that one or more
of our analysts downgrades our stock or publishes misleading or unfavorable research about our business, our stock price could
decline. If one or more of these analysts ceases coverage of our company, demand for our stock may decrease, which could cause our
stock price or trading volume to decline.
41
We do not anticipate paying any dividends on our common stock in the foreseeable future. As a result, stockholders will need to
sell their shares of common stock to receive any income or realize a return on their investment.
We do not anticipate paying any dividends on our common stock in the foreseeable future. Any declaration and payment of future
dividends to holders of our common stock may be limited by the provisions of the Delaware General Corporation Law (“DGCL”) and
are limited by the terms of the Credit Agreement and Notes. The future payment of dividends, if permitted by our Credit Agreement
and the indenture governing the Notes, will be at the sole discretion of our Board of Directors and will depend on many factors,
including our earnings, capital requirements, financial condition, and other considerations that our Board of Directors deem relevant.
As a result, to receive any income or realize a return on their investment, our stockholders will need to sell their shares of common stock.
Our amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware as the exclusive
forum for certain litigation that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a
favorable judicial forum for disputes with us.
Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware will be the sole
and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a
fiduciary duty owed to us or our stockholders by any of our directors, officers, employees or agents, (iii) any action asserting a claim
against us arising under the DGCL or (iv) any action asserting a claim against us that is governed by the internal affairs doctrine. Our
stockholders are deemed to have notice of and have consented to the provisions of our amended and restated certificate of
incorporation related to choice of forum. The choice of forum provision in our amended and restated certificate of incorporation may
limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us.
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ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
We lease our corporate headquarters, which is located in Chicago, Illinois. We also maintain a leased office in Gurnee, Illinois for one
of our call center operations, a leased office in Blue Ash, Ohio for The Business Backer operations, and leased office space in London,
United Kingdom for our U.K. operations. We believe that our leased facilities are adequate to support our operations and that, as
needed, we will be able to obtain suitable additional facilities on commercially reasonable terms.
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ITEM 3.
LEGAL PROCEEDINGS
On March 8, 2013, Flemming Kristensen, on behalf of himself and others similarly situated, filed a purported class action lawsuit in
the U.S. District Court of Nevada against us and other unaffiliated lenders and lead providers. The lawsuit alleges that the lead
provider defendants sent unauthorized text messages to consumers on behalf of us and the other lender defendants in violation of the
Telephone Consumer Protection Act. The complaint seeks class certification. On March 26, 2014, the Court granted class certification.
On July 20, 2015, the court granted our motion for summary judgment, denied Plaintiff’s motion for summary judgment and, on July
21, 2015, entered judgment in favor of us. Plaintiff filed a motion for reconsideration, which was denied. On May 3, 2016, Plaintiff
filed a notice of appeal of the order granting summary judgment for us, the judgment in favor of us, and the order denying Plaintiff’s
motion to reconsider, and appellate briefing is now complete. Neither the likelihood of an unfavorable appellate decision nor the
ultimate liability, if any, with respect to this matter can be determined at this time, and we are currently unable to estimate a range of
reasonably possible losses, as defined by Accounting Standards Codification 450-20-20, Contingencies–Loss Contingencies–Glossary,
for this litigation. We believe that the plaintiff’s claims in the complaint are without merit and intend to vigorously defend this lawsuit.
We are also a defendant in certain routine litigation matters encountered in the ordinary course of our business. Certain of these
matters may be covered to an extent by insurance. In the opinion of management, the resolution of these matters is not expected tod
have a material adverse effect on our financial position, results of operations or liquidity.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Principal Market
The principal market for our common stock is the New York Stock Exchange (“NYSE”). The following table sets forth the high and
low intra-day sales prices per share for our common stock on the NYSE.
2016
2015
High
Low
High
Low
First Quarter ...................................................... $
Second Quarter .................................................
Third Quarter ....................................................
Fourth Quarter................................................... $
7.13 $
9.54
10.44
13.90 $
4.64 $
5.43
6.47
8.68 $
24.65 $ 18.37
18.45
20.92
9.75
19.91
5.99
13.66 $
Stockholders
There were 362 registered stockholders of record of Enova common stock as of February 22, 2017.
Dividends
During 2014 we paid dividends totaling $122.4 million, or $3.71 per share, to Cash America, of which $120.7 million was paid on
May 30, 2014 and $1.7 million was paid on June 30, 2014. We do not anticipate paying any dividends on our common stock in the
foreseeable future. We currently intend to retain our future earnings for use in the operation and expansion of our business. The
declaration and amount of any future dividends, however, will be determined by our Board of Directors and will depend on our
financial condition, earnings and capital requirements, covenants associated with our debt obligations and any other factors that our
Board of Directors believes are relevant. There can be no assurance, however, that we will pay any cash dividends on our common
stock in the future. In addition, the terms of the indenture governing the Notes and our Credit Agreement limit our ability to pay future
dividends. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital
Resources—Senior Notes” and “—Credit Agreement” in Part II, Item 7 of this report.
43
Performance Graph
The following graph shows a comparison of the cumulative total shareholder return for our common stock to the total shareholder
return for the S&P SmallCap 600® Index and with our peer group from November 13, 2014 (the date our common stock began
trading on the NYSE) through December 31, 2016. This data assumes an investment of $100 in each of our common stock and the two
indices on November 13, 2014 and that all dividends were reinvested. Our peer group index is comprised of Bankrate, Inc., CBOE
Holdings, Inc., CoreLogic, Inc., CoStar Group Inc., EZCORP, Inc., Fair Isaac Corporation, Green Dot Corporation, Investment
Technology Group Inc., Liquidity Services, Inc., Nelnet, Inc., OneMain Holdings, Inc., Regional Management Corp., Shutterfly, Inc.,
SS&C Technologies Holdings, Inc., TripAdvisor Inc. and World Acceptance Corp.
n
$140
$120
$100
$80
$60
$40
$20
$0
11/13/14
12/31/14
3/31/15
6/30/15
9/30/15
12/31/15
3/31/16
6/30/16
9/30/16
12/31/16
Enova International, Inc. (ENVA)
S&P SmallCap 600 ®
Peer Group
Unregistered Sales of Equity Securities
We did not sell any unregistered securities during the three years ended December 31, 2016.
44
Issuer Purchases of Equity Securities
The following table provides the information with respect to purchases made by us of shares of our common stock.
Period
January 1 – January 31, 2016 ........................................................
February 1 – February 29, 2016 ....................................................
March 1 – March 31, 2016 ............................................................
April 1 – April 30, 2016 ................................................................
May 1 – May 31, 2016 ..................................................................
June 1 – June 30, 2016 ..................................................................
July 1 – July 31, 2016 ....................................................................
August 1 – August 31, 2016 ..........................................................
September 1 – September 30, 2016 ...............................................
October 1 – October 31, 2016 .......................................................
November 1 – November 30, 2016 ...............................................
December 1 – December 31, 2016 ................................................
Total ..............................................................................................
y
Total
Number of
Shares
Purchased(a)
6,308
—
2,675
—
—
504
6,442
—
—
—
5,803
20,199
41,931
Average
Price Paid
Per Share
6.61
— —
6.16
— —
— —
7.36
8.22
— —
— —
— —
11.50
12.65
10.42
$
$
Total
Number of
Shares
Purchased
as Part of
Publicly
Announced
Plan
Maximum
Number of
Shares that
May Yet Be
Purchased
Under the
Plan
— —
— —
— —
— —
— —
— —
— —
— —
— —
— —
— —
— —
— —
——
——
——
——
——
——
——
——
——
——
——
——
——
(a) Shares withheld from employees as tax payments for shares issued under the Company’s stock-based compensation plans.
45
ITEM 6.
SELECTED FINANCIAL DATA
(In thousands, except per share)
Statement of Income Data:
2016
Year Ended December 31,
2014
2013
2015
2012
Revenue ........................................................................... $ 745,569
Cost of Revenue ..............................................................
Gross Profit ..........................................................................
Expenses
327,966
417,603
$ 652,600
$ 809,837
216,858
435,742
266,787
543,050
$ 765,323
315,052
450,271
$ 660,928
288,474
372,454
Marketing ........................................................................
Operations and technology ..............................................
General and administrative ..............................................
Depreciation and amortization .........................................
Total Expenses .....................................................................
Income from Operations ....................................................
Interest expense, net ........................................................
Foreign currency transaction income (loss), net ..............
Income before Income Taxes ..............................................
Provision for income taxes ..............................................
Net Income ........................................................................... $
Earnings Per Share:
Earnings per common share:
Basic ................................................................................ $
Diluted ............................................................................. $
Dividends declared per common share ................................. $
Weighted average common shares outstanding:
97,404
85,202
97,956
15,564
296,126
121,477
(65,603)
1,562
57,436
22,834
34,602 $
116,882
74,012
102,073
18,388
311,355
124,387
(52,883)
(985)
70,519
26,527
43,992 $ 111,671 $
127,862
73,573
107,875
18,732
328,042
215,008
(38,474)
(35)
176,499
64,828
135,336
70,776
84,420
17,143
307,675
142,596
(19,788)
(1,176)
121,632
43,594
78,038 $
108,810
63,505
72,690
13,272
258,277
114,177
(20,996)
(342)
92,839
33,967
58,872
1.04 $
1.03 $
— $
1.33 $
1.33 $
—— $
3.38 $
3.38 $
3.71 $
2.36 $
2.36 $
—— $
1.78
1.78
——
Basic ................................................................................
Diluted .............................................................................
33,192
33,462
33,006
33,026
33,000
33,008
33,000
33,000
33,000
33,000
Other Financial Data:
Adjusted EBITDA (a) ........................................................ $ 142,263 $ 155,675 $ 235,819 $ 162,489 $ 131,474
17,872
Capital expenditures ........................................................ $
56.4%
Gross profit margin ..........................................................
Adjusted EBITDA margin (a) ...........................................
19.9%
Domestic revenue ............................................................ $ 622,991 $ 510,242 $ 474,715 $ 395,549 $ 334,066
International revenue ....................................................... $ 122,578 $ 142,358 $ 335,122 $ 369,774 $ 326,862
993
Number of employees (at period end) .............................
13,284 $
67.1 %
29.1 %
14,396 $
56.0%
19.1%
14,872 $
58.8%
21.2%
32,241 $
66.8%
23.9%
1,099
1,151
1,132
1,027
Balance Sheet Data (at period end):
Cash and cash equivalents ............................................... $
Loans and finance receivables, net ..................................
Total assets ......................................................................
Long-term debt ................................................................
Total stockholders' equity ................................................
39,934 $
42,066 $
75,106 $
47,480 $
561,550
977,879
649,911
241,699
434,633
840,537
541,909
205,968
323,611
721,315
480,726
153,984
303,467
661,238
424,133
173,048
37,548
228,390
580,878
427,889
97,416
Other Operating Data:
Combined loans and finance receivables, gross
Short-term loans (b) ..................................................... $
Line of credit accounts ...............................................
Installment loans and RPAs (b) ...................................
92,561 $ 122,165 $ 194,679
42,700
144,183
121,570
459,414
Total combined loans and finance receivables, gross (b)(b) .. $ 692,694 $ 536,078 $ 424,829 $ 427,197 $ 358,949
Combined loan and finance receivable originations
125,802
179,230
118,680
213,588
100,855
351,279
89,097 $
83,944 $
Short-term loans ......................................................... $ 1,115,891 $ 1,178,359 $ 1,303,231 $ 1,846,024 $ 2,160,532
116,360
318,385
Line of credit accounts ...............................................
222,435
622,877
Installment loans and RPAs .......................................
Total combined originations ............................................ $ 2,057,153 $ 1,932,637 $ 2,204,225 $ 2,596,078 $ 2,499,327
311,649
438,405
439,562
461,432
237,325
516,953
(a)The table below shows a reconciliation of Adjusted EBITDA, a non-GAAP measure, to Net Income and Adjusted EBITDA as a
percentage of total revenue, which is Adjusted EBITDA margin (dollars in thousands):
46
(cid:3)(cid:3)
Net Income ............................................................................ $
Depreciation and amortization expenses .........................
Interest expense, net ........................................................
Foreign currency transaction (gain) loss, net ...................
Provision for income taxes ..............................................
Stock-based compensation expense .................................
2016
34,602 $
15,564
65,603
(1,562)
22,834
8,522
Adjustments:
Year Ended December 31,
2014
2015
43,992 $ 111,671 $
18,732
18,388
38,474
52,883
35
985
64,828
26,527
664
9,630
2013
78,038 $
17,143
19,788
1,176
43,594
250
2012
58,872
13,272
20,996
342
33,967
146
Acquisition-related costs(1) ..............................................
Lease termination and relocation costs(2) .........................
Regulatory Penalty (3) ............................................................
Withdrawn IPO (4) ..................................................................
——
——
——
3,879
Adjusted EBITDA................................................................. $ 142,263 $ 155,675 $ 235,819 $ 162,489 $ 131,474
Adjusted EBITDA margin calculated as follows:
—
1,415
—
—
(3,300)
—
—
—
——
3,270
——
——
——
——
2,500
——
Total Revenue ..................................................................
Adjusted EBITDA ...........................................................
Adjusted EBITDA as a percentage of total revenue ........
745,569
142,263
19.1%
652,600
155,675
23.9%
809,837 765,323
235,819 162,489
21.2%
29.1 %
660,928
131,474
19.9%
(1) For the year ended December 31, 2016, the Company recorded a $3.3 million fair value adjustment ($2.0 million net of tax)
to contingent consideration related to a prior year acquisition.
(2) In May 2015, the Company relocated its headquarters and as a result incurred $3.3 million of facility cease-use charges
($2.1 million net of tax) consisting of remaining lease obligations and disposal costs on its prior headquarters. In June 2014
the Company incurred $1.4 million ($0.9 million net of tax) of early lease termination charges on our prior headquarters.
tt
(3) For the year ended December 31, 2013, represents the amount paid in connection with the Regulatory Penalty, which is
nondeductible for tax purposes.
(4) For the year ended December 31, 2012, represents costs of $3.9 million, before tax benefit of $1.5 million related to our
withdrawn Registration Statement in July 2012 in connection with effo
d
(b)See “Management’s Discussion and Analysis of Financial Condition and Re
tt
rts in pursuit of an initial public offering.
sults of Operations—Non-GAAP Disclosure—
Combined Consumer Loans” in Part II, Item 7 of this report for additional information about combined consumer loans. The table
below shows combined consumer loan balances, a non-GAAP measure, which is composed of Company-owned consumer loan
balances as reported on our consolidated balance sheets and consumer loans originated by third party lenders through the CSO
programs that are not included in our financial statements but are disclosures required by GAAP.
(cid:3)(cid:3)
Short-term loan balances, gross:
Company owned ................................................................... $
Guaranteed by the Company .................................................
Combined .............................................................................. $
Installment loan and finance receivable balances, gross:
$
Guaranteed by the Company .................................................
Combined .............................................................................. $
Total loan and finance receivable balances, gross:
$
Guaranteed by the Company .................................................
Combined .............................................................................. $
2016
63,005
26,092
89,097
453,307
6,107
459,414
660,495
32,199
692,694
Year Ended December 31,
2014
2013
2015
$
$
$
$
$
$
58,793
25,151
83,944
342,307
8,972
351,279
501,955
34,123
536,078
$
$
$
$
$
$
80,753
56,298 $
36,263
41,412
92,561 $ 122,165
213,581 $ 179,230
——
213,588 $ 179,230
7
388,559 $ 385,785
41,412
424,829 $ 427,197
36,270
$
$
$
$
$
$
2012
146,472
48,207
194,679
121,570
—
121,570
310,742
48,207
358,949
47
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
RECENT REGULATORY DEVELOPMENTS
Consumer Financial Protection Bureau
On June 2, 2016, the CFPB issued its Proposed Rule on Payday, Vehicle Title, and Certain High-Cost Installment Loans. The
Proposed Rule would impose significant limitations on all short-term and installment loans with APRs above 36%, including all of our
short-term loan products and certain of our installment loan products. Among other provisions, the Proposed Rule requires lenders to
conduct a specific assessment regarding a borrower’s ability to repay, including a requirement to verify borrowers’ income and major
financial obligations. The Proposed Rule also includes limitations on the number of loans that certain borrowers can have within a
specified time frame and requires additional disclosures in loan documents and notices regarding payments. The Proposed Rule was
published in the Federal Register on July 22, 2016, and comments on the Proposed Rule were due to the CFPB by October 7, 2016.
The CFPB will review all submitted comments before issuing a final rule. We do not currently know the nature and extent of the final
rule that the CFPB will adopt. As a result, it is not currently possible to predict the ultimate scope, extent, nature, timing or effect of
any rule eventually adopted and made effective by the CFPB. We cannot give any assurances that the effect of such rule will not have
a material impact on our U.S. products and services.
On July 28, 2016, the CFPB, pursuant to the authority provided in the Dodd-Frank Act, issued an outline of proposals pertaining to
third-party debt collectors and others covered by the FDCPA that is intended to increase consumer protection during debt collection
(“Debt Collection Outline”). In the Debt Collection Outline, the CFPB is considering substantive rules under the FDCPA that would,
among other proposals: (i) require collectors to substantiate the debt and confirm that they have sufficient consumer information
before starting collection; (ii) limit communication attempts to six per week through any point of contact; (iii) make it easie
r for
consumers to stop specific ways collectors are contacting them; (iv) prohibit collectors from communicating with certain parties for 30
days after a consumer’s death; (v) make it easier for consumers to dispute debts by, among other proposals, requiring collectors to
include more specific information about the debt in the initial collection notices sent to consumers as well as a “tear-off” portion of the
notice that consumers could send back to the collector; (vi) require collectors to verify a debt through a written report if the debt is
disputed in writing by a consumer; (vii) prohibit collectors from continuing collection efforts or suing for debt until the necessary
documentation is checked if a consumer disputes the debt; and (viii) require a subsequent holder of a debt to resolve any outstanding
dispute about the debt before attempting to collect.
mm
The proposals in the Debt Collection Outline would apply to our collection of debt originated by other lenders, including under our
CSO programs and our Bank Program. The proposals in the Debt Collection Outline would not apply to our collection of debt that we
originate; however, the CFPB has announced that it plans to address consumer protection issues involving first-party debt collectors
and creditors separately. The CFPB published its Debt Collection Outline in preparation for convening a Small Business Review Panel
to determine whether its proposal could have a significant economic impact on small businesses. The Debt Collection Outline does not
include proposed or final rules, and any future rules could be significantly different from those in the Debt Collection Outline. The
CFPB has not yet defined a date for any proposed rules related to debt collection nor has it defined the effective date for the
implementation of final rules. We cannot give any assurances that the effect of such rules will not have a material impact on our U.S.
products and services.
r
On May 5, 2016, the CFPB issued proposed rules prohibiting the use of mandatory arbitration clauses and class action waiver
provisions in consumer financial services contracts. We do not currently know the nature and extent of the final rule that the CFPB
will adopt. As a result, it is not currently possible to predict the ultimate scope, extent, nature, timing or effect of any rule eventually
adopted and made effective by the CFPB. Any final rule would apply to consumer financial services agreements entered into after the
final rule becomes effective (and will not apply to prior arbitration agreements). We cannot give any assurances that the effect of such
rules will not have a material impact on our U.S. products and services.
r
Military Lending Act
On October 3, 2016, the final rule published by the Department of Defense amending the Military Lending Act’s (“MLA’s”)
implementing regulation became effective. The new rule expands the scope of the credit products covered by the MLA. The rules
under the MLA will restrict us from offering consumer loan products to covered borrowers above the military annual percentage rate,
which is defined by the rules as 36%, and contain various disclosure requirements, limitations on renewals and refinancing, as well as
restrictions on the use of prepayment penalties, arbitration provisions and certain waivers of rights. The rule provides that a lender is
subject to fines and other penalties if it extends credit to a covered borrower on prohibited terms. The new rule provides a safe harbor
for a lender if it verifies that an applicant is not a covered borrower before extending credit by checking the Department of Defense’s
database or a database of a national credit reporting agency that provides military status information.
a
48
Financial Conduct Authority
During years ended December 31, 2016 and December 31, 2015, our U.K. operations generated 13.9% and 19.9%, respectively, of our
consolidated total revenue. Regulatory changes in the United Kingdom during 2014 significantly affected our results from our U.K.
operations as described below.
In the United Kingdom, supervision of consumer credit was transferred on April 1, 2014 to the FCA, and pursuant to new legislation, the
FCA is authorized to adopt prescriptive rules and regulations. On February 28, 2014, the Consumer Credit Sourcebook was issued as part of
the FCA Handbook and incorporates prescriptive regulations for lenders such as us, including mandatory affordability assessments on
borrowers, limiting the number of rollovers to two, restricting how lenders can advertise, banning advertisements the FCA deems misleading,
and introducing a limit of two unsuccessful attempts on the use of continuous payment authority (which provides a creditor the ability to
directly debit a customer’s account for payment when authorized by the customer to do so) to pay off a loan. As required by the 2013
amendment to the Financial Services and Markets Act 2000, the FCA implemented a cap on the total cost of high-cost short-term credit
effective January 2, 2015. The final rule reflects a maximum rate of 0.8% of principal per day, and limits the total fees, interest (including
post-default interest) and charges (including late fees which are capped at £15) to an aggregate amount not to exceed 100% of the principal
amount loaned. The rule required us to make changes to all of our high-cost short-term products in the United Kingdom. As a result of the
final rule, we discontinued offering line of credit accounts to new customers in the United Kingdom in late 2014 and effective January 1,
2015, we discontinued draws on existing line of credit accounts in the United Kingdom. Once U.K. customers have paid off their outstanding
line of credit balance, they may be eligible for either a short-term or installment loan.
t
On January 29, 2016, we received full authorization from the FCA to provide consumer credit and to perform related activities for
both of our U.K. businesses. We will be required to continue to satisfy certain minimum standards set out in the FSMA, which may
result in additional costs to us.
ff
On February 24, 2015, the FCA issued a consultation paper that, among other things, proposes to require that providers of high-cost short-
term credit include a risk warning in all financial promotions and to amend the FCA rules to allow firms to introduce continuous payment
authority to collect repayments where a customer is in arrears or default and the lender is exercising forbearance. The FCA published its
response to this consultation on September 28, 2015, and confirmed the ability of firms to use continuous payment authority to collect
repayments where a customer is in arrears or default and the lender is exercising forbearance. The FCA also imposed a number of regulatory
changes on credit brokers and lenders operating in the high-cost-short-term credit market in the United Kingdom. The FCA now requires that
providers of high-cost short-term credit include a risk warning in all financial promotions, including previously exempted size-limited ads
like SMS text messages and pay-per-click ads. The majority of these changes came into force on November 2, 2015.
f
In addition, on August 13, 2015, the CMA published its final order which requires online lenders to publish details of their products
on at least one price comparison website which is authorized by the FCA. It is anticipated that the FCA will publish its price
comparison website standards in mid-2016 with an effective date at the end of 2016 or 2017. The CMA also ordered online and
storefront lenders to provide existing customers with a summary of their cost of borrowing effective August 13, 2016. The CMA also
published guidance on the unfair contract provisions in the Consumer Rights Act of 2015, which sets out the CMA’s understanding of
the provisions in the act which deal with unfair contract terms and notices. The guidance supersedes the general unfair contract terms
guidance issued by the OFT
We are subject to ongoing examination and review by the FCA. During 2014 we were in frequent communication with the FCA in an
effort to demonstrate that we satisfy the expectations of the FCA, and we made significant modifications to many of our business
practices to address the FCA’s requirements. These modifications included adjustments to our affordability assessment practices and
underwriting standards that govern who will qualify for a loan from us, reductions in certain maximum loan amounts, alterations to
advertising practices and adjustments to collections processes (including our practices related to continuous payment authority) and
debt forbearance processes (or our practices regarding customers who have indicated they are experiencing financial difficulty). In
addition, we previously did not have a physical presence in the United Kingdom as business functions were performed remotely from
our facilities in the United States. In order to alleviate concerns in relation to our ability to demonstrate to the FCA that we are capable
of being effectively supervised, we established an office in London in 2014 for the management of our U.K. business.
y
In 2014, the FCA appointed an independent auditor, referred to as a skilled person under section 166 of the FSMA, to undertake a review of
certain of our practices, as well as our ability to be effectively supervised. The first phase of that review identified certain of our former
business practices that were deemed by the FCA to have caused some consumer detriment, the majority of which were during the limited
time frame prior to complete implementation of our enhanced affordability assessment. On November 4, 2015, the FCA announced the final
redress program, in which we provided 3,940 customers total redress of approximately $2.6 million through a combination of loan balance
waivers and cash refunds of interest and fees paid. The skilled person oversaw the execution of the redress program, which was concluded in
the latter part of the fourth quarter of 2015. The remainder of the section 166 review has been completed and has not identified further
activities deemed by the FCA to have caused consumer detriment or that are not in compliance with the FCA’s requirements.
n
49
In connection with implementing the changes described above to our U.K. business, we experienced a significant year-over-year
decrease in our U.K. loan volume, U.K. loan balances and U.K. revenue during 2015. We discontinued offering line of credit accounts
to new customers in the United Kingdom in late 2014 and effective January 1, 2015, we discontinued draws on existing line of credit
accounts in the United Kingdom. The implementation of stricter affordability assessments and underwriting standards resulted in an
year-over-year decrease in the number of consumer loans written, the average consumer loan amount and the total amount of
consumer loans written to new and returning customers. Additionally, we experienced an increase in compliance- and administrative-
related costs for the United Kingdom, but the overall expenses of our U.K. business (including our cost of revenue) decreased as our
U.K. business contracted. The ultimate impact of the changes we have made to our U.K. operations will be dependent on a number of
factors (some of which may be unforeseen), including the effectiveness of our execution of the operational changes, the impact the
FCA’s requirements may have on our competitors that could result in a potential increase in our market share, and consumer reaction
to the changes occurring to our services, among other things. The decline in revenue and loan balances in the United Kingdom has
been offset to an extent by improved performance of our U.K. consumer loan portfolio as a result of stricter affordability assessments
and underwriting standards being implemented, which has resulted in lower consumer loan loss rates, and by continued strong demand
for the online loan products we offer and receivables purchased in the United States and other markets.
The results for the year ended December 31, 2014 do not include the full impact of the changes described above. The results for that
period are not indicative of our future results of operations and cash flows from our operations in the United Kingdom.
r
Safe Harbor Provisions
On October 6, 2015, the European Court of Justice invalidated the so-called “Safe Harbor” framework, which previously evidenced
compliance with the U.K. Data Protection Act and the European Union Data Protection Directive and allowed companies to pass
European Union data to non-European Union countries if certain certification requirements were met by the company. Although many
companies, including us, had Safe Harbor certification, the European Union and the United Kingdom provide other guidance
regarding compliance with data protection laws and regulations for companies who pass data outside the European Union. In addition,
there are circumstances under which a company is exempt from complying with those laws and regulations. Despite the invalidation
of the Safe Harbor framework, we believe we are exempt from and/or in compliance with all E.U. and U.K. privacy laws and
regulations.
On February 2, 2016, the European Commission and the United States agreed on a new framework for transatlantic data flows, the
“EU-US Privacy Shield”, which will replace the invalidated Safe Harbor framework. The EU-US Privacy Shield is a framework
designed by the U.S. Department of Commerce (the “Commerce Department”) and European Commission to provide companies on
both sides of the Atlantic with a mechanism to comply with EU personal data from the European Union to the United States in support
of transatlantic commerce. On July 12, 2016, the European Commission adopted the EU-US Privacy Shield, which consists of four
components: (i) the privacy shield principles, which is a code of conduct outlining protections for the handling of personal data; (ii)
oversight and enforcement; (iii) ombudsperson mechanism; and (iv) safeguards and limitations. The Commerce Department began
accepting certifications to the EU-US Privacy Shield on August 1, 2016. We expect to apply for certification to the EU-US Privacy
Shield, and in the interim, despite the invalidation of the Safe Harbor framework, we believe we are exempt from and/or are in
compliance with all E.U. and U.K. privacy laws and regulations.
aa
On June 23, 2016, the United Kingdom voted to exit the European Union. The details and timeline of the exit have not yet been
finalized. When the United Kingdom exits the European Union, it is expected that the United Kingdom will establish a new
framework for data flow between the United Kingdom and the United States or will agree to continue the protections of the EU-US
Privacy Shield for the transfer of personal data into and out of the United Kingdom. We expect to comply with any framework
established by the United Kingdom for the transfer of personal data into and out of the United Kingdom.
BASIS OF PRESENTATION AND CRITICAL ACCOUNTING POLICIES
Enova International, Inc. was formed on September 7, 2011 by Cash America to hold the assets of Cash America’s online lending
business. On September 13, 2011, Cash America contributed to Enova International, Inc. all of the stock of its wholly-owned
subsidiary, Enova Online Services, Inc., in exchange for 33 million shares of our common stock. As of December 31, 2016, Enova
offered, arranged or purchased consumer and small business loans and receivables purchase agreements (collectively referred to as
“loans and finance receivables” throughout this Management’s Discussion and Analysis of Financial Condition and Results of
Operations) through a number of its subsidiaries to customers in all 50 states and Washington D.C. in the United States, United
Kingdom, and Brazil.
Prior to the Spin-off from Cash America, we operated as a division of Cash America and not as a stand-alone company. Our historical
consolidated financial statements include the assets, liabilities, revenue and expenses directly attributable to our operations carved out
of Cash America’s consolidated financial statements. In addition, the historical financial statements for periods prior to the Spin-off
include allocations of costs relating to certain functions historically provided by Cash America, including corporate services such as
executive oversight, insurance and risk management, government relations, internal audit, treasury, licensing, and to a limited extent
d
50
finance, accounting, tax, legal, human resources, compensation and benefits, compliance and support for certain information systems
related to financial reporting. The expense allocations were determined on a basis that Cash America and we considered to be
reasonable reflections of the utilization of services provided by Cash America.
The amounts recorded for these transactions and allocations are not, however, necessarily representative of the amounts that would
have been incurred had we been a separate, stand-alone entity that operated independently of Cash America. As a separate stand-alone
public company, our current and future results of operations will include costs and expenses for us to operate as a stand-alone
company, and, consequently, these costs may be materially different than as reflected in our historical results of operations.
Accordingly, the financial statements for the years when we were a division of Cash America may not be indicative of our future
results of operations, financial position and cash flows.
Upon our separation from Cash America, we entered into a transition services agreement with Cash America. Following the
completion of the Spin-off and up until December 31, 2015, Cash America provided support for certain information systems related to
financial reporting and payment processing to us in exchange for compensation and reimbursement for all out-of-pocket costs and
expenses incurred in connection with providing such services.
Out-of-Period Adjustment
In a review of our revenue recognition policy during 2015, we determined that certain fees on our line of credit product should be
d
deferred over the period the draw is outstanding rather than recognized as revenue when assessed. We recorded a $2.5 million
reduction to revenue in the fourth quarter of 2015 as an out-of-period adjustment. This adjustment included a $2.8 million reduction of
revenue associated with periods prior to 2015. We believe this adjustment was not material to any of the prior years’ consolida
financial statements.
ted
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Revenue Recognition
We recognize revenue based on the financing products and services we offer. “Revenue” in the consolidated statements of income
includes: interest income, finance charges, fees for services provided through the CSO programs (“CSO fees”), revenue on RPAs,
service charges, draw fees, minimum billing fees, late fees and nonsufficient funds fees as permitted by applicable laws and pursuant
to the agreement with the borrower. For short-term loans that we offer, 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
n
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 is recognized on an effective y
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. Unpaid
and accrued interest and fees and unamortized deferred origination costs are included in “loans and finance receivables, net” in the
consolidated balance sheets.
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ield basis
Current and Delinquent Loan and Finance Receivables
We classify our 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. We do not accrue interest on the delinquent
payment portion of the loan but do continue to accrue interest on the remaining portion of the loan. If a line of credit accoun
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. We allow for normal payment processing time before considering a payment or a loan delinquent but do not
provide for any additional grace period.
t or
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Where permitted by law and as long as a loan is not considered delinquent, a customer may choose to renew a short-term loan or
installment loan or extend the due date on a short-term loan. In order to renew or extend a short-term loan, a customer must agree to
pay the current finance charge for the right to make a later payment of the outstanding principal balance plus an additional finance
charge. In order to renew an installment loan, the customer enters into a new installment loan contract and agrees to pay the principal
balance and finance charge in accordance with the terms of the new loan contract. If a short-term loan is renewed, but the customer
fails to pay that loan’s current finance charge as of the due date, the unpaid finance charge is classified as delinquent. References
throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations to renewed loans include both
renewals and extensions made by customers to their existing loans as discussed above.
gg
51
We generally do not accrue interest on delinquent loans and do 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 an attempt to collect on a delinquent loan,
we allow 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.
qq
Allowance and Liability for Estimated Losses on Loans and Finance Receivables
We monitor the performance of our loan and finance receivable portfolios and maintain 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 credit
losses inherent in the portfolio. The allowance for losses on our owned loans and finance receivables reduces the outstanding loan
balance in the consolidated balance sheets. The liability for estimated losses related to loans guaranteed under the CSO programs is
included in “Accounts payable and accrued expenses” in the consolidated balance sheets.
aa
In determining the allowance or liability for estimated losses on loans and finance receivables, we apply a documented systematic
methodology. In calculating the allowance or liability for loan 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 and installment loan and RPA portf
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olios, we generally use a migration analysis
estimate losses inherent in the portfolio. The allowance calculation under the migration analysis is based on historical charge-off
experience and the loss emergence period, which represents the average amount of time between the first occurrence of a loss event
and the charge-off of a loan. The factors we consider 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.
to
f
ff
We fully reserve for loans once the loan or a portion of the loan has been classified as delinquent for 60 consecutive days and
n
generally charge-off loans between 60 – 65 days delinquent. If a loan is deemed uncollectible before it is fully reserved, it is charged
off at that point. Loans classified as delinquent generally have an age of one to 64 days from the date any portion of the loan became
delinquent, as defined above. Recoveries on loans previously charged to the allowance are credited to the allowance when collected.
n
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, we test 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.
r
We first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test.
In assessing the qualitative factors, we consider relevant events and circumstances including but not limited to macroeconomic
conditions, industry and market environment, our overall financial performance, cash flow from operating activities, market
capitalization and stock price. If we determine that the two-step quantitative impairment test is required, we use the income approach
aa
to complete our annual goodwill assessment. The income approach uses future cash flows and our estimated terminal values that are aa
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. We completed our annual assessment of goodwill as of
June 30, 2016 and determined that the fair value of our 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. uu
Long-lived Assets Other Than Goodwill
An evaluation of the recoverability of property and equipment and intangible assets subject to amortization is performed whenever the
facts and circumstances indicate that the carrying value may be impaired. An impairment loss is recognized if the future undiscounted
cash flows associated with the asset and the estimated fair value of the asset are less than the asset’s corresponding carrying value. The
amount of the impairment loss, if any, is the excess of the asset’s carrying value over its estimated fair value.
We amortize finite-lived intangible assets subject to amortization on the basis of their expected periods of benefit, generally three to
20 years. The costs of start-up activities and organization costs are charged to expense as incurred.
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52
Marketing Expenses
Marketing expenses consist of online marketing costs such as sponsored search and advertising on social networking sites, and offline
sts and
marketing costs such as television, radio and direct mail advertising. In addition, marketing expenses include lead purchase co
broker commissions paid to marketers in exchange for providing information or applications from potential customers interested in
using our services. Marketing costs directly related to loan and RPA originations are deferred and amortized against revenue. Online
marketing and lead purchase costs not directly resulting in loan and RPA originations are expensed as incurred. The production
costs
associated with offline marketing are expensed as incurred. Other marketing costs are expensed as incurred.
n
rr
We also had an agreement with an independent third party pursuant to which we paid a portion of the net revenue received from the
customers referred to us by such third party. Prior to the Spin-off, we had an arrangement with Cash America pursuant to which we
paid either a lead purchase fee or a portion of the net revenue received from the customers referred to us by Cash America. These
referral fees were included in “Marketing” in the consolidated statements of income.
Operations and Technology Expenses
Operations and technology expenses include all expenses related to the direct operations and technology infrastructure related to loan
underwriting and processing. This includes call center and operations personnel costs, software maintenance expense, underwriting
data from third-party vendors, and telephony costs.
General and Administrative Expenses
General and Administrative expenses primarily include corporate personnel costs, as well as legal, occupancy, and other related costs.
In addition, prior to the Spin-off from Cash America, general and administrative expenses included expense allocations for certain
corporate service functions historically provided by Cash America, such as executive oversight, insurance and risk management,
government relations, internal audit, treasury, licensing, and to a limited extent finance, accounting, tax, legal, human resources,
compensation and benefits, compliance and support for certain information systems related to financial reporting. Cash America
allocated these expenses to us based on our share of Cash America’s corporate services expenses incurred for the consolidated entity.
uu
d
Income Taxes
We account for income taxes under ASC 740, Income Taxes (“ASC 740”). Prior to the spin-off, our operations had been included as
part of consolidated and unitary tax returns with Cash America and its affiliated companies. Prior to May 30, 2014, we settled our
current tax balances with Cash America on a quarterly basis through an adjustment to our affiliate line of credit with Cash America.
With the exception of certain entities outside of the United States, we settled our current tax balances with Cash America on a
quarterly basis for the period from May 31, 2014 until the Spin-off.
As part of the process of preparing our consolidated financial statements, we are required to estimate income taxes in each of the
jurisdictions in which we operate. This process involves estimating the actual current tax expense together with assessing temporary
differences in recognition of income for tax and accounting purposes. These differences result in deferred tax assets and liabi
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are included within the consolidated balance sheets. We must then assess the likelihood that the deferred tax assets will be recovered
from future taxable income and, to the extent it believes that recovery is not likely, it must establish a valuation allowance. An
expense or benefit is included within the tax provision in the statement of operations for any increase or decrease in the valuation
allowance for a given period.
lities and
We perform an evaluation of the recoverability of our deferred tax assets on a quarterly basis. We establish a valuation allowance if it
is more-likely-than-not (greater than 50 percent) that all or some portion of the deferred tax asset will not be realized. We analyze
several factors, including the nature and frequency of operating losses, our carryforward period for any losses, the reversal of future
taxable temporary differences, the expected occurrence of future income or loss and the feasibility of available tax planning strategies
to protect against the loss of deferred tax assets.
a
aa
We account for uncertainty in income taxes in accordance with ASC 740, which requires that a more-likely-than-not threshold be met
before the benefit of a tax position may be recognized in the consolidated financial statements and prescribes how such benefit should
be measured. We must evaluate tax positions taken on our tax returns for all periods that are open to examination by taxing authorities
and make a judgment as to whether and to what extent such positions are more likely than not to be sustained based on merit.
t
t
Our judgment is required in determining the provision for income taxes, the deferred tax assets and liabilities and any valuation
allowance recorded against deferred tax assets. Our judgment is also required in evaluating whether tax benefits meet the more-likely-
than-not threshold for recognition under ASC 740.
53
Recent Accounting Pronouncements
See Note 2 in the Notes to the Audited Consolidated Financial Statements in Part II, Item 8 “Financial Statements and Supplementary
Data” in this report for a discussion of recent accounting pronouncements.
RESULTS OF OPERATIONS
HIGHLIGHTS
Our financial results for the year ended December 31, 2016, or 2016, are summarized below.
(cid:120) Consolidated total revenue increased $93.0 million, or 14.2%, to $745.6 million in 2016 compared to $652.6 million in the year
ended December 31, 2015, or 2015. A $112.8 million, or 22.1%, increase in domestic revenue to $623.0 million in 2016 from
$510.2 million for 2015 was offset by a $19.8, or 13.9% decline in international revenue to $122.6 million in 2016 from $142.4
n
million in 2015.
(cid:120) Consolidated gross profit decreased $18.1 million, or 4.2%, to $417.6 million in 2016 compared to $43
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5.7 million in 2015.
(cid:120) Consolidated income from operations decreased $2.9 million, or 2.3%, to $121.5 million in 2016, compared to $124.4 million in
2015.
(cid:120) Consolidated net income was $34.6 million in 2016, compared to $44.0 million in 2015. Consolidated diluted earnings per share
were $1.03 in 2016 compared to $1.33 in 2015.
54
OVERVIEW
The following tables reflect our results of operations for the periods indicated, both in dollars and as a percentage of total revenue
(dollars in thousands, except per share data):
Year Ended December 31,
2015
2014
2016
Other .................................................................................
Total Revenue .......................................................................
....................................................................
Gross Profit ...........................................................................
$
744,092 $
1,477
745,569
327,966
417,603
650,921 $ 808,987
850
809,837
266,787
543,050
1,679
652,600
216,858
435,742
Marketing ..........................................................................
Operations and technology ................................................
General and administrative ................................................
Depreciation and amortization ..........................................
Total Expenses ......................................................................
......................................................
Foreign currency transaction gain (loss), net ....................
Income before Income Taxes ...............................................
Net Income ............................................................................ $
Diluted earnings per share ................................................... $
Revenue
Loans and finance receivables revenue .............................
Other .................................................................................
Total Revenue .......................................................................
....................................................................
Gross Profit ...........................................................................
Marketing ..........................................................................
Operations and technology ................................................
General and administrative ................................................
Depreciation and amortization ..........................................
Total Expenses ......................................................................
......................................................
Foreign currency transaction gain (loss), net ....................
Income before Income Taxes ...............................................
Net Income ............................................................................
97,404
85,202
97,956
15,564
296,126
121,477
(65,603)
1,562
57,436
22,834
34,602 $
1.03 $
127,862
116,882
73,573
74,012
107,875
102,073
18,732
18,388
328,042
311,355
215,008
124,387
(38,474)
(52,883)
(35)
(985)
176,499
70,519
26,527
64,828
43,992 $ 111,671
3.38
1.33 $
99.8%
0.2
100.0
44.0
56.0
13.1
11.4
13.1
2.1
39.7
16.3
(8.8)
0.2
7.7
3.1
4.6%
99.7%
0.3
100.0
33.2
66.8
17.9
11.4
15.6
2.8
47.7
19.1
(8.1)
(0.2)
10.8
4.1
6.7%
99.9%
0.1
100.0
32.9
67.1
15.8
9.1
13.4
2.3
40.6
26.5
(4.7)
0.0
21.8
8.0
13.8%
NON-GAAP DISCLOSURE
In addition to the financial information prepared in conformity with generally accepted accounting principles (“GAAP”), we provide
historical non-GAAP financial information. We believe that presentation of non-GAAP financial information is meaningful and useful
in understanding the activities and business metrics of our operations. We believe that these non-GAAP financial measures reflect an
additional way of viewing aspects of our business that, when viewed with its GAAP results, provide a more complete understanding of
factors and trends affecting our business.
We provide non-GAAP financial information for informational purposes and to enhance understanding of our GAAP consolidated
financial statements. Readers should consider the information in addition to, but not instead of or superior to, our financial statements
prepared in accordance with GAAP. This non-GAAP financial information may be determined or calculated differently by other
companies, limiting the usefulness of those measures for comparative purposes.
55
Adjusted Earnings Measures
In addition to reporting financial results in accordance with GAAP, we have provided adjusted earnings and adjusted earnings per share,
or, collectively, the Adjusted Earnings Measures, which are non-GAAP measures. We believe that the presentation of these measures
provides investors with greater transparency and facilitates comparison of operating results across a broad spectrum of companies with
varying capital structures, compensation strategies, derivative instruments and amortization methods, which provides a more complete
understanding of our financial performance, competitive position and prospects for the future. We also believe that investors regularly
rely on non-GAAP financial measures, such as the Adjusted Earnings Measures, to assess operating performance and that such measures
may highlight trends in our business that may not otherwise be apparent when relying on financial measures calculated in accordance
with GAAP. In addition, we believe that the adjustments shown below are useful to investors in order to allow them to compare our
financial results during the periods shown without the effect of each of these income or expense items.
mm
The following table provides reconciliations between net income and diluted earnings per share calculated in accordance with GAAP
to the Adjusted Earnings Measures, which are shown net of tax (in thousands, except per share data):
Net Income ............................................................................... $
Adjustments:
Acquisition-related costs(a)
..................................................
Lease termination and relocation costs(b) ............................
Intangible asset amortization...............................................
Stock-based compensation expense ....................................
Foreign currency transaction (gain) loss, net ......................
Cumulative tax effect of adjustments ..................................
Adjusted earnings ..................................................................... $
Diluted earnings per share ........................................................ $
Adjustments:
Acquisition-related costs(a)
..................................................
Lease termination and relocation costs(b) ............................
Intangible asset amortization...............................................
Stock-based compensation expense ....................................
Foreign currency transaction (gain) loss, net ......................
Cumulative tax effect of adjustments ..................................
Adjusted earnings per share ...................................................... $
Year Ended December 31,
2015
2016
34,602
$
43,992
$
2014
111,671
(3,300)
——
1,137
8,522
(1,562)
(1,907)
37,492
1.03
(0.10)
——
0.04
0.26
(0.05)
(0.06)
1.12
$
$
$
— —
3,270
494
9,630
985
(5,373)
$
52,998
——
1,415
45
664
35
(783)
113,047
1.33
$
3.38
— —
0.10
0.01
0.29
0.03
(0.16)
$
1.60
——
0.04
——
0.02
——
(0.02)
3.42
(a) For the year ended December 31, 2016, we recorded a $3.3 million fair value adjustment ($2.0 million net of tax) to contingent
consideration related to a prior year acquisition.
(b) In May 2015, we relocated our headquarters and as a result incurred $3.3 million of facility cease-use charges ($2.1 million net of
tax) consisting of remaining lease obligations and disposal costs on its prior headquarters. In June 2014, we incurred $1.4 million
($0.9 million net of tax) of early lease termination charges on our prior headquarters.
56
Adjusted EBITDA
The table below shows Adjusted EBITDA, which is a non-GAAP measure that we define as earnings excluding depreciation,
amortization, interest, foreign currency transaction gains or losses, taxes and stock-based compensation expense. We believe Adjusted
EBITDA is used by investors to analyze operating performance and evaluate our ability to incur and service debt and our capacity for
making capital expenditures. Adjusted EBITDA is also useful to investors to help assess our estimated enterprise value. In addition,
we believe that the adjustments for acquisition-related costs and the lease termination and relocation costs shown below are useful to
investors in order to allow them to compare our financial results during the periods shown without the effect of the income or expense
items. The computation of Adjusted EBITDA as presented below may differ from the computation of similarly-titled measures
provided by other companies (dollars in thousands):
d
tt
Net Income ............................................................................. $
Interest expense, net ..........................................................
Foreign currency transaction (gain) loss, net ....................
Provision for income taxes ................................................
Stock-based compensation expense ..................................
Adjustments:
Year Ended December 31,
2015
2014
2016
34,602 $
15,564
65,603
(1,562)
22,834
8,522
43,992 $ 111,671
18,732
18,388
38,474
52,883
35
985
64,828
26,527
664
9,630
Acquisition-related costs(a) ................................................
Lease termination and relocation costs(b) ..........................
Adjusted EBITDA .................................................................. $
(3,300)
——
142,263 $
— —
3,270
——
1,415
155,675 $ 235,819
Adjusted EBITDA margin calculated as follows:
Total Revenue ...................................................................
Adjusted EBITDA .............................................................
Adjusted EBITDA as a percentage of total revenue..........
745,569
142,263
19.1%
652,600
155,675
23.9%
809,837
235,819
29.1%
(a) For the year ended December 31, 2016, we recorded a $3.3 million fair value adjustment ($2.0 million net of tax) to contingent
consideration related to a prior year acquisition.
(b) In May 2015, we relocated our headquarters and as a result incurred $3.3 million of facility cease-use charges ($2.1 million net of
tax) consisting of remaining lease obligations and disposal costs on its prior headquarters. In June 2014 we incurred $1.4 million
($0.9 million net of tax) of early lease termination charges on our prior headquarters.
Constant Currency Basis
In addition to reporting financial results in accordance with GAAP, we have provided certain other non-GAAP financial information on a
constant currency basis. We currently operate in the United Kingdom and Brazil and have completed a wind-down of our businesses in
Australia and Canada in 2016. During 2016, 2015 and 2014, 16.4%, 21.8% and 41.4% of our revenue, respectively, originated in
currencies other than the U.S. Dollar, principally the British Pound Sterling. As a result, changes in our reported revenue and profits
include the impacts of changes in foreign currency exchange rates. As additional information to the reader, we provide constant currency
assessments in the following discussion and analysis to remove and/or quantify the impact of the fluctuation in foreign exchange rates and
utilize constant currency results in our analysis of performance. Our constant currency assessment assumes foreign exchange rates in the
current fiscal periods remained the same as in the prior fiscal year periods. All conversion rates below are based on the U.S. Dollar
equivalent to one of the applicable foreign currency:
d
t
British Pound ...........................................................................
Canadian dollar ........................................................................
Brazilian real ...........................................................................
(cid:3)
British Pound ...........................................................................
Canadian dollar ........................................................................
Brazilian real ...........................................................................
57
Year Ended December 31,
2016
2015
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)(cid:3)
(cid:3) (cid:3) (cid:3)
(cid:3) % Change
1.3554
0.7438
0.7551
0.2884
1.5289
0.7529
0.7838
0.3057
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(11.3)%
(1.2)%
(3.7)%
(5.7)%
Year Ended December 31,
2015
2014
(cid:3) (cid:3) (cid:3)
(cid:3) (cid:3) (cid:3)
(cid:3) % Change
1.5289
0.7529
0.7838
0.3057
1.6480
0.9028
0.9060
0.4263
(7.2)%
(16.6)%
(13.5)%
(28.3)%
We believe that our non-GAAP constant currency assessments are a useful measure, indicating the actual growth and profitability of
our operations.
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Combined Loans and Finance Receivables
Combined loans and finance receivables is a non-GAAP measure that includes both loans and RPAs we own and loans we guarantee,
which are either GAAP items or disclosures required by GAAP. See “—Basis of Presentation and Critical Accounting Policies—
Allowance and Liability for Estimated Losses on Loans and Finance Receivables.”
We believe this non-GAAP measure provides investors with important information needed to evaluate the magnitude of potential
receivable losses and the opportunity for revenue performance of the loans and finance receivables portfolio on an aggregate basis. We
also believe that the comparison of the aggregate amounts from period to period is more meaningful than comparing only the amounts
reflected on our balance sheet since both revenue and cost of revenue are impacted by the aggregate amount of receivables we own ww
and those we guarantee as reflected in our financial statements.
YEAR ENDED 2016 COMPARED TO YEAR ENDED 2015
Revenue and Gross Profit
Revenue increased $93.0 million, or 14.2%, to $745.6 million for 2016 as compared to $652.6 million for 2015. On a constant
currency basis, revenue increased by $107.5 million, or 16.5%, for 2016 compared to 2015. The change in revenue is driven by an
increase in revenue of $112.8 million from our domestic operations, primarily resulting from a 32.2% increase in domestic installment
loan and RPA revenue and a 40.2% increase in domestic line of credit accounts revenue in 2016 compared to 2015 driven by growth
in these products. The increase in revenue from domestic operations was partially offset by a decrease in revenue of $19.8 million (or
an increase of $5.3 million on a constant currency basis) from our international operations, primarily due to regulatory changes in the
United Kingdom and weakness in the British pound sterling since the U.K. vote to leave the European Union.
f
Our gross profit decreased by $18.1 million to $417.6 million for 2016 from $435.7 million for 2015. On a constant currency basis,
gross profit decreased by $9.4 million for 2016 compared to 2015. Our consolidated gross profit as a percentage of revenue, or our
gross profit margin, decreased to 56.0% in 2016 from 66.8% in 2015. The decrease in gross profit margin was primarily driven by the
y
growth of our domestic near-prime installment portfolio and a higher mix of new customers in all products, which require higher loss
provisions as new customers default at a higher rate than returning customers with a successful history of loan performance. Although
the growth in our domestic near-prime installment portfolio contributed to the lower gross profit margin, as the portfolio continues to
scale and the underlying longer term loans continue to season we expect to achieve increased marginal profitability. In addition, our
international gross profit margin decreased due to the continued wind down of the U.K. line of credit portfolio and lower margins
from our other U.K. products due to regulatory changes.
r
The following tables set forth the components of revenue and gross profit, separated between domestic and international for 2016 and
2015 (dollars in thousands):
Year Ended December 31,
2016
2015
(cid:3)
(cid:3) (cid:3)
(cid:3)
$ Change
(cid:3) (cid:3)
(cid:3) % Change
Revenue by product:
Short-term loans ................................................................ $
Line of credit accounts ......................................................
Installment loans and RPAs ..............................................
Total loan and finance receivable revenue .............................
Other .................................................................................
Total revenue .......................................................................... $
196,255 $
220,462
327,375
744,092
1,477
745,569 $
204,893 $
185,521
260,507
650,921
1,679
652,600 $
(8,638)
34,941
66,868
93,171
(202)
92,969
(4.2)%
18.8%
25.7%
14.3%
(12.0)%
14.2%
Short-term loans ................................................................
Line of credit accounts ......................................................
Installment loans and RPAs ..............................................
Total loan and finance receivable revenue .............................
Other .................................................................................
Total revenue ..........................................................................
26.3%
29.6%
43.9%
99.8%
0.2%
100.0%
31.4%
28.4%
39.9%
99.7%
0.3%
100.0%
58
Domestic:
Year Ended December 31,
2016
2015
$ Change
(cid:3) % Change
Revenue ........................................................................... $ 622,991 $ 510,242 $ 112,749
94,301
Cost of revenue ................................................................
Gross profit ...................................................................... $ 331,727
18,448
Gross profit margin ..........................................................
$
61.4%
$ 313,279
196,963
291,264
53.2%
(8.2)%
International:
Revenue ........................................................................... $ 122,578 $ 142,358 $
Cost of revenue ................................................................
Gross profit ...................................................................... $
Gross profit margin ..........................................................
36,702
85,876 $ 122,463 $
86.0%
19,895
70.1%
(19,780)
16,807
(36,587)
(15.9)%
Total:
Revenue ........................................................................... $ 745,569 $ 652,600 $
Cost of revenue ................................................................
Gross profit ...................................................................... $ 417,603 $ 435,742 $
66.8%
Gross profit margin ..........................................................
327,966
216,858
56.0%
92,969
111,108
(18,139)
(10.8)%
22.1%
47.9%
5.9%
(13.4)%
(13.9)%
84.5%
(29.9)%
(18.5)%
14.2%
51.2%
(4.2)%
(16.2)%
Loan and Finance Receivable Balances
m
The outstanding combined portfolio balance of loans and finance receivables, net of allowance and liability for estimated losses,
increased $124.8 million, or 26.7%, to $591.8 million as of December 31, 2016 from $467.0 million as of
primarily due to increased demand for our domestic near-prime installment product and growth of our loan and finance receivable
portfolios serving the needs of small businesses, and an increase in international loan balances (up 17.6% on a constant currency
basis). The outstanding loan balance for our domestic near-prime product increased 43.1% as of December 31, 2016 compared to
December 31, 2015, resulting in a domestic near-prime portfolio balance that comprises approximately 40% of our total loan and
finance receivables portfolio balance while domestic short-term loans comprise approximately 9%. We expect this trend to continue as
n
we expand our near-prime installment product offering in 2017 by establishing loan programs with one or more banks. We expect the
loan balances for our domestic near-prime installment loan product will continue to comprise a larger percentage of the total loan and
finance receivable portfolio, due to consumer demand for the product and its longer loan term. Additionally, our portfolio of loans and
finance receivables serving the needs of small businesses has grown quickly over the last year and has exceeded 12% of our total loan
and finance receivables portfolio. See “—Non-GAAP Disclosure—Combined Loans and Finance Receivables” above for additional
information related to combined loans and finance receivables.
December 31, 2015,
The combined loan and finance receivable balance includes $660.5 million and $502.0 million as of December 31, 2016 and 2015,
respectively, of our owned receivables balances before the allowance for losses of $98.9 million and $67.3 million provided in the
consolidated financial statements for December 31, 2016 and 2015, respectively. The combined loan and finance receivable balance also
includes $32.2 million and $34.1 million as of December 31, 2016 and 2015, respectively, of loan and finance receivable balances that
are guaranteed by us, which are not included in our financial statements, before the liability for estimated losses of $2.0 million and $1.7
million provided in “Accounts payable and accrued expenses” in the consolidated financial statements for December 31, 2016 and 2015,
respectively.
The following tables summarize loan and finance receivable balances outstanding as of December 31, 2016 and 2015 (dollars in
thousands):
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
Ending loans and finance receivables:
As of December 31,
2016
Guaranteed
by the
Company(a)
Company
Owned(a)
2015
(cid:3) Guaranteed
by the
(cid:3)(cid:3) Company(a)
Company
Owned(a)
(cid:3)
Combined(b)
Combined(b)
58,793 $ 25,151 $ 83,944
Short-term loans .................................................... $ 63,005 $ 26,092 $
100,855
Line of credit accounts ..........................................
351,279
Installment loans and RPAs ...................................
536,078
Total ending loans and finance receivables, gross ......
Less: Allowance and liabilities for losses(a) ................
(69,078)
Total ending loans and finance receivables, net .......... $ 561,550 $ 30,203 $ 591,753 $ 434,633 $ 32,367 $ 467,000
Allowance and liability for losses as a % of loans and
finance receivables, gross ........................................
——
8,972
34,123
(1,756)
144,183
459,414
692,694
(100,941)
100,855
342,307
501,955
(67,322)
144,183
453,307
660,495
(98,945)
——
6,107
32,199
(1,996)
89,097 $
13.4%
14.6%
15.0%
5.1%
6.2%
12.9%
59
As of December 31,
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
Ending loans and finance receivables:
2016
Guaranteed
by the
Company(a)
Company
Owned(a)
Combined(b)
2015
Guaranteed
by the
Company
Owned(a)
(cid:3) (cid:3) Company(a)
Combined(b)
Total domestic, gross .............................................. $ 576,992
83,503
Total international, gross ........................................
Total ending loans and finance receivables, gross ....... $ 660,495
$
$
32,199
——
32,199
$ 609,191
83,503
$ 692,694
$ 422,399 $ 34,123
——
$ 501,955 $ 34,123
79,556
$ 456,522
79,556
$ 536,078
(a) GAAP measure. The loans and finance receivables balances guaranteed by us relate to loans originated by third-party lenders
through the CSO programs and are not included in our financial statements.
(b) Except for allowance and liability for estimated losses, amounts represent non-GAAP measures.
Average Amount Outstanding per Loan
The average amount outstanding per loan is calculated as the total combined loans, gross balance at the end of the period divided by
the total number of combined loans outstanding at the end of the period. The following table shows the average amount outstanding
per loan by product at December 31, 2016 and 2015:
Average amount outstanding per loan (in ones)(a)
Short-term loans(b) ................................................................ $
Line of credit accounts .........................................................
Installment loans(b)(c) .............................................................
Total loans(b)(c) ...................................................................... $
As of December 31,
2016
2015
484
1,289
1,888
1,254
$
$
485
1,046
1,841
1,132
(a) The disclosure regarding the average amount per loan is statistical data that is not included in our financial statements.
(b) Includes loans guaranteed by us, which represent loans originated by third-party lenders through the CSO programs and are not
included in our financial statements.
(c) Excludes RPAs.
The average amount outstanding per loan increased to $1,254 from $1,132 during 2016 compared to 2015, mainly due to a greater mix
of installment loans, which have higher average amounts per loan relative to short-term loans, in 2016 compared to 2015.
Average Loan Origination
The average loan origination amount is calculated as the total amount of combined loans originated and renewed for the period
divided by the total number of combined loans originated and renewed for the period. The following table shows the average loan
origination amount by product for 2016 compared to 2015:
Average loan origination amount (in ones)(a)
Short-term loans(b) ................................................................ $
Line of credit accounts(c) ......................................................
Installment loans(b)(d) .............................................................
Total loans(b)(d) ...................................................................... $
454 $
306
1,734
517 $
467
300
1,630
528
Year Ended
December 31,
2016
2015
(a) The disclosure regarding the average loan origination amount is statistical data that is not included in our financial statements.
(b) Includes loans guaranteed by us, which represent loans originated by third-party lenders through the CSO programs and are not
included in our financial statements.
(c) Represents the average amount of each incremental draw on line of credit accounts.
(d) Excludes RPAs.
60
The average loan origination amount decreased to $517 from $528 during 2016 compared to 2015, mainly due to a greater mix of line
of credit draws, which have lower average amounts per loan relative short-term and installment loans.
LOANS AND FINANCE RECEIVABLES LOSS EXPERIENCE
The allowance and liability for estimated losses as a percentage of combined loans and RPAs increased to 14.6% as of December 31,
2016 from 12.9% as of December 31, 2015, primarily due to a greater concentration of loans to new customers in the short-term and
line of credit portfolios. New customers require a greater reserve as these loans default at a higher rate than returning customers with a
successful history of loan performance.
The cost of revenue in 2016 was $328.0 million, which was composed of $327.7 million related to
receivables and a $0.3 million increase in the liability for estimated losses related to loans we guaranteed through the CSO programs.
The cost of revenue in 2015 was $216.9 million, which was composed of $216.7 million related to
receivables, and a $0.2 million increase in the liability for estimated losses related to loans we guaranteed through the CSO programs.
Total charge-offs, net of recoveries, were $295.5 million and $213.3 million in 2016 and 2015, respectively.
our owned loans and finance
our owned loans and finance
mm
mm
The following tables show loans and finance receivable balances and fees receivable and the relationship of the allowance and liability
for losses to the combined balances of loans and finance receivables for each of the last eight quarters (dollars in thousands):
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
2016
Loans and finance receivables:
Gross - Company owned ....................................................... $ 495,906 $ 563,810
Gross - Guaranteed by the Company(a) ..................................
31,227
Combined loans and finance receivables, gross(b) .................
595,037
Allowance and liability for losses on loans and finance
27,114
523,020
receivables .........................................................................
75,653
Combined loans and finance receivables, net(b) ..................... $ 454,134 $ 519,384
Allowance and liability for losses as a % of loans and
68,886
finance receivables, gross(b)(b) ...............................................
$ 637,612 $
29,700
667,312
660,495
32,199
692,694
96,474
$ 570,838 $
100,941
591,753
13.2%
12.7%
14.5 %
14.6%
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
2015
Loans and finance receivables:
Gross - Company owned ....................................................... $ 330,275 $ 368,715
Gross - Guaranteed by the Company(a) ..................................
31,539
Combined loans and finance receivables, gross(b) .................
400,254
Allowance and liability for losses on loans and finance
25,355
355,630
receivables .........................................................................
52,689
Combined loans and finance receivables, net(b) ..................... $ 303,465 $ 347,565
Allowance and liability for losses as a % of loans and
52,165
$ 445,547 $
36,684
482,231
501,955
34,123
536,078
66,718
$ 415,513 $
69,078
467,000
finance receivables, gross(b)(b) ...............................................
14.7%
13.2%
13.8 %
12.9%
(a) Represents loans originated by third-party lenders through the CSO programs, which are not included in our financial statements.
(b) Non-GAAP measure.
Loans and Finance Receivables Loss Experience by Product
We evaluate loss rates for all financing products in our portfolio to determine credit quality and evaluate trends. For our products, we
evaluate loans and finance receivables losses as a percentage of the average loan and finance receivable balance outstanding or the
average combined loan and finance receivable balance outstanding, whichever is applicable, for each portfolio.
r
Short-term Loans
Demand for our short-term loan product in the United States has historically been highest in the third and fourth quarters of each year,
and lowest in the first quarter of each year, corresponding to our customers’ receipt of income tax refunds. Softer demand for short-
term loans in the United States combined with tighter underwriting standards in the United Kingdom due to changes in the regulatory
environment during 2014 resulted in lower year-over-year average balances during the second and third quarters of 2016. The higher
61
allowance and liability for losses as a percentage of combined loan balance in the second half of the year was attributable to an
increase in originations to new customers, which also led to year-over-year increases in the average and ending short-term loan
balances for the fourth quarter of 2016.
Our gross profit margin for short-term loans is typically highest in the first quarter of each year, corresponding to the seasonal decline
in consumer loan balances outstanding. The cost of revenue as a percentage of the average combined loan balance for short-term loans
outstanding is typically lower in the first quarter and generally peaks in the second half of the year with higher loan demand.
The following table includes information related only to short-term loans and shows our loss experience trends for short-term loans for
each of the last eight quarters (dollars in thousands):
(cid:3)(cid:3)
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
2016
Short-term loans:
Cost of revenue...................................................................... $
Charge-offs (net of recoveries) ..............................................
Average short-term combined loan balance, gross:
Company owned(a) .................................................................
Guaranteed by the Company(a)(b) ...........................................
Average short-term combined loan balance, gross(a)(c)..... $
Ending short-term combined loan balance, gross:
Guaranteed by the Company(b) ..............................................
Ending short-term combined loan balance, gross(c).......... $
Ending allowance and liability for losses .............................. $
$
13,276 $
16,540
14,214 $
11,720
20,531 $
15,956
21,600
21,021
55,839
25,151
80,990 $
54,324
21,443
75,767 $
60,761
24,678
85,439 $
59,728
24,709
84,437
52,381 $
20,534
72,915 $
12,598 $
58,798 $
24,451
83,249 $
14,746 $
60,124 $
23,379
83,503 $
19,184 $
63,005
26,092
89,097
19,486
Cost of revenue as a % of average short-term combined
loan balance, gross( )( )
combined loan balance, gross( )( )
(a)(c) .......................................................
Charge-offs (net of recoveries) as a % of average short-term
(a)(c) ......................................
Gross profit margin ...............................................................
Allowance and liability for losses as a % of combined loan
(c)(d) ...............................................................
balance, gross( )(d)
16.4%
18.8%
24.0 %
25.6%
20.4%
72.1%
15.5%
69.5%
18.7 %
60.5 %
24.9%
56.8%
17.3%
17.7%
23.0 %
21.9%
62
(cid:3)(cid:3)
Short-term loans:
Cost of revenue...................................................................... $
Charge-offs (net of recoveries) ..............................................
Average short-term combined loan balance, gross:
Company owned(a) .................................................................
Guaranteed by the Company(a)(b) ...........................................
Average short-term combined loan balance, gross(a)(c)..... $
Ending short-term combined loan balance, gross:
Guaranteed by the Company(b) ..............................................
Ending short-term combined loan balance, gross(c).......... $
Ending allowance and liability for losses .............................. $
Short-term loan ratios:
$
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
2015
11,843 $
13,908
14,299 $
12,683
18,315 $
17,226
17,837
18,125
52,307
28,626
80,933 $
52,677
25,699
78,376 $
60,399
26,761
87,160 $
59,298
24,215
83,513
49,012 $
24,394
73,406 $
13,650 $
58,315 $
27,717
86,032 $
15,472 $
62,208 $
25,966
88,174 $
16,380 $
58,793
25,151
83,944
15,950
loan balance, gross( )( )
combined loan balance, gross( )( )
(a)(c) .......................................................
Charge-offs (net of recoveries) as a % of average short-term
(a)(c) ......................................
Gross profit margin ...............................................................
Allowance and liability for losses as a % of combined loan
(c)(d) ...............................................................
balance, gross( )(d)
14.6%
18.2%
21.0 %
21.4%
17.2%
76.7%
16.2%
70.5%
19.8 %
66.4 %
21.7%
65.0%
18.6%
18.0%
18.6 %
19.0%
(a) The average short-term combined loan balance is the average of the month-end balances during the period.
(b) Represents loans originated by third-party lenders through the CSO programs, which are not included in our financial statements.
(c) Non-GAAP measure.
(d) Allowance and liability for losses as a % of combined loan balance, gross, is determined using period-end balances.
Line of Credit Accounts
The cost of revenue as a percentage of average loan balance for line of credit accounts exhibits a similar quarterly seasonal trend to
short-term loan loss rates as the ratio is typically lower in the first quarter and increases throughout the remainder of the year, peaking
in the second half of the year with higher loan demand.
tt
m
The gross profit margin is generally lower for line of credit accounts as compared to short-term loans because the highest leve
default are exhibited in the early stages of the account, while the revenue is recognized over the term of the account. As a result,
particularly in periods of higher growth for line of credit account portfolios, the gross profit margin will be lower for this product than
for our short-term loan products. Conversely, in periods of declining originations and portfolio contraction, as was the case in the first
half of 2015, the gross profit margin will be higher for this product. The year-over-year increase in the allowance for losses as a
percentage of loan balance was primarily due to the decline during 2015 in the average line of credit balance as a result of changes in
business practices in the United Kingdom, partially offset by very strong demand for domestic line of credit accounts in the second
half of 2016. In the fourth quarter of 2014, we discontinued offering line of credit accounts to new customers in the United Kingdom,
and effective January 1, 2015, we discontinued offering draws on existing line of credit accounts in the United Kingdom due to the
FCA’s cap on the total cost of high-cost short-term credit that went into effect on January 2, 2015. See “—Recent Regulatory
Developments—Financial Conduct Authority” for further discussion. The U.K. line of credit portfolio performed very well as it
wound down during 2015 given its seasoned experience level.
ls of
63
The following table includes information related only to line of credit accounts and shows our loss experience trends for line of credit
accounts for each of the last eight quarters (dollars in thousands):
(cid:3)(cid:3)
Line of credit accounts:
Cost of revenue...................................................................... $
Charge-offs (net of recoveries) ..............................................
Average loan balance(a) .........................................................
Ending loan balance ..............................................................
Ending allowance for losses balance ..................................... $
Line of credit account ratios:
Cost of revenue as a % of average loan balance(a) .................
Charge-offs (net of recoveries) as a % of average loan
balance( )(a) ............................................................................
Gross profit margin ...............................................................
Allowance for losses as a % of loan balance(b) ......................
(cid:3)(cid:3)
Line of credit accounts:
Cost of revenue...................................................................... $
Charge-offs (net of recoveries) ..............................................
Average loan balance(a) .........................................................
Ending loan balance ..............................................................
Ending allowance for losses balance ..................................... $
Line of credit account ratios:
Cost of revenue as a % of average loan balance(a) .................
Charge-offs (net of recoveries) as a % of average loan
balance( )(a) ............................................................................
Gross profit margin ...............................................................
Allowance for losses as a % of loan balance(b) ......................
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
2016
16,471 $
16,914
100,648
98,351
15,284 $
17,251 $
14,506
29,739 $
20,973
105,553 126,371
118,030 132,388
26,795 $
18,029 $
25,028
25,229
138,259
144,183
26,594
16.4%
16.3%
23.5 %
18.1%
16.8%
66.4%
15.5%
13.7%
65.7%
15.3%
2015
16.6 %
49.7 %
20.2 %
18.2%
59.7%
18.4%
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
7,813 $
14,926
95,777
76,196
12,340 $
4,870 $
8,231
72,584
73,539
9,091 $
13,048 $
9,262
81,511
89,142
12,873 $
17,816
14,962
94,532
100,855
15,727
8.2%
6.7%
16.0 %
18.8%
15.6%
86.0%
16.2%
11.3%
88.1%
12.4%
11.4 %
70.2 %
14.4 %
15.8%
60.5%
15.6%
(a) The average loan balance for line of credit accounts is the average of the month-end balances during the period.
(b) Allowance for losses as a % of loan balance is determined using period-end balances.
f
Installment Loans and RPAs
For installment loans and RPAs, the cost of revenue as a percentage of average loan and finance receivable balance is typically more
consistent throughout the year as compared to short-term loans and line of credit accounts. Due to the scheduled regular payments that
are inherent with installment loans and RPAs, we do not experience the higher level of repayments in the first quarter for these
receivables as we experience with short-term loans and, to a lesser extent, line of credit accounts.
y
The gross profit margin is generally lower for the installment loan and RPA products than for other products, primarily because the
highest levels of default are exhibited in the early stages of the loan or RPA, while revenue is recognized over the term of the loan or
estimated delivery term. In addition, installment loans and RPAs typically have higher average amounts per receivable. Another factor
contributing to the lower gross profit margin is that the yield for installment loans and RPAs is typically lower than the yield for the
other products we offer. As a result, particularly in periods of higher growth for the installment loan and RPA portfolios, which has
been the case in recent years, the gross profit margin is typically lower for this product than for our short-term loan products. Our
installment loan and RPA portfolio balance outstanding at December 31, 2016 increased $108.1 million, or 30.8%, compared to
December 31, 2015. During 2016, we experienced lower gross profit margin than we experienced in the prior year quarters as a result
of the growth in our domestic near-prime installment portfolio and RPAs.
64
The following table includes information related only to our installment loans and shows our loss experience trends for installment
loans for each of the last eight quarters (dollars in thousands):
(cid:3)(cid:3)
Installment loans and RPAs:
Cost of revenue...................................................................... $
Charge-offs (net of recoveries) ..............................................
Average installment and RPA combined loan and
finance receivable balance, gross:
Company owned(a) .................................................................
Guaranteed by the Company(a)(b) ...........................................
Average installment and RPA combined loan and
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
2016
39,830 $
36,541
33,988 $
32,332
45,121 $
37,383
50,917
46,411
344,330
7,476
362,222 419,225
6,600
6,094
448,953
6,093
finance receivable balance, gross (a)(c) ............................. $ 351,806 $ 368,316
$ 425,825 $
455,046
Ending installment and RPA combined loan and finance
receivable balance, gross:
Guaranteed by the Company(b) ..............................................
Ending installment and RPA combined loan and finance
receivable balance, gross ( )(c) ............................................. $ 351,754 $ 393,758
Ending allowance and liability for losses .............................. $
Installment and RPA loan ratios:
41,004 $
$ 451,421 $
50,495 $
42,878 $
$ 345,174 $ 386,982 $ 445,100 $
6,580
6,776
6,321
453,307
6,107
459,414
54,861
(a)(c) ..
combined loan and finance receivable balance, gross( )( )
11.3%
9.2%
10.6 %
11.2%
Charge-offs (net of recoveries) as a % of average
installment and RPA combined loan and finance
receivable balance, gross ( )( )
(a)(c) .............................................
Gross profit margin ...............................................................
Allowance and liability for losses as a % of combined loan
(c)(d) ..........................
and finance receivable balance, gross( )(d)
10.4%
48.6%
8.8%
54.7%
8.8 %
46.8 %
10.2%
43.5%
11.7%
10.9%
11.2 %
11.9%
65
(cid:3)(cid:3)
Installment loans and RPAs:
Cost of revenue...................................................................... $
Charge-offs (net of recoveries) ..............................................
Average installment and RPA combined loan and
finance receivable balance, gross:
Company owned(a) .................................................................
Guaranteed by the Company(a)(b) ...........................................
Average installment and RPA combined loan and
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
2015
18,914 $
23,302
22,367 $
20,627
34,251 $
24,553
35,485
35,470
208,668
327
217,121 265,253
7,822
2,281
318,400
10,667
finance receivable balance, gross (a)(c) ............................. $ 208,995 $ 219,402
$ 273,075 $
329,067
Ending installment and RPA combined loan and finance
receivable balance, gross:
Guaranteed by the Company(b) ..............................................
Ending installment and RPA combined loan and finance
receivable balance, gross ( )(c) ............................................. $ 206,028 $ 240,683
Ending allowance and liability for losses .............................. $
Installment and RPA loan ratios:
26,175 $
$ 304,915 $
37,465 $
28,126 $
$ 205,067 $ 236,861 $ 294,197 $
961
3,822
10,718
342,307
8,972
351,279
37,401
(a)(c) ..
combined loan and finance receivable balance, gross( )( )
9.0%
10.2%
12.5 %
10.8%
Charge-offs (net of recoveries) as a % of average
installment and RPA combined loan and finance
receivable balance, gross ( )( )
(a)(c) .............................................
Gross profit margin ...............................................................
Allowance and liability for losses as a % of combined loan
(c)(d) ..........................
and finance receivable balance, gross( )(d)
11.1%
67.8%
9.4%
60.4%
9.0 %
48.4 %
10.8%
55.0%
12.7%
11.7%
12.3 %
10.6%
(a) The average loan and finance receivable balance for installment loans is the average of the month-end balances during the period.
(b) Represents loans originated by third-party lenders through the CSO programs, which are not included in our financial statements.
(c) Non-GAAP measure.
(d) Allowance and liability for losses as a % of combined loan and finance receivable balance, gross, is determined using period-end
balances.
Total Expenses
Total expenses decreased $15.3 million, or 4.9%, to $296.1 million in 2016, compared to $311.4 million in 2015. On a constant
currency basis, total expenses decreased $10.3 million, or 3.3%, for 2016 compared to 2015.
Marketing expense decreased $19.5 million, or 16.7%, to $97.4 million in 2016 compared to $116.9 million in 2015. Lower digital
marketing costs, revenue-sharing costs and television advertising costs across both domestic and international brands were partially
offset by higher direct mail costs and lead generation costs.
Operations and technology expense increased to $85.2 million in 2016 from $74.0 million in 2015, primarily due to higher
underwriting and transaction costs for our installment and RPA products in our domestic operations and higher software costs.
General and administrative expense decreased $4.1 million, or 4.0%, to $98.0 million in 2016 compared to $102.1 million in 2015
primarily due to an adjustment to recognize the change in fair value of the acquisition-related contingent consideration and lower
occupancy costs in 2016, partially offset by higher personnel and incentive expenses.
n
,
Depreciation and amortization expense decreased to $15.5 million in 2016 compared to $18.4 million in 2015 primarily due to the
acceleration of depreciation in the prior year resulting from the early termination of our lease for the relocation of our headquarters
that occurred in 2015.
66
Interest Expense, Net
Interest expense, net increased $12.7 million, or 24.1%, to $65.6 million in 2016 compared to $52.9 million in 2015. The increase was
due to the securitization facilities we entered into during 2016 (See “—Liquidity and Capital Resources—Consumer Loan
Securitization” below for further information), which increased the average amount of debt outstanding by $126.4 million to $615.2
million during 2016 from $488.8 million during 2015, and an increase in the weighted average interest rate on our outstanding debt to
10.71% in 2016 from 10.59% in 2015.
Provision for Income Taxes
Provision for income taxes decreased $3.7 million, or 13.9%, to $22.8 million in 2016 compared to $26.5 million in 2015. The
decrease was primarily due to an 18.6% decrease in income before income taxes, partially offset by an increase in the effective tax rate
to 39.8% in 2016 from 37.6% in 2015. The increase in the effective tax rate is mainly due to an adjustment related to share based
compensation deferred tax which was partially offset by lower nondeductible executive compensation and lobbying expenses in the
current year compared to the prior year.
The balance of unrecognized tax benefits as of December 31, 2016 was $351 thousand ($320 thousand net of the federal benefit of
state matters), all of which, if recognized, would favorably affect the effective tax rate in any future periods. We had no unrecognized
tax benefits as of December 31, 2015 and 2014. We do not believe it is reasonably possible that, within the next twelve months,
unrecognized domestic tax benefits will change by a significant amount. We record interest and penalties related to tax matters as
income tax expense in the consolidated statement of income.
Our U.S. tax returns are subject to examination by federal and state taxing authorities. The IRS audits for tax years 2011 through 2014
were concluded with no adjustments to the financial statements. The 2015 tax year is open to examination by the IRS. The years open
to examination by state, local, and foreign government authorities vary by jurisdiction, but the statute of limitation is generally three to
four years from the date the tax return is filed.
YEAR ENDED 2015 COMPARED TO YEAR ENDED 2014
Revenue and Gross Profit
Revenue decreased $157.2 million, or 19.4%, to $652.6 million for 2015 as compared to $809.8 million for 2014.On a constant
currency basis, revenue decreased by $143.8 million, or 17.8%, for 2015 compared to 2014. The change in revenue is driven by a
decrease in revenue of $192.7 million (or $179.3 million on a constant currency basis) from our international operations, primarily due
to regulatory changes in the United Kingdom. The decrease in revenue from international operations was partially offset by an
increase in revenue of $35.5 million from our domestic operations, primarily resulting from a 45.1% increase in domestic installment
loan and RPA revenue in 2015 compared to 2014 driven by growth in our near-prime installment product.
Our gross profit decreased by $107.4 million to $435.7 million for 2015 from $543.1 million for 2014. On a constant currency basis,
gross profit decreased by $96.6 million for 2015 compared to 2014. Our consolidated gross profit as a percentage of revenue, or our
gross profit margin, decreased to 66.8% in 2015 from 67.1% in 2014. The decrease in gross profit margin was primarily driven by the
growth of our domestic near-prime installment portfolio and a higher mix of new customers. The decrease in the domestic gross profit
margin was partially offset by an increase in our international gross profit margin due to lower loss experience from the U.K. line of
credit portfolio that was wound down during 2015. Approximately 61% of our gross profit decline is attributed to the U.K. line of
credit account portfolio. Excluding that discontinued product, our consolidated gross profit margin decreased to 63.7% for 2015 from
66.7% for 2014. Our 2014 results from operations do not include the full impact of changes in our U.K. operations resulting from
regulatory and legislative changes that occurred in 2014. See “—Recent Regulatory Developments—Financial Conduct Authority”
above for further information.
y
r
67
The following tables set forth the components of revenue and gross profit, separated between domestic and international for 2015 and
2014 (dollars in thousands):
Year Ended December 31,
2015
2014
Revenue by product:
Short-term loans ......................................................... $
Line of credit accounts ...............................................
Installment loans and RPAs .......................................
Total loan and finance receivable revenue ......................
Other ..........................................................................
Total revenue ................................................................... $
204,893 $
185,521
260,507
650,921
1,679
652,600 $
257,169
305,118
246,700
808,987
850
809,837
(cid:3)
$
$
(cid:3) (cid:3) (cid:3)(cid:3) (cid:3)
$ Change
(cid:3) % Change
(52,276)
(119,597)
13,807
(158,066)
829
(157,237)
(20.3)%
(39.2)%
5.6%
(19.5)%
97.5%
(19.4)%
Short-term loans .........................................................
Line of credit accounts ...............................................
Installment loans and RPAs .......................................
Total loan and finance receivable revenue ......................
Other ..........................................................................
Total revenue ...................................................................
31.4%
28.4%
39.9%
99.7%
0.3%
100.0%
31.7%
37.7%
30.5%
99.9%
0.1%
100.0%
Year Ended December 31,
2015
2014
$ Change
(cid:3)
(cid:3) (cid:3)
(cid:3) % Change
Domestic:
Revenue .................................................................... $
Cost of revenue .........................................................
Gross profit ............................................................... $
Gross profit margin ...................................................
510,242 $
196,963
313,279 $
61.4%
474,715 $
171,798
302,917 $
63.8%
35,527
25,165
10,362
(2.4)%
International:
Revenue .................................................................... $
Cost of revenue .........................................................
Gross profit ............................................................... $
Gross profit margin ...................................................
142,358 $
19,895
122,463 $
86.0%
335,122 $
94,989
240,133 $
71.7%
(192,764)
(75,094)
(117,670)
14.3 %
Total:
Revenue .................................................................... $
Cost of revenue .........................................................
Gross profit ............................................................... $
Gross profit margin ...................................................
652,600 $
216,858
435,742 $
66.8%
809,837 $
266,787
543,050 $
67.1%
(157,237)
(49,929)
(107,308)
(0.3)%
7.5%
14.6%
3.4%
(3.8)%
(57.5)%
(79.1)%
(49.0)%
19.9%
(19.4)%
(18.7)%
(19.8)%
(0.4)%
Loan and Finance Receivable Balances
The outstanding combined portfolio balance of loans and finance receivables, net of allowance and liability for estimated losses,
increased $108.7 million, or 30.3%, to $467.0 million as of December 31, 2015 from $358.3 million as of
primarily due to increased demand for our domestic near-prime installment product and growth of our loan and finance receivable
portfolios serving the needs of small businesses, partially offset by a reduction in international loan balances (down 27% on a constant
currency basis) due to changes made in our U.K. business as a result of regulatory requirements. The outstanding loan balance for our
domestic near-prime product increased 79.7% as of December 31, 2015 compared to December 31, 2014, resulting in a domestic near-
prime portfolio balance that comprises approximately 36% of our total loan and finance receivables portfolio balance while domestic
short-term loans comprise approximately 10%. Additionally, our portfolio of loans and finance receivables serving the needs of small
businesses has grown quickly over the last year and has exceeded 10% of our total loan and finance receivables portfolio. See “—
Non-GAAP Disclosure—Combined Loans and Finance Receivables” above for additional information related to combined loans and
finance receivables.
December 31, 2014,
m
a
ff
The combined loan and finance receivable balance includes $502.0 million and $388.6 million as of December 31, 2015 and 2014,
respectively, of our owned receivables balances before the allowance for losses of $67.3 million and $64.9 million provided in the
consolidated financial statements for December 31, 2015 and 2014, respectively. The combined loan and finance receivable balance also
includes $34.1 million and $36.3 million as of December 31, 2015 and 2014, respectively, of loan and finance receivable balances that are
guaranteed by us, which are not included in our financial statements, before the liability for estimated losses of $1.7 million and $1.6
n
68
million provided in “Accounts payable and accrued expenses” in the consolidated financial statements for December 31, 2015 and 2014,
respectively.
The following tables summarize loan and finance receivable balances outstanding as of December 31, 2015 and 2014 (dollars in
thousands):
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
Ending loans and finance receivables:
2015
Guaranteed
by the
Company(a)
Company
Owned(a)
As of December 31,
2014
Company
Owned(a)
(cid:3)
(cid:3) Guaranteed
by the
(cid:3) Company(a)
Combined(b)
Combined(b)
Short-term loans .................................................... $ 58,793 $ 25,151 $ 83,944 $
56,298 $ 36,263 $ 92,561
Line of credit accounts ..........................................
118,680
Installment loans and RPAs ...................................
213,588
Total ending loans and finance receivables, gross ......
424,829
Less: Allowance and liabilities for losses(a) ................
(66,524)
Total ending loans and finance receivables, net .......... $ 434,633 $ 32,367 $ 467,000 $ 323,611 $ 34,694 $ 358,305
Allowance and liability for losses as a % of loans and
finance receivables, gross.........................................
——
7
36,270
(1,576)
118,680
213,581
388,559
(64,948)
100,855
342,307
501,955
(67,322)
100,855
351,279
536,078
(69,078)
——
8,972
34,123
(1,756)
16.7 %
13.4%
12.9%
4.3%
5.1%
15.7%
As of December 31,
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
Ending loans and finance receivables:
2015
Guaranteed
by the
Company(a)
Company
Owned(a)
Combined(b)
2014
Guaranteed
by the
Company
Owned(a)
(cid:3) (cid:3)(cid:3) Company(a)
Combined(b)
Total domestic, gross .............................................. $ 422,399
79,556
Total international, gross ........................................
Total ending loans and finance receivables, gross ....... $ 501,955
$
$
34,123
——
34,123
$ 456,522
79,556
$ 536,078
$ 270,801 $ 36,270
——
$ 388,559 $ 36,270
117,758
$ 307,071
117,758
$ 424,829
(a) GAAP measure. The loans and finance receivables balances guaranteed by us relate to loans originated by third-party lenders
through the CSO programs and are not included in our financial statements.
(b) Except for allowance and liability for estimated losses, amounts represent non-GAAP measures.
Average Amount Outstanding per Loan
The following table shows the average amount outstanding per loan by product at December 31, 2015 and 2014:
Average amount outstanding per loan (in ones)(a)
Short-term loans(b) ................................................................ $
Line of credit accounts .........................................................
Installment loans(b)(c) .............................................................
Total loans(b)(c) ...................................................................... $
As of December 31,
2015
2014
485 $
1,046
1,841
1,132 $
503
834
1,365
880
(a) The disclosure regarding the average amount per loan is statistical data that is not included in our financial statements.
(b) Includes loans guaranteed by us, which represent loans originated by third-party lenders through the CSO programs and are not
included in our financial statements.
(c) Excludes RPAs.
The average amount outstanding per loan increased to $1,132 from $880 during 2015 compared to 2014, mainly due to a greater mix
of installment loans, which have higher average amounts per loan relative to short-term loans, in 2015 compared to 2014.
69
Average Loan Origination
The following table shows the average loan origination amount by product for 2015 compared to 2014:
Average loan origination amount (in ones)(a)
Short-term loans(b) ................................................................ $
Line of credit accounts(c) ......................................................
Installment loans(b)(d) .............................................................
Total loans(b)(d) ...................................................................... $
467 $
300
1,630
528 $
510
269
1,414
488
Year Ended
December 31,
2015
2014
(a) The disclosure regarding the average loan origination amount is statistical data that is not included in our financial statements.
(b) Includes loans guaranteed by us, which represent loans originated by third-party lenders through the CSO programs and are not
included in our financial statements.
(c) Represents the average amount of each incremental draw on line of credit accounts.
(d) Excludes RPAs.
The average loan origination amount increased to $528 from $488 during 2015 compared to 2014, mainly due to a greater mix of
installment loans, which have higher average amounts per loan relative to short-term loans. This increase was partially offset by a
decrease in the size of the average short-term loan origination.
LOANS AND FINANCE RECEIVABLES LOSS EXPERIENCE
The allowance and liability for estimated losses as a percentage of combined loans and RPAs decreased to 12.9% as of December 31,
2015 from 15.7% as of December 31, 2014, primarily due to a greater concentration of our near-prime installment loans in the
receivable portfolio and, to a lesser extent, improved performance across most products, partially related to the maturing of our
product offerings to include a higher percentage of customers with established payment histories and partially related to stricter
underwriting standards for our U.K. business.
The cost of revenue in 2015 was $216.9 million, which was composed of $216.7 million related to
receivables and a $0.2 million increase in the liability for estimated losses related to loans we guaranteed through the CSO programs.
our owned loans and finance
mm
The cost of revenue in 2014 was $266.7 million, which was composed of $267.2 million related to
receivables, offset by a $0.5 million decrease in the liability for estimated losses related to loans we guaranteed through the CSO
programs. Total charge-offs, net of recoveries, were $213.3 million and $283.7 million in 2015 and 2014, respectively.
our owned loans and finance
mm
The following tables show loans and finance receivable balances and fees receivable and the relationship of the allowance and liability
for losses to the combined balances of loans and finance receivables for each of the last eight quarters (dollars in thousands):
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
2015
Loans and finance receivables:
Gross - Company owned ................................................. $
Gross - Guaranteed by the Company(a)
............................
Combined loans and finance receivables, gross(b) ...........
Allowance and liability for losses on loans and finance
receivables ....................................................................
Combined loans and finance receivables, net(b)
Allowance and liability for losses as a % of loans and
finance receivables, gross(b)(b) ..........................................
............... $
330,275 $
25,355
355,630
368,715 $
31,539
400,254
445,547 $
36,684
482,231
501,955
34,123
536,078
52,165
303,465 $
52,689
347,565 $
66,718
415,513 $
69,078
467,000
14.7%
13.2%
13.8 %
12.9%
70
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
2014
Loans and finance receivables:
Gross - Company owned ................................................. $
Gross - Guaranteed by the Company(a)
............................
Combined loans and finance receivables, gross(b) ...........
Allowance and liability for losses on loans and finance
receivables ....................................................................
Combined loans and finance receivables, net(b)
Allowance and liability for losses as a % of loans and
finance receivables, gross(b)(b) ..........................................
............... $
$
354,466
29,643
384,109
$
359,760
34,915
394,675
$
373,693
35,429
409,122
388,559
36,270
424,829
75,479
308,630 $
69,375
325,300 $
71,443
337,679 $
66,524
358,305
19.7%
17.6%
17.5 %
15.7%
(a) Represents loans originated by third-party lenders through the CSO programs, which are not included in our financial statements.
(b) Non-GAAP measure.
Loans and Finance Receivables Loss Experience by Product
Short-term Loans
Demand for our short-term loan product in the United States has historically been highest in the third and fourth quarters of each year,
corresponding to the holiday season, and lowest in the first quarter of each year, corresponding to our customers’ receipt of income tax
refunds. Softer demand for short-term loans in the United States combined with tighter underwriting standards in the United Kingdom
due to changes in the regulatory environment during 2014 resulted in lower year-over-year average balances during the first half of
2015. Continued higher demand in the United Kingdom, partially offset by lower demand in the United States because of
macroeconomic factors such as low unemployment, rising wages and low gas prices, led to flat short-term loan balances on a year-
over-year basis as of the end of 2015.
The following table includes information related only to short-term loans and shows our loss experience trends for short-term loans for
each of the last eight quarters (dollars in thousands):
(cid:3)(cid:3)
Short-term loans:
Cost of revenue................................................................ $
Charge-offs (net of recoveries) ........................................
Average short-term combined loan balance, gross:
Company owned((a)) ...........................................................
Guaranteed by the Company(a)(b)
.....................................
Average short-term combined loan balance,
gross(a)(c) ....................................................................... $
Ending short-term combined loan balance, gross:
Company owned .............................................................. $
Guaranteed by the Company(b)
Ending short-term combined loan balance, gross(c).... $
Ending allowance and liability for losses ........................ $
........................................
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
2015
11,843 $
13,908
14,299 $
12,683
18,315 $
17,226
17,837
18,125
52,307
28,626
52,677
25,699
60,399
26,761
59,298
24,215
80,933 $
78,376 $
87,160 $
83,513
49,012 $
24,394
73,406 $
13,650 $
58,315 $
27,717
86,032 $
15,472 $
62,208 $
25,966
88,174 $
16,380 $
58,793
25,151
83,944
15,950
Cost of revenue as a % of average short-term combined
loan balance, gross( )( )
(a)(c)
..................................................
Charge-offs (net of recoveries) as a % of average
(a)(c)
short-term combined loan balance, gross( )( )
...............
Gross profit margin .........................................................
Allowance and liability for losses as a % of combined
loan balance, gross( )(d)
(c)(d)..................................................
14.6%
17.2%
76.7%
18.6%
18.2%
16.2%
70.5%
18.0%
21.0 %
21.4%
19.8 %
66.4 %
21.7%
65.0%
18.6 %
19.0%
71
Short-term loans:
Cost of revenue................................................................ $
Charge-offs (net of recoveries) ........................................
Average short-term combined loan balance, gross:
Company owned(a) ...........................................................
Guaranteed by the Company(a)(b)
.....................................
Average short-term combined loan balance,
gross(a)(c) ....................................................................... $
Ending short-term combined loan balance, gross:
Company owned .............................................................. $
Guaranteed by the Company(b)
Ending short-term combined loan balance, gross(c).... $
Ending allowance and liability for losses ........................ $
Short-term loan ratios:
........................................
..................................................
loan balance, gross( )( )
(a)(c)
Charge-offs (net of recoveries) as a % of average
short-term combined loan balance, gross( )( )
(a)(c)
...............
Gross profit margin .........................................................
Allowance and liability for losses as a % of combined
loan balance, gross( )(d)
(c)(d)..................................................
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
2014
16,316 $
19,156
19,670 $
19,755
18,936 $
19,630
14,984
17,803
71,686
34,321
62,404
32,022
55,296
35,594
49,083
34,461
106,007 $
94,426 $
90,890 $
83,544
65,910 $
29,643
95,553 $
19,726 $
60,140 $
34,915
95,055 $
19,829 $
50,822 $
35,389
86,211 $
18,857 $
56,298
36,263
92,561
15,899
15.4%
18.1%
77.6%
20.6%
20.8%
20.9%
70.1%
20.9%
20.8 %
17.9%
21.6 %
69.4 %
21.3%
73.5%
21.9 %
17.2%
(a) The average short-term combined loan balance is the average of the month-end balances during the period.
(b) Represents loans originated by third-party lenders through the CSO programs, which are not included in our financial statements.
(c) Non-GAAP measure.
(d) Allowance and liability for losses as a % of combined loan balance, gross, is determined using period-end balances.
Line of Credit Accounts
n
The year-over-year decrease in the allowance for losses as a percentage of loan balance was primarily due to the decline during 2015
in the average line of credit balance as a result of changes in business practices in the United Kingdom, partially offset by i
demand for domestic line of credit accounts. In the fourth quarter of 2014, we discontinued offering line of credit accounts to new
customers in the United Kingdom, and effective January 1, 2015, we discontinued offering draws on existing line of credit accounts in
the United Kingdom due to the FCA’s cap on the total cost of high-cost short-term credit that went into effect on January 2, 2015. See
“—Recent Regulatory Developments—Financial Conduct Authority” for further discussion. The U.K. line of credit portfolio
performed very well as it wound down during 2015 given its seasoned experience level. As of December 31, 2015, the U.K. line of
credit portfolio balance, net of allowance for losses, was $46 thousand compared to $46.9 million as of December 31, 2014. While the
U.K. line of credit portfolio continued to decline during the quarter ended December 31, 2015, the domestic line of credit portfolio
experienced its seasonal increase.
ncreased
u
72
The following table includes information related only to line of credit accounts and shows our loss experience trends for line of credit
accounts for each of the last eight quarters (dollars in thousands):
Line of credit accounts:
Cost of revenue................................................................ $
Charge-offs (net of recoveries) ........................................
Average loan balance(a)
...................................................
Ending loan balance ........................................................
Ending allowance for losses balance ............................... $
Line of credit account ratios:
Cost of revenue as a % of average loan balance(a) ...........
Charge-offs (net of recoveries) as a % of average loan
balance( )(a) .......................................................................
Gross profit margin .........................................................
Allowance for losses as a % of loan balance(b)
................
(cid:3)(cid:3)
Line of credit accounts:
Cost of revenue................................................................ $
Charge-offs (net of recoveries) ........................................
Average loan balance(a)
...................................................
Ending loan balance ........................................................
Ending allowance for losses balance ............................... $
Line of credit account ratios:
Cost of revenue as a % of average loan balance(a) ...........
Charge-offs (net of recoveries) as a % of average loan
balance( )(a) .......................................................................
Gross profit margin .........................................................
Allowance for losses as a % of loan balance(b)
................
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
2015
7,813 $
14,926
95,777
76,196
12,340 $
4,870 $
8,231
72,584
73,539
9,091 $
13,048 $
9,262
81,511
89,142
12,873 $
17,816
14,962
94,532
100,855
15,727
8.2%
15.6%
86.0%
16.2%
6.7%
16.0 %
18.8%
11.3%
88.1%
12.4%
2014
11.4 %
70.2 %
14.4 %
15.8%
60.5%
15.6%
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
23,913 $
26,602
121,457
119,004
26,669 $
21,786 $
27,211
120,228
122,409
21,579 $
25,913 $
24,292
126,908
128,275
22,672 $
20,849
23,381
121,950
118,680
19,749
19.7%
21.9%
67.3%
22.4%
18.1%
22.6%
70.9%
17.6%
20.4 %
17.1%
19.1 %
68.0 %
17.7 %
19.2%
72.7%
16.6%
(a) The average loan balance for line of credit accounts is the average of the month-end balances during the period.
(b) Allowance for losses as a % of loan balance is determined using period-end balances.
f
Installment Loans and RPAs
Our installment loan and RPA portfolio balance outstanding at December 31, 2015 increased $137.7 million, or 64.5%, compared to
December 31, 2014. During the second half of 2015, we experienced lower gross profit margin than we experienced in the prior year
quarters as a result of the growth in our domestic near-prime installment portfolio and RPAs, coupled with a lower concentration of
U.K. installment loans in the portfolio due to changes initiated in that market in 2014.
73
The following table includes information related only to our installment loans and shows our loss experience trends for installment
loans for each of the last eight quarters (dollars in thousands):
Installment loans:
Cost of revenue................................................................ $
Charge-offs (net of recoveries) ........................................
Average installment combined loan and finance
receivable balance, gross:
Company owned(a) ...........................................................
Guaranteed by the Company(a)(b)
.....................................
Average installment combined loan and finance
receivable balance, gross(a)(c) ...................................... $
Ending installment combined loan and finance
receivable balance, gross:
Company owned .............................................................. $
Guaranteed by the Company(b)
Ending installment combined loan and finance
receivable balance, gross( )(c)
......................................... $
Ending allowance and liability for losses ........................ $
Installment loan ratios:
........................................
........................................................................
combined loan and finance receivable balance,
gross( )( )
(a)(c)
Charge-offs (net of recoveries) as a % of average
installment combined loan and finance receivable
balance, gross( )( )
(a)(c)
.........................................................
Gross profit margin .........................................................
Allowance and liability for losses as a % of combined
loan and finance receivable balance, gross( )(d)
(c)(d) .............
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
2015
18,914 $
23,302
22,367 $
20,627
34,251 $
24,553
35,485
35,470
208,668
327
217,121
2,281
265,253
7,822
318,400
10,667
208,995 $
219,402 $
273,075 $
329,067
205,067 $
961
236,861 $
3,822
294,197 $
10,718
342,307
8,972
206,028 $
26,175 $
240,683 $
28,126 $
304,915 $
37,465 $
351,279
37,401
9.0%
10.2%
12.5 %
10.8%
11.1%
67.8%
12.7%
9.4%
60.4%
11.7%
9.0 %
48.4 %
10.8%
55.0%
12.3 %
10.6%
74
Installment loans:
Cost of revenue................................................................ $
Charge-offs (net of recoveries) ........................................
Average installment combined loan and finance
receivable balance, gross:
Company owned(a) ...........................................................
Guaranteed by the Company(a)(b)
.....................................
Average installment combined loan and finance
receivable balance, gross(a)(c) ...................................... $
Ending installment combined loan and finance
receivable balance, gross:
Company owned .............................................................. $
Guaranteed by the Company(b)
Ending installment combined loan and finance
receivable balance, gross( )(c)
......................................... $
Ending allowance and liability for losses ........................ $
Installment loan ratios:
........................................
........................................................................
combined loan and finance receivable balance,
gross( )( )
(a)(c)
Charge-offs (net of recoveries) as a % of average
installment combined loan and finance receivable
balance, gross( )( )
(a)(c)
.........................................................
Gross profit margin .........................................................
Allowance and liability for losses as a % of combined
loan and finance receivable balance, gross( )(d)
(c)(d) .............
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
2014
26,203 $
29,899
25,384 $
26,818
28,070 $
25,620
24,759
23,509
175,198
——
171,043
—
186,298
10
201,799
22
175,198 $
171,043 $
186,308 $
201,821
169,552 $
——
177,211 $
—
194,596 $
40
213,581
7
169,552 $
29,084 $
177,211 $
27,967 $
194,636 $
29,914 $
213,588
30,876
15.0%
14.8%
15.1 %
12.3%
17.0%
58.0%
17.2%
15.7%
58.3%
15.8%
13.8 %
54.6 %
11.6%
59.8%
15.4 %
14.5%
(a) The average loan and finance receivable balance for installment loans is the average of the month-end balances during the period.
(b) Represents loans originated by third-party lenders through the CSO programs, which are not included in our financial statements.
(c) Non-GAAP measure.
(d) Allowance and liability for losses as a % of combined loan and finance receivable balance, gross, is determined using period-end
balances.
Total Expenses
Total expenses decreased $16.6 million, or 5.1%, to $311.4 million in 2015, compared to $328.0 million in 2014. On a constant
currency basis, total expenses decreased $11.2 million, or 3.4%, for 2015 compared to 2014.
Marketing expense decreased $10.9 million, or 8.6%, to $116.9 million in 2015 compared to $127.8 million in 2014. Lower domesti
c
and international lead generation costs and lower online marketing costs in our international operations were partially offset by higher
domestic direct mail costs.
n
Operations and technology expense increased slightly to $74.0 million in 2015 from $73.6 million in 2014, primarily due to higher
corporate software costs and higher underwriting costs for our installment and RPA products in both our domestic and international
operations, mostly offset by lower incentive accruals due to stronger financial performance in 2014 compared to 2015 for our
international businesses and lower transaction costs in the United Kingdom resulting from lower loan originations.
General and administrative expense decreased $5.8 million, or 5.4%, to $102.1 million in 2015 compared to $107.9 million in 2014,
primarily due to lower incremental standalone expenses in 2015 compared to corporate services costs allocated from Cash America in
2014 and lower incentive accruals resulting from stronger financial performance in 2014 compared to 2015. These decreases were
partially offset by a charge in 2015 for the remaining rent obligations and relocation costs for our prior headquarters.
Depreciation and amortization expense was essentially flat at $18.4 million in 2015 compared to $18.7 million in 2014.
75
Interest Expense, Net
Interest expense, net increased $14.4 million, or 37.5%, to $52.9 million in 2015 compared to $38.5 million in 2014. The increase was
due to an increase in the average amount of debt outstanding, which increased $44.7 million to $488.8 million during 2015 from $444.1
million during 2014, and an increase in the weighted average interest rate on our outstanding debt to 10.59% in 2015 from 8.54% in 2014.
On May 30, 2014, we issued and sold $500.0 million in aggregate principal amount of the Notes in a private offering and terminated
our credit agreement with Cash America. The Notes bear interest at a rate of 9.75% and were sold at a discount of the principal
amount thereof to yield 10.0% to maturity. We used all of the net proceeds, or $479.0 million, of the Notes offering to repay all of our
intercompany indebtedness due to Cash America, which was $361.4 million as of May 30, 2014, and the remaining net proceeds were
used to pay a significant portion of a $122.4 million cash dividend to Cash America, of which $120.7 million was paid on May 30,
2014 and $1.7 million was paid on June 30, 2014. Prior to issuing the Notes, we utilized affiliate borrowing agreements with Cash
America for all borrowing arrangements. Pursuant to these agreements, interest was charged at a base rate plus an applicable margin.
Provision for Income Taxes
Provision for income taxes decreased $38.3 million, or 59.1%, to $26.5 million in 2015 compared to $64.8 million in 2014. The
decrease was primarily due to a 60.0% decrease in income before income taxes, partially offset by an increase in the effective tax rate
to 37.6% in 2015 from 36.7% in 2014, primarily due to the proportional increase of domestic income subject to state taxes. While the
total amount of permanent tax differences decreased, those differences had an increased impact on the effective tax rate due to the
lower level of pretax book income in comparison to prior years.
Net Income
Net income decreased $67.7 million, or 60.6%, to $44.0 million in 2015 compared to $111.7 million in 2014. The decrease was
primarily due to changes in the United Kingdom regulatory environment during 2014 that reduced our loan portfolio and loan
originations during 2015 in that market.
LIQUIDITY AND CAPITAL RESOURCES
Capital Funding Strategy
a
Historically, we have generated significant cash flow through normal operating activities for funding both long-term and short-term
needs. Our near-term liquidity is managed to ensure that adequate resources are available to fund our seasonal working capital
which is driven by demand for our loan and financing products and to meet the continued growth in the demand for our near-prime
installment products. On May 30, 2014, we issued and sold the Notes, as further discussed below under “Senior Notes.” On May 14,
2014, we entered into our credit agreement, which was amended on March 25, 2015, November 5, 2015, December 29, 2015, June 30,
n
2016 and September 30, 2016 as further described below under “Credit Agreement.” As of February 22, 2017, our available
borrowings under the Credit Agreement were $29.0 million. On January 15, 2016 and December 1, 2016, we entered into the 2016-1
and 2016-2 Securitization Facilities, respectively, as further described below under “Consumer Loan Securitization.” As of
February 22, 2017, the outstanding balance under our securitization facilities was $149.9 million. We expect that our operating needs,
including satisfying our obligations under our debt agreements and funding our working capital growth, will be satisfied by a
combination of cash flows from operations, borrowings under our Credit Agreement, or any refinancing, replacement thereof or
increase in borrowings thereunder, and securitization or sale of loan and finance receivables under our consumer loan securitization
facilities.
growth,
As of December 31, 2016, we were in compliance with all financial ratios, covenants and other requirements set forth in our debt
agreements. Unexpected changes in our financial condition or other unforeseen factors may result in our inability to obtain third-party
financing or could increase our borrowing costs in the future. To the extent we experience short-term or long-term funding
disruptions, we have the ability to adjust our volume of lending and financing to consumers and small businesses that would reducedd
cash outflow requirements while increasing cash inflows through repayments. Additional alternatives may include the securitization or
r
sale of assets, increased borrowings under our Credit Agreement, or any refinancing or replacement thereof, and reductions in c
spending which could be expected to generate additional liquidity.
apital
Consumer Loan Securitization
2016-1 Facility
On January 15, 2016, we and certain of our subsidiaries entered into a receivables securitization (as amended, the “2016-1 Securitization
Facility”) with certain purchasers, Jefferies Funding LLC, as administrative agent and Bankers Trust Company, as indenture trustee and
securities intermediary. The 2016-1 Securitization Facility securitizes unsecured consumer installment loans (“Receivables”) that have
uu
76
been, or will be, originated or acquired under our NetCredit brand and that meet specified eligibility criteria. Under the 2016-1
Securitization Facility, Receivables are sold to a wholly-owned special purpose subsidiary (the “Issuer”) and serviced by another
subsidiary.
The Issuer issued an initial term note of $107.4 million (the “Initial Term Note”), which was secured by $134 million in unsecureduu
consumer loans, and variable funding notes (the “Variable Funding Notes”) with an aggregate availability of $20 million per month;
the 2016-1 Securitization Facility has been amended to increase the availability to $40 million until December 31, 2016, and $30 million
thereafter, as discussed below. As described below, the Issuer has issued and will subsequently issue term notes (the “Term Notes”
and, together with the Initial Term Note and the Variable Funding Notes, the “Securitization Notes”). The maximum principal amount
of the Securitization Notes that may be outstanding at any time under the 2016-1 Securitization Facility was limited to $175 million;
the 2016-1 Securitization Facility has been amended to increase the maximum principal amount to $275 million, as discussed below.
At the end of each month during the nine-month revolving period, the Receivables funded by the Variable Funding Notes will be
refinanced through the creation of two Term Notes, which Term Notes will be issued to the holders of the Variable Funding Notes. The
non-recourse Securitization Notes mature at various dates, the latest of which will be October 15, 2020 (the “Final Maturity Date”).
a
The Securitization Notes are issued pursuant to an indenture, dated as of January 15, 2016 (the “Closing Date”). The Securitization
Notes bear interest at an annual rate equal to the one month London Interbank Offered Rate (“LIBOR”) rate (subject to a floor of 1%)
plus 7.75%, which rate is initially 8.75%. In addition, the Issuer paid certain customary upfront closing fees and will pay customary
annual commitment and other fees to the purchasers under the 2016-1 Securitization Facility. The Issuer is permitted to voluntarily
prepay any outstanding Securitization Notes, subject to an optional redemption premium. Interest and principal payments on
outstanding Securitization Notes will be made monthly. Any remaining amounts outstanding will be payable no later than the Final
Maturity Date. The Securitization Notes are supported by the expected cash flows from the underlying Receivables. The holders of the
Securitization Notes have no recourse to us if the cash flows from the underlying Receivables are not sufficient to pay all of the
principal and interest on the Securitization Notes. Additionally, the Receivables will be held by the Issuer at least until the
under the Securitization Notes are extinguished. For so long as they are held by the Issuer, the outstanding Receivables will not be
available to satisfy the debts and other obligations of us.
obligations
y
All amounts due under the Securitization Notes are secured by all of the Issuer’s assets, which include the Receivables transferred to
the Issuer, related rights under the Receivables, specified bank accounts, and certain other related collateral.
The 2016-1 Securitization Facility documents contain customary provisions for securitizations, including: representations and warranties
as to the eligibility of the Receivables and other matters; indemnification for specified losses not including losses due to the inability of
consumers to repay their loans; covenants regarding special purpose entity matters and other subjects; and default and termination
provisions which provide for the acceleration of the Securitization Notes under the 2016-1 Securitization Facility in circumstances
including, but not limited to, failure to make payments when due, servicer defaults, certain insolvency events, breaches of representations,
warranties or covenants, failure to maintain the security interest in the receivables, and defaults under other material indebtedness and
certain regulatory matters.
On July 26, 2016, we and certain of our subsidiaries entered into a First Omnibus Amendment (the “First Amendment”) of the 2016-1
Facility that was established on the Closing Date, pursuant to various agreements with certain purchasers, the Administrative Agent and
the Indenture Trustee. The agreements evidencing the 2016-1 Facility, all dated as of the Closing Date, include (i) an Indenture between
the Issuer and the Indenture Trustee, (ii) a Note Purchase Agreement among the Issuer, NetCredit Loan Services, LLC (f/k/a Enova
Lending Services, LLC), as the Master Servicer, the Administrative Agent and certain purchasers, and (iii) a Receivables Purchase
Agreement between us and Enova Finance 5, LLC. The First Amendment effected a variety of minor technical changes to the Indenture, uu
the Note Purchase Agreement, the Receivables Purchase Agreement and the servicing agreement for the 2016-1 Facility. These changes
include revised procedures under the Note Purchase Agreement for the disbursement to the Issuer of proceeds from draws under the
Variable Funding Notes and clarification of modifications that the servicer is permitted to effect to the terms of consumer installment
loans that have been transferred into the EFR 2016-1 Facility.
On August 17, 2016, we and one of our subsidiaries entered into an Amendment to the Receivables Purchase Agreement. This
amendment modified an eligibility criterion for receivables that we sell under the Agreement.
On September 12, 2016, we and certain of our subsidiaries entered into a Second Omnibus Amendment (the “Second Amendment”) to
amend the Indenture and Receivables Purchase Agreement. The Second Amendment authorized us to include in the 2016-1 Facility
receivables originated by a state-chartered bank and acquired by a subsidiary of us from that bank, and it adjusted the Investment Pool
Cumulative Net Loss Trigger for the Initial Term Note Investment Pool (as such terms are defined in the Indenture), which was the
seasoned pool of receivables securitized under the 2016-1 Facility on the Closing Date.
tt
77
On October 20, 2016, we and certain of our subsidiaries entered into a Third Amendment and Limited Waiver (the “Third Amendment)
to amend the Indenture Agreement. The Third Amendment increased the maximum principal amount to $275 million, increased the
Variable Funding Notes maximum principal amount to $40 million until December 31, 2016, and $30 million thereafter, and extended the
term of the facility to October 2017. The Third Amendment also adjusted the Note Interest Rate on Term Notes issued after, and amounts
outstanding under the Variable Funding Notes after, the date of the Third Amendment (as such terms are defined in the Indenture). The
weighted average interest rate on such adjusted Notes will be 9.5%.
On November 14, 2016, we and certain of our subsidiaries entered into a Fourth Amendment (the “Fourth Amendment”) to amend the
Indenture and Receivables Purchase Agreement. The Fourth Amendment adjusted the Investment Pool Cumulative Delinquency
Trigger (as such term is defined in the Indenture), with an effective date of October 31, 2016.
On December 14, 2016, we and certain of our subsidiaries entered into a Fifth Amendment (the “Fifth Amendment”) to amend the
Indenture and Receivables Purchase Agreement. The Fifth Amendment adjusted the Investment Pool Cumulative Delinquency Trigger
for the Initial Term Notes (as such terms are defined in the Indenture), with an effective date of November 30, 2016, expanded the
categories of receivables that could be financed through the securitization facility and made certain other minor changes. These
changes will provide us with additional flexibility under the securitization facility.
2016-2 Facility
On December 1, 2016, we and certain of our subsidiaries entered into a receivables securitization (the “2016-2 Facility”) with
Redpoint Capital Asset Funding, LLC, as lender (the “Lender”). The 2016-2 Facility securitizes unsecured consumer installment loans
(“Redpoint Receivables”) that have been and will be originated or acquired under our NetCredit brand by several of our subsidiaries
(the “Originators”) and that meet specified eligibility criteria, including that the annual percentage rate for each securitized consumer
loan is greater than or equal to 90%. The average annual percentage rate for loans securitized under the 2016-2 Facility in 2016 was
approximately 135%. Under the 2016-2 Facility, Redpoint Receivables are sold to a wholly-owned special purpose subsidiary of oursuu
(the “Debtor”) and serviced by another subsidiary of ours.
The Debtor has issued a revolving note with an initial maximum principal balance of $20.0 million (the “Initial Facility Size”), which
is required to be secured by $25.0 million in unsecured consumer loans. The Initial Facility Size may be increased under the 2016-2
Facility to $40 million. The 2016-2 Facility is non-recourse to us and matures on December 1, 2019.
The 2016-2 Facility is governed by a loan and security agreement, dated as of December 1, 2016, between the Lender and the Debtor.
The 2016-2 Facility bears interest at a rate per annum equal to LIBOR (subject to a floor) plus an applicable margin, which rate per
annum is initially 12.50%. In addition, the Debtor paid certain customary upfront closing fees to the Lender. Interest payments on the
2016-2 Facility will be made monthly. Subject to certain exceptions, the Debtor is not permitted to prepay the 2016-2 Facility prior to
October 1, 2018. Following such date, the Debtor is permitted to voluntarily prepay the 2016-2 Facility without penalty. Any
remaining amounts outstanding will be payable no later than December 1, 2019.
All amounts due under the 2016-2 Facility are secured by all of the Debtor’s assets, which include the Redpoint Receivables
transferred to the Debtor, related rights under the Redpoint Receivables, a bank account and certain other related collateral.
The 2016-2 Facility documents contain customary provisions for securitizations, including: representations and warranties as to the
ff
eligibility of the Redpoint Receivables and other matters; indemnification for specified losses no
of consumers to repay their loans; covenants regarding special purpose entity matters; and default and termination provisions which
provide for the acceleration of the 2016-2 Facility in circumstances including, but not limited to, failure to make payments when due,
servicer defaults, certain insolvency events, breaches of representations, warranties or covenants, failure to maintain the security
interest in the receivables and defaults under other material indebtedness of the Debtor.
t including losses due to the inability
Credit Agreement
On March 25, 2015, we and certain of our domestic subsidiaries, as guarantors, entered into an amendment to our revolving credit
facility with Jefferies Finance LLC, as administrative agent. The amendment reduced our unsecured revolving line of credit to $65.0
million (from $75.0 million) and increased an additional senior secured indebtedness basket to the greater of $20.0 million or 2.75%
of consolidated total assets (as defined in the Credit Agreement) (from $15.0 million or 2% of consolidated total assets). In addition,
the March 25, 2015 amendment revised certain definitions and provisions relating to limitations on indebtedness, investments,
dispositions, fundamental changes and burdensome agreements to allow certain of our foreign subsidiaries, which opt to become
guarantors of our obligations under the Credit Agreement, to be treated as domestic subsidiaries for purposes of those provisions.
On December 29, 2015, we and certain of our domestic subsidiaries, as guarantors, entered into an amendment to the Credit
Agreement, which temporarily increased our unsecured revolving line of credit to $75.0 million, an increase of $15.0 million ($5.0
million on December 29, 2015 and $10.0 million on January 4, 2016). Once we received the proceeds from the 2016-1 Securitization
78
Facility, we repaid the outstanding balance on the revolving line of credit in full and, in accordance with the terms of the amendment,
the revolving commitment amount was reduced to $40.0 million.
On June 30, 2016, we and certain of our domestic subsidiaries, as guarantors, entered into an amendment to the Credit Agreement,
which increased the maximum allowable leverage ratio (as defined in the credit agreement) for the fiscal quarter ended June 30, 2016
to 4.00 to 1.00 (from 3.00 to 1.00) and for the fiscal quarters ended September 30, 2016 and December 31, 2016 to 3.50 to 1.00 (in
each case, from 3.00 to 1.00).
On September 30, 2016, we and certain of our domestic subsidiaries, as guarantors, entered into an amendment to the Credit
Agreement, which increased the maximum allowable leverage ratio (as defined in the credit agreement) for the fiscal quarters ended
September 30, 2016 and thereafter to 4.25 to 1.00 (from 3.50 to 1.00) and decreased the Company’s unsecured revolving line of credit
to $35.0 million.
Our Credit Agreement will mature on June 30, 2017, and we are actively reviewing and intend to replace the existing facility on or
before the maturity date. We had no borrowings and $6.6 million of standby letters of credit outstanding under the Credit Agreement
as of December 31, 2016.
n
Senior Notes
On May 30, 2014, we issued and sold the Notes. The Notes were sold to qualified institutional buyers in accordance with Rule 144A under
the Securities Act and outside the United States pursuant to Regulation S under the Securities Act.
We used all of the net proceeds, or $479.0 million, of the Notes offering to repay all of our intercompany indebtedness due to Cash
America, which was $361.4 million as of May 30, 2014, and the remaining net proceeds were used to pay a significant portion of the
$122.4 million in cash dividends to Cash America, of which $120.7 million was paid on May 30, 2014 and $1.7 million was paid on
June 30, 2014.
The Notes are governed by an indenture (“the Senior Notes Indenture”), dated May 30, 2014, between us, our domestic subsidiaries,
as Guarantors, and the trustee. The Notes bear interest at a rate of 9.75% per year on the principal amount of the Notes, payable semi-
annually in arrears on June 1 and December 1 of each year, beginning on December 1, 2014. The Notes will mature on June 1, 2021.
The Notes are senior unsecured debt obligations of Enova and are unconditionally guaranteed by our domestic subsidiaries.
The Senior Notes Indenture contains certain covenants that, among other things, limit our and certain of our subsidiaries’ ability to
incur additional debt, acquire or create new subsidiaries, create liens, engage in certain transactions with affiliates and consolidate or
merge with or into other companies.
The Senior Notes Indenture provides for customary events of default, including nonpayment of interest and principal when due and
failure to comply with covenants or other agreements in the Senior Notes Indenture.
Cash Flows
Our cash flows and other key indicators of liquidity are summarized as follows (dollars in thousands):
Cash flows provided by operating activities ............................ $
Cash flows used in investing activities
Loans and finance receivables ............................................
Change in restricted cash....................................................
Acquisitions .......................................................................
Purchases of property and equipment ................................
Investment in unconsolidated investee ...............................
Other investing activities ....................................................
Total cash flows used in investing activities............................
Total debt to Adjusted EBITDA (a)A ...............................................
Year Ended December 31,
2015
283,921 $
$
2016
393,373
(450,149)
(20,126)
——
(14,396)
——
95
(484,576)
99,880
4.6x
(322,811)
——
(17,735)
(32,241)
——
618
(372,169)
56,617
3.5 x
2014
429,935
(291,246)
(7,868)
——
(13,284)
(703)
4
(313,097)
(79,039)
2.0x
(a) Total debt to Adjusted EBITDA, a non-GAAP measure, is calculated using Adjusted EBITDA for the twelve months ended for the
respective period indicated. See “—Non-GAAP Disclosure—Adjusted EBITDA.”
NN
79
Cash Flows from Operating Activities
2016 comparison to 2015
Net cash provided by operating activities increased $109.5 million, or 38.6%, to $393.4 million for 2016 from $283.9 million for
2015. The increase was primarily driven by a $111.1 million increase in cost of revenue, a non-cash expense, partially offset by a $9.4
million decrease in net income.
Other significant changes in net cash provided by operating activities for 2016 compared to 2015 included cash flows from the
following activities:
(cid:120) Changes in current income taxes payable resulted in an $18.1 million increase in cash provided by operating activities, due
primarily to 2015 tax overpayments being utilized to offset 2016 estimated tax liabilities, as well as 2016 estimated tax
payments more closely matching expected tax liabilities for the period;
(cid:120) changes in finance and service charges on loans and finance receivables resulted in a decrease of $15.8 million due primarily to
strong line of credit account and installment originations in 2016; and
(cid:120) changes in other receivables and prepaid expenses resulted in a $4.6 million increase in net cash provided by operating activities,
due primarily to lower prepaid expenses in 2016 compared to 2015.
2015 comparison to 2014
Net cash provided by operating activities decreased $146.0 million, or 34.0%, to $283.9 million for 2015 from $429.9 million for 2014.
The decrease was primarily driven by a $67.7 million decrease in net income, a $49.8 million decrease in cost of revenue, a non-cash
expense, and a $19.1 million decrease in current income taxes payable due to our 2014 extension and 2015 estimated tax payments in
2015 as compared to 2014.
Other significant changes in net cash provided by operating activities for 2015 compared to 2014 included cash flows from the
following activities:
(cid:120) A $9.0 million increase in non-cash stock-based compensation expense;
(cid:120) changes in deferred income taxes, net, resulted in a decrease of $13.6 million due primarily to amortization of intangible assets
along with accelerated tax depreciation on assets acquired due to the headquarters relocation, partially offset by increases in
deferred tax assets related to rent abatements and the deferred finish out allowance; and
(cid:120) changes in non-cash affiliate interest expense resulted in a $7.6 million decrease in net cash provided by operating activities, due
to the repayment of our affiliate line of credit in 2014.
We believe cash flows from operations and available cash balances and borrowings under our Credit Agreement and 2016-1
Securitization Facility will be sufficient to fund our future operating liquidity needs.
Cash Flows from Investing Activities
2016 comparison to 2015
Net cash used in investing activities increased $112.4 million, or 30.2%, for 2016 compared to 2015, primarily due to a $127.3
r
increase in net cash invested in loans and finance receivables, due to a 11.6% increase in loans and finance receivables originated or
purchased as well as a $20.1 million increase in the restricted cash balance resulting from activity related to the 2016-1 Securitization
Facility. These increases were partially offset by a $17.8 million decrease in property and equipment expenditures to $14.4 million in
2016 compared to $32.2 million in 2015, primarily related to the finish out and relocation of our headquarters in 2015, and $17.7
million in payments in 2015 related to the acquisition of certain assets of a company operating as The Business Backer. We anticipate
that total expenditures for property and equipment will be between $12 million and $16 million for the twelve months ended
December 31, 2017, primarily for continued development activities related to our technology platform and the purchase of computer
hardware.
uu
million
2015 comparison to 2014
Net cash used in investing activities increased $59.1 million, or 18.9%, for 2015 compared to 2014, primarily due to a $31.6 million
increase in net cash invested in loans and finance receivables, due to an increase in longer term, larger dollar installment loans and
RPAs originated in 2015, partially offset by stricter affordability assessments and underwriting standards in the United Kingdom, and
$17.7 million used for the purchase of certain assets of a company operating as The Business Backer, a small business financing
company in Blue Ash, Ohio. Also, a $7.9 million cash security deposit for a third-party service provider resulted in an increase in net
cash used in investing activities in 2014.
80
Expenditures for property and equipment increased $18.9 million to $32.2 million in 2015 compared to $13.3 million in 2014,
primarily related to the relocation of our headquarters. We anticipate that total expenditures for property and equipment for the twelve
months ended December 31, 2016 will be between $11 million and $16 million, primarily for continued development activities related
to our technology platform and the purchase of computer hardware.
n
t
Cash Flows from Financing Activities
2016 comparison to 2015
Net cash provided by financing activities in 2016 was $99.9 million compared to net cash used in financing activities of $56.6 million in 2015.
Cash flows provided by financing activities for 2016 primarily reflects $165.4 million in net borrowings under our securitization
facilities, partially offset by $58.4 million of net repayments under our unsecured revolving line of credit under the Credit Agreement
and $6.7 million of debt issuance costs primarily paid in connection with the consumer loan securitization financing transactions.
2015 comparison to 2014
Net cash provided by financing activities in 2015 was $56.6 million compared to net cash used in financing activities of $79.0 million
in 2014.
Cash flows provided by financing activities for 2015 primarily reflects $58.4 million in net borrowings under our unsecured revolving
line of credit, partially offset by $1.6 million of debt issuance costs paid in connection with the securitization financing transactions
that closed in January 2016.
Contractual Obligations and Commitments
The following table summarizes the Company’s contractual obligations at December 31, 2016, and the effect such obligations are
expected to have on its liquidity and cash flow in future periods (dollars in thousands):
2017
2018
2019
2020
2021
Thereafter Securitizations
Total
Senior notes (a) ............................................... $ —— $ —— $ —— $ —— $500,000 $ —— $
Interest on senior notes (b) ............................. 48,750
48,750
——
Securitization facilities (c) .............................. ——
——
——
Non-cancelable leases (d) ............................... 6,432
32,498
5,986
Other liabilities (e) .......................................... —— 3,000
——
32,498 $
24,375
——
6,621
——
Total ......................................................... $ 55,182 $57,736 $55,615 $55,361 $530,996 $
48,750
——
6,611
——
48,750
——
6,865
——
165,419
—— $500,000
—— 219,375
165,419
—— 65,013
3,000
——
165,419 $952,807
(a) Represents obligations under the Credit Agreement and Notes. See “—Liquidity and Capital Resources—Senior Notes.”
(b) Represents cash payments for interest on the Notes. See “—Liquidity and Capital Resources—Senior Notes.”
(c) Securitizations are not included in maturities by period due to their variable monthly payments.
(d) Represents obligations due under long-term operating leases. The total future minimum lease obligation excludes non-cancelable
sublease rental income of $0.4 million. See Note 11 in the Notes to Consolidated Financial Statements in Part II, Item 8 “Financial
Statements and Supplementary Data” in this report for further discussion of our operating lease obligations.
(e) Represents obligations under a promissory note issued in conjunction with our acquisition of certain assets of a company operating
as The Business Backer. See Note 3 in the Notes to Consolidated Financial Statements in Part II, Item 8 “Financial Statements and
Supplementary Data” in this report for further discussion of our acquisition.
Off-Balance Sheet Arrangements
In certain markets, we arrange for consumers to obtain consumer loan products from independent third-party lenders through our CSO
programs. For consumer loan products originated by third-party lenders under the CSO programs, each lender is responsible for
providing the criteria by which the customer’s application is underwritten and, if approved, determining the amount of the consumer
loan. We are responsible for assessing whether or not we will guarantee such loan. When a customer executes an agreement with us
under our CSO programs, we agree, for a fee payable to us by the customer, to provide certain services to the customer, one of which
is to guarantee the customer’s obligation to repay the loan received by the customer from the third-party lender if the customer fails to
do so. The guarantee represents an obligation to purchase specific loans if they go into default, which generally occurs after one
payment is missed. As of December 31, 2016 and 2015, the outstanding amount of active consumer loans originated by third-party
lenders under the CSO programs was $32.2 million and $34.1 million, respectively, which were guaranteed by us.
81
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risks relating to our operations result primarily from changes in foreign currency exchange rates. Currently, we periodically
use forward currency exchange contracts to minimize risk of foreign currency exchange rate fluctuations in the United Kingdom. Our
forward currency exchange contracts are non-designated derivatives. Any gain or loss resulting from these contracts is recorded as
income or loss and is included in “Foreign currency transaction gain (loss), net” in our consolidated statements of income. As of
December 31, 2016, we had no forward currency exchange contracts outstanding. The following table sets forth, by each foreign
currency hedged, the notional amounts of forward currency exchange contracts as of December 31, 2015, the total gains or losses
recorded in 2015, and sensitivity analysis of hypothetical 10% declines in the exchange rates of the currencies (U.S. dollars in
thousands).
British Pound ............................................................. $
$
58,723 $
58,723 $
Sensitivity Analysis(b)
(3,807)
(3,807)
4,525 $
4,525 $
Notional amount of
f
outstanding
contracts as of
December 31, 2015
Gain/(loss) recorded
d
in 2015(a)
The gains (losses) on these derivatives substantially offset the (losses) gains on the hedged portion of international intercompany
balances.
m
(b)Represents the decrease to net income attributable to us due to a hypothetical 10% weakening of the foreign currency against the
U.S. dollar.
82
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm .......................................................................................................... 84
Consolidated Balance Sheets – December 31, 2016 and 2015....................................................................................................... 85
Consolidated Statements of Income – Years Ended December 31, 2016, 2015 and 2014 ............................................................. 86
Consolidated Statements of Comprehensive Income – Years Ended December 31, 2016, 2015 and 2014 .................................. 87
Consolidated Statements of Stockholders’ Equity – Years Ended December 31, 2016, 2015 and 2014 ...................................... 88
Consolidated Statements of Cash Flows – Years Ended December 31, 2016, 2015 and 2014 ..................................................... 89
Notes to Consolidated Financial Statements .................................................................................................................................. 90
83
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Enova International, Inc.
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, comprehensive
income, stockholders’ equity and cash flows present fairly, in all material respects, the financial position of Enova International, Inc.
and its subsidiaries at December 31, 2016 and December 31, 2015, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 2016 in conformity with accounting principles generally accepted in the United
States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these
financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing
under Item 9A. Our responsibility is to express opinions on these financial statements and on the Company’s internal control over
financial reporting based on our integrated audits (which were integrated audits in 2016 and 2015). We conducted our audits in
accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we
plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement
and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial
statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary
in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
n
k
ff
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect
on the financial statements.
y
a
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Chicago, Illinois
February 24, 2017
84
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
December 31,
2016
2015
Assets
Cash and cash equivalents ......................................................................................... $
Restricted cash and cash equivalents (includes restricted cash of consolidated VIEs
of $19,468 as of December 31, 2016) ....................................................................
Loans and finance receivables, net (includes loans and allowance for losses of
consolidated VIEs of $234,497 and $17,731, respectively, as of
December 31, 2016) ...............................................................................................
Income taxes receivable .............................................................................................
Other receivables and prepaid expenses ....................................................................
Property and equipment, net ......................................................................................
Goodwill ....................................................................................................................
Intangible assets, net ..................................................................................................
Other assets ................................................................................................................
Total assets ..................................................................................................... $
Liabilities and Stockholders' Equity
Accounts payable and accrued expenses ................................................................... $
Income taxes currently payable .................................................................................
net ........................................................................................
Deferred tax liabilities,
Long-term debt (includes long-term debt and debt issuance costs of consolidated
a
VIEs of $165,419 and $1,869, respectively, as of December 31, 2016) ................
Total liabilities .....................................................................................................
Commitments and contingencies (Note 11)
Stockholders' equity:
Common stock, $0.00001 par value, 250,000,000 shares authorized,
33,364,525 and 33,151,088 shares issued and 33,293,100 and 33,121,594
outstanding as of December 31, 2016 and 2015, respectively ..........................
Preferred stock, $0.00001 par value, 25,000,000 shares authorized, no shares
issued and outstanding ......................................................................................
Additional paid in capital .....................................................................................
Retained earnings .................................................................................................
Accumulated other comprehensive loss ...............................................................
Treasury stock, at cost (71,425 and 29,494 shares as of December 31, 2016 and
2015, respectively) ...........................................................................................
Total stockholders' equity ....................................................................................
Total liabilities and stockholders' equity ......................................................... $
39,934 $
26,306
561,550
— —
19,524
47,100
267,010
5,404
11,051
977,879 $
71,671 $
282
14,316
649,911
736,180
— —
— —
18,446
235,455
(11,578)
(624)
241,699
977,879 $
42,066
7,379
434,633
5,503
20,049
48,055
267,008
6,540
9,304
840,537
72,141
——
20,519
541,909
634,569
——
——
9,924
200,853
(4,622)
(187)
205,968
840,537
See Notes to Consolidated Financial Statements
85
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
Revenue............................................................................................................ $
Cost of Revenue ...............................................................................................
Gross Profit ......................................................................................................
Expenses
Operations and technology ..........................................................................
General and administrative ..........................................................................
Depreciation and amortization .....................................................................
Total Expenses .................................................................................................
Income from Operations ................................................................................
Interest expense, net ....................................................................................
Foreign currency transaction gain (loss), net ...............................................
Income before Income Taxes ..........................................................................
Provision for income taxes ..........................................................................
Net Income ....................................................................................................... $
Earnings Per Share:
Earnings per common share:
$
Diluted ......................................................................................................... $
Weighted average common shares outstanding:
Diluted .........................................................................................................
2016
745,569
327,966
417,603
Year Ended December 31,
2015
$
$
652,600
216,858
435,742
2014
809,837
266,787
543,050
97,404
85,202
97,956
15,564
296,126
121,477
(65,603)
1,562
57,436
22,834
34,602
1.04
1.03
33,192
33,462
$
$
$
116,882
74,012
102,073
18,388
311,355
124,387
(52,883)
(985)
70,519
26,527
43,992
1.33
1.33
33,006
33,026
$
$
$
127,862
73,573
107,875
18,732
328,042
215,008
(38,474)
(35)
176,499
64,828
111,671
3.38
3.38
33,000
33,008
See Notes to Consolidated Financial Statements
86
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Net Income ........................................................................................................ $
Other comprehensive loss, net of tax:
(1) ..............................................................
Total other comprehensive loss, net of tax ........................................................
.................................................................................. $
2016
Year Ended December 31,
2015
2014
34,602
$
43,992
$
111,671
(6,956)
(6,956)
27,646
$
(1,451)
(1,451)
42,541
$
(6,272)
(6,272)
105,399
(1) Net of tax benefit of $3,939, $592 and $4,011 for the years ended December 31, 2016, 2015 and 2014, respectively.
See Notes to Consolidated Financial Statements
87
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except per share data)
Balance at December 31, 2013 ...................... 33,000 $ —— $
Stock-based compensation expense ................
Net equity transactions with Cash America ....
et income ......................................................
N
Dividend paid to Cash America
Common Stock
Shares Amount
Additional
Paid in
Capital
Accumulated
Other
(Loss) Income Shares
Amount
Treasury Stock,
at cost
Total
Stockholders'
Equity
Retained Comprehensive
Earnings
—— $ 169,947 $
——
—
(2,373)
— 111,671
3,101 — — $ —— $ 173,048
294
(2,373)
111,671
——
——
——
151
— (122,384)
——
—
294 $ 156,861 $
——
——
43,992
——
($3.71 per share) ..........................................
Foreign currency translation loss, net of tax ...
Balance at December 31, 2014 ...................... 33,000 $ —— $
Stock-based compensation expense ................
Shares issued under stock-based plans ............
N
et income ......................................................
Foreign currency translation loss, net of tax ...
Purchases of treasury shares, at cost ...............
Balance at December 31, 2015 ...................... 33,151 $ —— $ 9,924 $ 200,853 $
——
Stock-based compensation expense ................
Shares issued under stock-based plans ............
——
34,602
et income ......................................................
N
Foreign currency translation loss, net of tax ...
——
Purchases of treasury shares, at cost ...............
Balance at December 31, 2016 ...................... 33,365 $ —— $ 18,446 $ 235,455 $
——
—
—
——
—
—
214
——
——
——
——
——
(1,451)
(122,384)
——
(6,272)
(6,272)
(3,171) — — $ —— $ 153,984
9,630
——
43,992
(1,451)
(187)
(29)
(29) $ (187) $ 205,968
8,522
——
34,602
(6,956)
(42)
(437)
(71) $ (624) $ 241,699
(4,622)
——
——
——
(6,956)
(437)
(187)
(11,578)
See Notes to Consolidated Financial Statements
88
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
2016
Year Ended December 31,
2015
2014
34,602 $
43,992
$
111,671
Cash Flows from Operating Activities
Net Income .................................................................................................... $
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization .................................................................
Amortization of deferred loan costs and debt discount ............................
Cost of revenue ........................................................................................
Non-cash affiliate interest expense...........................................................
Stock-based compensation expense .........................................................
Fair value changes in contingent purchase consideration ........................
Deferred income taxes, net .......................................................................
Other ........................................................................................................
Changes in operating assets and liabilities:
Finance and service charges on loans and finance receivables ................
Other receivables and prepaid expenses ...................................................
Accounts payable and accrued expenses ..................................................
Current income taxes payable ..................................................................
Net cash provided by operating activities.......................................
Cash Flows from Investing Activities
15,564
6,913
327,966
——
8,522
3,300
(2,201)
(151)
(16,232)
843
8,462
5,785
393,373
18,388
3,371
216,858
——
9,630
——
(1,399)
984
(467)
(3,804)
8,673
(12,305)
283,921
Loans and finance receivables originated or acquired ...................................
Loans and finance receivables repaid ............................................................
Change in restricted cash ...............................................................................
Acquisitions, net of cash acquired .................................................................
Purchases of property and equipment ............................................................
Investment in unconsolidated investee ..........................................................
Other investing activities ...............................................................................
Net cash used in investing activities ................................................
(1,308,197)
858,048
(20,126)
——
(14,396)
——
95
(484,576)
(1,172,169)
849,358
——
(17,735)
(32,241)
——
618
(372,169)
Borrowings under revolving line of credit .....................................................
Repayments under revolving line of credit ....................................................
Borrowings under securitization facility ........................................................
Repayments under securitization facility .......................................................
Issuance of long-term debt.............................................................................
Dividend paid to Cash America .....................................................................
Debt issuance costs paid ................................................................................
Treasury shares purchased .............................................................................
Net equity transactions with Cash America ...................................................
Payments on affiliate line of credit ................................................................
Net cash provided by (used in) financing activities........................
sh and cash equivalents ...............................
Cash and cash equivalents at beginning of year .............................................
Cash and cash equivalents at end of period ....................................................
$
58,400
(116,800)
280,075
(114,656)
——
——
(6,702)
(437)
——
——
99,880
(10,809)
(2,132)
42,066
39,934 $
63,400
(5,000)
——
——
——
——
(1,596)
(187)
——
——
56,617
(1,409)
(33,040)
75,106
42,066
$
89
18,732
1,949
266,787
7,629
664
——
12,145
(199)
3,695
(7,607)
7,705
6,764
429,935
(1,298,008)
1,006,762
(7,868)
——
(13,284)
(703)
4
(313,097)
——
——
——
——
493,810
(122,384)
(16,330)
——
(2,373)
(431,762)
(79,039)
(10,173)
27,626
47,480
75,106
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of the Company
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. As of December 31, 2016, the Company offered or arranged loans to consumers und
er
the names “CashNetUSA” and “NetCredit” in 33 states in the United States, under the names “QuickQuid,” “Pounds to Pocket” and
“On Stride Financial” in the United Kingdom, and under the name “Simplic” in Brazil. The Company also offered financing to small
businesses in all 50 states and Washington D.C. in the United States under the names “Headway Capital” and “The Business Backer.”
During 2016 the Company also launched “Enova Decisions” its analytics as a service business that leverages existing tools and
technologies in order to help companies make decisions about their own customers.
r
The Company originates, guarantees or purchases consumer loans. Consumer loans provide customers with cash in their bank account,
typically in exchange for an obligation to repay the amount advanced plus fees and/or interest. Consumer loans include short-term
loans, line of credit accounts and installment loans. The Company provides financing to small businesses through either a line of credit
account or a receivables purchase agreement product (“RPAs”). RPAs represent a right to receive future receivables from a small
business. Small businesses receive funds in exchange for a portion of the business’ future receivables at an agreed upon discount. In
contrast, lending is a commitment to repay principal and interest. “Loans and finance receivables” include consumer loans, small
business loans and RPAs.
Short-term loans include unsecured short-term loans written by the Company or by a third-party lender through the Company’s credit
services organization and credit access business programs (“CSO programs” as further described below) that the Company guarantees.
Line of credit accounts include draws made through the Company’s line of credit product. Installment loans are longer-term multi-
payment loans that generally require the outstanding principal balance to be paid down in multiple installments and are written by the
Company or by a third-party lender through the CSO programs.
n
Through the Company’s CSO programs the Company provides services related to a third-party lender’s consumer loan products in
some markets by acting as a credit services organization or credit access business on behalf of consumers in accordance with
applicable state laws. Services offered under the CSO programs include credit-related services such as arranging loans with
independent third-party lenders and assisting in the preparation of loan applications and loan documents (“CSO loans”). Under the
CSO programs, the Company guarantees consumer loan payment obligations to the third-party lender in the event that the customer
defaults on the loan. CSO loans are not included in the Company’s financial statements, but the Company has established a liability
for the estimated losses in support of the guarantee on these loans in its consolidated balance sheets.
2. 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. On September 13, 2011, Cash
America contributed to the Company all of the stock of its wholly-owned subsidiary, Enova Online Services, Inc., in exchange for
33 million shares of the Company’s common stock. On November 13, 2014, Cash America completed the tax-free spin-off of
approximately 80% of the Company’s outstanding common stock (the “Spin-off). Following the Spin-off, the Company became an
independent, publicly traded company, and the Company’s shares of common stock are listed on the New York Stock Exchange under
the symbol “ENVA.”
The consolidated financial statements of the Company reflect the historical results of operations and cash flows of the Company
during each respective period. The financial statements include goodwill and intangible assets arising from businesses previously
acquired. Prior to the Spin-off, the financial statements also included the allocation of certain assets and liabilities that were
historically held at the Cash America corporate level but which were specifically identifiable or allocable to the Company. Certain
transactions with Cash America, such as stock-based compensation and foreign currency transactions were considered to be
effectively settled as net equity transactions with parent in “Retained earnings” in the consolidated balance sheets at the time the
transaction was recorded. Prior to May 30, 2014, all intercompany transactions between the Company and Cash America were
considered to be effectively settled in the financial statements at the time the transaction was recorded. In addition, the historical
financial statements include allocations of costs relating to certain functions historically provided by Cash America, including
corporate services such as executive oversight, insurance and risk management, government relations, internal audit, treasury,
licensing, and to a limited extent finance, accounting, tax, legal, human resources, compensation and benefits, compliance and support
for certain information systems related to financial reporting. The expense allocations were determined on a basis that Cash America
and the Company consider to be reasonable reflections of the utilization of services provided by Cash America. Also see Note 15 for
90
rr
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
additional information on the Company’s relationship with Cash America. The financial information included herein may not be
indicative of the consolidated financial position, operating results, changes in stockholders’ equity and cash flows of the Company in
the future, or if the Company had been a separate company during the periods presented.
mm
The Company consolidates any variable interest entity (“VIE”) where it has determined the Company 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.
t
Use of Estimates
The preparation of these financial statements in conformity with accounting principles generally accepted in the United States
(“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities, at the dates of the consolidated financial statements and the reported amounts
and expenses during the reporting periods. On an on-going basis, management evaluates its estimates and judgments, including those
related to revenue recognition, allowance for losses on loans and finance receivables, goodwill, long-lived and intangible assets,
income taxes, contingencies and litigation. Management bases its estimates on historical experience, empirical data and on various
other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates.
f
of revenue
Out-of-Period Adjustment
In a review of its revenue recognition policy during 2015, the Company determined that certain fees on its line of credit product
should be deferred over the period the draw is outstanding rather than recognized as revenue when assessed. The Company recorded a
$2.5 million reduction to revenue in the fourth quarter of 2015 as an out-of-period adjustment. This adjustment included a $2.8 million
reduction of revenue associated with periods prior to 2015. The Company believes this adjustment was not material to any of the prior
years’ financial statements.
Foreign Currency Translations
The functional currencies for the Company’s subsidiaries that serve or have served residents of the United Kingdom, Australia,
Canada and Brazil are the British pound, the Australian dollar, the Canadian dollar and the Brazilian real, respectively. The assets and
liabilities of these subsidiaries are translated into U.S. dollars at the exchange rates in effect at each balance sheet date, and the
resulting adjustments are recorded in “Accumulated other comprehensive income (loss)” (“AOCI”) as a separate component of
stockholders’ equity. Revenue and expenses are translated at the monthly average exchange rates occurring during each period.
Cash and Cash Equivalents
The Company considers deposits in banks and short-term investments with original maturities of 90 days or less as cash and cash
equivalents.
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 CSO programs (“CSO fees”),
revenue on RPAs, service charges, draw fees, minimum fees, late fees and non-sufficient funds fees as permitted by applicable laws
and pursuant to the agreement with the borrower. 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 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 is recognized on an effective y
ield 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
m
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ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 and fees and deferred origination costs are
included in “Loans and finance receivables, net” in the consolidated balance sheets.
Current and Delinquent Loans and Finance Receivables
The Company classifies its loans and finance receivables as either current or delinquent. Short-term loans are considered delinquent
when payment of an amount due is not made as of the due date. If a line of credit account or installment loan customer misses one
payment, that payment is considered delinquent and the balance of the loan is considered current. The Company does not accrue
interest on the delinquent payment portion of the loan but does continue to accrue interest on the remaining portion of the loan. If a
line of credit account or installment loan customer does not make two consecutive payments, the entire account or loan is classified as
delinquent and 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.
Where permitted by law and as long as a loan is not considered delinquent, a customer may choose to renew a short-term loan or
installment loan or extend the due date on a short-term loan. In order to renew or extend a short-term loan, a customer must agree to
pay the current finance charge for the right to make a later payment of the outstanding principal balance plus an additional finance
charge. In order to renew an installment loan, the customer enters into a new installment loan contract and agrees to pay the principal
balance and finance charge in accordance with the terms of the new loan contract. If a short-term loan is renewed, but the customer
fails to pay that loan’s current finance charge as of the due date, the unpaid finance charge is classified as delinquent.
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The Company does not accrue interest on delinquent loans and does not resume accrual of interest on a delinquent loan unless it ist
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 and installment loan and RPA portf
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olios, the Company generally uses a migration
analysis to estimate losses inherent in the portfolio. The allowance or liability calculation under the migration analysis is based on
historical charge-off experience and the loss emergence period, which represents the average amount of time between the first
occurrence of a loss event and the charge-off of a loan. The factors the Company considers to assess the adequacy of the allowance or
liability include past due performance, historical behavior of monthly vintages, underwriting changes and recent trends in delinquency
in the migration analysis.
ff
f
The Company fully reserves for loans once the loan or a portion of the loan has been classified as delinquent for 60 consecutiv
and generally charges off loans between 60 – 65 days delinquent. If a loan is deemed uncollectible before it is fully reserved, it is
charged off at that point. Loans classified as delinquent generally have an age of one to 64 days from the date any portion of the loan
became delinquent, as defined above. Recoveries on loans previously charged to the allowance are credited to the allowance when
collected.
e days
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92
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Property and Equipment
Property and equipment is recorded at cost. The cost of property retired or sold and the related accumulated depreciation are removed
from the accounts, and any resulting gain or loss is recognized in the consolidated statements of income. Costs associated with
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repair
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and maintenance activities are expensed as incurred. Depreciation expense is generally provided on a straight-line basis, using the
following estimated useful lives:
Computer hardware and software .................................................
Furniture, fixtures and equipment .................................................
Leasehold improvements (1) ..........................................................
1 to 5 years
3 to 7 years
3 to 10 years
(1) Leasehold improvements are depreciated over the lesser of the estimated useful life, remaining lease term, or 10 years.
Software Development Costs
The Company applies Accounting Standards Codification (“ASC”) 350-40, Internal Use Software (“ASC 350-40”), to its software
purchase and development activities. Under ASC 350-40, eligible internal and external costs incurred for the development of
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computer software applications, as well as for upgrades and enhancements that result in additional functionality of the applications,
are capitalized to “Property and equipment” on the consolidated balance sheets. Internal and external training and maintenance costs
are charged to expense as incurred or over the related service period. When a software application is placed in service, the Company
begins amortizing the related capitalized software costs using the straight-line method based on its estimated useful life, which
currently ranges from two to five years.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets
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in each business combination. In accordance with ASC 350, Intangibles—Goodwill and Other (“ASC 350”), 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 of a reporting unit below its carrying
amount.
acquired
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, the Company considers relevant events and circumstances including but not
limited to macroeconomic conditions, industry and market environment, its overall financial performance, cash flow from operating
activities, market capitalization and stock price. If the Company determines that the two-step quantitative impairment test is required,
it 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, 2016 and determined that the fair value of its goodwill exceeded carrying value, and, as a
result, no impairment existed at that date. A 10% decrease in the estimated fair value for the June 2015 assessment would not have
resulted in a goodwill impairment. Although no goodwill impairment was noted, there can be no assurances that future goodwill
impairments will not occur.
As of December 31, 2016, the Company had $267.0 million of goodwill, all of which is expected to be deductible for tax purposes.
Long-Lived Assets Other Than Goodwill
An evaluation of the recoverability of property and equipment and intangible assets subject to amortization is performed whenever the
facts and circumstances indicate that the carrying value may be impaired. An impairment loss is recognized if the future undiscounted
cash flows associated with the asset and the estimated fair value of the asset are less than the asset’s corresponding carrying value. The
amount of the impairment loss, if any, is the excess of the asset’s carrying value over its estimated fair value.
The Company amortizes intangible assets subject to amortization on the basis of their expected periods of benefit, generally three to
five years. The costs of start-up activities and organization costs are charged to expense as incurred.
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ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Hedging and Derivatives Activity
The Company periodically uses foreign currency forward contracts, which are considered derivative instruments, to minimize the
effects of foreign currency risk in the United Kingdom related to the operations of the Company. The forward contracts are not
designated as hedges as defined by ASC 815, Derivatives and Hedging; therefore, any changes in the fair value of the forward
contracts are recognized in “Foreign currency transaction gain (loss), net” in the consolidated statements of income. See Note 14.
Investment in Unconsolidated Investee
The Company accounts for its investments in unconsolidated investees in accordance with ASC 325, Investments—Other Investments
are recorded on a cost basis. The Company evaluates investments for impairment if an event occurs or circumstances change that
would more likely than not reduce the fair value of the investment below carrying value. If an impairment of an investment is
determined to be other than temporary, the cost basis of the investment will be reduced and the resulting loss recognized in net income
in the period the other-than-temporary-impairment is identified. The Company’s investments in unconsolidated investees are held in
“Other assets” on the consolidated balance sheets.
As of December 31, 2016, the Company owned a $6.7 million investment in the preferred stock of a privately-held developing
financial services entity. The entity is not currently profitable and has historically funded its operations through a series of capital
contributions from investors. The Company’s impairment evaluation of this investment as of December 31, 2016 determined that an
impairment loss was not probable as of that date. The Company will continue to evaluate the impairment risk of this entity by
monitoring and assessing the entity’s ability to raise capital or generate profits to fund its future operations.
Marketing Expenses
Marketing expenses consist of online marketing costs such as sponsored search and advertising on social networking sites, and offline
marketing costs such as television, radio and direct mail advertising. In addition, marketing expenses include lead purchase co
sts paid
to marketers in exchange for providing information or applications from potential customers interested in using the Company’s
services. Marketing costs directly related to loan originations are deferred and amortized against revenue. Online marketing and lead
purchase costs not directly resulting in loan and RPA originations are expensed as incurred. The production costs associated with
offline marketing are expensed as incurred. Other marketing costs are expensed as incurred.
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The Company also had an agreement with an independent third party pursuant to which the Company paid a portion of the net revenue
received from the customers referred to the Company by such third party. Prior to the Spin-off, the Company had an arrangement with
Cash America pursuant to which the Company paid either a lead purchase fee or a portion of the net revenue received from the
customers referred to the Company by Cash America. These referral fees were included in “Marketing” in the consolidated statements
of income.
Operations and Technology Expenses
Operations and technology expenses include all expenses related to the direct operations and technology infrastructure related to loan
underwriting and processing. This includes call center and operations personnel costs, software maintenance expense, underwriting
data from third-party vendors, and telephony costs.
General and Administrative Expenses
General and Administrative expenses primarily include the Company’s corporate personnel costs, as well as legal, occupancy, and
other related costs. In addition, prior to the Spin-off, general and administrative expenses included expense allocations for certain
corporate service functions historically provided by Cash America, such as executive oversight, insurance and risk management,
government relations, internal audit, treasury, licensing, and to a limited extent finance, accounting, tax, legal, human resources,
compensation and benefits, compliance and support for certain information systems related to financial reporting. Cash America
allocated these expenses to the Company based on the Company’s share of Cash America’s corporate services expenses incurred for
the consolidated entity.
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Stock-Based Compensation
The Company accounts for its stock-based employee compensation plans in accordance with ASC 718, Compensation—Stock
Compensation (“ASC 718”). In accordance with ASC 718, the Company recognizes compensation expense based on the grant date
fair value over the remaining vesting periods for stock-based awards. During the periods prior to the Spin-off, certain employees
94
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
received stock-based compensation in the form of restricted stock units from Cash America. These awards are reflected in stock-based
compensation or as a net equity transaction with Cash America in the Company’s statement of stockholders’ equity. See Note 13.
Income Taxes
The provision for income taxes is based on income before income taxes as reported for financial statement purposes. Deferred income
taxes are provided for in accordance with the assets and liability method of accounting for income taxes in order to recognize the tax
effects of temporary differences between financial statement and income tax accounting.
Prior to the Spin-off, the Company’s operations were included as part of consolidated and unitary tax returns with Cash America and
its affiliated companies. With the exception of certain entities outside of the United States, prior to the Spin-off, the Company settled
its current tax balances with Cash America on a quarterly basis through an adjustment to its affiliate line of credit with Cash America.
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The Company accounts for uncertainty in income taxes in accordance with ASC 740, Income Taxes (“ASC 740”). ASC 740 requires
that a more-likely-than-not threshold (greater than 50 percent) be met before the benefit of a tax position may be recognized in the
consolidated financial statements and prescribes how such benefit should be measured. It also provides guidance on recognition
adjustment, classification, accrual of interest and penalties, accounting in interim periods, disclosure and transition.
The Company performs an evaluation of the recoverability of its deferred tax assets on a quarterly basis. The Company establishes a
valuation allowance if it is more likely than not that all or some portion of the deferred tax asset will not be realized. The Company
analyzes several factors, including the nature and frequency of operating losses, the Company’s carryforward period for any los
ses,
the reversal of future taxable temporary differences, the expected occurrence of future income or loss and the feasibility of available
tax planning strategies to protect against the loss of deferred tax assets. See Note 10 for further discussion.
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Earnings Per Share
Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during
the year. Diluted earnings per share is calculated by giving effect to the potential dilution that could occur if securities or
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contracts to issue common shares were exercised and converted into common shares during the year. Restricted stock units issued
under the Company’s stock-based employee compensation plans are included in diluted shares upon the granting of the awards even
though the vesting of shares will occur over time.
other
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The following table sets forth the reconciliation of numerators and denominators of basic and diluted earnings per share computations
for the years ended December 31, 2016, 2015 and 2014 (in thousands, except per share amounts):
2016
Year Ended December 31,
2015
2014
Numerator:
Net income ...................................................................................... $
34,602
$
43,992 $
111,671
Denominator:
Total weighted average basic shares ...............................................
Shares applicable to stock-based compensation..............................
Total weighted average diluted shares .......................................
Earnings per share – basic ............................................................... $
Earnings per share – diluted ............................................................ $
33,192
270
33,462
1.04
1.03
33,006
20
33,026
$
$
1.33 $
1.33 $
33,000
8
33,008
3.38
3.38
For the years ended December 31, 2016, 2015 and 2014, 1,622,331, 1,700,296 and 1,425,196 shares of common stock underlying
stock options, respectively, and 464,500, 368,111 and no shares of common stock underlying restricted stock units, respectively, were
excluded from the calculation of diluted net income per share because their effect would have been antidilutive.
Adopted Accounting Standards
In November 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-17,
Balance Sheet Classification of Deferred Taxes (“ASU 2015-17”). ASU 2015-17 requires an entity to classify deferred tax liabilities
and assets as noncurrent within a classified statement of financial position. The Company adopted ASU 2015-17 on January 1, 2016.
As of December 31, 2015, the Company reported $29.0 million of current deferred tax assets and $49.5 million of noncurrent deferred
95
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
tax liabilities. As a result of adopting ASU 2015-17, these amounts are shown net as $20.5 million under “Deferred tax liabilities” in
the consolidated balance sheets.
In June 2015, the FASB issued ASU 2015-10, Technical Corrections and Improvements (“ASU 2015-10”). ASU 2015-10 covers a
wide range of topics in the Codification. The amendments in this update represent changes to clarify the Codification, correct
unintended application of guidance, or make minor improvements to the Codification that are not expected to have a significant effect
on current accounting practice or create a significant administrative cost on most entities. The Company adopted ASU 2015-10 on
s.
January 1, 2016. The adoption of ASU 2015-10 did not materially affect the Company’s financial position or results of operation
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In April 2015, the FASB issued ASU 2015-05, Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement (“ASU
2015-05”), which amends Accounting Standards Codification (“ASC”) 350-40, Internal-Use Software, by providing customers with
guidance on determining whether a cloud computing arrangement contains a software license that should be accounted for as internal-
use software. The Company adopted ASU 2015-05 on January 1, 2016. The adoption of ASU 2015-05 did not materially affect the
Company’s financial position or results of operations.
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In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”), which amends
existing guidance to require the presentation of debt issuance costs in the consolidated balance sheets as a deduction from the carrying
amount of the related debt liability instead of a deferred charge (as an asset). ASU 2015-15, Presentation and subsequent
measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, was issued subsequently to permit costs
associated with a line of credit arrangement to be presented as an asset and amortized ratably over the term of the arrangement. The
Company adopted ASU 2015-03 on January 1, 2016. As of December 31, 2015, the Company had $11.4 million of unamortized debt
issuance costs that are required to be presented as a deduction from the carrying amount of the related debt liability instead of a
deferred charge. These amounts were previously recorded in “Other assets” in the consolidated balance sheets.
In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810) - Amendments to the Consolidation
Analysis (“ASU 2015-02”), which provides guidance for reporting entities that are required to evaluate whether they should
consolidate certain legal entities. In accordance with ASU 2015-02, all legal entities are subject to reevaluation under the revised
consolidation model. The Company adopted ASU 2015-02 on January 1, 2016. The adoption of ASU 2015-02 did not materially
affect the Company’s consolidated financial statements.
In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going
Concern (“ASU 2014-15”), which requires management to evaluate, in connection with financial statement preparation for each
annual and interim reporting period, whether there are conditions or events that raise substantial doubt about the entity’s ability to
continue as a going concern within one year after the date the financial statements are issued, and to provide related disclosures. ASU
2014-15 applies to all entities and is effective for annual periods ending after December 15, 2016 and interim periods thereafter, with
early adoption permitted. The adoption of ASU 2014-15 did not materially affect the Company’s consolidated financial statements.
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Accounting Standards to be Adopted in Future Periods
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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
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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 2016-17 Consolidation (Topic 810): Interests Held through Related Parties that are Under
Common Control (“ASU 2016-17”), which amends the consolidation guidance on how a reporting entity that is the single decision
maker of a VIE should treat indirect interests in the entity held through related parties that are under common control with the
reporting entity when determining whether it is the primary beneficiary of that VIE. ASU 2016-17 requires the reporting entity, in
determining whether it satisfies the second characteristic of a primary beneficiary, to include its indirect variable interests in a VIE
96
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
held through related parties that are under common control on a proportionate basis as opposed to in their entirety. The amendments in
ASU 2016-17 will be applied retrospectively and are effective for fiscal years beginning after December 15, 2016, including interim
periods within those fiscal years. The adoption of ASU 2016-17 is not expected to have a material impact on the Company’s 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 ASC 230, 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
any’s
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classifications within the consolidated statement of cash flows but they are not expected to have a material effect on the Comp
consolidated financial statements.
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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.
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In March 2016, the FASB issued 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. Early adoption
is permitted. The Company does not expect that the adoption of ASU 2016-09 will have a material effect on its consolidated financial
statements.
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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.
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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.
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ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
y
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 add
itional
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.
3. Acquisitions
On June 23, 2015, the Company completed the purchase of certain assets and assumed certain liabilities of a company operating as
The Business Backer, LLC, which purchases discounted future accounts receivables from small businesses throughout 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 the Company’s 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.
During the three months ended December 31, 2015, the Company identified measurement period adjustments that impacted the
estimated fair value of the assets and liabilities assumed on June 23, 2015 as a result of new information obtained about the facts and
circumstances that existed as of the acquisition date. The total measurement period adjustments resulted in a decrease of finance
receivables of $0.6 million, an increase in intangible assets of $3.3 million, a decrease in contingent consideration of $0.5 million and
an overall decrease in goodwill of $2.7 million. This change to the provisional amounts of fair value of the assets and liabilities
assumed had an immaterial impact on the consolidated statement of income for the period ended December 31, 2015.
m
ff
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.
4. 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 years ended December 31, 2016, 2015 and 2014 was as
follows (dollars in thousands):
Short-term loans ....................................................................... $
Line of credit accounts .............................................................
Installment loans and RPAs ......................................................
Total loans and finance receivables revenue ............................
Other .........................................................................................
Total Revenue ........................................................................... $
98
$
Year Ended December 31,
2015
204,893 $
185,521
260,507
650,921
1,679
652,600 $
2016
196,255
220,462
327,375
744,092
1,477
745,569
$
2014
257,169
305,118
246,700
808,987
850
809,837
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The components of Company-owned loans and finance receivables at December 31, 2016 and 2015 were as follows (dollars in
thousands):
Current receivables ................................................................. $
Delinquent receivables:
Delinquent payment amounts(1).........................................
Receivables on non-accrual status ....................................
Total delinquent receivables ...................................................
Total loans and finance receivables, gross .............................
Less: Allowance for losses .....................................................
Loans and finance receivables, net ......................................... $
Current receivables ................................................................. $
Delinquent receivables:
Delinquent payment amounts(1).........................................
Receivables on non-accrual status ....................................
Total delinquent receivables ...................................................
Total loans and finance receivables, gross .............................
Less: Allowance for losses .....................................................
Loans and finance receivables, net ......................................... $
As of December 31, 2016
Short-term
Loans
Line of Credit
Accounts
Installment
Loans and
RPAs
35,516
$
130,576
$ 413,638 $
——
27,489
27,489
63,005
(17,770)
45,235
$
4,560
9,047
13,607
144,183
(26,594)
117,589
2,110
37,559
39,669
453,307
(54,581)
$ 398,726 $
As of December 31, 2015
Short-term
Loans
Line of Credit
Accounts
Installment
Loans and
(cid:3)
(cid:3)(cid:3)
RPAs
37,951
$
92,732
$ 317,231 $
——
20,842
20,842
58,793
(14,652)
44,141
$
3,072
5,051
8,123
100,855
(15,727)
85,128
1,510
23,566
25,076
342,307
(36,943)
$ 305,364 $
Total
579,730
6,670
74,095
80,765
660,495
(98,945)
561,550
Total
447,914
4,582
49,459
54,041
501,955
(67,322)
434,633
(1) Represents the delinquent portion of installment loans and line of credit account balances for customers that have only missed one
payment. See Note 2 “Significant Accounting Policies-Current and Delinquent Loans and Finan
information.
t
ce Receivables” for additional
Changes in the allowance for losses for the Company-owned loans and finance receivables and the liability for estimated losses on the
Company’s guarantees of third-party lender-owned loans through the CSO programs for the years ended December 31, 2016, 2015
and 2014 were as follows (dollars in thousands):
Year Ended December 31, 2016
Short-term
Loans
Line of Credit
Accounts
Installment
Loans and
RPAs
15,727
88,489
(92,044)
14,422
——
$
26,594
$
36,943 $
170,035
(182,471)
29,804
270
54,581 $
Total
67,322
327,726
(360,114)
64,588
(577)
98,945
—— $
——
—— $
458 $
(178)
280 $
1,756
240
1,996
Allowance for losses for Company-owned loans and
finance receivables:
Balance at beginning of period ............................................... $
Cost of revenue .................................................................
Charge-offs .......................................................................
Recoveries .........................................................................
Effect of foreign currency translation ...............................
Balance at end of period ......................................................... $
Liability for third-party lender-owned loans:
Balance at beginning of period ............................................... $
Increase (decrease) in liability ..........................................
Balance at end of period ......................................................... $
a
14,652
69,202
(85,599)
20,362
(847)
17,770
1,298
418
1,716
$
$
$
$
99
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Year Ended December 31, 2015
Short-term
Loans
Line of Credit
Accounts
Installment
Loans and
RPAs
Total
Allowance for losses for Company-owned loans and
finance receivables:
Balance at beginning of period ............................................... $
Cost of revenue .................................................................
Charge-offs .......................................................................
Recoveries .........................................................................
Effect of foreign currency translation ...............................
Balance at end of period ......................................................... $
Liability for third-party lender-owned loans:
Balance at beginning of period ............................................... $
(Decrease) increase in liability ..........................................
Balance at end of period ......................................................... $
14,324
62,571
(83,316)
21,374
(301)
14,652
1,575
(277)
1,298
$
$
$
$
19,749
43,547
(68,075)
20,694
(188)
15,727
$
30,875 $
110,560
(129,537)
25,585
(540)
36,943 $
$
64,948
216,678
(280,928)
67,653
(1,029)
67,322
—— $
——
—— $
1 $
457
458 $
1,576
180
1,756
Year Ended December 31, 2014
Short-term
Loans
Line of Credit
Accounts
Installment
Loans and
RPAs
Total
Allowance for losses for Company-owned loans and
finance receivables:
Balance at beginning of period ............................................... $
Cost of revenue .................................................................
Charge-offs .......................................................................
Recoveries .........................................................................
Effect of foreign currency translation ...............................
Balance at end of period ......................................................... $
Liability for third-party lender-owned loans:
Balance at beginning of period ............................................... $
(Decrease) increase in liability ..........................................
Balance at end of period ......................................................... $
20,466
70,382
(105,129)
28,785
(180)
14,324
2,047
(472)
1,575
$
$
$
$
29,244
92,461
(119,428)
17,943
(471)
19,749
$
32,608 $
104,415
(129,466)
23,619
(301)
30,875 $
$
82,318
267,258
(354,023)
70,347
(952)
64,948
—— $
——
—— $
—— $
1
1 $
2,047
(471)
1,576
In connection with its CSO programs, the Company guarantees consumer loan payment obligations to unrelated third-party lenders for
short-term and installment loans and is required to purchase any defaulted loans it has guaranteed. The guarantee represents an
obligation to purchase specific loans that go into default. As of December 31, 2016 and 2015, the amount of consumer loans
guaranteed by the Company was $32.2 million and $34.1 million, respectively, representing amounts due under consumer loans
originated by third-party lenders under the CSO programs. The estimated fair value of the liability for estimated losses on consumer
loans guaranteed by the Company of $2.0 million and $1.7 million as of December 31, 2016 and 2015, respectively, is included in
“Accounts payable and accrued expenses” in the consolidated balance sheets.
5. Property and Equipment
As an online financial services provider, a significant amount of capital is invested in developing computer software and systems
infrastructure.
Major classifications of property and equipment at December 31, 2016 and 2015 were as follows (dollars in thousands):
Computer software ................................................................... $
Furniture, fixtures and equipment .............................................
Leasehold improvements ..........................................................
Total .......................................................................................... $
100
As of December 31, 2016
Accumulated
Depreciation
$
(48,680) $
(22,159)
(9,579)
(80,418) $
Cost
72,277
30,974
24,267
127,518
$
Net
23,597
8,815
14,688
47,100
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Computer software ................................................................... $
Furniture, fixtures and equipment .............................................
Leasehold improvements ..........................................................
Total .......................................................................................... $
As of December 31, 2015
Accumulated
Depreciation
$
(40,462) $
(17,918)
(8,064)
(66,444) $
Cost
64,705
26,517
23,277
114,499
$
Net
24,243
8,599
15,213
48,055
d
2014, respectively.
The Company recognized depreciation expense of $14.4 million, $17.9 million and $18.7 million during 2016, 2015 and 2014,
respectively.
6. Goodwill and Other Intangible Assets
Goodwill is tested for impairment at least annually. See Note 2 for further discussion.
Goodwill
Changes in the carrying value of goodwill for the years ended December 31, 2016 and 2015 were as follows (dollars in thousands):
Balance as of January 1, 2015 ...................................................... $
Acquisitions ............................................................................
Effect of foreign currency translation .....................................
Balance as of December 31, 2015 ................................................ $
Effect of foreign currency translation .....................................
Balance as of December 31, 2016 ................................................ $
255,862
11,158
(12)
267,008
2
267,010
Acquisitions represent the original goodwill allocation and final adjustments to purchase price allocations during the measurement
period subsequent to the acquisition date. The impact of final purchase price allocation adjustments on the Company’s results of
operations and financial position were immaterial.
Acquired Intangible Assets
f
Acquired intangible assets that are subject to amortization as of December 31, 2016 and 2015, were as follows (dollars in thous
ands):
Customer relationships ............................................................. $
Lead provider and broker relationships ....................................
Trademarks ...............................................................................
Non-competition agreements ....................................................
Total .......................................................................................... $
Customer relationships ............................................................. $
Lead provider and broker relationships ....................................
Trademarks ...............................................................................
Non-competition agreements ....................................................
Total .......................................................................................... $
101
As of December 31, 2016
Accumulated
Amortization
$
(2,973) $
(3,449)
(546)
(240)
(7,208) $
As of December 31, 2015
Accumulated
Amortization
$
(2,812) $
(2,809)
(372)
(80)
(6,073) $
$
$
Cost
3,533
5,689
2,590
800
12,612
Cost
3,532
5,689
2,592
800
12,613
Net
560
2,240
2,044
560
5,404
Net
720
2,880
2,220
720
6,540
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Non-competition agreements are amortized over the applicable terms of the contract. Customer, lead provider and broker relationships
are generally amortized over three to five years based on the pattern of economic benefits provided. Trademarks are generally
amortized over three to 20 years on a straight-line basis.
Amortization
Amortization expense for acquired intangible assets was $1.1 million, $0.5 million and $45 thousand for the years ended
December 31, 2016, 2015 and 2014, respectively.
Estimated future amortization expense for the years ended December 31, is as follows (dollars in thousands):
YEAR
2017.............................................................................................. $
2018..............................................................................................
2019..............................................................................................
2020..............................................................................................
2021..............................................................................................
AMOUNT
1,080
1,070
1,070
590
110
7. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses at December 31, 2016, 2015 were as follows (dollars in thousands):
Trade accounts payable .............................................................. $
Accrued payroll and fringe benefits ...........................................
Deferred finish out allowance ....................................................
Deferred fees on third-party consumer loans .............................
Accrued interest payable ............................................................
Accrual for consumer loan payments rejected for non-
sufficient funds .......................................................................
Promissory note .........................................................................
Contingent consideration ...........................................................
Liability for losses on third-party lender owned consumer
As of December 31,
2016
2015
25,420 $
14,165
8,939
6,869
5,043
3,680
3,000
2,358
25,665
8,401
8,835
9,465
4,266
5,029
3,000
5,658
loans .......................................................................................
Other accrued liabilities .............................................................
Total ........................................................................................... $
1,996
201
71,671 $
1,756
66
72,141
8. Marketing Expenses
Marketing expenses for the years ended December 31, 2016, 2015 and 2014 were as follows (dollars in thousands):
Advertising ................................................................................. $
Customer procurement expense including lead purchase costs ..
Customer referral and revenue sharing expense .........................
Total ............................................................................................ $
Year Ended December 31,
2015
2016
66,184 $
30,551
669
97,404 $
80,526 $
29,327
7,029
116,882 $
2014
74,999
42,843
10,020
127,862
See Note 2 for further discussion.
102
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Long-term debt
The Company’s long-term debt instruments and balances outstanding as of December 31, 2016 and 2015 were as follows (dollars in
thousands):
December 31,
2016
2015
Securitization notes .................................................................... $
Revolving line of credit .............................................................
Senior Notes ...............................................................................
Subtotal ..........................................................................
Less: Long-term debt issuance costs ..........................................
Total long-term debt ..................................................... $
165,419 $
——
495,622
661,041
(11,130)
649,911 $
— —
58,400
494,867
553,267
(11,358)
541,909
Consumer Loan Securitization
2016-1 Facility
On January 15, 2016, the Company and certain of its subsidiaries entered into a receivables securitization (as amended, the “2016-1
Securitization Facility”) with certain purchasers, Jefferies Funding LLC, as administrative agent (the “Administrative Agent”) and
Bankers Trust Company, as indenture trustee and securities intermediary (the “Indenture Trustee”). The 2016-1 Securitization Facility
securitizes unsecured consumer installment loans (“Receivables”) that have been, or will be, originated or acquired under the
Company’s NetCredit brand and that meet specified eligibility criteria. Under the 2016-1 Securitization Facility, Receivables are sold
to EFR 2016-1, LLC, a wholly-owned special purpose subsidiary (the “Issuer”), and serviced by another subsidiary.
The Issuer issued an initial term note of $107.4 million (the “Initial Term Note”), which was secured by $134 million in unsecureduu
consumer loans, and variable funding notes (the “Variable Funding Notes”) with an aggregate availability of $20 million per month;
the 2016-1 Securitization Facility has been amended to increase the availability to $40 million until December 31, 2016, and $30 million
thereafter, as discussed below. As described below, the Issuer has issued and will subsequently issue term notes (the “Term Notes”
and, together with the Initial Term Note and the Variable Funding Notes, the “Securitization Notes”). The maximum principal amount
of the Securitization Notes that may be outstanding at any time under the 2016-1 Securitization Facility was limited to $175 million;
the 2016-1 Securitization Facility has been amended to increase the maximum principal amount to $275 million, as discussed below.
At the end of each month during the nine-month revolving period, the Receivables funded by the Variable Funding Notes have been
and will be refinanced through the creation of two Term Notes, which Term Notes have been and will be issued to the holders of the
Variable Funding Notes. The non-recourse Securitization Notes mature at various dates, the latest of which will be October 15, 2020
(the “Final Maturity Date”).
The Securitization Notes are issued pursuant to an indenture, dated as of January 15, 2016 (the “Closing Date”). The Securitization
Notes bear interest at an annual rate equal to the one month London Interbank Offered Rate (“LIBOR”) (subject to a floor of 1%) plus
7.75%, which rate is initially 8.75%. In addition, the Issuer paid certain customary upfront closing fees and will pay customary annual
commitment and other fees to the purchasers under the 2016-1 Securitization Facility. The Issuer is permitted to voluntarily prepay
any outstanding Securitization Notes, subject to an optional redemption premium. Interest and principal payments on outstanding
Securitization Notes will be made monthly. Any remaining amounts outstanding will be payable no later than the Final Maturity Date.
The Securitization Notes are supported by the expected cash flows from the underlying Receivables. The holders of the Securitization
Notes have no recourse to the Company if the cash flows from the underlying Receivables are not sufficient to pay all of the principal
and interest on the Securitization Notes. Additionally, the Receivables will be held by the Issuer at least until the obligations under the
Securitization Notes are extinguished. For so long as they are held by the Issuer, the outstanding Receivables will not be available to
satisfy the debts and other obligations of the Company.
rr
All amounts due under the Securitization Notes are secured by all of the Issuer’s assets, which include the Receivables transferred to
the Issuer, related rights under the Receivables, specified bank accounts, and certain other related collateral.
The 2016-1 Securitization Facility documents contain customary provisions for securitizations, including: representations and
warranties as to the eligibility of the Receivables and other matters; indemnification for specified losses not including losses due to the
inability of consumers to repay their loans; covenants regarding special purpose entity matters and other subjects; and default and
termination provisions which provide for the acceleration of the Securitization Notes under the 2016-1 Securitization Facility in
t
103
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
circumstances including, but not limited to, failure to make payments when due, servicer defaults, certain insolvency events, breaches
of representations, warranties or covenants, failure to maintain the security interest in the receivables, defaults under other material
indebtedness and certain regulatory matters.
r
On July 26, 2016, the Company and certain of its subsidiaries entered into a First Omnibus Amendment (the “First Amendment”) of
the 2016-1 Facility that was established on the Closing Date, pursuant to various agreements with certain purchasers, the
Administrative Agent and the Indenture Trustee. The agreements evidencing the 2016-1 Facility, all dated as of the Closing Date,
include (i) an Indenture between the Issuer and the Indenture Trustee, (ii) a Note Purchase Agreement among the Issuer, NetCredit
Loan Services, LLC (f/k/a Enova Lending Services, LLC), as the Master Servicer, the Administrative Agent and certain purchasers,
and (iii) a Receivables Purchase Agreement between the Company and Enova Finance 5, LLC. The First Amendment effected a
variety of minor technical changes to the Indenture, the Note Purchase Agreement, the Receivables Purchase Agreement and the
servicing agreement for the 2016-1 Facility. These changes include revised procedures under the Note Purchase Agreement for the
disbursement to the Issuer of proceeds from draws under the Variable Funding Notes and clarification of modifications that the
servicer is permitted to effect to the terms of consumer installment loans that have been transferred into the EFR 2016-1 Facility.
On August 17, 2016, the Company and one of its subsidiaries entered into an Amendment to the Receivables Purchase Agreement.
This amendment modified an eligibility criterion for receivables that the Company sells under the Agreement.
On September 12, 2016, the Company and certain of its subsidiaries entered into a Second Omnibus Amendment (the “Second
Amendment”) to amend the Indenture and Receivables Purchase Agreement. The Second Amendment authorized the Company to
include in the 2016-1 Facility receivables originated by a state-chartered bank and acquired by a subsidiary of the Company from that
bank, and it adjusted the Investment Pool Cumulative Net Loss Trigger for the Initial Term Note Investment Pool (as such terms are
defined in the Indenture), which was the seasoned pool of receivables securitized under the 2016-1 Facility on the Closing Date.
On October 20, 2016, the Company and certain of its subsidiaries entered into a Third Amendment and Limited Waiver (the “Third
Amendment”) to amend the Indenture and Receivables Purchase Agreement. The Third Amendment increased the maximum principal
amount to $275 million, increased the Variable Funding Notes maximum principal amount to $40 million until December 31, 2016,
and $30 million thereafter, and extended the revolving period of the facility to October 2017. The Third Amendment also adjusted the
Note Interest Rate on Term Notes issued after, and amounts outstanding under the Variable Funding Notes after, the date of the Third
Amendment (as such terms are defined in the Indenture). The weighted average interest rate on such adjusted Notes is 9.5%.
On November 14, 2016, the Company and certain of its subsidiaries entered into a Fourth Amendment (the “Fourth Amendment”) to
amend the Indenture and Receivables Purchase Agreement. The Fourth Amendment adjusted the Investment Pool Cumulative
Delinquency Trigger (as such term is defined in the Indenture), with an effective date of October 31, 2016.
On December 14, 2016, the Company and certain of its subsidiaries entered into a Fifth Amendment (the “Fifth Amendment”) to
amend the Indenture and Receivables Purchase Agreement. The Fifth Amendment adjusted the Investment Pool Cumulative
Delinquency Trigger for the Initial Term Notes (as such terms are defined in the Indenture), with an effective date of November 30,
2016, expanded the categories of receivables that could be financed through the securitization facility and made certain other minor
changes. These changes provide the Company with additional flexibility under the securitization facility.
r
As of December 31, 2016, the carrying amount of the 2016-1 Securitization Facility was $151.4 million, which included unamortized
issuance costs of $1.9 million. The issuance costs are being amortized to interest expense over a period of four years. The total interest
expense recognized was $13.5 million of which $3.2 million represented the non-cash amortization of the issuance costs for the year
ended December 31, 2016.
2016-2 Facility
On December 1, 2016, the Company and certain of its subsidiaries entered into a receivables securitization (the “2016-2 Facility”)
with Redpoint Capital Asset Funding, LLC, as lender (the “Lender”). The 2016-2 Facility securitizes unsecured consumer installment
loans (“Redpoint Receivables”) that have been and will be originated or acquired under the Company’s NetCredit brand by several of
the Company’s subsidiaries (the “Originators”) and that meet specified eligibility criteria, including that the annual percentage rate for
each securitized consumer loan is greater than or equal to 90%. The average annual percentage rate for loans securitized under the
2016-2 Facility in 2016 was approximately 135%. Under the 2016-2 Facility, Redpoint Receivables are sold to a wholly-owned
special purpose subsidiary of the Company (the “Debtor”) and serviced by another subsidiary of the Company.
The Debtor has issued a revolving note with an initial maximum principal balance of $20.0 million (the “Initial Facility Size”), which
is required to be secured by $25.0 million in unsecured consumer loans. The Initial Facility Size may be increased under the 2016-2
104
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Facility to $40 million. The 2016-2 Facility is non-recourse to the Company and matures on December 1, 2019.
The 2016-2 Facility is governed by a loan and security agreement, dated as of December 1, 2016, between the Lender and the Debtor.
The 2016-2 Facility bears interest at a rate per annum equal to LIBOR (subject to a floor) plus an applicable margin, which rate per
annum is initially 12.50%. In addition, the Debtor paid certain customary upfront closing fees to the Lender. Interest payments on the
2016-2 Facility will be made monthly. Subject to certain exceptions, the Debtor is not permitted to prepay the 2016-2 Facility prior to
October 1, 2018. Following such date, the Debtor is permitted to voluntarily prepay the 2016-2 Facility without penalty. Any
remaining amounts outstanding will be payable no later than December 1, 2019.
All amounts due under the 2016-2 Facility are secured by all of the Debtor’s assets, which include the Redpoint Receivables
transferred to the Debtor, related rights under the Redpoint Receivables, a bank account and certain other related collateral.
The 2016-2 Facility documents contain customary provisions for securitizations, including: representations and warranties as to the
ff
eligibility of the Redpoint Receivables and other matters; indemnification for specified losses no
of consumers to repay their loans; covenants regarding special purpose entity matters; and default and termination provisions which
provide for the acceleration of the 2016-2 Facility in circumstances including, but not limited to, failure to make payments when due,
servicer defaults, certain insolvency events, breaches of representations, warranties or covenants, failure to maintain the security
interest in the receivables and defaults under other material indebtedness of the Debtor.
t including losses due to the inability
As of December 31, 2016, the carrying amount of the 2016-2 Facility was $12.1 million. In connection with the issuance of the 2016-2
Facility, the Company incurred debt issuance costs of approximately $0.2 million. The unamortized balance of these costs as of
December 31, 2016 is included in “Other assets” in the consolidated balance sheets. These costs are being amortized to interest
expense over a period of 36 months, the term of the 2016-2 Facility. The total interest expense recognized was $0.1 million for the
r
year ended December 31, 2016.
$35.0 Million Revolving Credit Facility
On May 14, 2014, the Company and its domestic subsidiaries as guarantors entered into a credit agreement among the Company, the
guarantors, Jefferies Finance LLC as administrative agent and Jefferies Group LLC as lender (the “Credit Agreement”). The Credit
Agreement provided for an unsecured revolving credit facility of up to $75.0 million, including a multi-currency sub-facility that gives
the Company the ability to borrow up to $25.0 million that may be specified in foreign currencies subject to the terms and conditions
of the Credit Agreement. On March 25, 2015, an amendment to the Credit Agreement reduced the Company’s unsecured revolving
line of credit to $65.0 million (from $75.0 million) and increased an additional senior secured indebtedness basket to the grea
ter of
n
$20.0 million or 2.75% of consolidated total assets (as defined in the credit agreement) (from $15.0 million or 2% of consolidated total
assets). In addition, the March 25, 2015 amendment revised certain definitions and provisions relating to limitations on indebtedness,
investments, dispositions, fundamental changes and burdensome agreements to allow certain of the Company’s foreign subsidiaries,
which opt to become guarantors of its obligations under the credit agreement, to be treated as domestic subsidiaries for purposes of
those provisions. On November 5, 2015 the Company and certain of its domestic subsidiaries, as guarantors, entered into an
amendment to the Credit Agreement, which further reduced the Company’s unsecured revolving line of credit to $60.0 million (from
$65.0 million) and increased the maximum allowable leverage ratio as defined in the Credit Agreement to 3.75 to 1.00 (from 3.00 to
1.00) solely for the fiscal quarters ending December 31, 2015 and March 31, 2016. In addition, the November 5, 2015 amendment (i)
revised certain definitions and provisions to clarify the treatment of securitization subsidiaries as defined in the credit, and (ii) clarified
the treatment of operating leases under the credit agreement in light of contemplated changes to accounting treatment concerning such
operating leases.
On December 29, 2015, the Company and certain of its domestic subsidiaries, as guarantors, entered into an amendment to the Credit
Agreement, which temporarily increased the Company’s revolving line of credit to $75 million, an increase of $15.0 million ($5.0
million on December 29, 2015 and $10.0 million on January 4, 2016). Once the Company received the proceeds from the consumer
loan securitization financing in January 2016, it repaid the outstanding balance on the revolving line of credit in full and, in
accordance with the terms of the amendment, the revolving commitment amount was reduced to $40.0 million.
On June 30, 2016, the Company and certain of its domestic subsidiaries, as guarantors, entered into a fourth amendment to the Credit
Agreement, which increased the maximum allowable leverage ratio (as defined in the credit agreement) for the fiscal quarter ended
June 30, 2016 to 4.00 to 1.00 (from 3.00 to 1.00) and for the fiscal quarters ended September 30, 2016 and December 31, 2016 to 3.50
to 1.00 (in each case, from 3.00 to 1.00).
On September 30, 2016, the Company and certain of its domestic subsidiaries, as guarantors, entered into a fifth amendment to the
Credit Agreement, which increased the maximum allowable leverage ratio (as defined in the credit agreement) for the fiscal quarters
105
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
ended September 30, 2016 and thereafter to 4.25 to 1.00 (from 3.50 to 1.00) and decreased the Company’s unsecured revolving line of
credit by $5.0 million from $40.0 million to $35.0 million.
Interest on the amounts borrowed will be charged, at the Company’s option, at either LIBOR for one week or one-, two-, three- or six-
month periods, as selected by the Company, plus a margin varying from 2.50% to 3.75% or at the agent’s base rate plus a margin
varying from 1.50% to 2.75%. The margin for the borrowings under the Credit Agreement is dependent on the Company’s cash flow
leverage ratios. The weighted average interest rate (including margin) on the revolving line of credit was 4.18% at December 31,
2015. The Company is also required to pay a fee on the unused portion of the line of credit ranging from 0.25% to 0.50% (0.50% as of
each of December 31, 2016 and 2015) based on the Company’s cash flow leverage ratios. The Credit Agreement will mature on June
30, 2017. The Company had no outstanding borrowings as of December 31, 2016 and $58.4 million of outstanding borrowings as of
December 31, 2015.
The Credit Agreement also includes a sub-limit of up to $20.0 million for standby or commercial letters of credit that is guaranteed by
the Company’s domestic subsidiaries. In the event that an amount is paid by the issuing bank under a letter of credit, it will be due and
payable by the Company on demand. Pursuant to the terms of the Credit Agreement, the Company agrees to pay fees equal to the
LIBOR margin per annum on the undrawn amount of each outstanding standby letter of credit plus a one-time commercial letter of
credit fee of 0.20% of the face amount of each commercial letter of credit plus 0.25% per annum on the average daily amount of the
total letter of credit exposure. The Company had outstanding letters of credit of $6.6 million under its Credit Agreement as of
December 31, 2016 and 2015.
aa
In connection with the issuance of the Credit Agreement, the Company incurred debt issuance costs of approximately $1.6 million,
which primarily consisted of underwriting fees and legal expenses. The unamortized balance of these costs as of December 31, 2016 is
included in “Other assets” in the consolidated balance sheets. These costs are being amortized to interest expense over a period of 37
months, the term of the Credit Agreement.
$500.0 Million 9.75% Senior Unsecured Notes
On May 30, 2014, the Company issued and sold $500.0 million in aggregate principal amount of 9.75% Senior Notes due 2021 (the
“Senior Notes”). The Senior Notes bear interest at a rate of 9.75% annually on the principal amount payable semi-annually in arrears
on June 1 and December 1 of each year, beginning on December 1, 2014. The Senior Notes were sold at a discount of the principal
amount to yield 10.0% to maturity and will mature on June 1, 2021. The Senior Notes are unsecured debt obligations of the Company,
and are unconditionally guaranteed by all of the Company’s domestic subsidiaries, except for designated securitization subsidiaries.
The Senior Notes were sold to qualified institutional buyers in accordance with Rule 144A under the Securities Act of 1933, as
amended (the “Securities Act”), and outside the United States pursuant to Regulation S under the Securities Act. As required by a y
registration rights agreement that the Company entered into with the initial purchaser when the Senior Notes were issued, the
Company completed an exchange offer in April 2015. All of the unregistered Senior Notes have been exchanged for identical new
notes registered under the Securities Act.
rr
The Senior Notes are governed by an indenture (the “Senior Notes Indenture”), dated May 30, 2014, between the Company, the
Company’s domestic subsidiaries, as guarantors, and the trustee. The Senior Notes Indenture contains certain covenants that, among
other things, limit the Company’s, and certain of its subsidiaries’, ability to incur additional debt, acquire or create new subsidiaries,
create liens, engage in certain transactions with affiliates and consolidate or merge with or into other companies. The Senior Notes
Indenture provides for customary events of default, including non-payment and failure to comply with covenants or other agreements
in the Senior Notes Indenture.
u
The Senior Notes are redeemable at the Company’s option, in whole or in part, (i) at any time prior to June 1, 2017 at 100% of the
aggregate principal amount of Senior Notes redeemed plus the applicable “make whole” redemption price specified in the Senior
Notes Indenture, plus accrued and unpaid interest, if any, to the redemption date and (ii) at any time on or after June 1, 2017 at a
premium specified in the Senior Notes Indenture that will decrease over time, plus accrued and unpaid interest, if any, to the
redemption date. In addition, prior to June 1, 2017, at its option, the Company may redeem up to 35% of the aggregate principal
amount of the Senior Notes at a redemption price equal to 109.75% of the principal amount thereof, plus accrued and unpaid interest,
if any, to the redemption date, with the proceeds of certain equity offerings as described in the Senior Notes Indenture. If a change of
control occurs, as that term is defined in the Senior Notes Indenture, the holders of the Senior Notes will have the right, subject to
certain conditions, to require the Company to repurchase their Senior Notes at a purchase price equal to 101% of the aggregate
principal amount, plus accrued and unpaid interest, if any, as of the date of repurchase. The Spin-off did not constitute a change of
control under the Senior Notes Indenture.
b
a
106
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company used all of the net proceeds of the Senior Notes offering, or $479.0 million, to repay all of its intercompany
indebtedness due to Cash America, which was $361.4 million as of May 30, 2014, and the remaining net proceeds were used to pay
f
significant portion of the $122.4 million in cash dividends to Cash America.
a
As of December 31, 2016 and 2015, the carrying amount of the Senior Notes was $486.4 million and $483.5 million, respectively,
which included an unamortized discount of $4.4 million and $5.1 million, respectively and unamortized issuance costs of $9.3 million
and $11.4 million, respectively. The discount and issuance costs are being amortized to interest expense over a period of seven years,
n
through the maturity date of June 1, 2021. For each of the years ended December 31, 2016 and 2015 the total interest expense
recognized was $51.6 million of which $0.7 million represented the non-cash amortization of the discount and $2.1 million
represented the non-cash amortization of the issuance costs.
Weighted-average interest rates on long-term debt were 10.71% and 10.59% during 2016 and 2015, respectively.
As of December 31, 2016 and 2015, the Company was in compliance with all covenants and other requirements set forth in the
prevailing long-term debt agreements.
As of December 31, 2016, required principal payments under the terms of the long-term debt for each of the five years after
December 31, 2016 are as follows (dollars in thousands):
YEAR
2017.............................................................................................. $
2018..............................................................................................
2019..............................................................................................
2020..............................................................................................
2021..............................................................................................
Thereafter .....................................................................................
Securitization ...............................................................................
Total ............................................................................................. $
Amount
—
—
—
—
500,000 (1)
—
165,419 (2)
665,419
(1) The $500.0 Million 9.75% Senior Unsecured Notes mature June 1, 2021.
(2) The 2016-1 Securitization Facility matures at various dates, the latest of which will be October 15, 2020, and the 2016-2 Facility
FF
matures on December 1, 2019.
107
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. Income Taxes
The components of the Company’s deferred tax assets and liabilities as of December 31, 2016 and 2015 were as follows (dollars in
thousands):
Deferred tax assets:
$
Compensation and benefits ...................................................
Translation adjustments ........................................................
Accrued rent and deferred finish out allowance ...................
Foreign net operating loss carryforward ...............................
Other .....................................................................................
Total deferred tax assets .................................................. $
Deferred tax liabilities:
$
Property and equipment ........................................................
Other .....................................................................................
Total deferred tax liabilities ............................................ $
Net deferred tax liabilities before valuation
allowance ............................................................... $
Valuation allowance...................................................................
Net deferred tax liabilities .......................................................... $
As of December 31,
2016
2015
38,275 $
7,397
6,726
4,372
1,449
1,960
60,179 $
60,762 $
11,443
483
72,688 $
28,629
4,210
3,898
5,560
968
1,785
45,050
52,882
11,359
108
64,349
(12,509) $
(1,807)
(14,316) $
(19,299)
(1,220)
(20,519)
The components of the provision for income taxes and the income to which it relates for the years ended December 31, 2016, 2015
and 2014 are shown below (dollars in thousands):
Income before income taxes:
Domestic ............................................................................. $
International ........................................................................
Income before income taxes ..................................................... $
Current provision:
Federal ................................................................................. $
International ........................................................................
State and local .....................................................................
Total current provision for income taxes .................................. $
Deferred provision (benefit):
Federal ................................................................................. $
International ........................................................................
State and local .....................................................................
Total deferred provision (benefit) for income taxes ................. $
Total provision for income taxes .............................................. $
Year Ended December 31,
2015
2014
2016
57,422
14
57,436
22,656
94
2,347
25,097
$
$
$
$
(2,152) $
——
(111)
(2,263) $
$
22,834
70,519 $
—
70,519 $
176,494
5
176,499
25,601 $
114
2,211
27,926 $
(1,360) $
—
(39)
(1,399) $
26,527 $
51,144
46
1,753
52,943
11,363
——
522
11,885
64,828
108
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The effective tax rate on income differs from the federal statutory rate of 35% for the following reasons (dollars in thousands):
rate ...................................................................................... $
Share based compensation ......................................................
Other .......................................................................................
Total provision .................................................................. $
Effective tax rate .....................................................................
Year Ended December 31,
2015
2014
2016
20,103 $
1,401
1,656
(326)
22,834 $
39.8%
24,682 $
1,408
— —
437
26,527 $
37.6%
61,781
1,329
——
1,718
64,828
36.7%
The Company has foreign net operating loss carryforwards from Brazilian operations of $1.4 million as of December 31, 2016, $2.8
million as of December 31, 2015, and $1.6 million as of December 31, 2014. These net operating loss carryforwards are subject to
annual limitations and have an unlimited carryforward period. The Company has recorded a full valuation allowance related to the
foreign net operating loss carryforwards, as well as other foreign deferred tax assets, as they are not more likely than not to be utilized.
The following table summarizes the valuation account activity for the years ended December 31, 2016, 2015 and 2014 (in thousands):
Balance at beginning of period ................................................. $
Additions .............................................................................
Deductions ..........................................................................
Balance at end of period ........................................................... $
1,220
587
——
1,807
$
$
670 $
550
—
1,220 $
171
499
——
670
Year Ended December 31,
2015
2014
2016
state matters), which if recognized would favorably affect the effective tax rate in any future periods. There were no unrecognized tax
benefits as of December 31, 2015 and 2014. The Company does not believe it is reasonably possible that, within the next twelve
months, unrecognized domestic tax benefits will change by a significant amount. The Company records interest and penalties related
aa
to tax matters as income tax expense in the consolidated statement of income. The Company recorded no expense for interest and
penalties related to tax matters as of December 31, 2016.
A reconciliation of the activity related to unrecognized tax benefits follows for the fiscal years indicated (in thousands):
Balance at beginning of period..................................................... $
Additions based on tax positions related to the current year ..
Additions for tax positions of prior years ...............................
Balance at end of period ............................................................... $
—
118
233
351
Year Ended
December 31,
2016
The Company’s U.S. tax returns are subject to examination by federal and state taxing authorities. The IRS audits for tax years 2011
through 2014 were concluded with no adjustments to the financial statements. The 2015 tax year is open to examination by the IRS.
The years open to examination by state, local, and foreign government authorities vary by jurisdiction, but the statute of limitation is
generally three to four years from the date the tax return is filed.
11. Commitments and Contingencies
Leases
The Company leases its headquarters in Chicago, Illinois, a call center facility in Gurnee, Illinois, and office space in Blue Ash, Ohio
and London, United Kingdom under operating leases with remaining terms ranging from three to ten years with certain rights to
m
extend for additional periods. The operating expenses and real estate taxes are not included in the table below. Future minimum rentals
109
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
due under non-cancelable leases as of December 31, 2016 are as follows for each of the years ending December 31 (dollars in
thousands):
YEAR
2017.............................................................................................. $
2018..............................................................................................
2019..............................................................................................
2020..............................................................................................
2021..............................................................................................
Thereafter .....................................................................................
Total ............................................................................................. $
AMOUNT
6,432
5,986
6,865
6,611
6,621
32,498
65,013
The total future minimum lease obligation excludes non-cancelable sublease rental income of $0.4 million.
Rent expense was $5.8 million, $6.8 million and $3.7 million for the years ended December 31, 2016, 2015 or 2014, respectively.
Headquarters Relocation
The Company provided notice in the second quarter of 2014 to the landlord at 200 W. Jackson Boulevard in Chicago, Illinois that it
was accelerating the lease expiration date for approximately 86,000 rentable square feet effective June 30, 2015. As a result, the
Company recognized an expense of $1.4 million in the year ended December 31, 2014 related to a lease termination penalty, which
was included as “General and administrative expense” in the consolidated statement of income. In July 2014, the Company entered
into a lease agreement for its current headquarters office space at 175 W. Jackson Boulevard in Chicago as part of its plans to relocate
from its former headquarters. In the second quarter of 2015, the Company ceased using the 200 W. Jackson location and, as a result,
recognized additional expense of $3.7 million for the year ended December 31, 2015, which was also included as “General and
administrative expense” and consisted of a lease exit liability of $2.9 million for the remaining lease payments, net of estimatedaa
sublease income of $1.7 million, and $0.8 million for the removal of property and restoration costs related to the 200 W. Jackson
lease. The Company does not expect to incur further material costs related to the relocation.
The following table is a summary of the exit and disposal activity and liability balances as a result of the headquarters relocation (in
thousands):
Lease
Termination
Costs
Balance at January 1, 2015 ....................................................... $
Additions ..................................................................................
Payments...................................................................................
707
2,861
(2,143)
Balance at December 31, 2015 ................................................. $
1,425
Balance at January 1, 2016 ....................................................... $
Payments...................................................................................
Adjustments ..............................................................................
1,425
(1,132)
344
$
$
$
Other Exit
Costs
(cid:3)(cid:3)
— — $
808
(604)
Total
707
3,669
(2,747)
204 $
1,629
204 $
— —
(69)
1,629
(1,132)
275
Balance at December 31, 2016 ................................................. $
637
$
135 $
772
Guarantees of Consumer Loans
In connection with its CSO programs, the Company guarantees consumer loan payment obligations to unrelated third-party lenders for
short-term and installment loans and is required to purchase any defaulted loans it has guaranteed. As of December 31, 2016 and 2015,
the amount of consumer loans guaranteed by the Company was $32.2 million and $34.1 million, respectively, representing amounts
due under consumer loans originated by third-party lenders under the CSO programs. The estimated fair value of the liability for
estimated losses on consumer loans guaranteed by the Company of $2.0 million and $1.7 million, as
x
respectively, is included in “Accounts payable and accrued expenses” in the accompanying consolidated balance sheets.
of December 31, 2016 and 2015,
f
110
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Litigation
On March 8, 2013, Flemming Kristensen, on behalf of himself and others similarly situated, filed a purported class action lawsuit in
the U.S. District Court of Nevada against the Company and other unaffiliated lenders and lead providers. The lawsuit alleges that the
lead provider defendants sent unauthorized text messages to consumers on behalf of the Company and the other lender defendants in
violation of the Telephone Consumer Protection Act. The complaint seeks class certification, statutory damages, an injunction against
“wireless spam activities,” and attorneys’ fees and costs. The Company filed an answer to the complaint denying all liability. On
March 26, 2014, the Court granted class certification. On July 20, 2015, the court granted the Company’s motion for summary
judgment, denied Plaintiff’s motion for summary judgment and, on July 21, 2015, entered judgment in favor of the Company. Plaintiff
filed a motion for reconsideration, which was denied. On May 3, 2016, Plaintiff filed a notice of appeal of the order granting summary
judgment for the Company, the judgment in favor of the company, and the order denying Plaintiff’s motion to reconsider, and
appellate briefing is now complete. Neither the likelihood of an unfavorable appellate decision nor the ultimate liability, if any, with
respect to this matter can be determined at this time, and the Company is currently unable to estimate a range of reasonably possible
losses, as defined by ASC 450-20-20, Contingencies–Loss Contingencies–Glossary, for this litigation. The Company believes that the
Plaintiff’s claims in the complaint are without merit and intends to vigorously defend this lawsuit.
The Company is also a defendant in certain routine litigation matters encountered in the ordinary course of its business. Certain of
these matters may be covered to an extent by insurance. In the opinion of management, the resolution of these matters will not have a
material adverse effect on the Company’s financial position, results of operations or liquidity.
12. Employee Benefit Plans
Effective on July 1, 2012, the Company established the Enova International, Inc. 401(k) Savings Plan (the “401(k) Plan”), which is
open to substantially all employees of the Company and its subsidiaries. New employees are automatically enrolled in this plan unless
they elect not to participate. Also effective July 1, 2012, the Company established the Enova International, Inc. Nonqualified Savings
Plan (the “NQSP”) for certain members of Company management. Participants may contribute up to 75% of their earnings to the
401(k) Plan subject to regulatory and other plan restrictions. NQSP participants may contribute up to 80% of their annual bonus and
up to 50% of their other eligible compensation to the NQSP. Prior to January 1, 2015, the Company made matching cash contributions
of 50% of each participant’s contributions, based on participant contributions of up to 5% of compensation. Effective January 1, 2015,
the Company makes matching contributions of 100% of the first 1% of pay and 50% of the next 5% of pay that each employee
contributes to the 401(k) Plan. Company contributions made prior to January 1, 2015 vest at the rate of 20% each year after one year
of service; thus a participant is 100% vested after five years of service. The Company’s matching contributions subsequent to January
1, 2015 will fully vest after a participant’s second year of service with the Company. The Company’s consolidated contributions to the
401(k) Plan and the NQSP were $2.2 million, $1.4 million and $1.0 million for the years ended December 31, 2016, 2015 and 2014,
respectively.
Effective on January 1, 2012, the Company established the Enova International, Inc. Supplemental Executive Retirement Plan
(“SERP”) in which certain officers and certain other employees of the Company participate. Under this defined contribution plan
Company makes an annual supplemental cash contribution to the SERP based on the objectives of the plan as approved by the
Company’s Management Development and Compensation Committee of the Board of Directors. The Company recorded
compensation expense of $0.2 million, $0.4 million and $0.2 million for SERP contributions for the years ended December 31, 2016,
2015 and 2014, respectively.
, the
f
The NQSP and the SERP are non-qualified deferred compensation plans. Benefits under the NQSP and the SERP are unfunded. As of
December 31, 2016, 2015 and 2014, the Company held securities in rabbi trusts to pay benefits under these plans. These securities are
classified as trading securities, and the unrealized gains and losses on these securities are netted with the costs of the plans in “General
and administrative expenses” in the consolidated statements of income.
Amounts included in the consolidated balance sheets relating to the NQSP and the SERP were as follows (dollars in thousands):
Prepaid expenses and other assets .............................................. $
Accounts payable and accrued expenses.................................... $
1,590 $
1,860 $
1,075
1,434
As of December 31,
2016
2015
111
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Stock-Based Compensation
Enova Awards
Under the Enova International, Inc. 2014 First Amended and Restated Long-Term Incentive Plan (the “Enova LTIP”), the Company is
authorized to issue 8,000,000 shares of Common Stock pursuant to “Awards” granted as incentive stock options (intended to qualify
under Section 422 of the Internal Revenue Code of 1986, as amended), nonqualified stock options, restricted stock units (“RSUs”),
restricted stock, performance shares, stock appreciation rights or other stock-based awards. Since 2014, nonqualified stock options and
RSU awards are the only stock-based awards granted under the Plan. As of December 31, 2016, there were 3,171,604 shares available
for future grants under the Enova LTIP.
During the year ended December 31, 2016, the Company received 41,931 shares of its common stock valued at approximately
$437,000 as partial payment of taxes required to be withheld upon issuance of shares under RSUs.
Restricted Stock Units
During the years ended December 31, 2016, 2015 and 2014, the Company granted RSUs to Company officers, certain employees and
to the non-management members of the Board of Directors under the Enova LTIP. Each vested RSU entitles the holder to receive a
share of the common stock of the Company. For Company officers and certain employees, the shares are to be issued upon vesting of
the RSUs generally over a period of three or four years. Shares for vested RSU awards granted to members of the Board of Directors
are issued twelve months after the grant date.
In accordance with ASC 718, the grant date fair value of RSUs is generally based on the Company’s closing stock price on the day
before the grant date and is amortized to expense over the vesting periods. The agreements relating to awards provide that the vesting
and payment of awards would be accelerated if there is a change in control of the Company.
The following table summarizes the Company’s restricted stock unit activity during 2016, 2015 and 2014:
Year Ended December 31,
Year Ended December 31, Year Ended December 31,
2016
2015
2014
Units
Outstanding at beginning of year .................................
641,878
Units granted ................................................................ 1,189,136
(213,437)
Shares issued ................................................................
Units forfeited ..............................................................
(258,520)
Outstanding at end of year ........................................... 1,359,057
Weighted
Average
Fair Value
at Date of
Grant
$
20.55
6.67
19.65
15.65
9.49
Weighted
Average
Fair Value
at Date of
Grant
Weighted
Average
Fair Value
at Date of
Grant
Units
$
—— $
23.04
18.39 549,707
——
22.62
23.04
——
20.55 549,707
——
23.04
——
——
23.04
Units
549,707
356,064
(151,088)
(112,805)
641,878
Compensation expense related to these RSUs totaling $5.2 million ($3.1 million net of related taxes), $4.9 million ($3.1 million net of
related taxes) and $0.1 million ($89 thousand net of related taxes) was recognized for the years ended December 31, 2016, 2015 and
2014, respectively. Total unrecognized compensation cost related to these RSUs at December 31, 2016 was $10.6 million, which will
be recognized over a weighted average period of approximately 2.1 years. The outstanding RSUs had an aggregate intrinsic value of
$17.1 million at December 31, 2016.
On May 21, 2015, in connection with the resignation of a certain executive, the Company entered into an employment agreement
pursuant to which the executive would become vested on January 1, 2016 in 50% of his RSU Award granted under the RSU award
agreement rather than 25% as previously agreed under the RSU award agreement. The acceleration of the vesting was a modification
of the plan and required that the fair value be reestablished on the date of the modification. The modification resulted in add
n
expense in 2015 of approximately $0.3 million.
itional
Stock Options
During the years ended December 31, 2016, 2015 and 2014, the Company granted stock options to purchase Company stock to
Company officers and certain employees under the Enova LTIP. Stock options would allow the holder to purchase shares of the
Company’s common stock at a price not less than the fair market value of the shares as of the grant date, or the exercise price.
112
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Stock options granted under the Enova LTIP become exercisable in equal increments on the first, second and third anniversaries of
their date of grant, and expire on the 7th anniversary of their date of grant. Exercise prices of these stock options are equal to the
closing stock price on the day before the grant date. In accordance with ASC 718, compensation expense on stock options is based on
the fair value of the stock options on the day before the grant date and is amortized to expense over the vesting periods. For the year
ended December 31, 2016, the Company estimated the fair value of the stock option grants using the Black-Scholes option-pricing
model based on the following assumptions: risk-free interest rate of 1.2%, expected term (life) of options of 4.5 years, expected
volatility of 49.1% and no expected dividends.
Determining the fair value of stock-based awards at their respective grant dates requires considerable judgment, including estimating
expected volatility and expected term (life). The Company based its expected volatility on a weighted average of the historical
volatility of the Company and the historical volatility of comparable public companies over the option’s expected term. The Company
mm
calculated its expected term based on the simplified method, which is the mid-point between the weighted-average graded-vesting
term and the contractual term. The simplified method was chosen as a means to determine expected term as the Company has limited
historical option exercise experience as a public company. The Company derived the risk-free rate from a weighted-average yield for
the three-and five-year zero-coupon U.S. Treasury Strips. The Company estimates forfeitures at the grant date based on its historical
forfeiture rate, which is based on activity of cash-based long-term incentive units granted and outstanding prior to the Spin-off, and
will revise the estimate, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
d
The following table summarizes the Company’s stock option activity during 2016, 2015 and 2014:
Year Ended December 31,
Year Ended December 31,
Year Ended December 31,
2016
2015
2014
Weighted
Average
Exercise
Price
Units
Outstanding at beginning of year ................................. 1,891,153
337,081
Options granted ............................................................
——
Options exercised .........................................................
Options forfeited ..........................................................
(641,178)
Outstanding at end of year ........................................... 1,587,056
Options vested at end of year .......................................
734,896
$
$
21.44
6.29
——
22.01
17.98
21.67
Units
1,425,196
785,294
——
(319,337)
1,891,153
475,127
Weighted
Average
Exercise
Price
Weighted
Average
Exercise
Price
Units
$
$
— $
23.04
19.19 1,425,196
—
— —
23.04
—
21.44 1,425,196
—
23.05
$
——
23.04
——
——
23.04
——
The weighted average fair value of options granted in 2016 was $2.60. Compensation expense related to stock options totaling $3.3
($2.0 million net of related taxes), $4.7 million ($2.9 million net of related taxes) and $0.2 million ($0.1 million net of related taxes)
was recognized for the years ended December 31, 2016, 2015 and 2014, respectively. Total unrecognized compensation cost related to
stock options at December 31, 2016 was $4.0 million, which will be recognized over a period of approximately 1.3 years. At
December 31, 2016, the intrinsic value of stock options outstanding was $2.7 million and the intrinsic value of stock options
exercisable was $0.3 million, respectively.
On May 21, 2015, in connection with the resignation of a certain executive, the Company entered into an employment agreement
pursuant to which the executive would become vested on January 1, 2016 in 66.6% of his stock options granted under the stock
options award agreement rather than 33.3% as previously agreed under the stock option award agreement. The acceleration of the
vesting was a modification of the plan and required that the fair value be reestablished on the date of the modification. The
modification resulted in additional expense in 2015 of approximately $0.3 million.
Cash America Awards
In 2013, Cash America’s Board of Directors approved a grant of RSUs that vested over a two-year period to the Company’s Chief
Executive Officer under the Cash America LTIP. In conjunction with the Spin-off on November 13, 2014, the vesting of this grant
was accelerated, and each vested RSU entitled the holder to receive a share of common stock of Cash America as well as 0.915 shares
of the Company’s common stock.
In accordance with ASC 718, the grant date fair value of RSUs was based on Cash America’s closing stock price on the day before the
grant date and was amortized to expense over the vesting periods.
113
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes the Cash America RSU activity during 2014:
(cid:3)
Outstanding at beginning of year ...............................................
Units granted ..............................................................................
Shares issued ..............................................................................
Units forfeited ............................................................................
Outstanding at end of year .........................................................
Units vested at end of year .........................................................
Year Ended December 31,
2014
Weighted
Average Fair
Value at Date
of Grant
Units
14,260 $
——
(14,260) (1)
——
—— $
——
48.19
— —
48.19
— —
— —
——
(1) Amount does not include 13,048 shares of common stock of the Company that were delivered by Cash America to the Company’s
connection with the Spin-off, such RSU
Chief Executive Officer in connection with his RSUs that vested on November 13, 2014. In
ii
awards were payable by Cash America in both shares of Cash America common stock and Enova common stock.
Compensation expense related to Cash America RSUs totaling $0.4 million ($0.2 million net of related taxes) was recognized for the
year ended December 31, 2014.
14. Derivative Instruments
The Company periodically uses derivative instruments to manage risk from changes in market conditions that may affect the
Company’s financial performance. The Company primarily uses derivative instruments to manage its primary market risks, which are
interest rate risk and foreign currency exchange rate risk.
The Company periodically uses forward currency exchange contracts to minimize the effects of foreign currency risk in the United
Kingdom. The forward currency exchange contracts are non-designated derivatives. Any gain or loss resulting from these contracts is
recorded as income or loss and is included in “Foreign currency transaction gain (loss), net” in the Company’s consolidated statements
of income. As of December 31, 2016, the Company did not manage its exposure to risk from foreign currency exchange rate
fluctuations through the use of forward currency exchange contracts in the United Kingdom or Brazil.
The Company’s derivative instruments are presented in its financial statements on a net basis. The Company had no outstanding
derivative instruments as of December 31, 2016. The following table presents information related to the Company’s derivative
instruments as of December 31, 2015 (dollars in thousands):
Non-designated derivatives:
As of December 31, 2015
Forward currency exchange contracts
Assets .................................................................................... $
Liabilities ............................................................................... $
Gross Amounts Gross Amounts Net Amounts of Assets
of Recognized
Financial
Offset in the
Consolidated Consolidated Balance
Presented in the
Instruments Balance Sheets(1)
Sheets(2)
Notional
Amount
58,723 $
—— $
151 $
—— $
— — $
— — $
151
——
(1) As of December 31, 2015, the Company had no gross amounts of recognized derivative instruments that the Company makes an
accounting policy election not to offset. In addition, there was no financial collateral related to the Company’s derivatives. The
Company has no assets or liabilities that are subject to an enforceable master netting
agreement or similar arrangement.
t
(2) Represents the fair value of forward currency contracts, which is recorded in “Accounts payable and accrued expenses” in the
consolidated balance sheets.
114
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table presents information on the effect of derivative instruments on the consolidated results of operations and AOCI
for years ended December 31, 2016, 2015 and 2014 (dollars in thousands):
Gains (Losses)
Recognized in Income
Year Ended December 31,
2015
2014
2016
Gains (Losses)
Recognized in AOCI
Year Ended December 31,
2015
2016
2014
2016
Gains (Losses)
Reclassified From
AOCI into Income
Year Ended December 31,
2015
2014
Non-designated
derivatives:
Forward currency
exchange contracts( )(1) .....
$ 3,020
Total ............................. $ 3,020
$ 4,525
$ 4,525
$
$
287
287
$
$
—— $
—— $
—— $
—— $
—— $ —— $
—— $ —— $
—— $
—— $
——
——
(1) The gains (losses) on these derivatives substantially offset the (losses) gains on the hedged portion of the foreign intercompany
balances.
15. Related Party Transactions
A current officer of the Company has an ongoing ownership interest in the small business from which the Company acquired certain
assets and assumed certain liabilities in June 2015 (see Note 3 for additional information). In the normal course of business, the
Company attains certain customer relationships from the small business by entering into transactions with the customers to obtain
additional RPA financing. In these transactions, the Company satisfies the customer’s existing RPA balance with the small business
which terminates such customer’s responsibilities to the small business. During the years ended December 31, 2016 and 2015, the
Company paid $0.4 million and $7.7 million, respectively, to the small business to satisfy customers’ existing RPA balances. Pursuant
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to the acquisition, a subsidiary of the Company issued a promissory note to the small business in the amount of $3.0 million (thett
“Promissory Note”) and granted the company an opportunity to earn certain contingent purchase consideration (see Note 3 for
additional information), both of which are guaranteed by the Company. The Promissory Note accrues interest at a rate of 4.0% per
annum and will mature on June 23, 2018. The Company incurred interest expense related to the Promissory Note of $0.1 million in
each of the years ended December 31, 2016 and 2015. In addition, as a condition precedent to the acquisition, a subsidiary of the
Company executed a Transition Services Agreement with the small business from which the Company acquired certain assets
whereby it agreed to provide certain transition services to the business for three years following the acquisition. During the year ended
December 31, 2016 and 2015, the Company was paid $34 thousand and $0.1 million, respectively, for such services. The subsidiary of
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the Company also entered into a short-term employee leasing agreement whereby it leased employees at cost from the small business
until such employees could be formally hired, under which the Company paid a total of $0.2 million during the year ended
December 31, 2015; no additional payments will be made under this agreement.
Prior to the Spin-off, Cash America provided certain corporate service functions, such as executive oversight, insurance and risk
management, government relations, internal audit, treasury, licensing, and to a limited extent finance, accounting, tax, legal, human
resources, compensation and benefits, compliance and support for certain information systems related to financial reporting. The costs
of such services were allocated to the Company based on the Company’s share of Cash America’s corporate services expenses
incurred for the consolidated entity. Actual corporate services costs that may have been incurred if the Company had been a stand-
alone company would depend on a number of factors, including the chosen organizational structure, what functions were outsourced
or performed by employees, and strategic decisions made in areas such as information technology and infrastructure. The Company
believes that the expenses in these financial statements were reported on a basis that fairly represents the utilization of the services
provided. These financial statements do not necessarily reflect the financial position or results of operations that would have existed if
the Company had been operated as a stand-alone entity during the periods covered and may not be indicative of future results of
operations and financial position. General and administrative expenses include allocations by Cash America of $9.1 million for the
year ended December 31, 2014.
The Company also paid $46.0 million for the year ended December 31, 2014 to Cash America for its share of income taxes as though
the Company had been taxed separately from Cash America and had prepared separate tax returns.
After the Spin-off, Cash America charged the Company a transition services fee related to utilization of financial reporting systems
and accounts payable processing that is included in general and administrative expenses. The Company recorded $0.4 million in
expense for these services for the year ended December 31, 2015. The Company transitioned to its own financial reporting system in
late 2015 and the transition services agreement with Cash America ended on December 31, 2015.
115
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Prior to the Spin-off, the Company paid Cash America compensation for loans made to or arranged for customers who were referred
from Cash America. The Company paid $1.2 million for the year ended December 31, 2014, pursuant to this arrangement. In addition,
the Company administered the consumer loan underwriting model utilized by Cash America’s Retail Services Division in exchange
for the reimbursement of the Company’s direct third-party costs incurred in providing the service. The Company received $0.6 million
for the year ended December 31, 2014 pursuant to this arrangement. The Company and Cash America entered into a new agreement in
conjunction with the Spin-off for the Company to continue providing this service. The Company received $1.0 and $1.2 million for
the years ended December 31, 2016 and 2015, respectively pursuant to this new agreement.
Prior to the issuance of the Senior Notes on May 30, 2014, all payments the Company owed Cash America, offset by any credits or
fees Cash America owed the Company in connection with the transactions above, were made through the Affiliate Line of Credit
agreement. Since May 30, 2014, amounts due to Cash America have been settled a month in arrears. The balance due from Cash
America of $0.1 million as of each of December 31, 2016 and 2015 is included in “Other receivables and prepaid expenses” in the
consolidated balance.
On December 8, 2016, Cash America completed the sale of its entire holding in the Company and no longer has any ownership
interest in the Company.
16. Variable Interest Entities
As part of the Company’s overall funding strategy and as part of its efforts to support its liquidity from sources other than its
traditional capital market sources, the Company has established a securitization program through the 2016-1 and 2016-2 Securitization
Facilities. The Company transferred certain consumer loan receivables to wholly owned, bankruptcy-remote special purpose
subsidiaries (VIEs), which issue term notes backed by the underlying consumer loan receivables and are serviced by another wholly
owned subsidiary.
The Company is required to evaluate the VIEs for consolidation. The Company has the ability to direct the activities of the VIEs that
most significantly impact the economic performance of the entities as the servicer of the securitized loan receivables. Additionally, the
Company has the right to receive residual payments, which expose it to potentially significant losses and returns. Accordingly, the
Company determined it is the primary beneficiary of the VIEs and is required to consolidate them.
The assets and liabilities related to the VIEs are included in the Company’s consolidated financial statements and are accounted for as
secured borrowings.
The Company parenthetically discloses on its consolidated balance sheets the VIE’s assets that can only be used to settle the VIE’s
obligations and the VIE liabilities if the VIE’s creditors have no recourse against the Company’s general credit. The carrying amounts
of consolidated VIE assets and liabilities associated with the Company’s securitization entities were as follows (dollars in thousands):
December 31,
2016
2015
Assets
Restricted cash and cash equivalents ................................................... $
Loans and finance receivables, net ......................................................
Other receivables and prepaid expenses ..............................................
Other assets .........................................................................................
Total assets ............................................................................... $
Liabilities
Long-term debt ....................................................................................
Total liabilities ............................................................................... $
$
19,468 $
216,766
3
2,459
238,696 $
1,350 $
163,550
164,900 $
——
——
——
——
——
——
——
——
116
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
17. Supplemental Disclosures of Cash Flow Information
The following table sets forth certain cash and non-cash activities for the years ended December 31, 2016, 2015 and 2014 (dollars in
thousands):
Year Ended December 31,
2015
2014
2016
Cash paid during the year for:
Interest ................................................................................. $
Income taxes paid ................................................................
59,609
19,213
Non-cash investing and financing activities:
Loans and finance receivables renewed .............................. $
Liabilities assumed in acquisitions ......................................
Affiliate interest expense .....................................................
n
310,425
——
——
$
$
49,390 $
40,759
24,807
46,353
253,279 $
8,658
—
290,956
——
7,629
18. Operating Segment Information
The Company provides online financial services to non-prime credit consumers and small businesses in the United States, United
Kingdom, and Brazil and has one reportable segment, which is composed of the Company’s domestic and international operations and
corporate services. The Company has aggregated all components of its business into a single operating segment based on the
similarities of the economic characteristics, the nature of the products and services, the nature of the production and distribution
methods, the type of customer and the nature of the regulatory environment.
During 2016, the Company changed the presentation of its operational information to report shared corporate services separately from
its domestic and international operations. Corporate services expenses, which were previously allocated between domestic and
international based on revenue, are included under the “Corporate Services” heading in the following tables. For comparison purposes,
income (loss) from operations and depreciation and amortization expenses for the prior period have been conformed to the current
presentation. Corporate Services primarily includes personnel, occupancy and other operating expenses for shared functions, such as
executive management, technology, analytics, business development, legal and licensing, compliance, risk management, internal
audit, human resources, payroll, treasury, finance, accounting, and tax. Corporate Services assets primarily include: corporate property
and equipment, nonqualified savings plan assets, marketable securities, restricted cash and prepaid expenses.
y
rr
117
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following tables present information on the Company’s domestic and international operations as of and for the years ended
December 31, 2016, 2015 and 2014 (dollars in thousands).
Year Ended December 31,
2015
2014
2016
Revenue
Domestic ........................................................................ $
International ...................................................................
Total revenue ..................................................................... $
622,991
122,578
745,569
Income from operations
Domestic ........................................................................ $
International ...................................................................
Corporate services .........................................................
Total income from operations .......................................... $
204,084
19,787
(102,394)
121,477
Depreciation and amortization
Domestic ........................................................................ $
International ...................................................................
Corporate services .........................................................
Total depreciation and amortization ............................... $
Expenditures for property and equipment
Domestic ........................................................................ $
International ...................................................................
Corporate services .........................................................
Total expenditures for property and equipment ............ $
6,005
2,167
7,392
15,564
6,955
3,158
4,283
14,396
$
$
$
$
$
$
$
$
510,242
$
142,358
$
652,600
474,715
335,122
809,837
183,582
$
42,787
(101,982)
$
124,387
177,435
144,487
(106,914)
215,008
7,920
$
2,254
8,214
$
18,388
6,268
$
3,797
22,176
$
32,241
8,706
2,448
7,578
18,732
7,398
870
5,016
13,284
December 31,
2016
2015
Property and equipment, net
Domestic ......................................................................... $
International ....................................................................
Corporate services ...........................................................
Total property and equipment, net ................................... $
19,734 $
5,410
21,956
47,100 $
15,410
6,193
26,452
48,055
Assets
Domestic ......................................................................... $
International ....................................................................
Corporate services ...........................................................
Total assets .......................................................................... $
823,390 $
96,606
57,883
977,879 $
681,050
103,470
56,017
840,537
Geographic Information
The following table presents the Company’s revenue by geographic region for the years ended December 31, 2016, 2015 and 2014
(dollars in thousands):
Revenue
United States .................................................................. $
United Kingdom ............................................................
Other international countries .........................................
Total revenue ..................................................................... $
622,991
103,478
19,100
745,569
$
$
510,242 $
129,703
12,655
652,600 $
474,715
325,014
10,108
809,837
Year Ended December 31,
2015
2014
2016
118
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company’s long-lived assets, which consist of the Company’s property and equipment, were $47.1 million and $48.1 million at
December 31, 2016 and 2015, respectively. The operations for the Company’s domestic and international businesses are primarily
located within the United States, and the value of any long-lived assets located outside of the United States is immaterial.
19. Fair Value Measurements
Recurring Fair Value Measurements
In accordance with ASC 820, certain of the Company’s assets and liabilities, which are carried at fair value, are classified in one of the
following three categories:
n
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
During the years ended December 31, 2016 and 2015, there were no transfers of assets or liabilities in or out of Level 1, Level 2 or
Level 3 fair value measurements. It is the Company’s policy to value any transfers between levels of the fair value hierarchy based on
end of period values.
The Company’s financial assets that are measured at fair value on a recurring basis as of December 31, 2016 and 2015 are as follows
(dollars in thousands):
Financial assets (liabilities)
Nonqualified savings plan assets(1) ...................................
Contingent consideration ..................................................
Total ............................................................................
1,590
(2,358)
$
(768) $
1,590
——
1,590 $
——
——
—— $
——
(2,358)
(2,358)
December 31,
2016
Fair Value Measurements Using
Level 2
Level 3
Level 1
December 31,
2015
Fair Value Measurements Using
Level 2
Level 3
Level 1
Financial assets (liabilities)
Forward currency exchange contracts ............................... $
Nonqualified savings plan assets(1) ...................................
Contingent consideration ..................................................
Total ............................................................................
$
$
151
1,075
(5,658)
(4,432) $
—— $
1,075
——
1,075 $
151 $
——
——
151 $
——
——
(5,658)
(5,658)
(1) The non-qualified savings plan assets have an offsetting liability of a greater amount, which
y
is included in “Accounts payable and
accrued expenses” in the Company’s consolidated balance sheets.
The Company measures the fair value of its forward currency exchange contracts under Level 2 inputs as defined by ASC 820. For
these forward currency exchange contracts, current market rates are used to determine fair value. The significant inputs used in these
models are derived from observable market rates. The fair value of the nonqualified savings plan assets are measured under a Level 1
input. These assets are publicly traded equity securities for which market prices are readily observable.
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The Company determined the fair value of the liability for the contingent consideration based on a probability-weighted discounted
nn
cash flow analysis. This analysis reflects the contractual terms of the purchase agreement and utilizes assumptions with regard to
future earnings, probabilities of achieving such future earnings, the timing of expected payments and a discount rate. Significant
increases with respect to assumptions as to future earnings and probabilities of achieving such future earnings would result in a higher
n
fair value measurement while an increase in the discount rate would result in a lower fair value measurement. The fair value
measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement as defined in the
fair value hierarchy.
d
n
119
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The changes in the fair value of the contingent consideration, which is a Level 3 liability measured at fair value on a recurring basis,
are summarized in the table below for the years ended December 31, 2016 and 2015 (dollars in thousands):
Fair Value Measurements Using
Significant Unobservable Inputs
(Level 3)
Contingent
consideration
Total
Balance at December 31, 2014 ................................................ $
Issuance of contingent consideration (see Note 3) .....................
Balance at December 31, 2015 ................................................ $
Remeasurement of contingent consideration (see Note 3) .........
Balance at December 31, 2016 ................................................ $
—— $
5,658
5,658 $
(3,300)
2,358 $
— —
5,658
5,658
(3,300)
2,358
Fair Value Measurements on a Non-Recurring Basis
The Company measures non-financial assets and liabilities such as property and equipment and intangible assets at fair value on an
r
nonrecurring basis or when events or circumstances indicate that the carrying amount of the assets may be impaired. At December 31,
2016 and 2015, there were no assets or liabilities recorded at fair value on a nonrecurring basis.
Financial Assets and Liabilities Not Measured at Fair Value
The Company’s financial assets and liabilities as of December 31, 2016 and 2015 that are not measured at fair value in the
consolidated balance sheets are as follows (dollars in thousands):
December 31,
2016
Fair Value Measurements Using
Level 2
Level 3
Level 1
Financial assets:
Cash and cash equivalents ................................................... $
Short-term loans and line of credit accounts, net (1) .............
Installment loans and RPAs, net (1) ......................................
Restricted cash .....................................................................
Investment in unconsolidated investee (2)(3) ..........................
Total ...............................................................................
$
39,934 $
162,824
398,726
26,306
6,703
634,493 $
39,934 $
——
——
26,306
——
66,240 $
— — $
— —
— —
— —
— —
— — $
——
162,824
430,895
——
6,703
600,422
Financial liabilities:
Liability for estimated losses on consumer loans guaranteed
by the Company ................................................................... $
Promissory note ...................................................................
Securitization Notes .............................................................
Senior Notes .........................................................................
Total ...............................................................................
$
1,996 $
3,000
165,419
495,622
666,037 $
— — $
— —
168,216
495,940
—— $
——
——
——
—— $ 664,156 $
1,996
3,111
——
——
5,107
120
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31,
2015
Fair Value Measurements Using
Level 2
Level 3
Level 1
Financial assets:
Cash and cash equivalents ................................................... $
Short-term loans and line of credit accounts, net (1) .............
Installment loans and RPAs, net (1) ......................................
Restricted cash .....................................................................
Investment in unconsolidated investee (2)(3) ..........................
Total ...............................................................................
$
42,066 $
129,269
305,364
7,379
6,703
490,781 $
42,066 $
——
——
7,379
——
49,445 $
— — $
— —
— —
— —
— —
— — $
——
129,269
283,700
——
6,703
419,672
Financial liabilities:
Liability for estimated losses on consumer loans guaranteed
by the Company ................................................................... $
Promissory note ...................................................................
Credit agreement borrowings ...............................................
Senior Notes .........................................................................
Total ...............................................................................
$
1,756 $
3,000
58,400
494,867
558,023 $
— — $
— —
— —
374,500
—— $
——
——
——
—— $ 374,500 $
1,756
2,984
58,400
——
63,140
(1) Short-term loans, line of credit accounts and installment loans and RPAs are included in “Loans and finance receivables, net” in
the consolidated balance sheets.
(2) Investment in unconsolidated investee is included in “Other assets” in the consolidated balance sheets.
(3) See Note 2 for additional information related to the investment in unconsolidated investee.
Cash and cash equivalents and restricted cash bear interest at market rates and have maturities of less than 90 days. The carrying
amount of restricted cash and cash equivalents approximates fair value.
f
ed in the consolidated balance sheet net of the allowance
Short-term loans, line of credit accounts, installment loans and RPAs are carri
for estimated losses, which is calculated by applying historical loss rates combined with recent default trends to the gross receivable
balance. Short-term loans and line of credit accounts have relatively short maturity periods that are generally 12 months or less. The
unobservable inputs used to calculate the fair value of these receivables include historical loss rates, recent default trends and
estimated remaining loan term; therefore, the carrying value approximates the fair value. The fair value of installment loans and RPAs
is estimated using discounted cash flow analyses, which consider interest rates on loans and discounts offered for receivables
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similar terms to customers with similar credit quality, the timing of expected payments, estimated customer default rates and/or
valuations of comparable portfolios. As of December 31, 2016, the fair value of the Company’s installment loans and RPAs was
greater than the carrying value of these loans and finance receivables, and as of December 31, 2015, the fair value of the Company’s
installment loans and RPAs was lower than the carrying value of these loans and finance receivables. This variance is a result of a
change in the valuation technique used for certain portions of the installment loan and RPA portfolio. Unsecured installment loans
typically have terms between two and 60 months. RPAs typically have estimated delivery terms between six and 18 months.
with
In connection with its CSO programs, the Company guarantees consumer loan payment obligations to unrelated third-party lenders for
short-term and installment loans the Company arranges for consumers on the third-party lenders’ behalf and is required to purchase
any defaulted loans it has guaranteed. The estimated fair value of the liability for estimated losses on consumer loans guaranteed by
the Company was $2.0 million and $1.7 million as of December 31, 2016 and 2015, respectively. The Company measures the fair
value of its liability for third-party lender-owned consumer loans under Level 3 inputs. The fair value of these liabilities is calculated
by applying historical loss rates combined with recent default trends to the gross consumer loan balance. The unobservable inputs used
to calculate the fair value of these loans include historical loss rates, recent default trends and estimated remaining loan terms;
therefore, the carrying value of these liabilities approximates the fair value.
The Company measures the fair value of the Promissory Note using Level 3 inputs. The fair value of the Promissory Note is estimated
using a discounted cash flow analysis. As of December 31, 2016, the Promissory Note had a higher fair value than the carrying value.
As of December 31, 2015, the Promissory Note had a lower fair value than the carrying value.
The Company measures the fair value of its Securitization Notes using Level 2 inputs. The fair value of the Company’s Securitization
Notes is estimated based on quoted prices in markets that are not active. As of December 31, 2016, the Company’s Securitization
Notes had a higher fair value than the carrying value.
121
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company measures the fair value of its Credit Agreement borrowings using Level 3 inputs. The Company considered the fair
value of its other long-term debt and the timing of expected payment(s). As of December 31, 2015, the fair value of the Company’s
Credit Agreement borrowings approximated the carrying value.
The Company measures the fair value of its Senior Notes using Level 2 inputs. The fair value of the Senior Notes is estimated based
on quoted prices in markets that are not active. As of December 31, 2016, the Company’s Senior Notes had a higher fair value th
r
carrying value based on the price of the last trade of the Senior Notes. As of December 31, 2015, the Company’s Senior Notes had a
lower fair value than the carrying value.
an the
The Company measures the fair value of its investment in unconsolidated investee using Level 3 inputs. Because the unconsolidated
investee is a private company and financial information is limited, the Company estimates the fair value based on the best available
information at the measurement date. As of December 31, 2016 the Company estimated the fair value of its investment to be
approximately equal to the book value.
20. Condensed Consolidating Financial Statements
The Company’s Senior Notes are unconditionally guaranteed by certain of the Company’s subsidiaries (the “Guarantor Subsidiaries”)
and are not secured by its other subsidiaries (the “Non-Guarantor Subsidiaries”). The Guarantor Subsidiaries are 100% owned, all
guarantees are full and unconditional, and all guarantees are joint and several. As a result of the guarantee arrangements, we are
required to present the following condensed consolidating financial statements.
The condensed consolidating financial statements reflect the investments in subsidiaries of the Company using the equity method of
accounting. The principal elimination entries eliminate investments in subsidiaries and intercompany balances and transactions.
Condensed consolidating financial statements of Enova International, Inc. (the “Parent”), its Guarantor Subsidiaries and Non-
Guarantor Subsidiaries as of December 31, 2016 and 2015 and for the year ended December 31, 2016 and 2015 are shown on the
following pages.
122
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
CONDENSED CONSOLIDATING BALANCE SHEETS
As of December 31, 2016
(dollars in thousand)
Guarantor
Parent
Subsidiaries
Non-
Guarantor
Subsidiaries Eliminations
Consolidated
Assets
Cash and cash equivalents ................................................ $
Restricted cash ..................................................................
Loans and finance receivables, net ...................................
Income taxes receivable ....................................................
Other receivables and prepaid expenses ...........................
Property and equipment, net .............................................
Goodwill ...........................................................................
Intangible assets, net .........................................................
Investment in subsidiaries.................................................
Intercompany receivable ...................................................
Other assets .......................................................................
Total assets ............................................................ $
—— $
——
——
——
127
——
——
——
294,647
363,941
597
659,312
$
Liabilities and Stockholders' Equity
Accounts payable and accrued expenses .......................... $
Intercompany payables .....................................................
Income taxes currently payable ........................................
Deferred tax lia
a
bilities, net ...............................................
Long-term debt .................................................................
Total liabilities ............................................................
4,310
——
(72,704)
(354)
486,361
417,613
$
36,057
6,838
335,161
——
19,095
46,507
267,010
5,400
25,131
——
7,995
749,194
65,714
295,764
73,006
15,156
——
449,640
$
$
$
3,877 $
19,468
226,390
——
302
593
——
4
——
——
2,459
—— $
——
——
——
——
——
——
——
(319,778)
(363,941)
——
253,093 $ (683,719) $
1,647 $
68,179
(20)
(486)
163,550
232,870
—— $
(363,943)
——
——
——
(363,943)
Commitments and contingencies
Stockholders' equity ..........................................................
Total liabilities and stockholders' equity ................ $
241,699
659,312
299,554
749,194
$
20,223
(319,777)
$
253,093 $ (683,720) $
39,934
26,306
561,550
——
19,524
47,100
267,010
5,404
——
——
11,051
977,879
71,671
——
282
14,316
649,911
736,180
241,699
977,879
123
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
CONDENSED CONSOLIDATING BALANCE SHEETS
As of December 31, 2015
(dollars in thousand)
Guarantor
Parent
Subsidiaries
Non-
Guarantor
Subsidiaries Eliminations
Consolidated
Assets
Cash and cash equivalents ................................................ $
Restricted cash ..................................................................
Loans and finance receivables, net ...................................
Income taxes receivable ....................................................
Other receivables and prepaid expenses ...........................
Property and equipment, net .............................................
Goodwill ...........................................................................
Intangible assets, net .........................................................
Investment in subsidiaries.................................................
Intercompany receivable ...................................................
Other assets .......................................................................
Total assets ............................................................ $
—— $
——
——
37,201
162
——
——
——
233,632
480,112
2,284
753,391
$
Liabilities and Stockholders' Equity
Accounts payable and accrued expenses .......................... $
Intercompany payables .....................................................
Deferred tax lia
a
bilities, net ...............................................
Long-term debt .................................................................
Total liabilities ............................................................
5,514
——
——
541,909
547,423
$
$
$
$
40,927
7,379
430,862
(31,709)
19,791
47,821
267,008
6,532
14,177
——
7,020
809,808
66,220
480,906
20,562
——
567,688
1,139 $
——
3,771
11
96
234
——
8
——
794
——
—— $
——
——
——
——
——
——
——
(247,809)
(480,906)
——
6,053 $ (728,715) $
407 $
——
(43)
——
364
—— $
(480,906)
——
——
(480,906)
42,066
7,379
434,633
5,503
20,049
48,055
267,008
6,540
——
——
9,304
840,537
72,141
——
20,519
541,909
634,569
Commitments and contingencies
Stockholders' equity ..........................................................
Total liabilities and stockholders' equity ................ $
205,968
753,391
242,120
809,808
$
$
5,689
6,053 $ (728,715) $
(247,809)
205,968
840,537
124
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the Year Ended December 31, 2016
(in thousands)
Revenue ................................................................................. $
Cost of Revenue ....................................................................
Gross Profit ...........................................................................
Expenses
Marketing .........................................................................
Operations and technology ...............................................
General and administrative ...............................................
Depreciation and amortization ..........................................
Total Expenses......................................................................
Income (Loss) from Operations ..........................................
Interest expense, net .........................................................
Foreign currency transaction gain ....................................
Income (Loss) before Income Taxes and Equity in Net
Earnings of Subsidiaries ..................................................
Provision for income taxes ...............................................
Income (loss) before Equity in Net Earnings of
Subsidiaries .......................................................................
Net earnings of subsidiaries ..............................................
Net Income (Loss)................................................................. $
Other comprehensive (loss) gain, net of tax:
Foreign currency translation (loss) gain ...........................
Total other comprehensive (loss) gain, net of tax ..................
Comprehensive Income (Loss) ............................................ $
Parent
Guarantor
Subsidiaries
653,517
260,996
392,521
—— $
——
——
Non-
Guarantor
Subsidiaries Eliminations
$
95,646 $
66,970
28,676
(3,594) $
——
(3,594)
Consolidated
745,569
327,966
417,603
95,972
80,999
95,840
15,464
288,275
104,246
562
(7)
104,801
41,665
1,432
4,203
5,395
100
11,130
17,546
(12,653)
——
4,893
1,945
——
——
(3,594)
——
(3,594)
——
——
——
——
——
97,404
85,202
97,956
15,564
296,126
121,477
(65,603)
1,562
57,436
22,834
34,602
——
34,602
63,136
2,948
66,084
(8,269)
(8,269)
57,815
$
$
$
$
2,948
——
2,948 $
——
(69,032)
(69,032) $
1,331
1,331
4,279
$
6,938
6,938
(62,094) $
(6,956)
(6,956)
27,646
——
——
315
——
315
(315)
(53,512)
1,569
(52,258)
(20,776)
(31,482)
66,084
34,602
(6,956)
(6,956)
27,646
125
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the Year Ended December 31, 2015
(in thousands)
Revenue ................................................................................. $
Cost of Revenue ....................................................................
Gross Profit ...........................................................................
Expenses
Marketing .........................................................................
Operations and technology ...............................................
General and administrative ...............................................
Depreciation and amortization ..........................................
Total Expenses......................................................................
Income (Loss) from Operations ..........................................
Interest expense, net .........................................................
Foreign currency transaction loss .....................................
Income (Loss) before Income Taxes and Equity in Net
Earnings of Subsidiaries ..................................................
Provision for income taxes ...............................................
Income (loss) before Equity in Net Earnings of
Subsidiaries .......................................................................
Net earnings of subsidiaries ..............................................
Net Income (Loss)................................................................. $
Other comprehensive (loss) gain, net of tax:
Foreign currency translation (loss) gain ...........................
Total other comprehensive (loss) gain, net of tax ..................
Comprehensive Income (Loss) ............................................ $
Parent
Guarantor
Subsidiaries
650,295
215,637
434,658
—— $
——
——
Non-
Guarantor
Subsidiaries Eliminations
$
2,305 $
1,221
1,084
Consolidated
652,600
216,858
435,742
—— $
——
——
116,330
71,993
100,642
18,350
307,315
127,343
(71)
(1,516)
125,756
47,306
552
2,019
758
38
3,367
(2,283)
4
(1 )
(2,280)
(858)
——
——
——
——
——
——
——
——
——
——
116,882
74,012
102,073
18,388
311,355
124,387
(52,883)
(985)
70,519
26,527
43,992
——
43,992
78,450
(1,422)
77,028
(245)
(245)
76,783
$
$
$
$
(1,422)
——
(1,422) $
——
(75,606)
(75,606) $
(866)
(866)
(2,288) $
1,111
1,111
(74,495) $
(1,451)
(1,451)
42,541
——
——
673
——
673
(673)
(52,816)
532
(52,957)
(19,921)
(33,036)
77,028
43,992
(1,451)
(1,451)
42,541
126
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Year Ended December 31, 2016
(in thousands)
Cash Flows from Operating Activities .............................. $
Cash Flows from Investing Activities
Loans and finance receivables originated or acquired .....
Securitized loans transferred ............................................
Loans and finance receivables repaid ..............................
Change in restricted cash .................................................
Purchases of property and equipment ..............................
Capital contributions to subsidiaries ................................
Other investing activities .................................................
Net cash used in investing activities ..................
Cash Flows from Financing Activities
Payments for (proceeds from) member's equity ..............
Debt issuance costs paid ..................................................
Treasury shares purchased ...............................................
Repayments under revolving line of credit, net ...............
Borrowings under securitization facility ..........................
Repayments under securitization facility .........................
Net cash provided by (used in) financing
activities ...............................................................
Effect of exchange rates on cash......................................
Net decrease in cash and cash equivalents ...................
Cash and cash equivalents at beginning of year ...............
Cash and cash equivalents at end of period ...................... $
Guarantor
Parent
59,337
Subsidiaries
296,876
$
—— (1,293,273)
359,000
——
669,088
——
(658)
——
(14,007)
——
(10,255)
——
——
95
(290,010)
——
——
(500)
(437)
(58,400)
——
——
(699)
——
——
——
——
——
Non-
Guarantor
Subsidiaries Eliminations
$
37,859 $
(699) $
Consolidated
393,373
(14,924)
(359,000)
188,960
(19,468)
(389)
——
——
(204,821)
10,255
(6,202)
——
——
280,075
(114,656)
—— (1,308,197)
——
——
858,048
——
(20,126)
——
(14,396)
——
——
10,255
——
95
(484,576)
10,255
(9,556)
——
——
——
——
——
——
(6,702)
(437)
(58,400)
280,075
(114,656)
(59,337)
——
——
——
—— $
(699)
(11,037)
(4,870)
40,927
36,057
$
169,472
228
2,738
1,139
3,877 $
(9,556)
——
——
——
—— $
99,880
(10,809)
(2,132)
42,066
39,934
127
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Year Ended December 31, 2015
(in thousands)
Cash Flows from Operating Activities .............................. $
Cash Flows from Investing Activities
Parent
31,259
Guarantor
Subsidiaries
331,954
$
Non-
Guarantor
Subsidiaries Eliminations
$
(2,695) $
(76,597) $
Consolidated
283,921
Loans and finance receivables originated or acquired .....
Loans and finance receivables repaid ..............................
Acquisitions .....................................................................
Purchases of property and equipment ..............................
Capital contributions to subsidiaries ................................
Other investing activities .................................................
Net cash used in investing activities ..................
—— (1,167,107)
849,638
——
(17,735)
——
(31,977)
——
(7,255)
(87,876)
618
——
(373,818)
(87,876)
(5,062)
(280)
——
(264)
——
——
(5,606)
—— (1,172,169)
849,358
——
(17,735)
——
(32,241)
——
——
95,131
618
——
(372,169)
95,131
Cash Flows from Financing Activities
Payments for (proceeds from) member's equity ..............
Debt issuance costs paid ..................................................
Treasury shares purchased ...............................................
Borrowings under revolving line of credit, net ................
Net cash provided by (used in) financing
——
(1,596)
(187)
58,400
11,279
——
——
——
7,255
——
——
——
(18,534)
——
——
——
activities ...........................................................
Effect of exchange rates on cash......................................
Net decrease in cash and cash equivalents ...................
Cash and cash equivalents at beginning of year ...............
Cash and cash equivalents at end of period ...................... $
56,617
——
——
——
—— $
11,279
(855)
(31,440)
72,367
40,927
$
7,255
(554)
(1,600)
2,739
1,139 $
(18,534)
——
——
——
—— $
——
(1,596)
(187)
58,400
56,617
(1,409)
(33,040)
75,106
42,066
21. Quarterly Financial Data (Unaudited)
The Company’s operations are subject to seasonal fluctuations. Demand has historically been highest in the third and fourth quarters
of each year, corresponding to the holiday season, and lowest in the first quarter of each year, corresponding to customers’ re
ceipt of
n
income tax refunds in the United States. Typically, the Company’s cost of revenue, which represents its loan loss provision, is lowest
as a percentage of revenue in the first quarter of each year. The following is a summary of the quarterly results of operations for the
years ended December 31, 2016 and 2015 (in thousands, except per share data):
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
2016
Total Revenue ................................................................... $
Cost of Revenue ................................................................
Gross Profit ....................................................................... $
Net Income ........................................................................ $
Diluted earnings per share ................................................ $
Diluted weighted average common shares (1) ....................
2015
Total Revenue ................................................................... $
Cost of Revenue ................................................................
Gross Profit ....................................................................... $
Net Income ........................................................................ $
Diluted earnings per share ................................................ $
Diluted weighted average common shares (1) ....................
174,653
69,577
105,076
9,863
0.30
33,187
165,676
38,570
127,106
24,530
0.74
33,008
$
$
$
$
$
$
$
$
172,535
65,453
107,082
8,188
0.25
33,335
146,280
41,536
104,744
10,864
0.33
33,015
$ 195,943 $
95,391
$ 100,552 $
7,837 $
$
0.23 $
$
33,558
$ 165,227 $
$
$
$
65,614
99,613 $
4,417 $
0.13 $
33,022
202,438
97,545
104,893
8,714
0.26
33,767
175,417
71,138
104,279
4,181
0.13
33,061
(1) See Note 2 for Basis of Presentation.
128
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
22. Subsequent Events
Subsequent events have been reviewed through the date these financial statements were available to be issued.
129
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, our management has
evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934) as of December 31, 2016 (the “Evaluation Date”). Based upon that evaluation,
the Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and
procedures are effective and provide reasonable assurance (i) that information required to be disclosed in reports that we file
t
under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and
Exchange Commission rules and forms; and (ii) that information required to be disclosed in the reports that we file or submit under the
Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer,
to allow timely decisions regarding required disclosures.
or submit
uu
ff
Limitations on the Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and
procedures or internal control over financial reporting will prevent or detect all possible misstatements due to error and fraud. Our
disclosure controls and procedures and internal control over financial reporting are, however, designed to provide reasonable
assurance of achieving their objectives.
u
Report of Management on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined
in Rule 13a-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with
generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
We conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in “Internal
Control — Integrated Framework” (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based
on our evaluation under the framework in “Internal Control — Integrated Framework” (2013), management, with the participation of
our Chief Executive Officer and Chief Financial Officer, concluded that our internal control over financial reporting was effective as
of December 31, 2016. The effectiveness of our internal control over financial reporting as of December 31, 2016 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears in this Form
10-K.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting during the quarter ended December 31, 2016 that has materially
affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
130
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The Company plans to file its Proxy Statement for the 2017 Annual Meeting of Stockholders, or the Proxy Statement, within 120 days
after December 31, 2016. Information required by this Item 10 relating to our directors and nominees is included under the captions
“Proposal 1: Proposal to Elect Directors—Directors to be Elected by our Stockholders” and “Stockholder Proposals and
Communications with our Board—Director Nominations” of our Proxy Statement and is incorporated herein by reference.
The information required by this Item 10 regarding our Audit Committee is included under the caption “Structure and Functioning of
the Board—Board Committees—Audit Committee” and is incorporated herein by reference.
Information concerning executive officers is contained in this report under “Item 1. Business—Operations—Management and
Personnel—Executive Officers.”
Information required by this Item 10 regarding compliance with Section 16(a) of the Exchange Act of 1934 is included under the
caption “Section 16(a) Beneficial Ownership Reporting Compliance” in our Proxy Statement and is incorporated herein by reference.
The Company has adopted a Code of Business Conduct and Ethics that applies to all of its directors, officers (including all of its
executive officers) and employees. This Code of Business Conduct and Ethics is publicly available on the Company’s website at
www.enova.com in the Investor Relations section under “Corporate Governance—Code of Conduct”. Amendments to the Code of
Business Conduct and Ethics and any grant of a waiver from a provision of the Code of Business Conduct and Ethics requiring
disclosure under applicable Securities and Exchange Commission rules will be disclosed on the Company’s website.
ITEM 11. EXECUTIVE COMPENSATION
Information contained under the caption “Executive Compensation”, “Director Compensation”, “Compensation Committee Interlocks
and Insider Participation” and “Executive Compensation—Management Development and Compensation Committee Report” in the
Proxy Statement is incorporated into this report by reference in response to this Item 11.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
Information contained under the caption “Security Ownership of Certain Beneficial Owners and Management” in the Proxy Statement
is incorporated into this report by reference in response to this Item 12.
Securities Authorized for Issuance Under Equity Compensation Plans
The table below sets forth information, as of December 31, 2016, with respect to shares of common stock of the Company that may be
issued under the Company’s existing equity compensation plans.
Plan Category
Number of securities to be
issued upon exercise of
outstanding options, warrants
and rights
(a)
Weighted average exercise
price of outstanding options,
warrants and rights
(b)
Number of securities
remaining available for future
issuance under equity
compensation plans (excluding
securities reflected in column
(a))
(c)
Equity compensation plans
approved by security holders ...
Equity compensation plans not
approved by security holders ...
Total ............................................
2,946,113
$
——
2,946,113
$
9.69
——
9.69
3,171,604
——
3,171,604
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information contained under the captions “Certain Relationships and Related Transactions”, “Structure and Functioning of the
Board—Board Committees” and “Structure and Functioning of the Board—Director Independence” in the Proxy Statement is
incorporated into this report by reference in response to this Item 13.
131
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information contained under the caption “Audit and Non-Audit Fees” in the Proxy Statement is incorporated into this report by
reference in response to this Item 14.
132
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements are filed in Item 8 of Part II of this report:
Financial Statements:
Report of Independent Registered Public Accounting Firm .......................................................................................................... 84
Consolidated Balance Sheets – December 31, 2016 and 2015....................................................................................................... 85
Consolidated Statements of Income – Years Ended December 31, 2016, 2015 and 2014 ............................................................. 86
Consolidated Statements of Comprehensive Income – Years Ended December 31, 2016, 2015 and 2014 ................................... 87
Consolidated Statements of Stockholders’ Equity – Years Ended December 31, 2016, 2015 and 2014 ....................................... 88
Consolidated Statements of Cash Flows – Years Ended December 31, 2016, 2015 and 2014 ...................................................... 89
Notes to Consolidated Financial Statements .................................................................................................................................. 90
133
Exhibit No.
2.1
Exhibit Description
Separation and Distribution Agreement between Cash
America International, Inc. and Enova International, Inc.
Form
8-K
File No.
001-35503
Exhibit
2.1
Filing Date
11/19/2014
Filed
Herewith
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
Enova International, Inc. Amended and Restated Certificate
of Incorporation
n
8-K
001-35503
3.1
11/19/2014
Enova International, Inc. Amended and Restated Bylaws
8-K
001-35503
Specimen common stock certificate
10-12B 001-35503
3.2
4.1
11/19/2014
10/2/2014
Stockholder’s and Registration Rights Agreement between
n
Cash America International, Inc. and Enova International,
Inc.
Indenture, dated May 30, 2014, between Enova
International, Inc., the U.S. subsidiaries of Enova
a
International, Inc., as guarantors, and U.S. Bank National
Association, as trustee
First Supplemental Indenture, dated as of October 1, 2014,
between Enova International, Inc., NC Financial Solutions off
Louisiana, LLC, NC Financial Solutions of Montana, LLC,
and NC Financial Solutions of Rhode Island, LLC, each, as
subsidiary guarantor, and U.S. Bank National Association,
as trustee
Second Supplemental Indenture, dated February 13, 2015,
between Enova International, Inc., the U.S. subsidiaries of
Enova International, Inc., as guarantors, and U.S. Bank
National Association, as trustee
Third Supplemental Indenture, dated November 10, 2015,
between Enova International, Inc., the U.S. subsidiaries of
Enova International, Inc., as guarantors, and U.S. Bank
National Association, as trustee
Trustee Agreement, dated October 20, 2016, by and among
Enova International, Inc., U.S. Bank National Association,
Computershare Trust Company, N.A., and Computershare
Trust Company of Canada
Indenture, dated January 15, 2016, by and between EFR
2016-1, LLC and Bankers Trust Company, as trustee(3)
First Omnibus Amendment, dated July 26, 2016, by and
among Enova International, Inc., Enova Finance 5, LLC,
NetCredit Loan Services, LLC, EFR 2016-1, LLC, Bankers
Trust Company, in its capacity as indenture trustee and
securities intermediary, First Associates Loan Servicing
LLC, Jefferies Funding LLC, WF 18, LLC and Drawbridge
Special Opportunities Fund LP(3)
Second Omnibus Amendment, dated September 12, 2016, by
and among Enova International, Inc., Enova Finance 5, LLC,
EFR 2016-1, LLC and Bankers Trust Company(3)
Third Amendment and Limited Waiver to Indenture, dated
October 20, 2016, by and among Enova International, Inc.,
certain purchasers, Jefferies Funding LLC, as administrative
agent, and Bankers Trust Company, as indenture trustee and
securities intermediaryy(4)
134
8-K
001-35503
10.3
11/19/2014
10-12B
001-35503
4.3
7/31/2014
10-12B
001-35503
4.4
10/2/2014
10-Q
001-35503
10.1
5/8/2015
10-K
001-35503
4.6
3/7/2016
10-Q/A 001-35503
10.1
6/13/2016
10-Q
001-35503
10.1
11/2/2016
10-Q
001-35503
10.3
11/2/2016
X
X
Form
File No.
Exhibit
Filing Date
Filed
Herewith
Exhibit No.
4.12
Exhibit Description
Fourth Amendment to Indenture, dated November 14, 2016,
by and among Enova International, Inc., certain purchasers,
Jefferies Funding LLC, as administrative agent, and Bankers
Trust Company, as indenture trustee and securities
intermediaryy(4)
X
X
4.13
10.1
10.2
10.3
Fifth Amendment to Indenture, dated December 14, 2016,
by and among Enova International, Inc., certain purchasers,
Jefferies Funding LLC, as administrative agent, and Bankers
Trust Company, as indenture trustee and securities
intermediaryy(4)
Tax Matters Agreement between Cash America
International, Inc. and Enova International, Inc.
8-K
001-35503
10.1
11/19/2014
Enova International, Inc. 2014 Long-Term Incentive Plan*
10-Q
001-35503
10.1
11/14/2014
Enova International, Inc. First Amended and Restated 2014
*
Long-Term Incentive Plan*
DEF 14A 001-35503 Appendix A
4/7/2016
10.4
n*
Enova International, Inc. Senior Executive Bonus Plan*
DEF 14A 001-35503 Appendix B 4/7/2016
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
Enova International, Inc. Supplemental Executive
Retirement Plan*
10-12B
001-35503
10.5
7/31/2014
Enova International, Inc. Nonqualified Savings Plan*
10-12B 001-35503
10.6
7/31/2014
Continued Employment and Separation Agreement between
n
Enova Financial Holdings, LLC, a subsidiary of the
Company, and Timothy S. Ho dated January 29, 2013*
Form of Enova International, Inc. Severance Pay Plan for
r
Executives*
Form of Enova International, Inc. Senior Executive Bonus
Plan*
Summary of 2014 Terms and Conditions of the Enova
International, Inc. Short-Term Incentive Plan*
Enova International, Inc. Executive Change-in-Control
Severance and Restrictive Covenant Agreement for Chief
f
Executive Officer*
Form of Enova International, Inc. Executive Change-in-
Control Severance and Restrictive Covenant Agreement for
r
Executive Officers*
Form of Enova International, Inc. 2014 Long-Term
m
Incentive Plan Award Agreement for Special Grant of
f
Restricted Stock Units for Directors*
Form of Enova International, Inc. 2014 Long-Term
m
Incentive Plan Award Agreement for Grant of Restricted
d
Stock Units (for Officers)*
Form of Enova International, Inc. 2014 Long-Term
m
Incentive Plan Award Agreement for Special Grant of
f
N
Appreciation Right (for Officers) *
onqualified Stock Option with a Limited Stock
k
10-12B
001-35503
10.7
7/31/2014
10-12B
001-35503
10.12
10/2/2014
10-12B
001-35503
10.13
10/2/2014
10-12B
001-35503
10.14
10/2/2014
8-K
001-35503
10.2
11/19/2014
8-K
001-35503
10.1
11/19/2014
10-12B
001-35503
10.17
10/17/2014
10-12B
001-35503
10.18
10/17/2014
10-12B
001-35503
10.19
10/17/2014
10.16
Cash America International, Inc. 1994 Long-Term Incentive
Plan*
10-K
001-09733
10.5
3/29/1995
135
Exhibit No.
10.17
Exhibit Description
Form
File No.
Exhibit
Filing Date
Filed
Herewith
Cash America International, Inc. First Amended and
d
Restated 2004 Long-Term Incentive Plan, as amended (the
“CSH LTIP”)*
8-K
001-09733
10.1
4/28/2009
10.18
Amendment to the CSH LTIP dated May 18, 2011*
10-12B
001-09733
10.2
7/22/2011
10.19
Second Amendment to the CSH LTIP dated May 24, 2012*
10-12B
001-09733
10.2
7/27/2012
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
Cash America International, Inc. 2014 Long-Term Incentive
Plan*
DEF 14A
001-09733
Appendix A
4/11/2014
Form of Enova International, Inc. 2014 Long-Term
Incentive Plan Award Agreement for Grant of Restricted
Stock Units*
Form of Enova International, Inc. First Amended and
Restated 2014 Long-Term Incentive Plan Award Agreement
for Grant of Restricted Stock Units*
Form of Enova International, Inc. 2014 Long-Term
Incentive Plan Award Agreement for Special Grant of
Nonqualified Stock Option with a Limited Stock
Appreciation Right*
Offer letter dated September 29, 2015 between Enova
Financial Holdings, LLC and Gregory Zeeman*
Offer letter dated May 19, 2016 between Enova Financial
Holdings, LLC and Steven Cunningham*
Registration Rights Agreement, dated May 30, 2014,
between Enova International, Inc., the U.S. subsidiaries of
between Enova International, Inc., the U.S. subsidiaries of
Enova International, Inc., and Jefferies LLC
Credit Agreement, dated as of May 14, 2014, by and among
Enova International, Inc., as borrower, the U.S. subsidiaries
of Enova International, Inc., as guarantors, Jefferies Finance
LLC, as administrative agent, and Jefferies Group LLC, as
lender
r
Amendment to Credit Agreement, dated March 25, 2015, by
and among Enova International, Inc., the Guarantors, the
Required Lenders and Jefferies Finance LLC, as
administrative agent for the Lenders
Second Amendment to Credit Agreement dated as of
November 5, 2015 among the Company, the Guarantors, the
Required Lenders and Jefferies Finance LLC
Amendment No. 3 and Revolving Commitment Increase,
dated December 29, 2015, by and among Enova
International, Inc., the Guarantors, the Lender and Jefferies
Finance LLC
Amendment to Credit Agreement, dated June 30, 2016, by
y
and among Enova International, Inc., the Guarantors, the
Required Lenders and Jefferies Finance LLC, as
administrative agent for the Lenders
10-Q
001-35503
10.2
8/11/2015
10-Q
001-35503
10.2
8/4/2016
10-Q
001-35503
10.3
8/11/2015
10-Q
001-35503
10.1
11/12/2015
10-Q
001-35503
10.1
8/4/2016
10-12B
001-35503
10.9
7/31/2014
10-12B
001-35503
10.10
7/31/2014
S-4
333-203005
10.9
3/25/2015
10-Q
001-35503
10.2
11/12/2015
10-K
001-35503
10.25
3/7/2016
8-K
001-35503
10.1
7/7/2016
136
Exhibit No.
Exhibit Description
Form
File No.
Exhibit
Filing Date
Filed
Herewith
10.32
10.33
10.34
10.35
10.36
10.37
10.38
10.39
21.1
23.1
31.1
31.2
32.1
32.2
10-Q
001-35503
10.4
11/2/2016
10-Q/A 001-35503
10.2
6/13/2016
10-Q
001-35503
10.3
5/6/2016
10-Q
001-35503
10.2
11/2/2016
8-K
001-35503
10.1
3/31/2016
Amendment to Credit Agreement, dated September 30,
2016, by and among Enova International, Inc., the
Guarantors, the Required Lenders and Jefferies Finance
LLC, as administrative agent for the Lenders
Note Purchase Agreement, dated January 15, 2016, by and
among Enova Lending Services, LLC, EFR 2016-1, LLC,
Jefferies Funding LLC, other noteholders party thereto and
from time to time party thereto(3)
Receivables Purchase Agreement, dated January 15, 2016,
between Enova Finance 5, LLC and the Companyy(3)
Amendment Number 1 to Receivables Purchase Agreement,
dated August 17, 2016, by and between Enova International,
Inc. and Enova Finance 5, LLC(3)
Director Appointment Agreement, dated March 30, 2016, by
and among the Company, SAF Capital Management LLC
and certain of its affiliates
Loan and Security Agreement, dated December 1, 2016, by
and between Redpoint Capital Asset Funding, LLC and EFR
2016-2, LLC
Sale Agreement, dated December 1, 2016, by and between
n
Enova International, Inc. and EFR 2016-2, LLC
Lease Agreement, dated July 25, 2014, between 175 Jackson
L.L.C. and Enova International, Inc.
10-12B
001-35503
10.11
10/22/2014
Subsidiaries of Enova International, Inc.
Consent of PricewaterhouseCoopers LLP
Certification of Chief Executive Officer
Certification of Chief Financial Officer
Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
f
the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
f
the Sarbanes-Oxley Act of 2002
101.INS XBRL Instance Document(1)
101.SCH XBRL Taxonomy Extension Schema Document(1)
101.CAL
XBRL Taxonomy Extension Calculation Linkbase
Document(1)
101.LAB XBRL Taxonomy Label Linkbase Document(1)
101.DEF XBRL Taxonomy Extension Definition Linkbase
Document(1)
101.PRE
XBRL Taxonomy Extension Presentation Linkbase
Document(1)
* Indicates management contract or compensatory plan, contract or arrangement.
137
X
X
X
X
X
X
X
X
X(2)
X(2)
X(2)
X(2)
X(2)
X(2)
(1)Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language):
(i) Consolidated Balance Sheets at December 31, 2016 and December 31, 2015; (ii) Consolidated Statements of Income for the
years ended December 31, 2016, December 31, 2015 and December 31, 2014; (iii) Consolidated Statements of Comprehensive
Income for the years ended December 31, 2016, December 31, 2015 and December 31, 2014; (iv) Consolidated Statements of
Equity at December 31, 2016, December 31, 2015 and December 31, 2014; (v) Consolidated Statements of Cash Flows for the
years ended December 31, 2016, December 31, 2015 and December 31, 2014; and (vi) Notes to Consolidated Financial Statements.
(2)Submitted electronically herewith.
(3)Portions of this document have been omitted pursuant to a confidential treatment request approved by the Securities and Exchange
Commission.
(4)Portions of this document have been omitted and filed separately with the Securities and Exchange Commission pursuant to a
request for confidential treatment.
138
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: February 24, 2017
ENOVA INTERNATIONAL, INC.
By: /s/ DAVID A. FISHER
David A Fisher
Chief Executive Officer and President
Pursuant to the requirements of the Securities and Exchange Act of 1934, the report has been signed by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
Date
February 24, 2017
February 24, 2017
February 24, 2017
February 24, 2017
February 24, 2017
February 24, 2017
February 24, 2017
February 24, 2017
February 24, 2017
February 24, 2017
Signature
/s/ DAVID A. FISHER
David A. Fisher
/s/ STEVEN E. CUNNINGHAM
Steven E. Cunningham
/s/ ELLEN CARNAHAN
Ellen Carnahan
/s/ DANIEL R. FEEHAN
Daniel R. Feehan
/s/ WILLIAM M. GOODYEAR
William M. Goodyear
/s/ JAMES A. GRAY
James A. Gray
/s/ DAVID C. HABIGER
David C. Habiger
/s/ GREGG A. KAPLAN
Gregg A. Kaplan
/s/ MARK MCGOWAN
Mark McGowan
/s/ MARK A. TEBBE
Mark A. Tebbe
Title
Chairman of the Board of Directors,
Chief Executive Officer, President and Director
(Principal Executive Officer)
Executive Vice President,
Chief Financial Officer (Principal Financial and
Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
Director
139
EXHIBIT INDEX
Exhibit No.
2.1
Exhibit Description
Separation and Distribution Agreement between Cash
America International, Inc. and Enova International, Inc.
Form
8-K
File No.
001-35503
Exhibit
2.1
Filing Date
11/19/2014
Filed
Herewith
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
Enova International, Inc. Amended and Restated Certificate
of Incorporation
n
8-K
001-35503
3.1
11/19/2014
Enova International, Inc. Amended and Restated Bylaws
8-K
001-35503
Specimen common stock certificate
10-12B 001-35503
3.2
4.1
11/19/2014
10/2/2014
Stockholder’s and Registration Rights Agreement between
n
Cash America International, Inc. and Enova International,
Inc.
Indenture, dated May 30, 2014, between Enova
International, Inc., the U.S. subsidiaries of Enova
a
International, Inc., as guarantors, and U.S. Bank National
Association, as trustee
First Supplemental Indenture, dated as of October 1, 2014,
between Enova International, Inc., NC Financial Solutions off
Louisiana, LLC, NC Financial Solutions of Montana, LLC,
and NC Financial Solutions of Rhode Island, LLC, each, as
subsidiary guarantor, and U.S. Bank National Association,
as trustee
Second Supplemental Indenture, dated February 13, 2015,
between Enova International, Inc., the U.S. subsidiaries of
Enova International, Inc., as guarantors, and U.S. Bank
National Association, as trustee
Third Supplemental Indenture, dated November 10, 2015,
between Enova International, Inc., the U.S. subsidiaries of
Enova International, Inc., as guarantors, and U.S. Bank
National Association, as trustee
Trustee Agreement, dated October 20, 2016, by and among
Enova International, Inc., U.S. Bank National Association,
Computershare Trust Company, N.A., and Computershare
Trust Company of Canada
Indenture, dated January 15, 2016, by and between EFR
2016-1, LLC and Bankers Trust Company, as trustee(3)
First Omnibus Amendment, dated July 26, 2016, by and
among Enova International, Inc., Enova Finance 5, LLC,
NetCredit Loan Services, LLC, EFR 2016-1, LLC, Bankers
Trust Company, in its capacity as indenture trustee and
securities intermediary, First Associates Loan Servicing
LLC, Jefferies Funding LLC, WF 18, LLC and Drawbridge
Special Opportunities Fund LP(3)
8-K
001-35503
10.3
11/19/2014
10-12B
001-35503
4.3
7/31/2014
10-12B
001-35503
4.4
10/2/2014
10-Q
001-35503
10.1
5/8/2015
10-K
001-35503
4.6
3/7/2016
X
10-Q/A 001-35503
10.1
6/13/2016
10-Q
001-35503
10.1
11/2/2016
4.10
Second Omnibus Amendment, dated September 12, 2016, by
and among Enova International, Inc., Enova Finance 5, LLC,
EFR 2016-1, LLC and Bankers Trust Company(3)
10-Q
001-35503
10.3
11/2/2016
140
Exhibit No.
4.11
Exhibit Description
Third Amendment and Limited Waiver to Indenture, dated
October 20, 2016, by and among Enova International, Inc.,
certain purchasers, Jefferies Funding LLC, as administrative
agent, and Bankers Trust Company, as indenture trustee and
securities intermediaryy(4)
Fourth Amendment to Indenture, dated November 14, 2016,
by and among Enova International, Inc., certain purchasers,
Jefferies Funding LLC, as administrative agent, and Bankers
Trust Company, as indenture trustee and securities
intermediaryy(4)
Fifth Amendment to Indenture, dated December 14, 2016,
by and among Enova International, Inc., certain purchasers,
Jefferies Funding LLC, as administrative agent, and Bankers
Trust Company, as indenture trustee and securities
intermediaryy(4)
Tax Matters Agreement between Cash America
International, Inc. and Enova International, Inc.
4.12
4.13
10.1
10.2
10.3
Form
File No.
Exhibit
Filing Date
Filed
Herewith
X
X
X
8-K
001-35503
10.1
11/19/2014
Enova International, Inc. 2014 Long-Term Incentive Plan*
10-Q
001-35503
10.1
11/14/2014
Enova International, Inc. First Amended and Restated 2014
*
Long-Term Incentive Plan*
DEF 14A 001-35503 Appendix A
4/7/2016
10.4
n*
Enova International, Inc. Senior Executive Bonus Plan*
DEF 14A 001-35503 Appendix B 4/7/2016
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
Enova International, Inc. Supplemental Executive
Retirement Plan*
10-12B
001-35503
10.5
7/31/2014
Enova International, Inc. Nonqualified Savings Plan*
10-12B 001-35503
10.6
7/31/2014
Continued Employment and Separation Agreement between
n
Enova Financial Holdings, LLC, a subsidiary of the
Company, and Timothy S. Ho dated January 29, 2013*
Form of Enova International, Inc. Severance Pay Plan for
r
Executives*
Form of Enova International, Inc. Senior Executive Bonus
Plan*
Summary of 2014 Terms and Conditions of the Enova
International, Inc. Short-Term Incentive Plan*
Enova International, Inc. Executive Change-in-Control
Severance and Restrictive Covenant Agreement for Chief
f
Executive Officer*
Form of Enova International, Inc. Executive Change-in-
Control Severance and Restrictive Covenant Agreement for
r
Executive Officers*
Form of Enova International, Inc. 2014 Long-Term
m
Incentive Plan Award Agreement for Special Grant of
f
Restricted Stock Units for Directors*
Form of Enova International, Inc. 2014 Long-Term
m
Incentive Plan Award Agreement for Grant of Restricted
d
Stock Units (for Officers)*
10-12B
001-35503
10.7
7/31/2014
10-12B
001-35503
10.12
10/2/2014
10-12B
001-35503
10.13
10/2/2014
10-12B
001-35503
10.14
10/2/2014
8-K
001-35503
10.2
11/19/2014
8-K
001-35503
10.1
11/19/2014
10-12B
001-35503
10.17
10/17/2014
10-12B
001-35503
10.18
10/17/2014
141
Exhibit No.
10.15
Exhibit Description
Form of Enova International, Inc. 2014 Long-Term
m
Incentive Plan Award Agreement for Special Grant of
f
N
Appreciation Right (for Officers) *
onqualified Stock Option with a Limited Stock
k
Form
10-12B
File No.
001-35503
Exhibit
10.19
Filing Date
10/17/2014
Filed
Herewith
10.16
10.17
Cash America International, Inc. 1994 Long-Term Incentive
Plan*
Cash America International, Inc. First Amended and
d
Restated 2004 Long-Term Incentive Plan, as amended (the
“CSH LTIP”)*
10-K
001-09733
10.5
3/29/1995
8-K
001-09733
10.1
4/28/2009
10.18
Amendment to the CSH LTIP dated May 18, 2011*
10-12B
001-09733
10.2
7/22/2011
10.19
Second Amendment to the CSH LTIP dated May 24, 2012*
10-12B
001-09733
10.2
7/27/2012
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
Cash America International, Inc. 2014 Long-Term Incentive
Plan*
DEF 14A
001-09733
Appendix A
4/11/2014
Form of Enova International, Inc. 2014 Long-Term
Incentive Plan Award Agreement for Grant of Restricted
Stock Units*
Form of Enova International, Inc. First Amended and
Restated 2014 Long-Term Incentive Plan Award Agreement
for Grant of Restricted Stock Units*
Form of Enova International, Inc. 2014 Long-Term
Incentive Plan Award Agreement for Special Grant of
Nonqualified Stock Option with a Limited Stock
Appreciation Right*
Offer letter dated September 29, 2015 between Enova
Financial Holdings, LLC and Gregory Zeeman*
Offer letter dated May 19, 2016 between Enova Financial
Holdings, LLC and Steven Cunningham*
Registration Rights Agreement, dated May 30, 2014,
between Enova International, Inc., the U.S. subsidiaries of
between Enova International, Inc., the U.S. subsidiaries of
Enova International, Inc., and Jefferies LLC
Credit Agreement, dated as of May 14, 2014, by and among
Enova International, Inc., as borrower, the U.S. subsidiaries
of Enova International, Inc., as guarantors, Jefferies Finance
LLC, as administrative agent, and Jefferies Group LLC, as
lender
r
Amendment to Credit Agreement, dated March 25, 2015, by
and among Enova International, Inc., the Guarantors, the
Required Lenders and Jefferies Finance LLC, as
administrative agent for the Lenders
Second Amendment to Credit Agreement dated as of
November 5, 2015 among the Company, the Guarantors, the
Required Lenders and Jefferies Finance LLC
Amendment No. 3 and Revolving Commitment Increase,
dated December 29, 2015, by and among Enova
International, Inc., the Guarantors, the Lender and Jefferies
Finance LLC
142
10-Q
001-35503
10.2
8/11/2015
10-Q
001-35503
10.2
8/4/2016
10-Q
001-35503
10.3
8/11/2015
10-Q
001-35503
10.1
11/12/2015
10-Q
001-35503
10.1
8/4/2016
10-12B
001-35503
10.9
7/31/2014
10-12B
001-35503
10.10
7/31/2014
S-4
333-203005
10.9
3/25/2015
10-Q
001-35503
10.2
11/12/2015
10-K
001-35503
10.25
3/7/2016
Exhibit Description
Form
File No.
Exhibit
Filing Date
Filed
Herewith
Exhibit No.
10.31
10.32
10.33
10.34
10.35
10.36
10.37
10.38
10.39
21.1
23.1
31.1
31.2
32.1
32.2
8-K
001-35503
10.1
7/7/2016
10-Q
001-35503
10.4
11/2/2016
10-Q/A 001-35503
10.2
6/13/2016
10-Q
001-35503
10.3
5/6/2016
10-Q
001-35503
10.2
11/2/2016
8-K
001-35503
10.1
3/31/2016
Amendment to Credit Agreement, dated June 30, 2016, by
y
and among Enova International, Inc., the Guarantors, the
Required Lenders and Jefferies Finance LLC, as
administrative agent for the Lenders
Amendment to Credit Agreement, dated September 30,
2016, by and among Enova International, Inc., the
Guarantors, the Required Lenders and Jefferies Finance
LLC, as administrative agent for the Lenders
Note Purchase Agreement, dated January 15, 2016, by and
among Enova Lending Services, LLC, EFR 2016-1, LLC,
Jefferies Funding LLC, other noteholders party thereto and
from time to time party thereto(3)
Receivables Purchase Agreement, dated January 15, 2016,
between Enova Finance 5, LLC and the Companyy(3)
Amendment Number 1 to Receivables Purchase Agreement,
dated August 17, 2016, by and between Enova International,
Inc. and Enova Finance 5, LLC(3)
Director Appointment Agreement, dated March 30, 2016, by
and among the Company, SAF Capital Management LLC
and certain of its affiliates
Loan and Security Agreement, dated December 1, 2016, by
and between Redpoint Capital Asset Funding, LLC and EFR
2016-2, LLC
Sale Agreement, dated December 1, 2016, by and between
n
Enova International, Inc. and EFR 2016-2, LLC
Lease Agreement, dated July 25, 2014, between 175 Jackson
L.L.C. and Enova International, Inc.
10-12B
001-35503
10.11
10/22/2014
Subsidiaries of Enova International, Inc.
Consent of PricewaterhouseCoopers LLP
Certification of Chief Executive Officer
Certification of Chief Financial Officer
Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
f
the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
f
the Sarbanes-Oxley Act of 2002
101.INS XBRL Instance Document(1)
101.SCH XBRL Taxonomy Extension Schema Document(1)
101.CAL
XBRL Taxonomy Extension Calculation Linkbase
Document(1)
101.LAB XBRL Taxonomy Label Linkbase Document(1)
143
X
X
X
X
X
X
X
X
X(2)
X(2)
X(2)
X(2)
Exhibit Description
Form
File No.
Exhibit
Filing Date
Filed
Herewith
Exhibit No.
101.DEF
XBRL Taxonomy Extension Definition Linkbase
Document(1)
101.PRE
XBRL Taxonomy Extension Presentation Linkbase
Document(1)
* Indicates management contract or compensatory plan, contract or arrangement.
X(2)
X(2)
(1) Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language):
(i) Consolidated Balance Sheets at December 31, 2016 and December 31, 2015; (ii) Consolidated Statements of Income for the
years ended December 31, 2016, December 31, 2015 and December 31, 2014; (iii) Consolidated Statements of Comprehensive
Income for the years ended December 31, 2016, December 31, 2015 and December 31, 2014; (iv) Consolidated Statements of
Equity at December 31, 2016, December 31, 2015 and December 31, 2014; (v) Consolidated Statements of Cash Flows for the
years ended December 31, 2016, December 31, 2015 and December 31, 2014; and (vi) Notes to Consolidated Financial
Statements.
(2)Submitted electronically herewith.
(3)Portions of this document have been omitted pursuant to a confidential treatment request approved by the Securities and Exchange
Commission.
(4)Portions of this document have been omitted and filed separately with the Securities and Exchange Commission pursuant to a
request for confidential treatment.
144
Enova International, Inc.
175 W. Jackson Blvd., Suite 1000
Chicago, IL 60604