UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2014
OR
¨ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 1-35503
Enova International, Inc.
(Exact name of registrant as specified in its charter)
Delaware |
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45-3190813 |
(State or other jurisdiction of Incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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200 West Jackson Blvd. Chicago, Illinois |
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60606 |
(Address of principal executive offices) |
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(Zip Code) |
(312) 568-4200
(Registrant’s telephone number, including area code)
NONE
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ¨ No x
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ¨ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer |
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¨ |
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Accelerated filer |
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¨ |
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Non-accelerated filer |
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x (Do not check if a smaller reporting company) |
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Smaller reporting company |
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¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No x
33,000,000 of the Registrant’s common shares, $.00001 par value, were issued and outstanding as of November 14, 2014. All of the Registrant’s common stock was owned by Cash America International, Inc. as of such date.
CAUTIONARY NOTE CONCERNING FACTORS THAT MAY AFFECT FUTURE RESULTS
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You should not place undue reliance on these statements. These forward-looking statements give current expectations or forecasts of future events and reflect the views and assumptions of senior management with respect to the business, financial condition, operations and prospects of Enova International, Inc. and its subsidiaries (collectively, the “Company”). When used in this report, terms such as “believes,” “estimates,” “should,” “could,” “would,” “plans,” “expects,” “intends,” “anticipates,” “may,” “forecast,” “project” and similar expressions or variations as they relate to the Company or its management are intended to identify forward-looking statements. Forward-looking statements address matters that involve risks and uncertainties that are beyond the ability of the Company to control and, in some cases, predict. Accordingly, there are or will be important factors that could cause the Company’s actual results to differ materially from those indicated in these statements. Key factors that could cause the Company’s actual financial results, performance or condition to differ from the expectations expressed or implied in such forward-looking statements include, but are not limited to, the following:
· |
the effect of laws and regulations targeting our industry that directly or indirectly regulate or prohibit our operations or render them unprofitable or impractical; |
· |
the effect of and compliance with domestic and international consumer credit, tax and other laws and government rules and regulations applicable to our business, including changes in such laws, rules and regulations, or changes in the interpretation or enforcement thereof, and the regulatory and examination authority of the Consumer Financial Protection Bureau with respect to providers of consumer financial products and services in the United States and the Financial Conduct Authority in the United Kingdom; |
· |
changes in our U.K. business practices in response to the requirements of the Financial Conduct Authority; |
· |
the effect of and compliance with enforcement actions, orders and agreements issued by applicable regulators, such as the November 2013 Consent Order issued by the Consumer Financial Protection Bureau; |
· |
our ability to effectively operate as a stand-alone, public company following our separation from our parent company, Cash America International, Inc. (“Cash America”), as described elsewhere in this report; |
· |
our ability to process or collect consumer loans through the Automated Clearing House system; |
· |
the deterioration of the political, regulatory or economic environment in countries where we operate or in the future may operate; |
· |
the actions of third parties who provide, acquire or offer products and services to, from or for us; |
· |
public and regulatory perception of the consumer loan business and our business practices; |
· |
the effect of any current or future litigation proceedings and any judicial decisions or rule-making that affects us, our products or the legality or enforceability of our arbitration agreements; |
· |
changes in demand for our services, changes in competition and the continued acceptance of the online channel by our customers; |
· |
changes in our ability to satisfy our debt obligations or to refinance existing debt obligations or obtain new capital to finance growth; |
· |
a prolonged interruption in the operations of our facilities, systems and business functions, including our information technology and other business systems; |
· |
our ability to maintain an allowance or liability for estimated losses on consumer loans that is adequate to absorb credit losses; |
· |
compliance with laws and regulations applicable to our international operations, including anti-corruption laws such as the Foreign Corrupt Practices Act and the U.K. Bribery Act 2010 and international anti-money laundering, trade and economic sanctions laws; |
· |
our ability to attract and retain qualified officers; |
· |
cyber-attacks or security breaches; |
· |
acts of God, war or terrorism, pandemics and other events; |
· |
the ability to successfully integrate newly acquired businesses into our operations; |
· |
interest rate and foreign currency exchange rate fluctuations; |
· |
changes in the capital markets, including the debt and equity markets; |
· |
the effect of any of the above changes on our business or the markets in which we operate; and |
· |
other risks and uncertainties described herein. |
The foregoing list of factors is not exhaustive and new factors may emerge or changes to these factors may occur that would impact the Company’s business and cause actual results to differ materially from those expressed in any of our forward looking statements. Additional information regarding these and other factors may be contained in the Company’s filings with the Securities and Exchange Commission (the “SEC”). Readers of this report are encouraged to review all of the Risk Factors contained in the Company’s filings with the SEC to obtain more detail about the Company’s risks and uncertainties. All forward-looking statements involve risks, assumptions and uncertainties. The occurrence of the events described, and the achievement of the expected results, depends on many events, some or all of which are not predictable or within the Company’s control. If one or more events related to these or other risks or uncertainties materialize, or if management’s underlying assumptions prove to be incorrect, actual results may differ materially from what the Company anticipates. The forward-looking statements in this report are made as of the date of this report, and the Company disclaims any intention or obligation to update or revise any forward-looking statements to reflect events or circumstances occurring after the date of this report. All forward-looking statements in this report are expressly qualified in their entirety by the foregoing cautionary statements.
ENOVA INTERNATIONAL, INC.
INDEX TO FORM 10-Q
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Item 1. |
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Consolidated Balance Sheets – September 30, 2014 and 2013 and December 31, 2013 |
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1 |
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Consolidated Statements of Income – Three and Nine Months Ended September 30, 2014 and 2013 |
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2 |
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3 |
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Consolidated Statements of Stockholder’s Equity – Nine Months Ended September 30, 2014 and 2013 |
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4 |
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Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2014 and 2013 |
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5 |
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6 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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20 |
Item 3. |
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43 |
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Item 4. |
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43 |
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Item 1. |
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44 |
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Item 1A. |
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44 |
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Item 2. |
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44 |
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Item 3. |
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44 |
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Item 4. |
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44 |
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Item 5. |
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44 |
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Item 6. |
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44 |
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45 |
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
(dollars in thousands, except per share data)
(Unaudited)
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September 30, |
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December 31, |
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2014 |
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2013 |
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2013 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
104,241 |
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$ |
61,381 |
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$ |
47,480 |
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Consumer loans, net |
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303,694 |
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272,001 |
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303,467 |
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Income taxes receivable |
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14 |
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— |
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— |
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Prepaid expenses and other assets |
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12,738 |
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7,996 |
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8,686 |
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Deferred tax assets |
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26,558 |
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33,082 |
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30,914 |
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Total current assets |
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447,245 |
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374,460 |
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390,547 |
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Property and equipment, net |
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35,598 |
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40,178 |
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39,405 |
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Goodwill |
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255,865 |
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255,869 |
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255,869 |
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Intangible assets, net |
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18 |
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71 |
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45 |
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Other assets |
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21,712 |
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6,269 |
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6,286 |
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Total assets |
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$ |
760,438 |
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$ |
676,847 |
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$ |
692,152 |
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Liabilities and Stockholder’s Equity |
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Current liabilities: |
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Accounts payable and accrued expenses |
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$ |
71,373 |
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$ |
43,448 |
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$ |
49,614 |
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Related party payable, net |
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13,369 |
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— |
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— |
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Total current liabilities |
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84,742 |
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43,448 |
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49,614 |
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Deferred tax liabilities |
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45,657 |
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44,191 |
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45,306 |
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Other liabilities |
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105 |
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7 |
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51 |
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Long-term debt |
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494,021 |
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437,397 |
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424,133 |
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Total liabilities |
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624,525 |
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525,043 |
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519,104 |
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Commitments and contingencies |
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Stockholder’s equity: |
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Common stock, $0.00001 par value, 250,000,000 shares authorized, 33,000,000 shares issued and outstanding |
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— |
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— |
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— |
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Preferred stock, $0.00001 par value, 25,000,000 shares authorized, no shares issued and outstanding |
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— |
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— |
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— |
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Retained earnings |
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134,975 |
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150,427 |
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169,947 |
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Accumulated other comprehensive income |
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938 |
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1,377 |
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3,101 |
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Total stockholder’s equity |
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135,913 |
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151,804 |
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173,048 |
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Total liabilities and stockholder’s equity |
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$ |
760,438 |
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$ |
676,847 |
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$ |
692,152 |
|
See notes to consolidated financial statements.
1
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(Unaudited)
|
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2014 |
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2013 |
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2014 |
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2013 |
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Revenue |
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$ |
205,168 |
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$ |
198,098 |
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$ |
615,115 |
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$ |
556,553 |
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Cost of Revenue |
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72,919 |
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90,389 |
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206,195 |
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228,547 |
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Gross Profit |
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132,249 |
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107,709 |
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408,920 |
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328,006 |
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Expenses |
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Marketing |
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33,393 |
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36,523 |
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92,699 |
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94,592 |
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Operations and technology |
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19,362 |
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17,959 |
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54,370 |
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52,505 |
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General and administrative |
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31,167 |
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17,991 |
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82,525 |
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61,879 |
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Depreciation and amortization |
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5,338 |
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3,958 |
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13,772 |
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12,986 |
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Total Expenses |
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89,260 |
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|
76,431 |
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243,366 |
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|
221,962 |
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Income from Operations |
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42,989 |
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31,278 |
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165,554 |
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106,044 |
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Interest expense, net |
|
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(13,136 |
) |
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(4,909 |
) |
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(25,201 |
) |
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(14,738 |
) |
Foreign currency transaction loss |
|
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(155 |
) |
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(737 |
) |
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(555 |
) |
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(1,023 |
) |
Income before Income Taxes |
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29,698 |
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|
25,632 |
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139,798 |
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|
90,283 |
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Provision for income taxes |
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|
11,213 |
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8,544 |
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50,629 |
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31,959 |
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Net Income |
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$ |
18,485 |
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$ |
17,088 |
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$ |
89,169 |
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$ |
58,324 |
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Earnings Per Share: |
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Earnings per common share, basic and diluted |
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$ |
0.56 |
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$ |
0.52 |
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$ |
2.70 |
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$ |
1.77 |
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Weighted average common shares outstanding, basic and diluted |
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33,000 |
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33,000 |
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|
33,000 |
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33,000 |
|
See notes to consolidated financial statements.
2
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(Unaudited)
|
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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||||||||||
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2014 |
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2013 |
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2014 |
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2013 |
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Net Income |
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$ |
18,485 |
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$ |
17,088 |
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$ |
89,169 |
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$ |
58,324 |
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Other comprehensive (loss) gain, net of tax: |
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Foreign currency translation (loss) gain (a) |
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(5,228 |
) |
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3,501 |
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(2,163 |
) |
|
643 |
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Total other comprehensive (loss) gain, net of tax |
|
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(5,228 |
) |
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3,501 |
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(2,163 |
) |
|
643 |
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Comprehensive Income |
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$ |
13,257 |
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$ |
20,589 |
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$ |
87,006 |
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$ |
58,967 |
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(a) |
Net of tax benefit (provision) of $2,927 and $(1,970) for the three months ended September 30, 2014 and 2013, respectively, and $1,211 and $(357) for the nine months ended September 30, 2014 and 2013, respectively. |
See notes to consolidated financial statements.
3
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER’S EQUITY
(in thousands, except per share data)
(Unaudited)
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Accumulated |
|
|
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Other |
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Total |
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Common Stock |
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Retained |
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Comprehensive |
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Stockholder’s |
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||||||||
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Shares |
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Amount |
|
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Earnings |
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Income (Loss) |
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Equity |
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Balance at December 31, 2012 |
|
|
33,000 |
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|
$ |
— |
|
|
$ |
96,682 |
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|
$ |
734 |
|
|
$ |
97,416 |
|
Net equity transactions with parent |
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|
|
|
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|
|
|
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(4,579 |
) |
|
|
— |
|
|
|
(4,579 |
) |
Net income |
|
|
|
|
|
|
|
|
|
|
58,324 |
|
|
|
— |
|
|
|
58,324 |
|
Foreign currency translation gain, net of tax |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
643 |
|
|
|
643 |
|
Balance at September 30, 2013 |
|
|
33,000 |
|
|
$ |
— |
|
|
$ |
150,427 |
|
|
$ |
1,377 |
|
|
$ |
151,804 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2013 |
|
|
33,000 |
|
|
$ |
— |
|
|
$ |
169,947 |
|
|
$ |
3,101 |
|
|
$ |
173,048 |
|
Net equity transactions with parent |
|
|
|
|
|
|
|
|
|
|
(1,757 |
) |
|
|
— |
|
|
|
(1,757 |
) |
Net income |
|
|
|
|
|
|
|
|
|
|
89,169 |
|
|
|
— |
|
|
|
89,169 |
|
Dividend paid to Cash America ($3.71 per share) |
|
|
|
|
|
|
|
|
|
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(122,384 |
) |
|
|
— |
|
|
|
(122,384 |
) |
Foreign currency translation loss, net of tax |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
(2,163 |
) |
|
|
(2,163 |
) |
Balance at September 30, 2014 |
|
|
33,000 |
|
|
$ |
— |
|
|
$ |
134,975 |
|
|
$ |
938 |
|
|
$ |
135,913 |
|
See notes to consolidated financial statements.
4
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
|
|
Nine Months Ended |
|
|||||
|
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September 30, |
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|||||
|
|
2014 |
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|
2013 |
|
||
Cash Flows from Operating Activities |
|
|
|
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|
|
Net Income |
|
$ |
89,169 |
|
|
$ |
58,324 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
13,772 |
|
|
|
12,986 |
|
Amortization of deferred loan costs and debt discount |
|
|
1,161 |
|
|
|
— |
|
Cost of revenue |
|
|
206,195 |
|
|
|
228,547 |
|
Non-cash affiliate interest expense |
|
|
7,629 |
|
|
|
14,738 |
|
Stock-based compensation |
|
|
257 |
|
|
|
378 |
|
Deferred income taxes, net |
|
|
5,997 |
|
|
|
3,224 |
|
Other |
|
|
313 |
|
|
|
261 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Finance and service charges on consumer loans |
|
|
1,773 |
|
|
|
(4,351 |
) |
Prepaid expenses and other assets |
|
|
(4,256 |
) |
|
|
2,495 |
|
Accounts payable and accrued expenses |
|
|
22,550 |
|
|
|
(853 |
) |
Related party payable, net |
|
|
13,369 |
|
|
|
— |
|
Current intercompany income taxes payable |
|
|
(129 |
) |
|
|
118 |
|
Other operating assets and liabilities |
|
|
— |
|
|
|
3 |
|
Net cash provided by operating activities |
|
|
357,800 |
|
|
|
315,870 |
|
Cash Flows from Investing Activities |
|
|
|
|
|
|
|
|
Consumer loans originated or acquired |
|
|
(987,575 |
) |
|
|
(970,526 |
) |
Consumer loans repaid |
|
|
778,504 |
|
|
|
699,398 |
|
Purchases of property and equipment |
|
|
(9,858 |
) |
|
|
(11,544 |
) |
Other investing activities |
|
|
8 |
|
|
|
— |
|
Net cash used in investing activities |
|
|
(218,921 |
) |
|
|
(282,672 |
) |
Cash Flows from Financing Activities |
|
|
|
|
|
|
|
|
Issuance of long-term debt |
|
|
493,810 |
|
|
|
— |
|
Dividend paid to parent |
|
|
(122,384 |
) |
|
|
— |
|
Debt issuance costs paid |
|
|
(16,323 |
) |
|
|
— |
|
Net equity transactions with parent |
|
|
(2,015 |
) |
|
|
(5,303 |
) |
Payments for affiliate line of credit |
|
|
(431,762 |
) |
|
|
(5,231 |
) |
Net cash used in financing activities |
|
|
(78,674 |
) |
|
|
(10,534 |
) |
Effect of exchange rates on cash |
|
|
(3,444 |
) |
|
|
1,169 |
|
Net increase in cash and cash equivalents |
|
|
56,761 |
|
|
|
23,833 |
|
Cash and cash equivalents at beginning of year |
|
|
47,480 |
|
|
|
37,548 |
|
Cash and cash equivalents at end of period |
|
$ |
104,241 |
|
|
$ |
61,381 |
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures |
|
|
|
|
|
|
|
|
Consumer loans renewed |
|
$ |
244,238 |
|
|
$ |
453,371 |
|
See notes to consolidated financial statements.
5
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. |
Significant Accounting Policies |
Basis of Presentation
On September 7, 2011, Cash America International, Inc. (“Cash America”) formed a new company, Enova International, Inc. (the “Company”). On September 13, 2011, Cash America contributed to the Company all of the stock of its wholly-owned subsidiary, Enova Online Services, Inc., in exchange for 33 million shares of the Company’s common stock.
On November 13, 2014, Cash America completed the tax-free spin-off of approximately 80% of the outstanding shares of the Company to holders of Cash America’s common stock (the “Spin-off”). Cash America’s shareholders received 0.915 shares of Company common stock for every one share of Cash America common stock held at the close of business November 3, 2014, which was the record date for the distribution. Following the Spin-off, the Company became an independent, publicly traded company, and the Company’s shares of common stock are listed on the New York Stock Exchange under the symbol “ENVA.”
The consolidated financial statements of the Company reflect the historical results of operations and cash flows of the Company during each respective period. The financial statements include goodwill and intangible assets arising from businesses previously acquired. The financial statements also include the allocation of certain assets and liabilities that have historically been held at the Cash America corporate level but which are specifically identifiable or allocable to the Company. Certain transactions with Cash America, such as stock-based compensation and foreign currency transactions, are considered to be effectively settled as net equity transactions with parent in “Retained earnings” in the consolidated balance sheets at the time the transaction is recorded. Certain other intercompany transactions between the Company and Cash America are reflected as a change in “Related party payable, net” in the consolidated balance sheets and are settled a month in arrears. 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 is recorded. The net effect of the settlement of these transactions was primarily reflected as a change in “Long-term debt” in the consolidated balance sheets. In addition, the historical financial statements include allocations of costs relating to certain functions historically provided by Cash America, including corporate services such as executive oversight, insurance and risk management, government relations, internal audit, treasury, licensing, and to a limited extent finance, accounting, tax, legal, human resources, compensation and benefits, compliance and support for certain information systems related to financial reporting. The expense allocations have been determined on a basis that Cash America and the Company consider to be reasonable reflections of the utilization of services provided by Cash America. Also see Note 8 for 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 stockholder’s equity and cash flows of the Company in the future, or if the Company had been a separate company during the periods presented.
The financial statements presented as of September 30, 2014 and 2013 and December 31, 2013 and for the three- and nine-month periods ended September 30, 2014 and 2013 are unaudited but, in management’s opinion, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for such interim periods. Operating results for the three- and nine-month periods are not necessarily indicative of the results that may be expected for the full fiscal year.
These financial statements and related notes should be read in conjunction with the Company’s audited consolidated financial statements as of December 31, 2013 and 2012 and for the years ended December 31, 2013, 2012 and 2011 and related notes, which are included in the Registration Statement on Form 10 filed with the SEC on July 31, 2014 (as subsequently amended and declared effective on October 24, 2014).
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”) 350-20-35, Goodwill—Subsequent Measurement , the Company tests goodwill 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.
The Company uses the income approach to complete its annual goodwill assessment. The income approach uses expected future cash flows and estimated terminal values for each of the Company’s reporting units that are discounted using a market participant perspective to determine the estimated fair value of each reporting unit, which is then compared to the carrying value of that reporting unit 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
6
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
goodwill as of June 30, 2014 and determined that the fair value of its goodwill is in excess of carrying value, and, as a result, no impairment existed at that date.
Adopted Accounting Standards
In April 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (“ASU 2014-08”). The amendments in ASU 2014-08 change the criteria for reporting discontinued operations and enhance disclosures in this area. The new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. The new guidance also requires disclosure of the pre-tax income or loss attributable to a disposal of an individually significant component of an organization that does not qualify for discontinued operations presentation in the financial statements. The Company is required to adopt ASU 2014-08 prospectively for all disposals (or classifications as held for sale) of components of an entity that occur within annual periods beginning on or after December 15, 2014 and interim periods within those years. Early adoption is permitted. The Company adopted ASU 2014-08 on June 30, 2014, and the adoption did not have a material effect on its financial position or results of operations.
In July 2013, the FASB issued ASU No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (“ASU 2013-11”), which provides guidance on the presentation of unrecognized tax benefits when net operating loss carryforwards, similar tax losses, or tax credit carryforwards exist. The amendments in this update are effective for fiscal years (and interim periods within those years) beginning after December 15, 2013. The amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted. The Company prospectively adopted ASU 2013-11 on January 1, 2014, and the adoption did not have a material effect on its financial condition or results of operations.
In March 2013, the FASB issued ASU No. 2013-05, Foreign Currency Matters (Topic 830): Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity (a consensus of the FASB Emerging Issues Task Force) (“ASU 2013-05”), which applies to the release of the cumulative translation adjustment into net income when a parent either sells all or a part of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a business (other than a sale of in substance real estate or conveyance of oil and gas mineral rights) within a foreign entity. ASU 2013-05 is effective prospectively for fiscal years (and interim reporting periods within those years) beginning after December 15, 2013. The Company adopted ASU 2013-05 on January 1, 2014, and the adoption did not have a material effect on its financial condition or results of operations.
In February 2013, the FASB issued ASU No. 2013-04, Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date (“ASU 2013-04”). ASU 2013-04 requires an entity to measure obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date as the amount the reporting entity agreed to pay plus additional amounts the reporting entity expects to pay on behalf of its co-obligors. The guidance further provides for disclosure of the nature and amount of the obligation. ASU 2013-04 is effective for interim and annual reporting periods beginning after December 15, 2013. The Company adopted ASU 2013-04 on January 1, 2014, and the adoption did not have a material effect on its financial condition or results of operations.
Accounting Standards to be Adopted in Future Periods
In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”), which requires management to evaluate, in connection with financial statement preparation for each annual and interim reporting period, whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date the financial statements are issued, and to provide related disclosures. ASU 2014-15 applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. The Company does not expect adoption of this guidance will have a material effect on its consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which supersedes the revenue recognition requirements in Accounting Standards Codification 605, Revenue Recognition. ASU 2014-09 is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09
7
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
is effective retrospectively for fiscal years, and interim periods within those years, beginning after December 15, 2016. Early adoption is not permitted. The Company is still assessing the potential impact of ASU 2014-09 on its financial position and results of operations.
2. |
Consumer Loans, Credit Quality Information and Allowances and Liabilities for Estimated Losses on Consumer Loans |
Consumer loan fee revenue generated from the Company’s consumer loans for the three and nine months ended September 30, 2014 and 2013 was as follows (dollars in thousands):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
||||
Interest and fees on short-term loans |
|
$ |
61,885 |
|
|
$ |
92,508 |
|
|
$ |
200,570 |
|
|
$ |
310,550 |
|
Interest and fees on line of credit accounts |
|
|
80,909 |
|
|
|
50,506 |
|
|
|
228,839 |
|
|
|
102,022 |
|
Interest and fees on installment loans |
|
|
61,810 |
|
|
|
54,766 |
|
|
|
185,057 |
|
|
|
142,838 |
|
Total consumer loan revenue |
|
|
204,604 |
|
|
|
197,780 |
|
|
|
614,466 |
|
|
|
555,410 |
|
Other |
|
|
564 |
|
|
|
318 |
|
|
|
649 |
|
|
|
1,143 |
|
Total Revenue |
|
$ |
205,168 |
|
|
$ |
198,098 |
|
|
$ |
615,115 |
|
|
$ |
556,553 |
|
Current and Delinquent Consumer Loans
The Company classifies its consumer loans as either current or delinquent. Short-term loans are considered delinquent when payment of an amount due is not made as of the due date. If a line of credit account or installment loan customer misses one payment, that payment is considered delinquent and the balance of the loan is considered current. The Company does not accrue interest on the delinquent payment portion of the loan but does continue to accrue interest on the remaining portion of the loan. If a line of credit account or installment loan customer does not make two consecutive payments, the entire account or loan is classified as delinquent. The Company allows for normal payment processing time before considering a payment or a loan delinquent but does not provide for any additional grace period.
The Company generally does not accrue interest on delinquent consumer loans and does not resume accrual of interest on a delinquent loan unless it is returned to current status. In addition, delinquent consumer loans generally may not be renewed, and if, during its attempt to collect on a delinquent consumer loan, the Company allows additional time for payment through a payment plan or a promise to pay, it is still considered delinquent. Generally, all payments received are first applied against accrued but unpaid interest and fees and then against the principal balance of the loan.
Allowance and Liability for Estimated Losses on Consumer Loans
The Company monitors the performance of its consumer loan portfolio and maintains either an allowance or liability for estimated losses on consumer loans (including fees and interest) at a level estimated to be adequate to absorb credit losses inherent in the portfolio. The allowance for losses on the Company’s owned consumer loans reduces the outstanding loan balance in the consolidated balance sheets. The liability for estimated losses related to loans guaranteed under its credit services organization programs (“CSO programs”) is initially recorded at fair value and is included in “Accounts payable and accrued expenses” in the consolidated balance sheets.
In determining the allowance or liability for estimated losses on consumer loans, the Company applies a documented systematic methodology. In calculating the allowance or liability for loan losses, outstanding loans are divided into discrete groups of short-term loans, line of credit accounts and installment loans and are analyzed as current or delinquent. Increases in either the allowance or the liability, net of charge-offs and recoveries, are recorded as a “Cost of revenue” in the consolidated statements of income.
The allowance or liability for short-term loans classified as current is based on historical loss rates adjusted for recent default trends for current loans. For delinquent short-term loans, the allowance or liability is based on a six-month rolling average of loss rates by stage of collection. For line of credit accounts and installment loan portfolios, the Company generally uses a migration analysis to estimate losses inherent in the portfolio. The allowance or liability calculation under the migration analysis is based on historical charge-off experience and the loss emergence period, which represents the average amount of time between the first occurrence of a loss event to the charge-off of a loan. The factors the Company considers to assess the adequacy of the allowance or liability include past due performance, historical behavior of monthly vintages, underwriting changes and recent trends in delinquency in the migration analysis.
8
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
The Company fully reserves and generally charges off consumer loans once the loan or a portion of the loan has been classified as delinquent for 60 consecutive days. If a loan is deemed uncollectible before it is fully reserved, it is charged off at that point. Consumer loans classified as delinquent generally have an age of one to 59 days from the date any portion of the loan became delinquent, as defined above. Recoveries on loans previously charged to the allowance are credited to the allowance when collected.
The components of Company-owned consumer loan portfolio receivables at September 30, 2014 and 2013 and December 31, 2013 were as follows (dollars in thousands):
|
|
As of September 30, 2014 |
|
|||||||||||||
|
|
Short-term |
|
|
Line of Credit |
|
|
Installment |
|
|
|
|
|
|||
|
|
Loans |
|
|
Accounts |
|
|
Loans |
|
|
Total |
|
||||
Current loans |
|
$ |
32,509 |
|
|
$ |
118,329 |
|
|
$ |
176,651 |
|
|
$ |
327,489 |
|
Delinquent loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delinquent payment amounts (1) |
|
|
— |
|
|
|
4,335 |
|
|
|
1,532 |
|
|
|
5,867 |
|
Loans on non-accrual status |
|
|
18,313 |
|
|
|
5,611 |
|
|
|
16,413 |
|
|
|
40,337 |
|
Total delinquent loans |
|
|
18,313 |
|
|
|
9,946 |
|
|
|
17,945 |
|
|
|
46,204 |
|
Total consumer loans, gross |
|
|
50,822 |
|
|
|
128,275 |
|
|
|
194,596 |
|
|
|
373,693 |
|
Less: Allowance for losses |
|
|
(17,415 |
) |
|
|
(22,672 |
) |
|
|
(29,912 |
) |
|
|
(69,999 |
) |
Consumer loans, net |
|
$ |
33,407 |
|
|
$ |
105,603 |
|
|
$ |
164,684 |
|
|
$ |
303,694 |
|
|
|
As of September 30, 2013 |
|
|||||||||||||
|
|
Short-term |
|
|
Line of Credit |
|
|
Installment |
|
|
|
|
|
|||
|
|
Loans |
|
|
Accounts |
|
|
Loans |
|
|
Total |
|
||||
Current loans |
|
$ |
62,075 |
|
|
$ |
84,758 |
|
|
$ |
146,536 |
|
|
$ |
293,369 |
|
Delinquent loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delinquent payment amounts (1) |
|
|
— |
|
|
|
2,242 |
|
|
|
1,592 |
|
|
|
3,834 |
|
Loans on non-accrual status |
|
|
34,430 |
|
|
|
12,606 |
|
|
|
14,816 |
|
|
|
61,852 |
|
Total delinquent loans |
|
|
34,430 |
|
|
|
14,848 |
|
|
|
16,408 |
|
|
|
65,686 |
|
Total consumer loans, gross |
|
|
96,505 |
|
|
|
99,606 |
|
|
|
162,944 |
|
|
|
359,055 |
|
Less: Allowance for losses |
|
|
(30,572 |
) |
|
|
(24,405 |
) |
|
|
(32,077 |
) |
|
|
(87,054 |
) |
Consumer loans, net |
|
$ |
65,933 |
|
|
$ |
75,201 |
|
|
$ |
130,867 |
|
|
$ |
272,001 |
|
|
|
As of December 31, 2013 |
|
|||||||||||||
|
|
Short-term |
|
|
Line of Credit |
|
|
Installment |
|
|
|
|
|
|||
|
|
Loans |
|
|
Accounts |
|
|
Loans |
|
|
Total |
|
||||
Current loans |
|
$ |
57,368 |
|
|
$ |
112,969 |
|
|
$ |
160,585 |
|
|
$ |
330,922 |
|
Delinquent loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delinquent payment amounts (1) |
|
|
— |
|
|
|
4,146 |
|
|
|
1,724 |
|
|
|
5,870 |
|
Loans on non-accrual status |
|
|
23,385 |
|
|
|
8,687 |
|
|
|
16,921 |
|
|
|
48,993 |
|
Total delinquent loans |
|
|
23,385 |
|
|
|
12,833 |
|
|
|
18,645 |
|
|
|
54,863 |
|
Total consumer loans, gross |
|
|
80,753 |
|
|
|
125,802 |
|
|
|
179,230 |
|
|
|
385,785 |
|
Less: Allowance for losses |
|
|
(20,466 |
) |
|
|
(29,244 |
) |
|
|
(32,608 |
) |
|
|
(82,318 |
) |
Consumer loans, net |
|
$ |
60,287 |
|
|
$ |
96,558 |
|
|
$ |
146,622 |
|
|
$ |
303,467 |
|
(1) |
Represents the delinquent portion of installment loans and line of credit account balances for customers that have only missed one payment. See “Current and Delinquent Consumer Loans” above for additional information. |
9
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Changes in the allowance for losses for the Company-owned loans and the liability for losses on the Company’s guarantees of third-party lender-owned loans during the three and nine months ended September 30, 2014 and 2013 were as follows (dollars in thousands):
|
|
Three Months Ended September 30, 2014 |
|
|||||||||||||
|
|
Short-term |
|
|
Line of Credit |
|
|
Installment |
|
|
|
|
|
|||
|
|
Loans |
|
|
Accounts |
|
|
Loans |
|
|
Total |
|
||||
Allowance for losses for Company-owned consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
$ |
18,248 |
|
|
$ |
21,579 |
|
|
$ |
27,967 |
|
|
$ |
67,794 |
|
Cost of revenue |
|
|
19,075 |
|
|
|
25,913 |
|
|
|
28,068 |
|
|
|
73,056 |
|
Charge-offs |
|
|
(25,740 |
) |
|
|
(29,316 |
) |
|
|
(31,993 |
) |
|
|
(87,049 |
) |
Recoveries |
|
|
6,110 |
|
|
|
5,024 |
|
|
|
6,373 |
|
|
|
17,507 |
|
Effect of foreign currency translation |
|
|
(278 |
) |
|
|
(528 |
) |
|
|
(503 |
) |
|
|
(1,309 |
) |
Balance at end of period |
|
$ |
17,415 |
|
|
$ |
22,672 |
|
|
$ |
29,912 |
|
|
$ |
69,999 |
|
Liability for third-party lender-owned consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
$ |
1,581 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,581 |
|
(Decrease) increase in liability |
|
|
(139 |
) |
|
|
— |
|
|
|
2 |
|
|
|
(137 |
) |
Balance at end of period |
|
$ |
1,442 |
|
|
$ |
— |
|
|
$ |
2 |
|
|
$ |
1,444 |
|
|
|
Three Months Ended September 30, 2013 |
|
|||||||||||||
|
|
Short-term |
|
|
Line of Credit |
|
|
Installment |
|
|
|
|
|
|||
|
|
Loans |
|
|
Accounts |
|
|
Loans |
|
|
Total |
|
||||
Allowance for losses for Company-owned consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
$ |
38,584 |
|
|
$ |
12,109 |
|
|
$ |
26,555 |
|
|
$ |
77,248 |
|
Cost of revenue |
|
|
33,852 |
|
|
|
26,152 |
|
|
|
30,631 |
|
|
|
90,635 |
|
Charge-offs |
|
|
(51,413 |
) |
|
|
(15,753 |
) |
|
|
(30,085 |
) |
|
|
(97,251 |
) |
Recoveries |
|
|
8,491 |
|
|
|
1,542 |
|
|
|
3,996 |
|
|
|
14,029 |
|
Effect of foreign currency translation |
|
|
1,058 |
|
|
|
355 |
|
|
|
980 |
|
|
|
2,393 |
|
Balance at end of period |
|
$ |
30,572 |
|
|
$ |
24,405 |
|
|
$ |
32,077 |
|
|
$ |
87,054 |
|
Liability for third-party lender-owned consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
$ |
2,188 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
2,188 |
|
Decrease in liability |
|
|
(246 |
) |
|
|
— |
|
|
|
— |
|
|
|
(246 |
) |
Balance at end of period |
|
$ |
1,942 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,942 |
|
|
|
Nine Months Ended September 30, 2014 |
|
|||||||||||||
|
|
Short-term |
|
|
Line of Credit |
|
|
Installment |
|
|
|
|
|
|||
|
|
Loans |
|
|
Accounts |
|
|
Loans |
|
|
Total |
|
||||
Allowance for losses for Company-owned consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
$ |
20,466 |
|
|
$ |
29,244 |
|
|
$ |
32,608 |
|
|
$ |
82,318 |
|
Cost of revenue |
|
|
55,531 |
|
|
|
71,612 |
|
|
|
79,655 |
|
|
|
206,798 |
|
Charge-offs |
|
|
(81,153 |
) |
|
|
(90,904 |
) |
|
|
(99,556 |
) |
|
|
(271,613 |
) |
Recoveries |
|
|
22,612 |
|
|
|
12,800 |
|
|
|
17,218 |
|
|
|
52,630 |
|
Effect of foreign currency translation |
|
|
(41 |
) |
|
|
(80 |
) |
|
|
(13 |
) |
|
|
(134 |
) |
Balance at end of period |
|
$ |
17,415 |
|
|
$ |
22,672 |
|
|
$ |
29,912 |
|
|
$ |
69,999 |
|
Liability for third-party lender-owned consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
$ |
2,047 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
2,047 |
|
(Decrease) increase in liability |
|
|
(605 |
) |
|
|
— |
|
|
|
2 |
|
|
|
(603 |
) |
Balance at end of period |
|
$ |
1,442 |
|
|
$ |
— |
|
|
$ |
2 |
|
|
$ |
1,444 |
|
10
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
|
|
Nine Months Ended September 30, 2013 |
|
|||||||||||||
|
|
Short-term |
|
|
Line of Credit |
|
|
Installment |
|
|
|
|
|
|||
|
|
Loans |
|
|
Accounts |
|
|
Loans |
|
|
Total |
|
||||
Allowance for losses for Company-owned consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
$ |
41,942 |
|
|
$ |
12,565 |
|
|
$ |
27,845 |
|
|
$ |
82,352 |
|
Cost of revenue |
|
|
110,961 |
|
|
|
42,626 |
|
|
|
75,642 |
|
|
|
229,229 |
|
Charge-offs |
|
|
(148,445 |
) |
|
|
(35,832 |
) |
|
|
(81,402 |
) |
|
|
(265,679 |
) |
Recoveries |
|
|
26,600 |
|
|
|
4,704 |
|
|
|
9,959 |
|
|
|
41,263 |
|
Effect of foreign currency translation |
|
|
(486 |
) |
|
|
342 |
|
|
|
33 |
|
|
|
(111 |
) |
Balance at end of period |
|
$ |
30,572 |
|
|
$ |
24,405 |
|
|
$ |
32,077 |
|
|
$ |
87,054 |
|
Liability for third-party lender-owned consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
$ |
2,624 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
2,624 |
|
Decrease in liability |
|
|
(682 |
) |
|
|
— |
|
|
|
— |
|
|
|
(682 |
) |
Balance at end of period |
|
$ |
1,942 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,942 |
|
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 the Company arranges for consumers on the third-party lenders’ behalf and is required to purchase any defaulted loans it has guaranteed. The guarantee represents an obligation to purchase specific loans that go into default, which generally occurs after one payment is missed. As of September 30, 2014 and 2013 and December 31, 2013, the amount of consumer loans guaranteed by the Company was $35.4 million, $35.1 million and $41.4 million, respectively, representing amounts due under consumer loans originated by third-party lenders under the CSO programs. The liability for estimated losses on consumer loans guaranteed by the Company of $1.4 million, $1.9 million and $2.0 million, as of September 30, 2014 and 2013 and December 31, 2013, respectively, is included in “Accounts payable and accrued expenses” in the accompanying consolidated balance sheets.
3. |
Investment in Unconsolidated Subsidiary |
The Company records an investment in the preferred stock of an early-stage privately-held developing consumer financial services entity under the cost method. The carrying value of the Company’s investment in this unconsolidated subsidiary was $6.0 million as of September 30, 2014 and 2013 and December 31, 2013 and was held in “Other assets” in the Company’s consolidated balance sheets. The Company evaluates this investment for impairment if an event occurs or circumstances change that would more likely than not reduce the fair value of the investment below carrying value. Based on the Company’s impairment evaluation of this investment as of September 30, 2014, it determined that no impairment existed.
4. |
Long-term debt |
$75.0 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 provides 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. Interest on the amounts borrowed will be charged, at the Company’s option, at either the London Interbank Offered Rate (“LIBOR”) for one week or one-, two-, three- or six-month periods, as selected by the Company, plus a margin varying from 2.50% to 3.75% or at the agent’s base rate plus a margin varying from 1.50% to 2.75%. The margin for the borrowings under the Credit Agreement is dependent on the Company’s cash flow leverage ratios. The Company will also be required to pay a fee on the unused portion of the line of credit ranging from 0.25% to 0.50% (0.50% as of September 30, 2014) based on the Company’s cash flow leverage ratios. The Credit Agreement will mature on June 30, 2017. There were no outstanding borrowings under the Credit Agreement as of September 30, 2014.
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
11
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
credit fee of 0.20% of the face amount of each commercial letter of credit plus 0.25% per annum on the average daily amount of the total letter of credit exposure. The Company had letters of credit of $3.0 million under its Credit Agreement as of September 30, 2014.
In connection with the issuance of the Credit Agreement, the Company incurred debt issuance costs of approximately $1.6 million in the nine months ended September 30, 2014, which primarily consisted of underwriting fees and legal expenses. The unamortized balance of these costs as of September 30, 2014 is included in “Other assets” in the consolidated balance sheets. These costs are being amortized to interest expense over a period of 37 months, the term of the Credit Agreement.
$500.0 Million 9.75% Senior Unsecured Notes
On May 30, 2014, the Company issued and sold $500.0 million in aggregate principal amount of 9.75% Senior Notes due 2021 (the “Senior Notes”). The Senior Notes bear interest at a rate of 9.75% annually on the principal amount payable semi-annually in arrears on June 1 and December 1 of each year, beginning on December 1, 2014. The Senior Notes were sold at a discount of the principal amount to yield 10.0% to maturity. The Senior Notes will mature on June 1, 2021. The Senior Notes are unsecured debt obligations of the Company, and are unconditionally guaranteed by all of the Company’s domestic subsidiaries. The Senior Notes were sold to qualified institutional buyers in accordance with Rule 144A under the Securities Act of 1933, as amended, or the Securities Act, and outside the United States pursuant to Regulation S under the Securities Act.
The Senior Notes are governed by an indenture (the “Senior Notes Indenture”), dated May 30, 2014, between the Company, the Company’s domestic subsidiaries, as guarantors, and the trustee. The Senior Notes Indenture contains certain covenants that, among other things, limit the Company’s, and certain of its subsidiaries, ability to incur additional debt, acquire or create new subsidiaries, create liens, engage in certain transactions with affiliates and consolidate or merge with or into other companies. The Senior Notes Indenture provides for customary events of default, including nonpayment and failure to comply with covenants or other agreements in the Senior Notes Indenture.
The Senior Notes are redeemable at the Company’s option, in whole or in part, (i) at any time prior to June 1, 2017 at 100% of the aggregate principal amount of Senior Notes redeemed plus the applicable “make whole” redemption price specified in the Senior Notes Indenture, plus accrued and unpaid interest, if any, to the redemption date and (ii) at any time on or after June 1, 2017 at a premium specified in the Senior Notes Indenture that will decrease over time, plus accrued and unpaid interest, if any, to the redemption date. In addition, prior to June 1, 2017, at its option, the Company may redeem up to 35% of the aggregate principal amount of the Senior Notes at a redemption price equal to 109.75% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date, with the proceeds of certain equity offerings as described in the Senior Notes Indenture. In addition, if the Company and its subsidiaries’ guarantee of certain indebtedness of Cash America as described in the Senior Notes Indenture is not released on or before March 31, 2015 then the Company may redeem all of the Senior Notes outstanding at a redemption price equal to 103% of the aggregate principal amount, plus accrued and unpaid interest, if any, to the redemption date (the “Special Redemption”), and if the Special Redemption does not occur, then the interest rate on the Senior Notes will increase 2.0% per annum until the Company and its subsidiaries no longer guarantee certain indebtedness of Cash America 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 does not constitute a change of control under the Senior Notes Indenture. See Notes 1 and 10 for additional information on the Spin-off.
Additionally, on May 30, 2014, the Company entered into a registration rights agreement with Jefferies, LLC as the initial purchaser (the “Registration Rights Agreement”) of the Senior Notes, pursuant to which the Company agreed to use commercially reasonable efforts to cause a registration statement to be declared effective on or prior to the 360th day following the closing date relating to an exchange offer of the Senior Notes for identical new notes registered under the Securities Act. In certain circumstances, the Company may be required to file a shelf registration to cover resales of the Senior Notes. If the Company does not comply with certain covenants set forth in the Registration Rights Agreement, it must pay liquidated damages to holders of the Senior Notes. If the Company fails to satisfy any of its registration obligations, it may be required to pay the holders of the Senior Notes additional interest ranging from 0.25% to 0.50% per annum until the Company satisfies its registration obligations.
The Company used all of the net proceeds of the Senior Notes offering, or $479.0 million, to repay all of its intercompany indebtedness due to Cash America, which was $361.4 million as of May 30, 2014, and the remaining net proceeds were used to pay a significant portion of $122.4 million in cash dividends paid to Cash America, of which $120.7 million was paid on May 30, 2014 and $1.7 million was paid on June 30, 2014.
As of September 30, 2014, the carrying amount of the Senior Notes was $494.0 million, which included an unamortized discount of $6.0 million. The discount is being amortized to interest expense over a period of seven years, through the maturity date of June 1,
12
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
2021. The total interest expense recognized was $16.5 million for the nine months ended September 30, 2014, of which $0.2 million represented the non-cash amortization of the discount. In connection with the issuance of the Senior Notes, the Company incurred approximately $14.7 million for issuance costs, which primarily consisted of underwriting fees, legal and other professional expenses. These costs are being amortized to interest expense over seven years and are included in “Other assets” in the consolidated balance sheets.
Prior to issuing the Senior Notes, the Company depended on Cash America’s support for a significant portion of its financing requirements and had in place a $450 million affiliate revolving credit agreement related to amounts outstanding with Cash America (the “Affiliate Line of Credit”). Borrowings under the Affiliate Line of Credit bore interest at a fluctuating interest rate equal to the prevailing LIBOR rate per annum (based upon a one month interest period) plus 4.5%, or in certain circumstances equal to the prevailing alternate base rate per annum plus 2.0%. The alternate base rate was equal to the greater of (a) the U.S. prime rate, (b) the federal funds effective rate plus 0.5%, and (c) the sum of the one-month LIBOR plus 1.0%. Interest accruing on borrowings made under the revolving line of credit were payable to Cash America and were settled through an adjustment to its affiliate line of credit with Cash America on a monthly basis. At September 30, 2013 and December 31, 2013, the Company had outstanding unsecured amounts payable under the Affiliate Line of Credit of $437.4 million and $424.1 million, respectively.
Weighted-average interest rates on long-term debt were 7.36% and 4.74% during the nine months ended September 30, 2014 and 2013, respectively.
As of September 30, 2014 and 2013 and December 31, 2013, the Company was in compliance with all covenants and other requirements set forth in the prevailing long-term debt agreement(s).
5. |
Operating Segment Information |
The Company provides online financial services to alternative credit consumers in the United States, United Kingdom, Australia, Canada, Brazil and China and has one reportable segment, which is composed of the Company’s domestic and international operations. The Company has aggregated all components of its business into a single reportable 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.
The Company allocates certain corporate expenses (primarily general and administrative expenses and, to a lesser extent, marketing and operations and technology expenses) between its domestic and international components based on revenue. The following tables present information on the Company’s domestic and international operations as of and for the three and nine months ended September 30, 2014 and 2013 (dollars in thousands).
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
$ |
126,130 |
|
|
$ |
105,199 |
|
|
$ |
344,003 |
|
|
$ |
284,132 |
|
International |
|
|
79,038 |
|
|
|
92,899 |
|
|
|
271,112 |
|
|
|
272,421 |
|
Total revenue |
|
$ |
205,168 |
|
|
$ |
198,098 |
|
|
$ |
615,115 |
|
|
$ |
556,553 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
$ |
15,297 |
|
|
$ |
13,800 |
|
|
$ |
83,295 |
|
|
$ |
55,938 |
|
International |
|
|
27,692 |
|
|
|
17,478 |
|
|
|
82,259 |
|
|
|
50,106 |
|
Total income from operations |
|
$ |
42,989 |
|
|
$ |
31,278 |
|
|
$ |
165,554 |
|
|
$ |
106,044 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
$ |
4,737 |
|
|
$ |
3,252 |
|
|
$ |
12,089 |
|
|
$ |
10,885 |
|
International |
|
|
601 |
|
|
|
706 |
|
|
|
1,683 |
|
|
|
2,101 |
|
Total depreciation and amortization |
|
$ |
5,338 |
|
|
$ |
3,958 |
|
|
$ |
13,772 |
|
|
$ |
12,986 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures for property and equipment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
$ |
2,974 |
|
|
$ |
6,224 |
|
|
$ |
9,057 |
|
|
$ |
10,118 |
|
International |
|
|
56 |
|
|
|
474 |
|
|
|
801 |
|
|
|
1,426 |
|
Total expenditures for property and equipment |
|
$ |
3,030 |
|
|
$ |
6,698 |
|
|
$ |
9,858 |
|
|
$ |
11,544 |
|
13
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
|
|
September 30, |
|
|||||
|
|
2014 |
|
|
2013 |
|
||
Property and equipment, net |
|
|
|
|
|
|
|
|
Domestic |
|
$ |
30,509 |
|
|
$ |
34,740 |
|
International |
|
|
5,089 |
|
|
|
5,438 |
|
Total property and equipment, net |
|
$ |
35,598 |
|
|
$ |
40,178 |
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
Domestic |
|
$ |
583,739 |
|
|
$ |
461,415 |
|
International |
|
|
176,699 |
|
|
|
215,432 |
|
Total assets |
|
$ |
760,438 |
|
|
$ |
676,847 |
|
Geographic Information
The following table presents the Company’s revenue by geographic region for the three and nine months ended September 30, 2014 and 2013 (dollars in thousands):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
126,130 |
|
|
$ |
105,199 |
|
|
$ |
344,003 |
|
|
$ |
284,132 |
|
United Kingdom |
|
|
76,072 |
|
|
|
91,347 |
|
|
|
263,468 |
|
|
|
265,650 |
|
Other international countries |
|
|
2,966 |
|
|
|
1,552 |
|
|
|
7,644 |
|
|
|
6,771 |
|
Total revenue |
|
$ |
205,168 |
|
|
$ |
198,098 |
|
|
$ |
615,115 |
|
|
$ |
556,553 |
|
The Company’s long-lived assets, which consist of the Company’s property and equipment, were $35.6 million and $40.2 million at September 30, 2014 and 2013, 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.
6. |
Commitments and Contingencies |
Leases
On July 25, 2014, the Company entered into a new office lease agreement for approximately 160,000 square feet of office space for its headquarters in Chicago, Illinois. The lease term is 12 years, with options to renew for two five-year terms. Under the terms of the lease, the Company was provided $9.8 million in tenant improvement allowances and $8.5 million in rent abatements. For the new office lease agreement, the Company is responsible for paying its proportionate share of the increase in actual operating expenses and real estate taxes over the defined lease year. The operating expenses and real estate taxes are not included in the table below. Future minimum rentals due under non-cancelable leases as of September 30, 2014 are as follows for each of the years ending December 31 (dollars in thousands):
YEAR |
|
AMOUNT |
|
|
2014 |
|
$ |
825 |
|
2015 |
|
|
3,351 |
|
2016 |
|
|
3,324 |
|
2017 |
|
|
5,864 |
|
2018 |
|
|
5,023 |
|
Thereafter |
|
|
47,883 |
|
Total |
|
$ |
66,270 |
|
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
14
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
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 October 24, 2014, the Company filed a motion for summary judgment, and the court has not yet ruled on this motion. Neither the likelihood of an unfavorable ruling 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 are 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.
7. |
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 uses forward currency exchange contracts to minimize the effects of foreign currency risk in the United Kingdom and Australia. 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 loss” in the Company’s consolidated statements of income. The Company currently does not manage its exposure to risk from foreign currency exchange rate fluctuations through the use of forward currency exchange contracts in Canada or Brazil.
The Company’s derivative instruments are presented in its financial statements on a net basis. The following table presents information related to the Company’s derivative instruments as of September 30, 2014 (dollars in thousands):
Non-designated derivatives:
|
|
As of September 30, 2014 |
|
|||||||||||||
|
|
|
|
|
|
Gross Amounts |
|
|
Gross Amounts |
|
|
Net Amounts of Assets |
|
|||
|
|
|
|
|
|
of Recognized |
|
|
Offset in the |
|
|
Presented in the |
|
|||
|
|
Notional |
|
|
Financial |
|
|
Consolidated |
|
|
Consolidated Balance |
|
||||
Forward currency exchange contracts |
|
Amount |
|
|
Instruments |
|
|
Balance Sheets (1) |
|
|
Sheets (2) |
|
||||
Assets |
|
$ |
8,312 |
|
|
$ |
29 |
|
|
$ |
— |
|
|
$ |
29 |
|
Liabilities |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
(1) |
As of September 30, 2014, the Company had no gross amounts of recognized derivative instruments that the Company makes an accounting policy election not to offset. In addition, there is no financial collateral related to the Company’s derivatives. The Company has no liabilities that are subject to an enforceable master netting agreement or similar arrangement. |
(2) |
Represents the fair value of forward currency contracts, which is recorded in “Prepaid expenses and other assets” in the consolidated balance sheets. |
Prior to June 2014, the Company participated in Cash America’s derivative and hedging programs, which are coordinated through a centralized treasury function; therefore, the assets and liabilities related to derivative instruments were not recorded in the Company’s financial statements, however, the gains and losses associated with Cash America’s foreign currency forward contracts that relate to the Company’s business were included as “Foreign currency transaction loss” in the consolidated statements of income. The notional amounts recorded by Cash America were $97.3 million and $81.5 million at September 30, 2013 and December 31, 2013, respectively.
15
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
The following table presents information on the effect of derivative instruments on the consolidated results of operations and accumulated other comprehensive income (“AOCI”) for the three and nine months ended September 30, 2014 and 2013 (dollars in thousands):
|
|
Gains (Losses) |
|
|
|
|
|
|
|
|
|
|
Gains (Losses) |
|
||||||||||
|
|
Recognized in |
|
|
Gains (Losses) |
|
|
Reclassified From |
|
|||||||||||||||
|
|
Income |
|
|
Recognized in AOCI |
|
|
AOCI into Income |
|
|||||||||||||||
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|||||||||||||||
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|||||||||||||||
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
||||||
Non-designated derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward currency exchange contracts (1) |
|
$ |
401 |
|
|
$ |
(5,432 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Total |
|
$ |
401 |
|
|
$ |
(5,432 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
Gains (Losses) |
|
|
|
|
|
|
|
|
|
|
Gains (Losses) |
|
||||||||||
|
|
Recognized in |
|
|
Gains (Losses) |
|
|
Reclassified From |
|
|||||||||||||||
|
|
Income |
|
|
Recognized in AOCI |
|
|
AOCI into Income |
|
|||||||||||||||
|
|
Nine Months Ended |
|
|
Nine Months Ended |
|
|
Nine Months Ended |
|
|||||||||||||||
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|||||||||||||||
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
||||||
Non-designated derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward currency exchange contracts (1) |
|
$ |
(1,354 |
) |
|
$ |
(181 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Total |
|
$ |
(1,354 |
) |
|
$ |
(181 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
(1) |
The gains (losses) on these derivatives substantially offset the (losses) gains on the hedged portion of the foreign intercompany balances. |
8. |
Related Party Transactions |
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 $7.9 million for each of the nine months ended September 30, 2014 and 2013.
Cash America provided some cash management and other treasury services to the Company. The Company also paid 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.
The Company paid Cash America compensation for loans made to or arranged for customers who were referred from Cash America. The Company paid $1.1 million and $0.9 million for the nine months ended September 30, 2014 and 2013, respectively, 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 $0.5 million and $0.7 million for the nine months ended September 30, 2014 and 2013, respectively, pursuant to this arrangement.
The cumulative effect of the transactions described above was reflected as a change in “Related party payable, net” in the consolidated balance sheets. The balance was settled a month in arrears. The balance of “Related party payable, net” at September 30, 2014 is $13.4 million.
16
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
The Company and its subsidiaries participated jointly and severally with all subsidiaries of Cash America and guaranteed long-term debt of Cash America of $206.0 million, $576.1 million and $638.2 million at September 30, 2014 and 2013 and December 31, 2013, respectively. Under the provisions of Cash America’s debt agreements, the Company had liability in the event Cash America defaulted in its payment obligations or failed to comply with the covenants under the various debt agreements or upon the occurrence of specified events contained in the various debt agreements, including the event of bankruptcy, insolvency or reorganization of Cash America. The Company is being released from liability under such guarantees in connection with the Spin-off. See Notes 1 and 10 for additional information on the Spin-off.
9. |
Fair Value Measurements |
Recurring Fair Value Measurements
In accordance with ASC 820, Fair Value Measurements and Disclosures, certain of the Company’s assets and liabilities, which are carried at fair value, are classified in one of the following three categories:
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.
The Company’s financial assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2014 and 2013 and December 31, 2013 are as follows (dollars in thousands):
|
|
September 30, |
|
|
Fair Value Measurements Using |
|
||||||||||
|
|
2014 |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Financial assets (liabilities) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward currency exchange contracts |
|
$ |
29 |
|
|
$ |
— |
|
|
$ |
29 |
|
|
$ |
— |
|
Nonqualified savings plan assets (1) |
|
|
741 |
|
|
|
741 |
|
|
|
— |
|
|
|
— |
|
Total |
|
$ |
770 |
|
|
$ |
741 |
|
|
$ |
29 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
Fair Value Measurements Using |
|
||||||||||
|
|
2013 |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Financial assets (liabilities) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonqualified savings plan assets (1) |
|
$ |
505 |
|
|
$ |
505 |
|
|
$ |
— |
|
|
$ |
— |
|
Total |
|
$ |
505 |
|
|
$ |
505 |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
Fair Value Measurements Using |
|
||||||||||
|
|
2013 |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Financial assets (liabilities) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonqualified savings plan assets (1) |
|
$ |
559 |
|
|
$ |
559 |
|
|
$ |
— |
|
|
$ |
— |
|
Total |
|
$ |
559 |
|
|
$ |
559 |
|
|
$ |
— |
|
|
$ |
— |
|
(1) |
The non-qualified savings plan assets have an offsetting liability of equal amount, which 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 Company’s 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. During the nine months ended September 30, 2014 and 2013, there were no transfers of assets in or out of Level 1 fair value measurements. Prior to June 2014, the Company participated in Cash America’s derivative and hedging programs, which are coordinated through a centralized treasury function; therefore, the assets and liabilities related to derivative instruments were not recorded in the Company’s financial statements; however, the gains and losses associated with Cash America’s foreign currency forward contracts that relate to the Company’s business are included as “Foreign currency transaction loss” in the consolidated statements of income.
17
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Financial Assets and Liabilities Not Measured at Fair Value
The Company’s financial assets and liabilities as of September 30, 2014 and 2013 and December 31, 2013 that are not measured at fair value in the consolidated balance sheets are as follows (dollars in thousands):
|
|
September 30, |
|
|
Fair Value Measurements Using |
|
||||||||||
|
|
2014 |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
104,241 |
|
|
$ |
104,241 |
|
|
$ |
— |
|
|
$ |
— |
|
Short-term loans and line of credit accounts, net (1) |
|
|
139,010 |
|
|
|
— |
|
|
|
— |
|
|
|
139,010 |
|
Installment loans, net (1) |
|
|
164,684 |
|
|
|
— |
|
|
|
— |
|
|
|
164,684 |
|
Total |
|
$ |
407,935 |
|
|
$ |
104,241 |
|
|
$ |
— |
|
|
$ |
303,694 |
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability for estimated losses on consumer loans guaranteed by the Company |
|
$ |
1,444 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,444 |
|
Senior Notes |
|
|
494,021 |
|
|
|
— |
|
|
|
500,000 |
|
|
|
— |
|
Total |
|
$ |
495,465 |
|
|
$ |
— |
|
|
$ |
500,000 |
|
|
$ |
1,444 |
|
|
|
September 30, |
|
|
Fair Value Measurements Using |
|
||||||||||
|
|
2013 |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
61,381 |
|
|
$ |
61,381 |
|
|
$ |
— |
|
|
$ |
— |
|
Short-term loans and line of credit accounts, net (1) |
|
|
141,134 |
|
|
|
— |
|
|
|
— |
|
|
|
141,134 |
|
Installment loans, net (1) |
|
|
130,867 |
|
|
|
— |
|
|
|
— |
|
|
|
130,867 |
|
Total |
|
$ |
333,382 |
|
|
$ |
61,381 |
|
|
$ |
— |
|
|
$ |
272,001 |
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability for estimated losses on consumer loans guaranteed by the Company |
|
$ |
1,942 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,942 |
|
Affiliate Line of Credit |
|
|
437,397 |
|
|
|
— |
|
|
|
444,037 |
|
|
|
— |
|
Total |
|
$ |
439,339 |
|
|
$ |
— |
|
|
$ |
444,037 |
|
|
$ |
1,942 |
|
|
|
December 31, |
|
|
Fair Value Measurements Using |
|
||||||||||
|
|
2013 |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
47,480 |
|
|
$ |
47,480 |
|
|
$ |
— |
|
|
$ |
— |
|
Short-term loans and line of credit accounts, net (1) |
|
|
156,845 |
|
|
|
— |
|
|
|
— |
|
|
|
156,845 |
|
Installment loans, net (1) |
|
|
146,622 |
|
|
|
— |
|
|
|
— |
|
|
|
146,622 |
|
Total |
|
$ |
350,947 |
|
|
$ |
47,480 |
|
|
$ |
— |
|
|
$ |
303,467 |
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability for estimated losses on consumer loans guaranteed by the Company |
|
$ |
2,047 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
2,047 |
|
Affiliate Line of Credit |
|
|
424,133 |
|
|
|
— |
|
|
|
429,978 |
|
|
|
— |
|
Total |
|
$ |
426,180 |
|
|
$ |
— |
|
|
$ |
429,978 |
|
|
$ |
2,047 |
|
(1) |
Short-term loans, line of credit accounts and installment loans are included in “Consumer loans, net” in the consolidated balance sheets. |
Cash and cash equivalents bear interest at market rates and have original maturities of less than 90 days.
Short-term loans, line of credit accounts and installment loans are carried in the consolidated balance sheet net of the allowance for estimated loan losses, which 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 approximates the fair value. Short-term loans and line of credit accounts have relatively short maturity periods that are generally 12 months or less. The fair value of installment loans is estimated using a discounted cash flow analysis, which considers interest rates offered for loans with similar terms to borrowers of similar credit
18
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
quality. The carrying values of the Company’s installment loans approximate the fair value of these loans. Unsecured installment loans typically have terms between two and 12 months, but may have available terms up to 60 months.
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 $1.4 million, $1.9 million and $2.0 million as of September 30, 2014 and 2013 and December 31, 2013, 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 its long-term debt using Level 2 inputs. The fair value of the Company’s long term debt is estimated based on quoted prices in markets that are not active. As of September 30, 2014 and 2013 and December 31, 2013, the Company’s Senior Notes and Affiliate Line of Credit had a higher fair market value than the carrying value due to the difference in yield when compared to similar types of credit.
10. |
Subsequent Events |
The Company evaluates subsequent events through the date of filing this Quarterly Report on Form 10-Q with the Securities and Exchange Commission (the “SEC”).
Board Approval for Enova Spin-off
In April 2014, Cash America announced that its Board of Directors authorized management to review potential strategic alternatives, including a tax-free spin-off, for the separation of the Company. After evaluating separation alternatives for the Company, Cash America’s management recommended that Cash America’s Board of Directors pursue a tax-free spin-off to separate Cash America into two publicly traded companies: Enova International, Inc., which would own and operate Cash America’s online lending business, and Cash America International, Inc. which would own and operate Cash America’s storefront lending businesses. In July 2014, Cash America’s Board of Directors authorized the filing of a Registration Statement on Form 10 with the SEC by the Company in connection with the proposed spin-off.
On October 22, 2014, 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, Cash America’s Board of Directors approved the Spin-off. The distribution occurred at 12:01 am ET on November 13, 2014. Cash America’s shareholders received 0.915 shares of Company common stock for every one share of Cash America common stock held at the close of business November 3, 2014, which is the record date for the Spin-off. Following the distribution of Company common stock in the distribution, the Company became an independent, publicly traded company, and its shares of common stock are listed on the New York Stock Exchange under the symbol “ENVA.”
Long-Term Incentive Awards
On October 16, 2014, the Management Development and Compensation Committee of the Board of Directors of the Company approved long-term incentive awards to be made under the Enova International, Inc. 2014 Long-Term Incentive Plan (the “Enova LTIP”) to its executive officers and certain other employees if the distribution occurs. The awards to be granted in connection with the distribution will include (a) restricted stock units and (b) a special one-time grant of options to purchase Company stock, and these awards will be granted on or after the 30th day following the distribution date and will vest over a period of four years and three years, respectively. On October 16, 2014, the Company’s Management Development and Compensation Committee also approved an award of restricted stock units under the Enova LTIP with a value of $100,000 for each award to be made to each of the Company’s non-employee directors. These awards will be granted on or after the 30th day following the distribution date and will vest twelve months from the date of grant. The aggregate value of the awards is estimated to be $18.3 million for the restricted stock unit award and $11.1 million for the stock option award.
19
The following discussion of financial condition, results of operations, liquidity and capital resources and certain factors that may affect future results, including economic and industry-wide factors, of Enova International, Inc. and its subsidiaries should be read in conjunction with the Company’s consolidated financial statements and accompanying notes included under Part I, Item 1 of this Quarterly Report on Form 10-Q, as well as with Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s Registration Statement on Form 10 filed with the Securities and Exchange Commission (the “SEC”) on July 31, 2014 (as subsequently amended and declared effective by the SEC on October 24, 2014). This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements. The matters discussed in these forward-looking statements are subject to risk, uncertainties, and other factors that could cause actual results to differ materially from those made, projected or implied in the forward-looking statements. Please see “Risk Factors” and “Cautionary Statement Concerning Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions associated with these statements.
SEPARATION FROM CASH AMERICA
On April 10, 2014, the Board of Directors of Cash America International, Inc., or Cash America, authorized management to review potential strategic alternatives, including a tax-free spin-off, for our separation. After evaluating alternatives for Enova, Cash America’s management recommended that Cash America’s Board of Directors pursue a tax-free spin-off for the separation. On October 22, 2014, 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, Cash America’s Board of Directors approved the spin-off. The distribution occurred at 12:01 am ET on November 13, 2014 (the “Spin-off”). Cash America’s shareholders received 0.915 shares of our stock for every one share of Cash America common stock held at the close of business November 3, 2014, which is the record date for the distribution. 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.”
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. On the Spin-off date, we entered into several other agreements with Cash America that govern the relationship between us and Cash America after completion of the Spin-off and provide for the allocation between us and Cash America 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 also released on such date. These agreements also include arrangements with respect to transitional services to be provided by Cash America to us and vice versa.
BUSINESS OVERVIEW
We are a leading provider of online financial services. In 2013, we extended approximately $2.6 billion in credit to borrowers. We currently offer or arrange loans to customers in 34 states in the United States and in the United Kingdom, Australia and Canada. In June 2014 and July 2014, we launched pilot programs in Brazil and China, respectively, where we have begun arranging loans for borrowers through a third party lender in each country. In addition, in late July 2014, we introduced a pilot program for a new line of credit product in the United States to serve the needs of small businesses. We use our proprietary technology, analytics and customer service capabilities to quickly evaluate, underwrite and fund loans, allowing us to offer consumers credit when and how they want it. Our customers include the large and growing number of consumers who have bank accounts but use alternative financial services because of their limited access to more traditional consumer 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 September 30, 2014, we have completed over 30 million customer transactions and collected approximately 9 terabytes of currently accessible consumer behavior data since launch, allowing us to better analyze and underwrite our specific customer base. We have significantly diversified our business over the past several years and currently offer or arrange multiple loan products in the United States, the United Kingdom, Australia, Canada, Brazil and China. These loan products include short-term loans, installment loans and line of credit accounts.
We believe our customers highly value our services as an important component of their personal 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 loan performance, our sophisticated customer acquisition programs, our dedication to customer service and our talented employees.
We have developed a proprietary underwriting system based on data we have collected over our ten years of online lending experience. This system employs advanced risk analytics to decide whether to approve loan transactions, to structure the amount and terms of the loans we offer pursuant to jurisdiction specific regulations and to provide customers with their funds quickly and
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efficiently. Our systems closely monitor loan collection and portfolio performance data that we use to continually refine the analytical models and statistical measures used in making our credit, marketing and collection decisions.
Our flexible and scalable technology platform allows us to process and complete customers’ transactions quickly and efficiently. In 2013, we processed approximately 4.9 million transactions, and we continue to grow our loan portfolio and increase the number of customers we serve through both desktop and mobile platforms. Our highly customizable technology platform allows 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 and July 2014, we launched pilot programs in Brazil and China, respectively, where we have begun arranging loans for borrowers through a third party lender in each country. In addition, in late July 2014, we introduced a pilot program for a new line of credit product in the United States to serve the needs of small businesses. These products are intended to allow us to further diversify our product offerings, customer base and geographic scope. In the nine-month period ended September 30, 2014 we derived 55.9% of our total revenue from the United States and 44.1% of our total revenue internationally, with 97.2% of international revenue (representing 42.8% of our total revenue) generated in the United Kingdom. See “—Recent Regulatory Developments—Financial Conduct Authority” below for a discussion of the changes in our U.K. operations and our expectations for our U.K. business going forward.
We have been able to consistently acquire new customers and successfully generate repeat business from customers when they need a loan. 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 marketing, affiliate marketing, lead providers and relationships with other lenders. We believe that the online convenience of our products and our availability 24/7 to accept loan applications with quick results are important to our customers.
Once a potential new customer submits an application, we provide a quick credit decision. If a loan is approved we typically fund the loan the next business day or, in some cases, the same day. During the entire process, from application through payment, we provide access to our in-house and 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 customer has a need for our products in the future.
We have developed a series of sophisticated proprietary scoring models to support our various loan 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 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.
OUR PRODUCTS
Our online loans provide customers with a deposit of funds to their bank account or debit card in exchange for a commitment to repay the amount deposited plus fees and/or interest. We originate, arrange, guarantee or purchase short-term consumer loans, line of credit accounts and installment loans. We have only one reportable segment that includes all of our online financial services.
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Short-term consumer loans. Short-term 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. We offer or arrange short-term consumer loans in 24 states in the United States, the United Kingdom and Canada. Short-term loans generally have terms of seven to 90 days, with proceeds promptly deposited in the customer’s bank account or on a debit card in exchange for a pre-authorized debit from their account. Our short-term consumer loans contributed approximately 32.6% of our total revenue for the nine months ended September 30, 2014 and 55.8% for the nine months ended September 30, 2013. |
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Due to the credit risk and high transaction costs of serving our customer segment, the fees we charge are generally considered to be higher than the fees charged to consumers with superior credit histories by banks and similar lenders who are typically unwilling to make unsecured loans to alternative credit consumers. |
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Through our CSO programs, we provide services related to third-party lenders’ short-term consumer 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, or CSO loans. Under our CSO programs, we guarantee consumer loan payment obligations to the third party lender in the event the customer defaults on the loan. 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 to the consumer, 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 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 loans, which generally have terms of less than 90 days, if they go into default. As of September 30, 2014 and |
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2013, the outstanding amount of active consumer loans originated by third-party lenders under the CSO programs was $35.4 million and $35.1 million, respectively, which were guaranteed by us. |
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Line of credit accounts . Line of credit accounts consist of draws made through our unsecured line of credit products. We offer line of credit accounts in seven states in the United States and in the United Kingdom which allow customers to draw on the 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. Our line of credit accounts contributed approximately 37.2% of our total revenue for the nine months ended September 30, 2014 and 18.3% for the nine months ended September 30, 2013. |
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Installment loans . Installment loans are longer-term multi-payment loans that generally require the pay-down of portions of the outstanding principal balance in multiple installments. In September 2014 we began arranging and guaranteeing installment loans written by a third-party lender through our CSO programs in the United States. We offer multi-payment, unsecured installment loan products in the United Kingdom, Australia and in 14 states in the United States. Generally, terms for our installment loan products are between two and 12 months, but certain loans have available terms up to 60 months. These loans generally have higher principal amounts than short-term loans and are repaid in installments over the term of the loan. The loan may be repaid early at any time with no prepayment charges. Our installment loans contributed approximately 30.1% of our total revenue for the nine months ended September 30, 2014 and 25.7% for the nine months ended September 30, 2013. |
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Pilot programs . In June 2014 and July 2014, we launched pilot programs in Brazil and China, respectively, where we have begun arranging loans for borrowers through a third party lender in each country as described below. In addition, in late July 2014, we also introduced a pilot program for a new line of credit product in seven states in the United States to serve the needs of small businesses, which are included under “line of credit accounts”. |
We currently provide our services in the following countries:
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United States. We began our online business in the United States in May 2004. As of September 30, 2014, we provided services in 34 states under the names CashNetUSA at www.cashnetusa.com, NetCredit at www.netcredit.com, and Headway Capital at www.headwaycapital.com. In 2013, we originated, guaranteed or purchased $1.3 billion in loans and acquired more than 340,000 new customers in the United States. The United States represented 55.9% of our total revenue for the nine months ended September 30, 2014 and 51.1% of our total revenue for the nine months ended September 30, 2013. |
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United Kingdom . We provide services in the United Kingdom under the names QuickQuid at www.quickquid.co.uk, QuickQuid FlexCredit at www.quickquidflexcredit.co.uk, Pounds to Pocket at www.poundstopocket.co.uk and OnStride 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, our QuickQuid FlexCredit line of credit account business in March 2013, and our OnStride near-prime installment loan business in April 2014. In 2013, we originated $1.2 billion in loans and acquired more than 240,000 new customers in the United Kingdom. The United Kingdom represented 42.8% of our total revenue for the nine months ended September 30, 2014 and 47.7% of our total revenue for the nine months ended September 30, 2013. Our results from operations for the nine-month period ended September 30, 2014 and for the year ended December 31, 2013 do not include the full impact of changes and expected changes in our U.K. operations resulting from recent regulatory and legislative changes. As a result, such results are not indicative of our future results of operations and cash flow from our U.K. operations. See “—Recent Regulatory Developments—Financial Conduct Authority” below for a discussion about our expectations for our U.K. business going forward. |
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Australia. We provide services under the name DollarsDirect at www.dollarsdirect.com.au in Australia, and we began providing services there in May 2009. Australia represented 0.5% of our total revenue for the nine months ended September 30, 2014 and 0.6% of our total revenue for the nine months ended September 30, 2013. |
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Canada. We began providing services in Canada in October 2009. As of September 30, 2014, we provide services in the provinces of Ontario, British Columbia, Alberta and Saskatchewan under the name DollarsDirect at www.dollarsdirect.ca. Canada represented 0.6% of our total revenue for the nine months ended September 30, 2014 and 0.5% of our total revenue for the nine months ended September 30, 2013. |
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Brazil. On June 30, 2014, we launched a pilot program in Brazil where we arrange loans for a third party lender in accordance with applicable law under the name Simplic at www.simplic.com.br. We also guarantee the payment of these loans by agreeing to purchase the loans from the third-party lender under certain circumstances. The loans may be repaid in one payment or in two or three equal installments, depending on the loan terms selected by the customer, with loan durations ranging from 15 days for loans repaid in a single payment up to 105 days for loans payable in three installments. We will receive fees and interest on these loans in connection with the services we provide. Our future plans for Brazil will largely depend on our results from this pilot program. |
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China. We launched a pilot program in China in late July 2014 where we have entered into a joint venture with a third party lender where the third party lender makes loans in accordance with applicable laws under the name YouXinYi at www.youxinyi.cn. Our future plans for China will largely depend on our results from this pilot program. |
The Company’s internet websites and the information contained therein or connected thereto are not intended to be incorporated by reference into this Quarterly Report on Form 10-Q.
RECENT REGULATORY DEVELOPMENTS
Consumer Financial Protection Bureau
On November 20, 2013, Cash America consented to the issuance of a Consent Order by the Consumer Financial Protection Bureau, or 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 Cash America and us, to pay a civil money penalty of $5 million, of which we and Cash America agreed to allocate $2.5 million of this penalty to us, or the Regulatory Penalty. The Consent Order also relates to issues self-disclosed to the CFPB during its 2012 examination of Cash America and 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 military annual percentage rate permitted by the federal Military Lending Act due in part to system errors, 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 and Cash America. In addition, as a result of the CFPB’s review, we are in the process of enhancing our compliance management programs and implementing additional procedures to address the issues identified by the CFPB. We are also required to provide periodic reports to the CFPB. We are 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.
Financial Conduct Authority
During the nine-month periods ended September 30, 2014 and September 30, 2013, our U.K. operations generated 42.8% and 47.7%, respectively, of our consolidated total revenue. Recent regulatory changes in the United Kingdom will significantly affect future 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 Financial Conduct Authority, or 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 under 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 it 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. We are in frequent communication with the FCA in an effort to demonstrate that we satisfy the expectations of the FCA, and we have made and are continuing to make significant modifications to many of our business practices to address the FCA’s requirements. These modifications include 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 have not had a physical presence in the United Kingdom as business functions have been performed remotely from our facilities in the United States. In order to alleviate concerns in relation to our ability to presently demonstrate to the FCA that we are capable of being effectively supervised, we are establishing an office in the United Kingdom.
In connection with implementing these changes to our U.K. business, we expect a significant year-over-year decrease in our U.K. loan volume, U.K. loan balances and U.K. revenue for the remainder of 2014 and potentially into 2015 as a result of adapting our U.K. business practices in response to the requirements of the FCA. The implementation of stricter affordability assessments and underwriting standards will result 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 will experience 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) are expected to decrease as our U.K. business contracts. The ultimate impact of the changes we are making 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 impact potentially could also be offset by an improved performance of our U.K. consumer loan portfolio as a result of stricter affordability assessments and underwriting standards being implemented, which is expected to result in lower consumer loan loss rates, and by continued strong demand for the online loan products we offer in the United States and other markets. We are still assessing the potential impact of the changes we are making to our U.K. operations and what effect such changes may have on our business, but the impact of these changes is likely to be significant for the balance of 2014 and potentially into 2015.
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On July 15, 2014, the FCA issued a consultation paper that proposed a cap on the total cost of high-cost short-term credit and requested comments on the proposal. The consultation paper proposed a maximum rate of 0.8% of principal per day, and the proposal 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 FCA requested comments on the proposal and issued its final rule on November 11, 2014. The final rule was largely the same as the proposed rule except for additional language that will likely require us to make further changes to our line of credit product. We are still assessing the impact of the final rule, which will become effective on January 2, 2015, as required by the 2013 amendment to the Financial Services and Markets Act 2000. It is possible that the rule change could have a significant effect on the results of our U.K. operations.
The results for the three- and nine-month periods ended September 30, 2014 do not include the full impact of the changes described above, and the results for the three- and nine-month periods ended September 30, 2013 do not include any impact of the changes described above. The results for each of these periods are not indicative of our future results of operations and cash flows from our operations in 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 September 30, 2014, Enova offered or arranged loans through a number of its subsidiaries to customers in 34 states in the United States, United Kingdom, Australia, Canada, China and Brazil.
Historically, we have 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 include allocations of costs relating to certain functions historically provided by Cash America, including corporate services such as executive oversight, insurance and risk management, government relations, internal audit, treasury, licensing, and to a limited extent finance, accounting, tax, legal, human resources, compensation and benefits, compliance and support for certain information systems related to financial reporting. The expense allocations have been determined on a basis that Cash America and we consider 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. Once we separate from Cash America, our 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 these years 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. The expiration date of the agreement varies by service provided but is generally no longer than 12 months from the separation date. Under the agreement, Cash America provides support for certain information systems related to financial reporting and payment processing to us for a period of time following the completion of the Spin-off for which we will compensate Cash America. In addition, we will reimburse Cash America for all out-of-pocket costs and expenses it pays or incurs in connection with providing such services. See “—Separation From Cash America” for discussion of the separation.
Revenue Recognition
We recognize revenue based on the loan 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, or CSO fees, service charges, draw fees, minimum fees, late fees, nonsufficient funds fees and any other fees or charges permitted by applicable laws and pursuant to the agreement with the borrower. For short-term loans that we offer, interest and finance charges are recognized on an effective yield basis over the term of the loan, and fees are recognized when assessed to the customer. CSO fees are recognized on an effective yield basis over the term of the loan. For line of credit accounts, interest is recognized over the reporting period based upon the balance outstanding and the contractual interest rate, and fees are recognized when assessed to the customer. For installment loans, interest is recognized on an effective yield basis over the term of the loan and fees are recognized when assessed to the customer. Unpaid and accrued interest and fees are included in “Consumer loans, net” in the consolidated balance sheets.
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Current and Delinquent Consumer Loans
We classify our consumer loans as either current or delinquent. Short-term loans are considered delinquent when payment of an amount due is not made as of the due date. If a line of credit account or installment loan customer misses one payment, that payment is considered delinquent and the balance of the loan is considered current. 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 account or installment loan customer does not make two consecutive payments, the entire loan or account is classified as delinquent. We allow for normal payment processing time before considering a payment or a loan delinquent but do 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. References throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations to renewed consumer loans include both renewals and extensions made by customers to their existing loans as discussed above.
We generally do not accrue interest on delinquent consumer loans and do not resume accrual of interest on a delinquent loan unless it is returned to current status. In addition, delinquent consumer loans generally may not be renewed, and if, during an attempt to collect on a delinquent consumer 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.
Allowance and Liability for Estimated Losses on Consumer Loans
We monitor the performance of our consumer loan portfolio and maintain either an allowance or liability for estimated losses on consumer loans (including fees and interest) at a level estimated to be adequate to absorb credit losses inherent in the portfolio. The allowance for losses on our owned consumer loans 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.
In determining the allowance or liability for estimated losses on consumer loans, we apply a documented systematic methodology. In calculating the allowance or liability for loan losses, outstanding loans are divided into discrete groups of short-term loans, line of credit accounts and installment loans and are analyzed as current or delinquent. Increases in either the allowance or the liability, net of charge-offs and recoveries, are recorded as a “Cost of revenue” in the consolidated statements of income.
The allowance or liability for short-term loans classified as current is based on historical loss rates adjusted for recent default trends for current loans. For delinquent short-term loans, the allowance or liability is based on a six month rolling average of loss rates by stage of collection. For line of credit account and installment loan portfolios, we generally use a migration analysis to 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 to 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.
We fully reserve and generally charge off consumer loans once the loan or a portion of the loan has been classified as delinquent for 60 consecutive days. If a loan is deemed uncollectible before it is fully reserved, it is charged off at that point. Consumer loans classified as delinquent generally have an age of one to 59 days from the date any portion of the loan became delinquent, as defined above. Recoveries on loans previously charged to the allowance are credited to the allowance when collected.
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, or 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.
We use the income approach to complete our annual goodwill assessment. The income approach uses future cash flows and estimated terminal values for us 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,
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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, 2014 and determined that the fair value of our 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 2014 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.
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 five years. The costs of start-up activities and organization costs are charged to expense as incurred.
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 print advertising. In addition, marketing expenses include lead purchase costs paid to lead providers and marketing affiliates in exchange for providing information or applications from potential customers interested in using our services. Online marketing and lead purchase costs are expensed as incurred. The production costs associated with offline marketing are expensed as incurred. Other marketing costs are expensed as incurred. We also have an agreement with an independent third party pursuant to which we pay a portion of the net revenue received on the customers referred to us by such third party. We also had an arrangement with Cash America pursuant to which we paid either a lead purchase fee or a portion of the net revenue received on loans made to or arranged for the customers referred to us by Cash America. These referral fees were expensed as incurred and 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. We allocate these expenses between domestic and international operations on the basis of revenue. In addition, 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.
Income Taxes
We account for income taxes under ASC 740, Income Taxes, or ASC 740. Accordingly, income tax expense and the deferred income tax balances in the consolidated financial statements have been calculated on a separate tax return basis although our operations have historically been included as part of consolidated and unitary tax returns with Cash America and its affiliated companies. We maintained an income taxes payable to/from account with Cash America. With the exception of certain entities outside of the US, we settled our current tax balances with Cash America on a quarterly basis through an adjustment to “Related party payable, net” in the consolidated balance sheets. 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.
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 liabilities and are included within the consolidated balance sheets. Management must then assess the likelihood that the deferred tax assets will be
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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.
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.
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. Management 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.
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 ASC 740.
Recent Accounting Pronouncements
See Note 1 in the Notes to Consolidated Financial Statements for a discussion of recent accounting pronouncements.
RESULTS OF OPERATIONS
HIGHLIGHTS
The Company’s financial results for the three months ended September 30, 2014, or the current quarter, are summarized below.
· |
Consolidated total revenue increased $7.1 million, or 3.6%, to $205.2 million in the current quarter compared to $198.1 million for the three months ended September 30, 2013, or the prior year quarter. |
· |
Consolidated gross profit increased $24.5 million to $132.2 million in the current quarter compared to $107.7 million in the prior year quarter. |
· |
Consolidated income from operations was $43.0 million in the current quarter, compared to $31.3 million in the prior year quarter. |
· |
Consolidated net income was $18.5 million in the current quarter compared to $17.1 million in the prior year quarter. Consolidated diluted earnings per share was $0.56 in the current quarter compared to $0.52 in the prior year quarter. |
Our results from operations for the three- and nine-month periods ended September 30, 2014 do not include the full impact of changes and expected changes in our U.K. operations resulting from recent regulatory and legislative changes and our results from operations for the three- and nine-month periods ended September 30, 2013 do not include any impact of these changes. As a result, such results are not indicative of our future results of operations and cash flow from our U.K. operations. We expect our future results of operations will be adversely affected as a result of modifying many of our business practices to satisfy the requirements of the FCA, including stricter underwriting and affordability assessment guidelines, changes to our collection practices and increased compliance costs, including the cost of establishing and operating an office in the United Kingdom. See “—Recent Regulatory Developments—Financial Conduct Authority” above for further information.
27
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):
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer loan fees |
|
$ |
204,604 |
|
|
$ |
197,780 |
|
|
$ |
614,466 |
|
|
$ |
555,410 |
|
Other |
|
|
564 |
|
|
|
318 |
|
|
|
649 |
|
|
|
1,143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue |
|
|
205,168 |
|
|
|
198,098 |
|
|
|
615,115 |
|
|
|
556,553 |
|
Cost of Revenue |
|
|
72,919 |
|
|
|
90,389 |
|
|
|
206,195 |
|
|
|
228,547 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
|
132,249 |
|
|
|
107,709 |
|
|
|
408,920 |
|
|
|
328,006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing |
|
|
33,393 |
|
|
|
36,523 |
|
|
|
92,699 |
|
|
|
94,592 |
|
Operations and technology |
|
|
19,362 |
|
|
|
17,959 |
|
|
|
54,370 |
|
|
|
52,505 |
|
General and administrative |
|
|
31,167 |
|
|
|
17,991 |
|
|
|
82,525 |
|
|
|
61,879 |
|
Depreciation and amortization |
|
|
5,338 |
|
|
|
3,958 |
|
|
|
13,772 |
|
|
|
12,986 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Expenses |
|
|
89,260 |
|
|
|
76,431 |
|
|
|
243,366 |
|
|
|
221,962 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Operations |
|
|
42,989 |
|
|
|
31,278 |
|
|
|
165,554 |
|
|
|
106,044 |
|
Interest expense, net |
|
|
(13,136 |
) |
|
|
(4,909 |
) |
|
|
(25,201 |
) |
|
|
(14,738 |
) |
Foreign currency transaction loss |
|
|
(155 |
) |
|
|
(737 |
) |
|
|
(555 |
) |
|
|
(1,023 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before Income Taxes |
|
|
29,698 |
|
|
|
25,632 |
|
|
|
139,798 |
|
|
|
90,283 |
|
Provision for income taxes |
|
|
11,213 |
|
|
|
8,544 |
|
|
|
50,629 |
|
|
|
31,959 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
|
18,485 |
|
|
|
17,088 |
|
|
|
89,169 |
|
|
|
58,324 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
0.56 |
|
|
$ |
0.52 |
|
|
$ |
2.70 |
|
|
$ |
1.77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer loan fees |
|
|
99.7 |
% |
|
|
99.8 |
% |
|
|
99.9 |
% |
|
|
99.8 |
% |
Other |
|
|
0.3 |
|
|
|
0.2 |
|
|
|
0.1 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue |
|
|
100.0 |
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
100.0 |
|
Cost of Revenue |
|
|
35.5 |
|
|
|
45.6 |
|
|
|
33.5 |
|
|
|
41.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
|
64.5 |
|
|
|
54.4 |
|
|
|
66.5 |
|
|
|
58.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing |
|
|
16.3 |
|
|
|
18.4 |
|
|
|
15.1 |
|
|
|
17.0 |
|
Operations and technology |
|
|
9.4 |
|
|
|
9.1 |
|
|
|
8.8 |
|
|
|
9.4 |
|
General and administrative |
|
|
15.2 |
|
|
|
9.1 |
|
|
|
13.4 |
|
|
|
11.1 |
|
Depreciation and amortization |
|
|
2.6 |
|
|
|
2.0 |
|
|
|
2.3 |
|
|
|
2.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Expenses |
|
|
43.5 |
|
|
|
38.6 |
|
|
|
39.6 |
|
|
|
39.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Operations |
|
|
21.0 |
|
|
|
15.8 |
|
|
|
26.9 |
|
|
|
19.1 |
|
Interest expense, net |
|
|
(6.4 |
) |
|
|
(2.5 |
) |
|
|
(4.1 |
) |
|
|
(2.7 |
) |
Foreign currency transaction loss |
|
|
(0.1 |
) |
|
|
(0.4 |
) |
|
|
(0.1 |
) |
|
|
(0.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before Income Taxes |
|
|
14.5 |
|
|
|
12.9 |
|
|
|
22.7 |
|
|
|
16.2 |
|
Provision for income taxes |
|
|
5.5 |
|
|
|
4.3 |
|
|
|
8.2 |
|
|
|
5.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
|
9.0 |
% |
|
|
8.6 |
% |
|
|
14.5 |
% |
|
|
10.5 |
% |
28
NON-GAAP DISCLOSURE
In addition to the financial information prepared in conformity with generally accepted accounting principles, or GAAP, we provide historical non-GAAP financial information. Management believes that presentation of non-GAAP financial information is meaningful and useful in understanding the activities and business metrics of our operations. Management believes 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 its business.
Management provides 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, its 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.
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. Management believes 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. Management also believes 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 the Company’s business that may not otherwise be apparent when relying on financial measures calculated in accordance with GAAP. In addition, management believes that the adjustments shown below are useful to investors in order to allow them to compare the Company’s financial results during the periods shown without the effect of each of these expense items.
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):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
||||
Net Income |
|
$ |
18,485 |
|
|
$ |
17,088 |
|
|
$ |
89,169 |
|
|
$ |
58,324 |
|
Adjustments (net of tax): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible asset amortization |
|
4 |
|
|
18 |
|
|
23 |
|
|
71 |
|
||||
Non-cash equity-based compensation |
|
55 |
|
|
57 |
|
|
164 |
|
|
106 |
|
||||
Foreign currency transaction loss |
|
97 |
|
|
479 |
|
|
354 |
|
|
661 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted earnings |
|
$ |
18,641 |
|
|
$ |
17,642 |
|
|
$ |
89,710 |
|
|
$ |
59,162 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
0.56 |
|
|
$ |
0.52 |
|
|
$ |
2.70 |
|
|
$ |
1.77 |
|
Adjustments (net of tax): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible asset amortization |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Non-cash equity-based compensation |
|
|
— |
|
|
|
— |
|
|
0.01 |
|
|
|
— |
|
|
Foreign currency transaction loss |
|
|
— |
|
|
0.01 |
|
|
0.01 |
|
|
0.02 |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted earnings per share |
|
$ |
0.56 |
|
|
$ |
0.53 |
|
|
$ |
2.72 |
|
|
$ |
1.79 |
|
29
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 and taxes. Management believes 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. The computation of Adjusted EBITDA as presented below may differ from the computation of similarly-titled measures provided by other companies (in thousands):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
||||
Net Income |
|
$ |
18,485 |
|
|
$ |
17,088 |
|
|
$ |
89,169 |
|
|
$ |
58,324 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expenses |
|
|
5,338 |
|
|
|
3,958 |
|
|
|
13,772 |
|
|
|
12,986 |
|
Interest expense, net |
|
|
13,136 |
|
|
|
4,909 |
|
|
|
25,201 |
|
|
|
14,738 |
|
Foreign currency transaction loss (gain) |
|
|
155 |
|
|
|
737 |
|
|
|
555 |
|
|
|
1,023 |
|
Provision for income taxes |
|
|
11,213 |
|
|
|
8,544 |
|
|
|
50,629 |
|
|
|
31,959 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
$ |
48,327 |
|
|
$ |
35,236 |
|
|
$ |
179,326 |
|
|
$ |
119,030 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA margin calculated as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue |
|
|
205,168 |
|
|
|
198,098 |
|
|
|
615,115 |
|
|
|
556,553 |
|
Adjusted EBITDA |
|
|
48,327 |
|
|
|
35,236 |
|
|
|
179,326 |
|
|
|
119,030 |
|
Adjusted EBITDA as a percentage of total revenue |
|
|
23.6 |
% |
|
|
17.8 |
% |
|
|
29.2 |
% |
|
|
21.4 |
% |
Combined Consumer Loans
Combined consumer loans, which are discussed throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations, is a non-GAAP measure that includes both consumer loans we own and consumer 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 Consumer Loans.”
Management believes this non-GAAP measure provides investors with important information needed to evaluate the magnitude of potential loan losses and the opportunity for revenue performance of the consumer loan portfolio on an aggregate basis. Management also believes 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 for loans are impacted by the aggregate amount of loans we own and those we guarantee as reflected in our financial statements.
THREE MONTHS ENDED SEPTEMBER 30, 2014 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2013
Revenue and Gross Profit
Revenue increased $7.1 million, or 3.6%, to $205.2 million for the current quarter as compared to $198.1 million for the prior year quarter. The increase in revenue is primarily due to growth in domestic consumer loan balances, with revenue from domestic operations increasing by $20.9 million. The increase in revenue from domestic operations was partially offset by a decrease in revenue of $13.8 million from our international operations, primarily in the United Kingdom.
Our gross profit increased by $24.5 million to $132.2 million for the current quarter from $107.7 million for the prior year quarter. Our consolidated gross profit as a percentage of revenue, or our gross profit margin, increased to 64.5% for the current quarter, from 54.4% for the prior year quarter. The increase in gross profit was primarily due to higher revenue and lower loss experience from our line of credit account and installment loan products, mainly as a result of a lower percentage of delinquent loans, increased collections and a higher percentage mix of customers with established payment histories during the current quarter as compared to the prior year quarter. New customers tend to have a higher risk of default than customers with a history of successfully repaying loans. Line of credit account and installment loan products comprised 78.9% of the combined gross consumer loan balance at September 30, 2014 compared to 66.6% at September 30, 2013. While the short-term consumer loan product was a less significant portion of the aggregate portfolio, loss experience for the product also decreased in the current quarter compared to the prior year quarter, contributing to the increase in gross profit margin for the period. In addition, we recently made refinements to our underwriting models partially as a result of the changes made to our U.K. business in response to the requirements of the FCA, which we believe also contributed to the increase in gross profit. Our historical results from operations do not include the full impact of changes and expected changes in our U.K. operations resulting from recent regulatory and legislative changes and are not indicative of our future results of operations and cash flows from our U.K. operations. See “—Recent Regulatory Developments—Financial Conduct Authority” above for further
30
information. Management expects the consolidated gross profit margin will continue to be influenced by the mix of loans to new and returning customers, the mix of outstanding loan products as product design and underwriting rules vary, and changes to our U.K. business.
The following table sets forth the components of revenue and gross profit, separated between domestic and international for the current quarter and the prior year quarter (in thousands):
|
|
Three Months Ended September 30, |
|
|||||||||||||||||||||
|
|
2014 |
|
|
2013 |
|
||||||||||||||||||
|
|
Domestic |
|
|
International |
|
|
Total |
|
|
Domestic |
|
|
International |
|
|
Total |
|
||||||
Short-term loans |
|
$ |
46,125 |
|
|
$ |
15,760 |
|
|
$ |
61,885 |
|
|
$ |
48,552 |
|
|
$ |
43,956 |
|
|
$ |
92,508 |
|
Line of credit accounts |
|
|
41,723 |
|
|
|
39,186 |
|
|
|
80,909 |
|
|
|
32,374 |
|
|
|
18,132 |
|
|
|
50,506 |
|
Installment loans |
|
|
38,275 |
|
|
|
23,535 |
|
|
|
61,810 |
|
|
|
24,024 |
|
|
|
30,742 |
|
|
|
54,766 |
|
Other |
|
|
7 |
|
|
|
557 |
|
|
|
564 |
|
|
|
249 |
|
|
|
69 |
|
|
|
318 |
|
Revenue |
|
|
126,130 |
|
|
|
79,038 |
|
|
|
205,168 |
|
|
|
105,199 |
|
|
|
92,899 |
|
|
|
198,098 |
|
Cost of Revenue |
|
|
55,058 |
|
|
|
17,861 |
|
|
|
72,919 |
|
|
|
50,232 |
|
|
|
40,157 |
|
|
|
90,389 |
|
Gross Profit |
|
$ |
71,072 |
|
|
$ |
61,177 |
|
|
$ |
132,249 |
|
|
$ |
54,967 |
|
|
$ |
52,742 |
|
|
$ |
107,709 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year-over-year change—$ |
|
$ |
16,105 |
|
|
$ |
8,435 |
|
|
$ |
24,540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Year-over-year change—% |
|
|
29.3 |
% |
|
|
16.0 |
% |
|
|
22.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit margin |
|
|
56.3 |
% |
|
|
77.4 |
% |
|
|
64.5 |
% |
|
|
52.3 |
% |
|
|
56.8 |
% |
|
|
54.4 |
% |
Consumer Loan Balances
The outstanding combined portfolio balance of consumer loans, net of allowance and liability for estimated losses, increased $32.5 million, or 10.6%, to $337.7 million as of September 30, 2014 from $305.2 million as of September 30, 2013, primarily due to increased demand for the line of credit account and domestic installment loan products, partially offset by a reduction in international short-term and installment loan balances due to changes made in our U.K. business as a result of new regulatory requirements. Our domestic installment loan product intended to serve a near-prime customer base was a significant contributor to the growth in our consumer loan portfolio for the current quarter. Management expects the loan balances in the line of credit account and installment loan products to continue to comprise a larger percentage of the total consumer loan portfolio, due to customer’s preference for these products. See “—Non-GAAP Disclosure—Combined Consumer Loans” above for additional information related to combined consumer loans.
The combined consumer loan balance includes $373.7 million and $359.1 million as of September 30, 2014 and 2013, respectively, of our consumer loan balances before the allowance for losses of $70.0 million and $87.1 million provided in the consolidated financial statements for September 30, 2014 and 2013, respectively. The combined consumer loan balance also includes $35.4 million and $35.1 million as of September 30, 2014 and 2013, respectively, of consumer loan balances that are guaranteed by us, which are not included in our financial statements, before the liability for estimated losses of $1.4 million and $1.9 million provided in “Accounts payable and accrued expenses” in the consolidated financial statements for September 30, 2014 and 2013, respectively.
31
The following table summarizes consumer loan balances outstanding as of September 30, 2014 and 2013 (in thousands):
|
|
As of September 30, |
|
|||||||||||||||||||||
|
|
2014 |
|
|
2013 |
|
||||||||||||||||||
|
|
|
|
|
|
Guaranteed |
|
|
|
|
|
|
|
|
|
|
Guaranteed |
|
|
|
|
|
||
|
|
Company |
|
|
by the |
|
|
|
|
|
|
Company |
|
|
by the |
|
|
|
|
|
||||
|
|
Owned (a) |
|
|
Company (a) |
|
|
Combined (b) |
|
|
Owned (a) |
|
|
Company (a) |
|
|
Combined (b) |
|
||||||
Ending consumer loan balances: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term loans |
|
$ |
34,113 |
|
|
$ |
35,389 |
|
|
$ |
69,502 |
|
|
$ |
33,229 |
|
|
$ |
35,107 |
|
|
$ |
68,336 |
|
Line of credit accounts |
|
|
72,648 |
|
|
|
— |
|
|
|
72,648 |
|
|
|
59,341 |
|
|
|
— |
|
|
|
59,341 |
|
Installment loans |
|
|
135,664 |
|
|
|
40 |
|
|
|
135,704 |
|
|
|
61,801 |
|
|
|
— |
|
|
|
61,801 |
|
Total domestic, gross |
|
|
242,425 |
|
|
|
35,429 |
|
|
|
277,854 |
|
|
|
154,371 |
|
|
|
35,107 |
|
|
|
189,478 |
|
International |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term loans |
|
|
16,709 |
|
|
|
— |
|
|
|
16,709 |
|
|
|
63,276 |
|
|
|
22 |
|
|
|
63,298 |
|
Line of credit accounts |
|
|
55,627 |
|
|
|
— |
|
|
|
55,627 |
|
|
|
40,265 |
|
|
|
— |
|
|
|
40,265 |
|
Installment loans |
|
|
58,932 |
|
|
|
— |
|
|
|
58,932 |
|
|
|
101,143 |
|
|
|
— |
|
|
|
101,143 |
|
Total international, gross |
|
|
131,268 |
|
|
|
— |
|
|
|
131,268 |
|
|
|
204,684 |
|
|
|
22 |
|
|
|
204,706 |
|
Total ending loan balance, gross |
|
|
373,693 |
|
|
|
35,429 |
|
|
|
409,122 |
|
|
|
359,055 |
|
|
|
35,129 |
|
|
|
394,184 |
|
Less: Allowance and liabilities for losses (a) |
|
|
(69,999 |
) |
|
|
(1,444 |
) |
|
|
(71,443 |
) |
|
|
(87,054 |
) |
|
|
(1,942 |
) |
|
|
(88,996 |
) |
Total ending loan balance, net |
|
$ |
303,694 |
|
|
$ |
33,985 |
|
|
$ |
337,679 |
|
|
$ |
272,001 |
|
|
$ |
33,187 |
|
|
$ |
305,188 |
|
(a) |
GAAP measure. The consumer loan 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 Consumer Loan
The average amount outstanding per consumer loan is calculated as the total combined consumer loans, gross balance at the end of the period divided by the total number of combined consumer loans outstanding at the end of the period. The following table shows the average amount outstanding per consumer loan by product at September 30, 2014 and 2013:
|
|
As of September 30, |
|
|||||
|
|
2014 |
|
|
2013 |
|
||
Average amount outstanding per consumer loan (in ones) (a) |
|
|
|
|
|
|
|
|
Short-term loans (b) |
|
$ |
447 |
|
|
$ |
525 |
|
Line of credit accounts |
|
|
734 |
|
|
|
732 |
|
Installment loans (b) |
|
|
1,318 |
|
|
|
1,048 |
|
Total consumer loans (b) |
|
$ |
794 |
|
|
$ |
727 |
|
(a) |
The disclosure regarding the average amount per consumer 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. |
The average amount outstanding per consumer loan increased to $794 from $727 during the current quarter compared to the prior year quarter, mainly due to a greater mix in the current quarter of line of credit accounts and installment loans, which have higher average amounts per loan relative to short-term loans, in the current quarter compared to the prior year quarter. This increase was partially offset by a decrease in short-term loans, which have a lower average loan amount relative to line of credit accounts and installment loans.
32
Average Consumer Loan Amount
The average amount per consumer loan is calculated as the total amount of combined consumer loans written and renewed for the period divided by the total number of combined consumer loans written and renewed for the period. The following table shows the average amount per consumer loan by product for the current quarter compared to the prior year quarter:
|
|
Three Months Ended |
|
|||||
|
|
September 30, |
|
|||||
|
|
2014 |
|
|
2013 |
|
||
Average amount per consumer loan (in ones) (a) |
|
|
|
|
|
|
|
|
Short-term loans (b) |
|
$ |
502 |
|
|
$ |
515 |
|
Line of credit accounts (c) |
|
|
263 |
|
|
|
315 |
|
Installment loans (b) |
|
|
1,576 |
|
|
|
1,187 |
|
Total consumer loans (b) |
|
$ |
488 |
|
|
$ |
524 |
|
(a) |
The disclosure regarding the average amount per consumer 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) |
Represents the average amount of each incremental draw on line of credit accounts. |
The average amount per consumer loan decreased to $488 from $524 during the current quarter compared to the prior year quarter, mainly due to a greater mix in the current quarter of line of credit accounts, which have lower average amounts per loan relative to short-term loans, and stricter underwriting standards for our U.K. business in the current quarter compared to the prior year quarter. This decrease was partially offset by an increase in installment loans, which have a higher average loan amount relative to short-term loans.
CONSUMER LOAN LOSS EXPERIENCE
The allowance and liability for estimated losses as a percentage of combined consumer loans and fees receivable decreased to 17.5% as of September 30, 2014 from 22.6% as of September 30, 2013, primarily due to improved performance across all products in our consumer loan portfolio, partially related to the maturing of our product offerings, such as line of credit accounts and installment loans, 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 the current quarter was $72.9 million, which was composed of $73.0 million related to our owned consumer loans offset by a $0.1 million decrease in the liability for estimated losses related to loans we guaranteed through the CSO programs. The cost of revenue in the prior year quarter was $90.4 million, which was composed of $90.6 million related to our owned consumer loans, offset by a $0.2 million decrease in the liability for estimated losses related to loans we guaranteed through the CSO programs. Total charge-offs, net of recoveries, were $69.5 million and $83.2 million in the current quarter and the prior year quarter, respectively.
The following tables show consumer loan balances and fees receivable and the relationship of the allowance and liability for losses to the combined balances of consumer loans for each of the last five quarters (in thousands):
|
|
2013 |
|
|
2014 |
|
||||||||||||||
|
|
Third |
|
|
Fourth |
|
|
First |
|
|
Second |
|
|
Third |
|
|||||
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|||||
Consumer loan balances and fees receivable: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross - Company owned |
|
$ |
359,055 |
|
|
$ |
385,785 |
|
|
$ |
354,466 |
|
|
$ |
359,760 |
|
|
$ |
373,693 |
|
Gross - Guaranteed by the Company (a) |
|
|
35,128 |
|
|
|
41,412 |
|
|
|
29,643 |
|
|
|
34,915 |
|
|
|
35,429 |
|
Combined consumer loans and fees receivable, gross (b) |
|
|
394,183 |
|
|
|
427,197 |
|
|
|
384,109 |
|
|
|
394,675 |
|
|
|
409,122 |
|
Allowance and liability for losses on consumer loans |
|
|
88,996 |
|
|
|
84,365 |
|
|
|
75,479 |
|
|
|
69,375 |
|
|
|
71,443 |
|
Combined consumer loans and fees receivable, net (b) |
|
$ |
305,187 |
|
|
$ |
342,832 |
|
|
$ |
308,630 |
|
|
$ |
325,300 |
|
|
$ |
337,679 |
|
Allowance and liability for losses as a % of combined consumer loans and fees receivable, gross (b) |
|
|
22.6 |
% |
|
|
19.7 |
% |
|
|
19.7 |
% |
|
|
17.6 |
% |
|
|
17.5 |
% |
(a) |
Represents loans originated by third-party lenders through the CSO programs, which are not included in our financial statements. |
(b) |
Non-GAAP measure. |
33
Consumer Loan Loss Experience by Product
Management evaluates loss rates for all consumer loan products in our portfolio to determine credit quality and evaluate trends. For our products, we evaluate consumer loan losses as a percentage of the average consumer loan balance outstanding or the average combined consumer loan balance outstanding, whichever is applicable, for each portfolio. We expect future loss rates to continue to be affected by changes to our U.K. business. See “—Recent Regulatory Developments—Financial Conduct Authority.”
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. Typically, our gross profit margin is 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 consumer 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. This seasonal trend was not evident during 2013, primarily due to a significant decline in demand for short-term loans in the United Kingdom when we began offering a line of credit account product. This trend continued in the United Kingdom during the nine-month period ended September 30, 2014, or the current nine-month period. The cost of revenue as a percentage of the average combined consumer loan balance of short-term loans was also impacted by increased collections as well as recent refinements made to our consumer loan underwriting models, primarily as a result of changes in business practices in the U.K. The average short-term combined consumer loan balance outstanding for short-term consumer loans declined during 2013 and the current nine-month period, primarily due to a decrease in demand for short-term loans and customers’ preference for the line of credit account product.
The following table includes information related only to short-term consumer loans and shows our loss experience trends for short-term consumer loans for each of the last five quarters (in thousands):
|
|
2013 |
|
|
2014 |
|
||||||||||||||
|
|
Third |
|
|
Fourth |
|
|
First |
|
|
Second |
|
|
Third |
|
|||||
Short-term consumer loans: |
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|||||
Cost of revenue |
|
$ |
33,606 |
|
|
$ |
25,678 |
|
|
$ |
16,316 |
|
|
$ |
19,670 |
|
|
$ |
18,936 |
|
Charge-offs (net of recoveries) |
|
|
42,922 |
|
|
|
35,863 |
|
|
|
19,156 |
|
|
|
19,755 |
|
|
|
19,630 |
|
Average short-term combined consumer loans and fees receivable, gross: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company owned (a) |
|
|
108,032 |
|
|
|
84,651 |
|
|
|
71,686 |
|
|
|
62,404 |
|
|
|
55,296 |
|
Guaranteed by the Company (a)(b) |
|
|
35,951 |
|
|
|
36,369 |
|
|
|
34,321 |
|
|
|
32,022 |
|
|
|
35,594 |
|
Average short-term combined consumer loans and fees receivable, gross (a)(c) |
|
$ |
143,983 |
|
|
$ |
121,020 |
|
|
$ |
106,007 |
|
|
$ |
94,426 |
|
|
$ |
90,890 |
|
Ending short-term combined consumer loans and fees receivable, gross: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company owned |
|
$ |
96,505 |
|
|
$ |
80,753 |
|
|
$ |
65,910 |
|
|
$ |
60,140 |
|
|
$ |
50,822 |
|
Guaranteed by the Company (b) |
|
|
35,128 |
|
|
|
41,412 |
|
|
|
29,643 |
|
|
|
34,915 |
|
|
|
35,389 |
|
Ending short-term combined consumer loans and fees receivable, gross (c) |
|
$ |
131,633 |
|
|
$ |
122,165 |
|
|
$ |
95,553 |
|
|
$ |
95,055 |
|
|
$ |
86,211 |
|
Ending allowance and liability for losses |
|
$ |
32,514 |
|
|
$ |
22,513 |
|
|
$ |
19,726 |
|
|
$ |
19,829 |
|
|
$ |
18,857 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term consumer loan ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue as a % of average short-term combined consumer loans and fees receivable, gross (a)(c) |
|
|
23.3 |
% |
|
|
21.2 |
% |
|
|
15.4 |
% |
|
|
20.8 |
% |
|
|
20.8 |
% |
Charge-offs (net of recoveries) as a % of average short-term combined consumer loans and fees receivable, gross ( a)(c) |
|
|
29.8 |
% |
|
|
29.6 |
% |
|
|
18.1 |
% |
|
|
20.9 |
% |
|
|
21.6 |
% |
Gross profit margin |
|
|
63.7 |
% |
|
|
67.6 |
% |
|
|
77.6 |
% |
|
|
70.1 |
% |
|
|
69.4 |
% |
Allowance and liability for losses as a % of combined consumer loans and fees receivable, gross (c)(d) |
|
|
24.7 |
% |
|
|
18.4 |
% |
|
|
20.6 |
% |
|
|
20.9 |
% |
|
|
21.9 |
% |
(a) |
The average short-term combined consumer loans and fees receivable 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 consumer loans and fees receivable, gross, is determined using period-end balances. |
34
Line of Credit Accounts
The cost of revenue as a percentage of average consumer loan balance for line of credit accounts exhibits a similar quarterly seasonal trend to short-term consumer 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.
The gross profit margin is generally lower for line of credit accounts because the highest levels of 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, which has been the case in recent years, the gross profit margin will be lower for this product than for our short-term loan products. The year over year decrease in the allowance for losses as a percentage of consumer loan balance was primarily due to the maturing of the line of credit portfolio reflected in a lower percentage of the portfolio in a delinquent status, and, as a result, the typical seasonal trend was not evidenced during the current nine-month period. During the third quarter of 2014 we experienced a seasonal sequential increase in the average line of credit account balance; however, this increase was moderated by the sequential decline from the second quarter of 2014 in the average line of credit account balance in the United Kingdom, primarily as a result of changes in business practices. We expect that this trend may continue as we comply with current and future regulatory changes in that market. See “—Recent Regulatory Developments—Financial Conduct Authority” for further discussion.
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 five quarters (in thousands):
|
|
2013 |
|
|
2014 |
|
||||||||||||||
|
|
Third |
|
|
Fourth |
|
|
First |
|
|
Second |
|
|
Third |
|
|||||
Line of credit accounts: |
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|||||
Cost of revenue |
|
$ |
26,152 |
|
|
$ |
29,682 |
|
|
$ |
23,913 |
|
|
$ |
21,786 |
|
|
$ |
25,913 |
|
Charge-offs (net of recoveries) |
|
|
14,211 |
|
|
|
25,159 |
|
|
|
26,602 |
|
|
|
27,211 |
|
|
|
24,292 |
|
Average consumer loan balance (a) |
|
|
79,757 |
|
|
|
110,439 |
|
|
|
121,457 |
|
|
|
120,228 |
|
|
|
126,908 |
|
Ending consumer loan balance |
|
|
99,606 |
|
|
|
125,802 |
|
|
|
119,004 |
|
|
|
122,409 |
|
|
|
128,275 |
|
Ending allowance for losses balance |
|
$ |
24,405 |
|
|
$ |
29,244 |
|
|
$ |
26,669 |
|
|
$ |
21,579 |
|
|
$ |
22,672 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Line of credit account ratios : |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue as a % of average consumer loan balance (a) |
|
|
32.8 |
% |
|
|
26.9 |
% |
|
|
19.7 |
% |
|
|
18.1 |
% |
|
|
20.4 |
% |
Charge-offs (net of recoveries) as a % of average consumer loan balance (a) |
|
|
17.8 |
% |
|
|
22.8 |
% |
|
|
21.9 |
% |
|
|
22.6 |
% |
|
|
19.1 |
% |
Gross profit margin |
|
|
48.2 |
% |
|
|
56.7 |
% |
|
|
67.3 |
% |
|
|
70.9 |
% |
|
|
68.0 |
% |
Allowance for losses as a % of consumer loan balance (b) |
|
|
24.5 |
% |
|
|
23.2 |
% |
|
|
22.4 |
% |
|
|
17.6 |
% |
|
|
17.7 |
% |
(a) |
The average consumer 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 consumer loan balance is determined using period-end balances. |
Installment Loans
For installment loans, the cost of revenue as a percentage of average consumer loan balance is typically more consistent throughout the year. Due to the scheduled monthly or bi-weekly payments that are inherent with installment loans, we do not experience the higher level of repayments in the first quarter for these loans as we experience with short-term loans and, to a lesser extent, line of credit accounts.
The gross profit margin is generally lower for the installment loan product than for other loan products, primarily because the highest levels of default are exhibited in the early stages of the loan, while revenue is recognized over the term of the loan. In addition, installment loans typically have a higher average amount per loan. As a result, particularly in periods of higher growth for the installment loan portfolio, which has been the case in recent years, the gross profit margin is typically lower for this product than for our short-term consumer loan products. Another factor contributing to the lower gross profit margin is that the loan yield for installment loans is typically lower than the other loan products we offer. During the current quarter, we experienced higher gross profit margin than we experienced in the prior year quarter, primarily due to the maturing of the installment loan product and the growth of our near-prime installment loan products as well as a decrease in new customer activity in the United Kingdom due to recent changes initiated in that market. The higher gross profit margin was also partially a result of lower allowance and liability for losses in the current quarter compared to the prior year quarter because the installment loan portfolio includes a higher percentage of customers with established payment histories in the current quarter compared to the prior year quarter. New customers tend to have a higher risk of default than customers with a history of successfully repaying loans.
35
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 five quarters (in thousands):
|
|
2013 |
|
|
2014 |
|
||||||||||||||
|
|
Third |
|
|
Fourth |
|
|
First |
|
|
Second |
|
|
Third |
|
|||||
Installment loans: |
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|||||
Cost of revenue |
|
$ |
30,631 |
|
|
$ |
31,145 |
|
|
$ |
26,203 |
|
|
$ |
25,384 |
|
|
$ |
28,070 |
|
Charge-offs (net of recoveries) |
|
|
26,089 |
|
|
|
30,866 |
|
|
|
29,899 |
|
|
|
26,818 |
|
|
|
25,620 |
|
Average installment combined consumer loans and fees receivable, gross: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company owned (a) |
|
|
146,142 |
|
|
|
168,588 |
|
|
|
175,198 |
|
|
|
171,043 |
|
|
|
186,298 |
|
Guaranteed by the Company (a)(b) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
10 |
|
Average installment combined consumer loans and fees receivable, gross (a)(c) |
|
|
146,142 |
|
|
|
168,588 |
|
|
|
175,198 |
|
|
|
171,043 |
|
|
|
186,308 |
|
Ending installment combined consumer loans and fees receivable, gross: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company owned |
|
|
162,944 |
|
|
|
179,230 |
|
|
|
169,552 |
|
|
|
177,211 |
|
|
|
194,596 |
|
Guaranteed by the Company (b) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
40 |
|
Ending installment combined consumer loans and fees receivable, gross (c) |
|
|
162,944 |
|
|
|
179,230 |
|
|
|
169,552 |
|
|
|
177,211 |
|
|
|
194,636 |
|
Ending allowance and liability for losses |
|
$ |
32,077 |
|
|
$ |
32,608 |
|
|
$ |
29,084 |
|
|
$ |
27,967 |
|
|
$ |
29,914 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Installment loan ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue as a % of average installment combined consumer loans and fees receivable, gross (a)(c) |
|
|
21.0 |
% |
|
|
18.5 |
% |
|
|
15.0 |
% |
|
|
14.8 |
% |
|
|
15.1 |
% |
Charge-offs (net of recoveries) as a % of average installment combined consumer loans and fees receivable, gross (a)(c) |
|
|
17.9 |
% |
|
|
18.3 |
% |
|
|
17.0 |
% |
|
|
15.7 |
% |
|
|
13.8 |
% |
Gross profit margin |
|
|
44.1 |
% |
|
|
49.0 |
% |
|
|
58.0 |
% |
|
|
58.3 |
% |
|
|
54.6 |
% |
Allowance and liability for losses as a % of combined consumer loans and fees receivable, gross (c)(d) |
|
|
19.7 |
% |
|
|
18.2 |
% |
|
|
17.2 |
% |
|
|
15.8 |
% |
|
|
15.4 |
% |
(a) |
The average installment combined consumer loan and fees receivable 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 consumer loans and fees receivable, gross, is determined using period-end balances. |
Total Expenses
Total expenses increased $12.9 million, or 16.8%, to $89.3 million in the current quarter, compared to $76.4 million in the prior year quarter.
Marketing expense decreased to $33.4 million in the current quarter compared to $36.5 million in the prior year quarter. Lower lead generation costs, lower domestic advertising costs and other marketing costs in our international operations were offset by higher domestic direct mail and other marketing costs.
Operations and technology expense increased to $19.4 million in the current quarter compared to $18.0 million in the prior year quarter, primarily due to increased personnel costs in our domestic operations resulting from higher loan volume.
General and administrative expense increased $13.2 million, or 73.2%, to $31.2 million in the current quarter compared to $18.0 million in the prior year quarter, primarily due to higher incentive accruals resulting from our strong financial performance and the addition of new personnel to support our growth, an increase in expenses allocated from Cash America reflecting higher allocated corporate services costs, higher accounting and legal professional services expenses incurred in the current quarter in conjunction with Cash America’s decision to review strategic alternatives for our separation and certain other matters (see “—Separation from Cash America”) and higher regulatory expenses related to our U.K. operations (see “—Recent Regulatory Developments—Financial Conduct Authority”).
36
Depreciation and amortization expense increased $1.4 million, or 34.9%, in the current quarter compared to the prior year quarter, primarily due to the acceleration of depreciation resulting from our planned office relocation of our headquarters in 2015.
Interest Expense, Net
On May 30, 2014, we issued and sold $500.0 million in aggregate principal amount of senior notes, or 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 Note 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.
Interest expense, net increased $8.2 million, or 167.6%, to $13.1 million in the current quarter compared to $4.9 million in the prior year quarter. The increase was due to an increase in the weighted average interest rate on our outstanding debt to 10.00% in the current quarter from 4.71% in the prior year quarter, and an increase in the average amount of debt outstanding, which increased $85.1 million to $494.0 million during the current quarter from $408.9 million during the prior year quarter. We expect our interest expense for the remainder of 2014 to increase to reflect the higher interest rate and debt outstanding.
Provision for Income Taxes
Provision for income taxes increased $2.7 million, or 31.2%, to $11.2 million in the current quarter compared to $8.5 million in the prior year quarter. The increase was primarily due to a 15.9% increase in income before income taxes and an increase in the effective tax rate to 37.8% in the current quarter from 33.3% in the prior year quarter, primarily due to nondeductible expenses related to the Spin-off.
NINE MONTHS ENDED SEPTEMBER 30, 2014 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2013
Revenue and Gross Profit
Revenue increased $58.6 million, or 10.5%, to $615.1 million for the current nine-month period as compared to $556.5 million for the nine-month period ended September 30, 2013, or the prior year nine-month period. Domestic operations contributed $59.9 million to the increase, primarily due to growth in domestic consumer loan balances, mainly resulting from the expansion of our line of credit account and installment loan portfolios in the United States. The increase in domestic operations was partially offset by a decrease of $1.3 million in our international operations, primarily in the United Kingdom.
Our gross profit increased by $80.9 million to $408.9 million in the current nine-month period from $328.0 million in the prior year nine-month period, primarily due to the growth and the composition of the consumer loan portfolio in our domestic and international operations. Our consolidated gross profit margin increased to 66.5% in the current nine-month period from 58.9% in the prior year nine-month period, primarily because our consumer loan portfolios had a higher percentage mix of customers with established payment histories during the current nine-month period as compared to the prior year nine-month period and increased collections resulting in a lower percentage of delinquent loans. Line of credit account and installment loan products comprised 78.9% of the combined gross consumer loan balance at September 30, 2014 compared to 66.6% at September 30, 2013. While the short-term consumer loan product was a less significant portion of the aggregate portfolio, loss experience for the product also decreased in the current nine-month period compared to the prior year nine-month period, contributing to the increase in gross profit margin for the period. In addition, we recently made refinements to our consumer loan underwriting models, as a result of changes in business practices in the United Kingdom, which we believe also contributed to the recent improvements in gross profit margin, but were also a cause of the decreased revenue in the United Kingdom. Additional discussion of the specific factors influencing each product is included in “—Consumer Loan Loss Experience—Consumer Loan Loss Experience by Product” above and below. Our historical results from operations do not include the full impact of changes and expected changes in our U.K. operations resulting from recent regulatory and legislative changes and are not indicative of our future results of operations and cash flows from our U.K. operations. See “—Recent Regulatory Developments—Financial Conduct Authority” above for further information.
37
The following table sets forth the components of revenue and gross profit, separated between domestic and international, for the current and prior year nine-month periods (dollars in thousands):
|
|
Nine Months Ended September 30, |
|
|||||||||||||||||||||
|
|
2014 |
|
|
2013 |
|
||||||||||||||||||
|
|
Domestic |
|
|
International |
|
|
Total |
|
|
Domestic |
|
|
International |
|
|
Total |
|
||||||
Short-term loans |
|
$ |
131,911 |
|
|
$ |
68,659 |
|
|
$ |
200,570 |
|
|
$ |
138,547 |
|
|
$ |
172,003 |
|
|
$ |
310,550 |
|
Line of credit accounts |
|
|
112,805 |
|
|
|
116,034 |
|
|
|
228,839 |
|
|
|
82,073 |
|
|
|
19,949 |
|
|
|
102,022 |
|
Installment loans |
|
|
99,206 |
|
|
|
85,851 |
|
|
|
185,057 |
|
|
|
62,461 |
|
|
|
80,377 |
|
|
|
142,838 |
|
Other |
|
|
81 |
|
|
|
568 |
|
|
|
649 |
|
|
|
1,051 |
|
|
|
92 |
|
|
|
1,143 |
|
Revenue |
|
|
344,003 |
|
|
|
271,112 |
|
|
|
615,115 |
|
|
|
284,132 |
|
|
|
272,421 |
|
|
|
556,553 |
|
Cost of Revenue |
|
|
122,892 |
|
|
|
83,303 |
|
|
|
206,195 |
|
|
|
113,391 |
|
|
|
115,156 |
|
|
|
228,547 |
|
Gross Profit |
|
$ |
221,111 |
|
|
$ |
187,809 |
|
|
$ |
408,920 |
|
|
$ |
170,741 |
|
|
$ |
157,265 |
|
|
$ |
328,006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year-over-year change—$ |
|
$ |
50,370 |
|
|
$ |
30,544 |
|
|
$ |
80,914 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Year-over-year change—% |
|
|
29.5 |
% |
|
|
19.4 |
% |
|
|
24.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit margin |
|
|
64.3 |
% |
|
|
69.3 |
% |
|
|
66.5 |
% |
|
|
60.1 |
% |
|
|
57.7 |
% |
|
|
58.9 |
% |
Average Consumer Loan Amount
The following table shows the average amount per consumer loan by product for the current nine-month period compared to the prior year nine-month period:
|
|
Nine Months Ended |
|
|||||
|
|
September 30, |
|
|||||
|
|
2014 |
|
|
2013 |
|
||
Average amount per consumer loan (in ones) (a) |
|
|
|
|
|
|
|
|
Short-term loans (b) |
|
$ |
515 |
|
|
$ |
530 |
|
Line of credit accounts (c) |
|
|
273 |
|
|
|
301 |
|
Installment loans (b) |
|
|
1,399 |
|
|
|
1,154 |
|
Total consumer loans (b) |
|
$ |
489 |
|
|
$ |
535 |
|
(a) |
The disclosure regarding the average amount per consumer 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) |
Represents the average amount of each incremental draw on line of credit accounts. |
The average amount per consumer loan decreased to $489 from $535 during the current nine-month period compared to the prior year nine-month period, mainly due to a greater mix of line of credit accounts, which have lower average amounts per loan relative to short-term loans in the current nine-month period compared to the prior year nine-month period. This decrease was partially offset by an increase in installment loans, which have a higher average loan amount relative to short-term loans.
Consumer Loan Loss Experience
The allowance and liability for estimated losses as a percentage of combined consumer loans and fees receivable decreased to 17.5% as of September 30, 2014 from 22.6% as of September 30, 2013, primarily due to improved performance across all products in our consumer loan portfolio, partially related to the maturing of our product offerings, such as line of credit accounts and installment loans, 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 the current nine-month period was $206.2 million, which was composed of $206.8 million related to our owned consumer loans, offset by a $0.6 million decrease in the liability for estimated losses related to loans we guaranteed through the CSO programs. The cost of revenue in the prior year nine-month period was $228.5 million, which was composed of $229.2 million related to our owned consumer loans, offset by a $0.7 million decrease in the liability for estimated losses related to loans we guaranteed through the CSO programs. Total charge-offs, net of recoveries, were $219.0 million and $224.4 million in the current nine-month period and the prior year nine-month period, respectively.
38
Total Expenses
Total expenses increased $21.4 million, or 9.6%, to $243.4 million in the current nine-month period compared to $222.0 million in the prior year nine-month period.
Marketing expenses decreased $1.9 million, or 2.0%, to $92.7 million in the current nine-month period compared to $94.6 million in the prior year nine-month period, primarily due to lower lead generation costs and other marketing costs in our international operations that were partially offset by higher domestic direct mail and pay-per-click advertising costs.
Operations and technology expense increased $1.9 million, or 3.6%, to $54.4 million in the current nine-month period compared to $52.5 million in the prior year nine-month period, primarily due to increased personnel costs in our domestic operations resulting from higher loan volume.
General and administrative expense increased $20.6 million, or 33.4%, to $82.5 million in the current nine-month period compared to $61.9 million in the prior year nine-month period, primarily due to higher incentive accruals resulting from our strong financial performance, the addition of new personnel to support our growth, higher regulatory expenses related to our U.K. operations (see “—Recent Regulatory Developments—Financial Conduct Authority”) and higher accounting and legal professional services expenses incurred in the current nine-month period in conjunction with Cash America’s decision to review strategic alternatives for our separation and certain other matters (see “—Separation from Cash America”).
Depreciation and amortization expense increased $0.8 million, or 6.1%, in the current nine-month period compared to the prior year nine-month period, primarily due to the acceleration of depreciation in the current nine-month period related to the planned relocation of our headquarters in 2015, partially offset by the acceleration of depreciation related to the phase-out of certain loan platforms in the prior year nine-month period.
Interest Expense, Net
Interest expense, net increased $10.5 million, or 71.0%, to $25.2 million in the current nine-month period, compared to $14.7 million in the prior year nine-month period. The increase was primarily due to an increase in the weighted average interest rate on our outstanding debt to 7.36% in the current nine-month period from 4.74% in the prior year nine-month period and a $26.4 million increase in the average amount of debt outstanding to $438.3 million during the current nine-month period from $411.9 million during the prior year nine-month period.
Provision for Income Taxes
Provision for income taxes increased $18.6 million, or 58.4%, to $50.6 million in the current nine-month period compared to $32.0 million in the prior year nine-month period. The increase was primarily due to a 54.8% increase in income before income taxes and an increase in the effective tax rate to 36.2% in the current nine-month period from 35.4% in the prior year nine-month period, primarily due to nondeductible expenses related to the Spin-off.
LIQUIDITY AND CAPITAL RESOURCES
Capital Funding Strategy
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 growth, which is driven by demand for our loan products. In addition to operating cash flows, liquidity was historically provided by affiliate advances from Cash America that were evidenced through borrowings under an intercompany credit agreement with Cash America. Our credit agreement with Cash America permitted us to borrow, repay and re-borrow funds from Cash America on a revolving credit basis in a maximum amount equal to $450 million. 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 as further described below under “Credit Agreement.” As of September 30, 2014, our available borrowings under the Credit Agreement were $72.0 million. We expect that our operating needs will be satisfied by a combination of cash flows from operations and borrowings under our Credit Agreement.
As of September 30, 2014, 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 to consumers that would reduce cash outflow requirements while increasing cash inflows through repayments of consumer loans. Additional alternatives may include the securitization or sale of assets and reductions in capital spending which could be expected to generate additional liquidity.
39
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 of 1933, as amended, or 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 Note 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 $122.4 million in cash dividends we paid to Cash America, of which $120.7 million was paid on May 30, 2014 and $1.7 million was paid on June 30, 2014.
The Notes are governed by an Indenture, or the 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. Neither Cash America nor any of its other subsidiaries that are not also our subsidiaries guarantee the Notes.
The 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 Indenture also contains certain reporting covenants, pursuant to which we are providing the trustee and holders of the Notes with a copy of this report.
The Notes are redeemable at our option, in whole or in part, (i) at any time prior to June 1, 2017 at 100% of the aggregate principal amount of Notes redeemed plus the applicable “make whole” redemption price specified in the 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 Indenture that will decrease over time as described in the Indenture, plus accrued and unpaid interest, if any, to the redemption date. In addition, prior to June 1, 2017, we may redeem from time to time up to 35% of the aggregate principal amount of the 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 from certain equity offerings as described in the Indenture. In addition, if our and our subsidiaries’ guarantee of certain indebtedness of Cash America as described in the Indenture is not released on or before March 31, 2015 then we may redeem all and not less than all of the Notes outstanding at a redemption price equal to 103% of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date, or the Special Redemption, and if the Special Redemption does not occur, then the interest rate on the Notes will increase 2.0% per annum until Enova and its subsidiaries no longer guarantee certain indebtedness of Cash America as described in the Indenture. If a change of control occurs, as that term is defined in the Indenture, the holders of the Notes will have the right, subject to certain conditions, to require Enova to repurchase their Notes at a purchase price equal to 101% of the aggregate principal amount of Notes repurchased plus accrued and unpaid interest, if any, as of the date of repurchase. The Spin-off does not constitute a change of control under the Indenture.
In addition, on May 30, 2014, we entered into a registration rights agreement with the initial purchaser of the Notes, or the Registration Rights Agreement, pursuant to which we agreed to use commercially reasonable efforts to cause a registration statement to be declared effective on or prior to the 360th day following the closing date relating to an exchange offer of the Notes for identical new notes registered under the Securities Act. In certain circumstances, we may be required to file a shelf registration statement to cover resales of the Notes. If we do not comply with certain covenants set forth in the Registration Rights Agreement, we must pay liquidated damages to holders of the Notes. If we fail to satisfy any of our registration obligations, we may be required to pay the holders of the Notes additional interest ranging from 0.25% to 0.50% per annum until we satisfy our registration obligations.
The Indenture provides for customary events of default, including nonpayment and failure to comply with covenants or other agreements in the Indenture.
Credit Agreement
On May 14, 2014, we and certain of our domestic subsidiaries, as guarantors, entered into a credit agreement with Jefferies Finance LLC, as administrative agent, and Jefferies Group LLC, as lender, or the Credit Agreement. The Credit Agreement provides for our unsecured revolving line of credit in an aggregate principal amount of up to $75.0 million. The Credit Agreement contains customary representations and warranties and covenants (including financial maintenance covenants). Loans under the revolving line of credit may be made in dollars or in designated foreign currencies. Neither Cash America nor any of its other subsidiaries that are not subsidiaries of Enova guarantee the revolving line of credit.
Our revolving line of credit may be used for our and our subsidiaries’ general corporate purposes, including possible acquisitions. Interest on the loans borrowed under the Credit Agreement will be charged, at our option, at either LIBOR for one week or one-, two-,
40
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 the line of credit ranging from 0.25% to 0.50% (0.50% as of September 30, 2014) based on our cash flow leverage ratios. Our Credit Agreement will mature on June 30, 2017. The revolving line of credit under the Credit Agreement was undrawn as of September 30, 2014.
The Credit Agreement also includes a sub-limit of up to $20.0 million for standby or commercial letters of credit. In the event that an amount is paid by the issuing bank under a letter of credit, it will be due and payable by us on demand. Pursuant to the terms of the Credit Agreement, we agree 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. We had standby letters of credit of $3.0 million under our Credit Agreement as of September 30, 2014.
Financial Conduct Authority
See “—Recent Regulatory Developments—Financial Conduct Authority” for a discussion of changes we have made and will continue to make to our U.K business practices in response to the requirements of the FCA and the cap on the total cost of credit in the United Kingdom. We are still assessing the impact of the changes we have made and are making in response to the requirements of the FCA, but we expect our U.K. operations will experience a decline in working capital necessary to operate our U.K. consumer loan business as consumer loans outstanding, revenue and cost of revenue decline during the balance of 2014 and potentially into 2015 as we adjust our business practices. In addition, we are still assessing the full impact of the cost of credit cap changes based on the final rule issued on November 11, 2014, which will become effective on January 2, 2015. It is possible that the rule change could have a significant effect on the results of our U.K. operations.
Cash Flows
Our cash flows and other key indicators of liquidity are summarized as follows (dollars in thousands):
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2014 |
|
|
2013 |
|
||
Cash flows provided by operating activities |
|
$ |
357,800 |
|
|
$ |
315,870 |
|
Cash flows used in investing activities |
|
|
|
|
|
|
|
|
Consumer loans |
|
|
(209,071 |
) |
|
|
(271,128 |
) |
Property and equipment additions |
|
|
(9,858 |
) |
|
|
(11,544 |
) |
Other |
|
|
8 |
|
|
|
— |
|
Total cash flows used in investing activities |
|
$ |
(218,921 |
) |
|
$ |
(282,672 |
) |
Cash flows used in financing activities |
|
|
(78,674 |
) |
|
|
(10,534 |
) |
|
|
|
|
|
|
|
|
|
Working capital |
|
|
362,503 |
|
|
|
331,012 |
|
Current ratio |
|
5.3x |
|
|
8.6x |
|
Cash Flows from Operating Activities
Net cash provided by operating activities increased $41.9 million, or 13.3%, to $357.8 million for the current nine-month period from $315.9 million for the prior year nine-month period. The increase was primarily driven by a $30.8 million increase in net income during the current nine-month period, partially offset by a $22.4 million decrease in cost of revenue, a non-cash expense, primarily because our consumer loan portfolios had a higher percentage of customers with established payment histories during the current nine-month period as compared to the prior year nine-month period and also due to stricter underwriting standards in our U.K. business.
Other significant changes in net cash provided by operating activities for the current nine-month period compared to the prior year nine-month period included cash flows from the following activities:
· |
changes in accounts payable and accrued expenses resulted in a $23.4 million increase in net cash provided by operating activities, primarily due to accrued interest expense on the Notes in the current nine-month period and higher incentive accruals for the current nine-month period compared to the prior year nine-month period resulting from our strong financial performance; and |
· |
the addition of related party payables, net resulted in a $13.4 million increase in net cash provided by operating activities, primarily due to income taxes paid by Cash America on our behalf. |
41
Management believes cash flows from operations and available cash balances and borrowings will be sufficient to fund our future operating liquidity needs.
Cash Flows from Investing Activities
Net cash used in investing activities decreased $63.8 million, or 22.6%, for the current nine-month period compared to the prior year nine-month period, primarily due to a $62.1 million decrease in net cash invested in consumer loans due to a higher rate of increase in consumer loans repaid compared to consumer loans originated or acquired. The implementation of stricter affordability assessments and underwriting standards in the United Kingdom also contributed to this decrease in net cash used in investing activities.
Expenditures for property and equipment decreased $1.7 million to $9.8 million in the current nine-month period compared to $11.5 million in the prior year nine-month period, primarily related to decreases in computer hardware expenditures in the current nine-month period compared to the prior year nine-month period. Management anticipates that total expenditures for property and equipment will be between $14 million and $15 million for the twelve months ended December 31, 2014, primarily for continued development activities related to our technology platform and the purchase of computer hardware.
Cash Flows from Financing Activities
Net cash used in financing activities increased $68.2 million to $78.7 million in the current nine-month period from $10.5 million in the prior year nine-month period.
During the current nine-month period, we issued the Notes and entered into the Credit Agreement. We used all of the net proceeds of the Note offering, or $479.0 million, 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 $122.4 million in cash dividends we paid to Cash America, of which $120.7 million was paid on May 30, 2014 and $1.7 million was paid on June 30, 2014. Also, we incurred $16.3 million of debt issuance costs in the current nine-month period resulting from the issuance of the Notes and the Credit Agreement. See “—Senior Notes” and “—Credit Facility” above for additional information about the Notes and Credit Agreement. In addition, cash flows used in financing activities for the current nine-month period reflects $70.3 million of net payments to Cash America (excluding the $361.4 million repayment on May 30, 2014) compared to $5.2 million of net payments in the prior year nine-month period.
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
On July 25, 2014, we entered into a new office lease agreement for approximately 160,000 square feet of office space for our headquarters in Chicago, Illinois. The lease term is 12 years, with options to renew for two five-year terms. Under the terms of the lease, we were provided $9.8 million in tenant improvement allowances and $8.5 million in rent abatements. For the new office lease agreement, we are responsible for paying our proportionate share of the increase in actual operating expenses and real estate taxes over the defined lease year.
The following table summarizes our contractual obligations at September 30, 2014 and the effect such obligations are expected to have on our liquidity and cash flows in future periods (in thousands):
|
|
2014 |
|
|
2015 |
|
|
2016 |
|
|
2017 |
|
|
2018 |
|
|
Thereafter |
|
|
Total |
|
|||||||
Long-term debt (a) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
500,000 |
|
|
$ |
500,000 |
|
Interest on long-term debt (b) |
|
|
24,375 |
|
|
|
48,750 |
|
|
|
48,750 |
|
|
|
48,750 |
|
|
|
48,750 |
|
|
|
121,875 |
|
|
|
341,250 |
|
Non-cancelable leases (c) |
|
|
825 |
|
|
|
3,351 |
|
|
|
3,324 |
|
|
|
5,864 |
|
|
|
5,023 |
|
|
|
47,883 |
|
|
|
66,270 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
25,200 |
|
|
$ |
52,101 |
|
|
$ |
52,074 |
|
|
$ |
54,614 |
|
|
$ |
53,773 |
|
|
$ |
669,758 |
|
|
$ |
907,520 |
|
(a) |
Represents obligations under the 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) |
Represents obligations due under long-term operating leases. See Note 6 in the Notes to Consolidated Financial Statements for further discussion of our operating lease obligations. |
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
42
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 September 30, 2014 and 2013, the outstanding amount of active consumer loans originated by third-party lenders under the CSO programs was $35.4 million and $35.1 million, respectively, which were guaranteed by us.
As of September 30, 2014, we and our domestic subsidiaries participated jointly and severally with certain subsidiaries of Cash America and guaranteed Cash America’s $196.5 million in aggregate principal amount of 5.75% Senior Notes due May 15, 2018 that were issued on May 15, 2013 and Cash America’s domestic and multi-currency line of credit due 2018. Under the provisions of Cash America’s debt agreements, we had liability in the event Cash America defaulted in its payment obligations or failed to comply with the covenants under the debt agreements or upon the occurrence of specified events contained in the debt agreements, including the event of bankruptcy, insolvency or reorganization of Cash America. These guarantees of Cash America’s debt agreements are being released in connection with the consummation of the Spin-off, which occurred on November 13, 2014.
Market risks relating to our operations result primarily from changes in foreign currency exchange rates. We do not engage in speculative or leveraged transactions, nor do we hold or issue financial instruments for trading purposes. There have been no material changes to our exposure to market risks since December 31, 2013, as described in the Company’s Registration Statement on Form 10 filed with the SEC on July 31, 2014 (as subsequently amended and declared effective on October 24, 2014).
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, or the “Exchange Act”) as of September 30, 2014 (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) to ensure that information required to be disclosed in reports that we file or submit 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) to ensure 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.
There was no change in our internal control over financial reporting during the quarter ended September 30, 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or internal controls will prevent or detect all possible misstatements due to error or fraud. Our disclosure controls and procedures and internal controls are, however, designed to provide reasonable assurance of achieving their objectives, and our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective at that reasonable assurance level.
43
See the “Litigation” section of Note 6 of the notes to our unaudited financial statements of Part I, “Item 1 Financial Statements.”
There have been no material changes from the Risk Factors described in Item 1A. “Risk Factors” of the Form 10.
Not applicable.
None.
Not applicable.
None.
Exhibit No. |
|
Exhibit Description |
|
|
|
4.1 |
|
First Supplemental Indenture, dated as of October 1, 2014, between Enova International, Inc., NC Financial Solutions of 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 (incorporated by reference to Exhibit 4.4 to Amendment No. 2 to the Registration Statement on Form 10 filed on October 2, 2014) |
|
|
|
10.1 |
|
Enova International, Inc. 2014 Long-Term Incentive Plan |
|
|
|
10.2 |
|
Lease Agreement, dated July 25, 2014, between 175 Jackson L.L.C. and Enova International, Inc. (incorporated by reference to Exhibit 10.11 to Amendment No. 4 to the Registration Statement on Form 10 filed on October 22, 2014) |
|
|
|
31.1 |
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
31.2 |
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
32.1 |
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
32.2 |
|
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
44
Pursuant to the requirements 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.
Date: November 14, 2014 |
|
ENOVA INTERNATIONAL, INC. |
||
|
|
|
|
|
|
|
By: |
|
/s/ Robert S. Clifton |
|
|
|
|
Robert S. Clifton |
|
|
|
|
Vice President, Chief Financial Officer & Treasurer |
|
|
|
|
(On behalf of the Registrant and as Principal Financial Officer) |
45
EXHIBIT INDEX
Exhibit No. |
|
Exhibit Description |
|
|
|
4.1 |
|
First Supplemental Indenture, dated as of October 1, 2014, between Enova International, Inc., NC Financial Solutions of 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 (incorporated by reference to Exhibit 4.4 to Amendment No. 2 to the Registration Statement on Form 10 filed on October 2, 2014) |
|
|
|
10.1 |
|
Enova International, Inc. 2014 Long-Term Incentive Plan |
|
|
|
10.2 |
|
Lease Agreement, dated July 25, 2014, between 175 Jackson L.L.C. and Enova International, Inc. (incorporated by reference to Exhibit 10.11 to Amendment No. 4 to the Registration Statement on Form 10 filed on October 22, 2014) |
|
|
|
31.1 |
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
31.2 |
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
32.1 |
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
32.2 |
|
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
46
Exhibit 10.1
ENOVA INTERNATIONAL, INC.
2014 LONG-TERM INCENTIVE PLAN
SECTION 1. PURPOSE
The purpose of the Enova International, Inc. 2014 Long-Term Incentive Plan (the “Plan”) is to promote the interests of Enova International, Inc. (the “Company”) and its stockholders by giving the Company a competitive advantage in attracting, retaining and motivating employees, officers, consultants and Directors capable of assuring the future success of the Company, to offer such persons incentives that are directly linked to the longer-term profitability of the Company’s business and increases in stockholder value and to afford such persons an opportunity to acquire a proprietary interest in the Company .
SECTION 2. DEFINITIONS
“Affiliate” means any entity that, directly or indirectly through one or more intermediaries, is controlled by, controlling or under common control with the Company.
“Annual Election” has the meaning set forth in Section 12(a) below.
“Applicable Laws” means the legal requirements relating to the administration of stock and long-term cash incentive plans, if any, under applicable provisions of federal securities laws, state corporate and securities laws, the Code, the rules of any applicable Exchange or national market system, and the rules of any foreign jurisdiction applicable to Awards granted to residents therein.
“Award” means a grant or award granted under the Plan, as evidenced by an Award Agreement.
“Award Agreement” means any written or electronic agreement, contract or other instrument or document evidencing any Award granted under the Plan. Each Award Agreement shall be subject to the applicable terms and conditions of the Plan and any other terms and conditions (not inconsistent with the Plan) determined by the Committee.
“Board” means the Board of Directors of the Company.
“Change in Control” means the occurrence of an event with respect to the Company that qualifies as a permissible distribution event under Code Section 409A and guidance issued thereunder (collectively, “Code Section 409A”) as a result of a “change in the ownership,” of the Company a “change in the effective control,” of the Company or a “change in the ownership of a substantial portion of the assets” of the Company, all as defined in Code Section 409A; provided, however, a “ Change in Control ” shall not include any event that is not treated under Code Section 409A as a change in control event with respect to the applicable Participant. Notwithstanding the foregoing, the Committee, in its sole discretion, may establish a different definition of “ Change in Control ” for any particular Award at the time of grant, but only if (i) either (A) the Award does not provide for or permit deferred payment that could cause the Award to be subject to Code Section 409A, or (B) the definition of “ Change in Control ” is used as a vesting trigger, and not as a distribution event, for the Award; and (ii) if, at the time of grant, the applicable Award Agreement specifically sets forth such different definition of “ Change in Control .” Notwithstanding the foregoing, and unless otherwise required by Code Section 409A, neither a change in ownership nor a change in effective control shall be considered to have occurred as a result of any acquisition or disposition of the Company’s stock by, or an increase in the percentage of the Company’s stock owned by, Cash America International, Inc. or any entity required to be aggregated with Cash America International, Inc. under Code Sections 414(b) or 414(c). For clarification purposes and without limiting the foregoing, the acquisition or disposition of the Company’s stock in a public offering or sale or in a spin-off transaction by Cash America International, Inc. shall not result in a Change in Control unless required by Code Section 409A.
“Code” means the Internal Revenue Code of 1986, as amended from time to time, and any regulations promulgated thereunder.
“Committee” means the Management Development and Compensation Committee of the Board or other committee or subcommittee of Directors designated by the Board or the Management Development and Compensation Committee to administer the Plan. For purposes of Awards that are intended to be qualified performance-based awards under Section 162(m) of the Code, such Awards shall be approved and administered by a committee or a subcommittee that has been authorized by the Board or the Management Development and Compensation Committee to approve such Awards that is composed solely of Outside Directors, with the number of Outside Directors on such committee or subcommittee to be not less than the number required under Section 162(m) of the Code to permit Awards to qualify under Section 162(m) of the Code. For purposes of approving Awards that are to be qualified under Rule 16b-3, such Awards shall be approved either by (i) a committee or subcommittee that has been authorized by the Board or the Management Development and Compensation Committee to approve such Awards and that is composed solely of “non-employee” Directors within the meaning of Rule 16b-3, with the number of “non-employee” Directors on such committee or subcommittee to be not less than the number required under Rule 16b-3 for Awards to qualify under Rule 16b-3; or (ii) by the Board.
“Common Stock” or “Stock” means the common stock of the Company, par value $0.00001 per share.
“Company” has the meaning set forth in Section 1 above.
“Covered Employee” means a Participant designated prior to the grant of an Award by the Committee who is or may be a “covered employee” within the meaning of Section 162(m)(3) of the Code in the year in which any such Award is expected to be deductible by the Company or an Affiliate (or deductible but for a limitation under Section 162(m) of the Code).
“Designated Beneficiary” means the beneficiary designated by the Participant, in a manner determined by the Committee, to receive amounts due the Participant in the event of the Participant’s death. In the absence of an effective designation by the Participant, the term “Designated Beneficiary” means the Participant’s estate.
“Director” means a member of the Board, including any Outside Director.
“Effective Date” has the meaning set forth in Section 15 of the Plan.
“Eligible Individual” means any employee, officer, Director or consultant providing services to the Company or any Affiliate, and prospective employees and consultants who have accepted offers of employment or consultancy from the Company or any Affiliate, whom the Committee determines to be an Eligible Individual.
“Employee” means any person treated as an employee (including an officer or a Director who is also treated as an employee) in the records of the Company or any Affiliate and, with respect to any Incentive Stock Option granted to such person, who is an employee for purposes of Section 422 of the Code; provided, however , that neither service as a Director nor payment of a Director’s fee shall be sufficient to constitute employment for purposes of the Plan. The Company shall determine in good faith and in the exercise of its discretion whether an individual has become or has ceased to be an Employee and the effective date of such individual’s employment or termination of employment without regard to any notice period or period of “garden leave,” as the case may be. For purposes of an individual’s rights, if any, under the Plan as of the time of the Company’s determination, all such determinations by the Company shall be final, binding and conclusive, notwithstanding that the Company or any court of law or governmental agency subsequently makes a contrary determination.
“Employer” means the Company or any Affiliate.
“Exercise Price” has the meaning set forth in Section 6 of the Plan.
“Exchange” means the New York Stock Exchange or such other national securities market or exchange as may at the time be the principal market for the Common Stock as designated by the Committee.
“Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time.
“Fair Market Value” means the closing price of the Common Stock on the most recent day prior to the date in question on which the Stock was traded on an Exchange, or if the Shares were not traded on an Exchange on such date, then on the next preceding date on which the Shares are traded, all as reported by such source as the Committee may select. Notwithstanding the foregoing, “Fair Market Value” on any day before the first day that Stock is traded on any Exchange shall be a price determined by the Committee in accordance with the requirements of Treasury Regulation Section 1.409A-1(b)(5)(iv).
2
“Fees” has the meaning set forth in Section 12(a) below.
“Grant Price” has the meaning set forth in Section 7 below.
“Grant Value” has the meaning set forth in Section 11(a) below.
“Incentive Stock Option” means any Stock Option granted under Section 6 of the Plan that is designated as, and intended to qualify as, an “incentive stock option” within the meaning of Section 422 of the Code.
“Nonqualified Stock Option” means any Option granted under Section 6 of the Plan that is not an Incentive Stock Option.
“Option” means an Incentive Stock Option or a Nonqualified Stock Option.
“Outside Director” means any Director who qualifies as an “outside director” within the meaning of Section 162(m) of the Code, as a “non-employee director” within the meaning of Rule 16b-3 and as an “independent director” within the meaning of the applicable Exchange requirements.
“Participant” means an Eligible Individual designated to be granted an Award under the Plan.
“Performance Cycle” means the period of time selected by the Committee during which performance is measured for the purpose of determining the extent to which an award of Performance Units or performance-based Restricted Stock or Restricted Stock Units has been earned.
“Performance Goals” means, for a Performance Cycle, the performance goals established by the Committee in connection with the grant of an Award, with such goals to be stated as one or more objective financial or objective strategic business initiative formulas, standards or measures established by the Committee for purposes of determining whether or the extent to which an Award has been earned based on the level of performance attained or to be attained with respect to such goals. In the case of Qualified Performance-Based Awards, (i) the Performance Goals shall be stated in terms of one or any combination of the following objective measures with respect to the Company or an Affiliate or any division or department of the Company or an Affiliate: revenue growth (gross or net); gross margin; pre-tax margin; operating margin; earnings before interest, taxes, depreciation, and amortization; earnings before interest, taxes, depreciation and amortization margin; earnings before interest and taxes; operating income; pre- or after- tax income; pre- or after-tax income from continuing operations; pre-or after-tax income excluding extraordinary items; basic or diluted earnings per share; basic or diluted earnings per share from continuing operations; basic or diluted earnings per share excluding extraordinary items; cash flow; basic or diluted cash flow per share; cash flow on investment; return on equity; return on capital; return on invested capital; return on investment; return on assets (gross or net); return on revenue (gross or net); inventory turnover; growth in earning assets; economic value added (or an equivalent metric); share price performance; total stockholder return; improvement in or attainment of expense levels; improvement in or attainment of specified working capital levels; attainment of goals relating to geographic business expansion, increasing or decreasing the percent of revenue attributable to a specific type of product(s); or new product development or acquisitions, divestitures or similar transactions or other strategic initiatives; (ii) to the extent specified in an objectively determinable manner by the Committee at the time the Performance Goals are established, any financial measure or metric shall exclude the effect of unusual or non-recurring items and shall include or exclude (as applicable) specified components of the applicable financial measure; (iii) such Performance Goals shall be set by the Committee in writing within the time period prescribed by Section 162(m) of the Code so that the outcome is substantially uncertain at the time the Performance Goals are established; and (iv) after the end of each Performance Cycle, the Committee shall certify in writing the extent to which such Performance Goals were achieved for the Performance Cycle and the amount of the Qualified Performance-Based Award to be paid to each Participant. Such Performance Goals may be expressed in absolute or relative terms, including, without limitation, relative to a base period and/or to the performance of other companies.
“Performance Unit” means an Award granted to a Participant under Section 8 of the Plan that is denominated in cash, the amount of which may be based on the achievement of the Performance Goals established for such Award.
“Plan” has the meaning set forth in Section 1 above, as the same may be hereinafter amended pursuant to the terms hereof.
“Qualified Performance-Based Award” means an Award of Restricted Stock, Restricted Stock Units, or Performance Units designated as such by the Committee at the time of grant, based upon a determination that (i) the recipient is or may be a Covered Employee in the year in which the Company would expect to be able to claim a tax deduction with respect to such Restricted Stock, Restricted Stock Units, or Performance Units and (ii) the Committee intends for such Award to qualify for the Section 162(m) Exemption. The Committee shall have sole discretion to determine whether to grant Qualified Performance-Based Awards.
3
“Restricted Period” means the period of time selected by the Committee during which a grant of Restricted Stock or Restricted Stock Units may be forfeited to the Company.
“Restricted Stock” means Share(s) granted to a Participant under Section 9 of the Plan that are subject to the terms, conditions and restrictions as are set forth in the Plan and the applicable Award Agreement.
“Restricted Stock Unit” means any unit granted under Section 9 or Section 11 of the Plan evidencing the right to receive a Share (or the cash payment equal to the Fair Market Value of a Share) at some future date.
“Rule 16b-3” means Rule 16b-3, as promulgated by the Securities and Exchange Commission under Section 16(b) of the Exchange Act, as amended from time to time.
“Section 16 Officer” means an officer of the Company or an Affiliate who is considered an officer under Rule 16a-1 of the Exchange Act.
“Section 162(m) Exemption” means the “qualified performance-based compensation” exemption from the limitation on deductibility imposed by Section 162(m) of the Code.
“Separation from Service” or “Separate from Service” means a separation from service as defined in Code Section 409A. For purposes of determining whether a Separation from Service has occurred, the “Company” shall include the Company and all entities that would be treated as a single employer with the Company under Code Sections 414(b) or (c), but substituting “at least 50 percent” instead of “at least 80 percent” each place it appears in applying such rules.
“Share” or “Shares” means a share or shares of Common Stock.
“Stock Appreciation Right” means a right granted under Section 7 of the Plan.
“Stockholders Meeting” means the annual meeting of stockholders of the Company in each year, excluding any meeting of stockholders of the Company that occurs before the first date on which the Common Stock is traded on an Exchange.
SECTION 3. ADMINISTRATION
(a) POWER AND AUTHORITY OF THE COMMITTEE. The Plan shall be administered by the Committee. Subject to the terms of the Plan and to Applicable Laws, the Committee shall have full power and authority to:
(i) designate Participants;
(ii) determine whether and to what extent any type (or types) of Award is to be granted hereunder;
(iii) determine the number of Shares to be covered by (or the method by which payments or other rights are to be determined in connection with) each Award;
(iv) determine the terms and conditions of any Award or Award Agreement, including but not limited to vesting and exercisability conditions;
(v) subject to Section 13 hereof, amend the terms and conditions of any Award or Award Agreement; PROVIDED, HOWEVER, that (A) except for adjustments pursuant to Section 5(c) of the Plan, in no event may any Option or Stock Appreciation Right granted under this Plan be subject to any action that would be treated, for accounting purposes, as a “repricing” of such Option or Stock Appreciation Right, including (1) amending any outstanding Option or Stock Appreciation Right to decrease the Exercise Price of such Option or the Grant Price of such Stock Appreciation Right, (2) cancelling any outstanding Option or Stock Appreciation Right in conjunction with the grant of any new Option with a lower Exercise Price or any new Stock Appreciation Right with a lower Grant Price, (3) exchanging or authorizing the repurchase of any outstanding Option or Stock Appreciation Right for cash or other Awards if such exchange or repurchase would constitute a “repricing,” or (4) the taking of any other action that would constitute a “repricing,” unless any such action is approved by the stockholders of the Company to the extent required by Applicable Laws, and (B) the Committee may not adjust upward the amount payable to a Covered Employee with respect to a Qualified Performance-Based Award or waive or alter the Performance Goals associated therewith or herewith in a manner that would cause such Award to cease to qualify for the Section 162(m) Exemption;
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(vi) determine whether, to what extent and under what circumstances the Exercise Price of Awards may be paid in cash or Shares;
(vii) determine at the time of grant whether, to what extent and under what circumstances cash, Shares, other securities, other Awards, other property and other amounts payable with respect to an Award under the Plan shall be deferred either automatically or at the election of the holder thereof, subject to the requirements of Code Section 409A;
(viii) interpret and administer the Plan and any instrument or agreement, including an Award Agreement, relating to the Plan;
(ix) adopt, alter, suspend, waive or repeal such rules, guidelines and practices and appoint such agents as it shall deem advisable or appropriate for the proper administration of the Plan; and
(x) make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Plan.
Unless otherwise expressly provided in the Plan, all designations, determinations, interpretations and other decisions under or with respect to the Plan or any Award or Award Agreement shall be within the sole discretion of the Committee, may be made at any time, and shall be final, conclusive and binding upon all persons, including without limitation, the Company, its Affiliates, stockholders, Eligible Individuals and any holder, beneficiary or transferee of any Award.
(b) ACTION BY THE COMMITTEE; DELEGATION. Except to the extent prohibited by Applicable Laws, the Committee may delegate all or any part of its duties and powers under the Plan to one or more persons, including Directors, a committee of Directors or to a Section 16 Officer, subject to such terms, conditions and limitations as the Committee may establish in its sole discretion; PROVIDED, HOWEVER, that the Committee shall not delegate its powers and duties under the Plan (i) with regard to Eligible Individuals who are Directors or Section 16 Officers or (ii) in a manner that would cause an Award designated as a Qualified Performance-Based Award not to qualify for, or to cease to qualify for, the Section 162(m) Exemption; and PROVIDED, FURTHER, that any such delegation may be revoked by the Committee at any time.
(c) POWER AND AUTHORITY OF THE BOARD. Notwithstanding anything to the contrary contained herein, except to the extent that the grant or exercise of such authority would cause any Award or transaction to become subject to (or lose an exemption under) the short-swing profit recovery provisions of Section 16 of the Exchange Act or cause an Award designated as a Qualified Performance-Based Award not to qualify for, or to cease to qualify for, the Section 162(m) Exemption, the Board may, at any time and from time to time, without any further action of the Committee, exercise the powers and duties of the Committee under the Plan. To the extent that any permitted action taken by the Board conflicts with action taken by the Committee, the Board action shall control.
SECTION 4. ELIGIBILITY
Any Eligible Individual shall be eligible to be designated a Participant. In determining which Eligible Individuals shall receive an Award and the terms of any Award, the Committee may take into account the nature of the services rendered by the respective Eligible Individuals, their present and potential contributions to the success of the Company, or such other factors as the Committee, in its discretion, shall deem relevant. Notwithstanding the foregoing, Incentive Stock Options may be granted only to full-time or part-time Employees (which term as used herein includes, without limitation, officers and Directors who also are Employees), and an Incentive Stock Option shall not be granted to an Employee of an Affiliate unless such Affiliate also is a “subsidiary corporation” of the Company within the meaning of Section 424(f) of the Code or any successor provision.
SECTION 5. SHARES AVAILABLE FOR AWARDS
(a) SHARES AVAILABLE. Subject to adjustment as provided in Section 5(c) of the Plan, the aggregate number of Shares that may be issued under the Plan shall be 3,600,000 Shares. Shares that may be issued under the Plan may be authorized but unissued Shares or Shares re-acquired and held in treasury. Notwithstanding the foregoing, the number of Shares available for granting Incentive Stock Options under the Plan shall not exceed 475,000 subject to adjustment as provided in Section 5(c) of the Plan and subject to the provisions of Section 422 or 424 of the Code or any successor provision.
(b) ACCOUNTING FOR AWARDS. For purposes of this Section 5, if an Award entitles the holder thereof to receive or purchase Shares, the number of Shares covered by such Award or to which such Award relates shall be counted on the date of grant of such Award against the aggregate number of Shares available for granting Awards under the Plan. Any Shares that are used by a
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Participant as full or partial payment to the Company of the purchase price relating to an Award, including in connection with the satisfaction of tax obligations relating to an Award, shall not be available for granting future Awards under the Plan. In addition, Shares covered by an Award or to which an Award relates that are (i) not purchased, (ii) forfeited, (iii) not delivered in the case of a Stock Appreciation Right that is settled by the delivery of a net number of Shares (so that the total number of Shares covered by the Stock Appreciation Right will be counted and not be available for future grants) or (iv) not delivered to the Participant if an Award otherwise terminates, shall not be available for granting future Awards under the Plan.
(c) ADJUSTMENTS. In the event of any change in corporate capitalization (including, but not limited to, a change in the number of Shares outstanding), such as a stock split-up or stock dividend, a recapitalization, a combination or exchange of Shares or a corporate transaction, such as any merger, consolidation, separation, including a spin-off, or other distribution of stock or property of the Company (including any extraordinary cash or stock dividend), any reorganization (whether or not such reorganization comes within the definition of such term in Section 368 of the Code) or any partial or complete liquidation of the Company, the Committee or Board shall make such substitution or adjustments in the aggregate number and kind of shares reserved for issuance under the Plan, and the maximum limitation upon Stock Options and Stock Appreciation Rights and other Awards to be granted to any Participant, in the number, kind and Exercise Price and/or Grant Price of shares subject to outstanding Stock Options and/or Stock Appreciation Rights, in the number and kind of shares subject to other outstanding Awards granted under the Plan and/or such other equitable substitution or adjustments as it may determine to be appropriate in its sole discretion (including, without limitation, the provision of an amount in cash in consideration for the cancelation or termination of any such Awards); PROVIDED, HOWEVER, that the number of shares subject to any Award shall always be a whole number. Without limiting the generality of the foregoing, in connection with any Disaffiliation (as defined below) of an Affiliate of the Company, the Committee shall have the authority to arrange for the assumption or replacement of Awards with new awards based on shares of the affected Affiliate or of an entity that controls, is controlled by or under common control with the affected Affiliate following the Disaffiliation. For purposes hereof, “Disaffiliation” of an Affiliate means the Affiliate’s ceasing to be an Affiliate of the Company for any reason (including, without limitation, as a result of a public offering, spinoff, sale or other distribution or transfer by the Company of the stock of the Affiliate). Any actions taken under this subsection (c) shall be made in accordance with the applicable restrictions of Code Section 409A, including with regard to the adjustment of stock options and stock appreciation rights that are considered exempt from Code Section 409A.
(d) INDIVIDUAL AWARD LIMITATIONS.
(i) Subject to Section 5(c), no more than 250,000 Shares may be subject to Qualified Performance-Based Awards granted to any Eligible Individual, including a Covered Employee, in any calendar year.
(ii) Subject to Section 5(c), the maximum number of Shares with respect to which Options or Stock Appreciation Rights may be granted to any Eligible Individual, including a Covered Employee, in any one calendar year shall be 250,000.
(iii) The amount of compensation that may be earned by any Eligible Individual, including a Covered Employee, under Performance Units granted in any one calendar year that are intended to be Qualified Performance-Based Awards may not exceed $6,000,000.
(iv) The maximum aggregate Grant Date Value of all Awards granted during any calendar year to any Director who is not an Employee on the grant date of each such Award shall not exceed $500,000; provided , that the Committee shall have the authority to grant Awards to a Director with an aggregate Grant Date Value of up to an additional $750,000 in excess of the foregoing $500,000 limitation upon the Committee’s determination that such Director has provided, or is expected to provide, extraordinary services during such calendar year; provided , further , that such Director shall not participate in such determination or otherwise participate in the decision to grant such additional Award. For clarity, the Awards granted to any Director under Section 11 shall be taken into account for purposes of applying the dollar limitations in this paragraph. For purposes of this paragraph, the “Grant Date Value” of an Award at the time of a grant that includes Options or Share Appreciation Rights shall be determined by the Committee in a manner consistent with the manner in which the Company would be required to determine such value for purposes of the Company’s financial and SEC reporting requirements and the “Grant Date Value” of Awards granted under Section 9, 10 or 11 shall be the aggregate grant date Fair Market Value of all Shares covered by such Awards.
SECTION 6. STOCK OPTIONS
(a) GRANT. Subject to the provisions of the Plan, the Committee shall have sole and complete authority to determine the Eligible Individuals to whom Options shall be granted, the number of Shares to be covered by each Option, the exercise price for each Option, and the conditions and limitations applicable to the exercise of each Option. In the case of Incentive Stock Options, the terms and conditions of such grants shall be subject to and comply with such rules as may be prescribed by Section 422 of the Code.
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(b) EXERCISE PRICE. The “Exercise Price” per Share purchasable under an Option shall be determined by the Committee; PROVIDED, HOWEVER, that such Exercise Price shall not be less than 100% of the Fair Market Value of a Share on the date of grant of such Option.
(c) TIME AND METHOD OF EXERCISE. The Committee shall determine the time or times at which an Option may be exercised in whole or in part and the method or methods by which, and the form or forms (which may include only cash or Shares, or any combination thereof, having a value on the exercise date equal to the applicable Exercise Price, with the value of any Shares to be based on Fair Market Value) in which payment of the Exercise Price with respect thereto may be made or deemed to have been made.
(d) OPTION TERM. The term of each Stock Option shall be fixed by the Committee at the time of grant, but in no event shall be more than 10 years from the date of grant.
(e) INCENTIVE STOCK OPTIONS. The Committee may designate Options as Nonqualified Stock Options or as Incentive Stock Options. Any Incentive Stock Option authorized under the Plan shall contain such provisions as the Committee shall deem advisable, but shall in all events be consistent with and contain all provisions required in order to qualify the Stock Option as an Incentive Stock Option. To the extent that any Stock Option is not designated as an Incentive Stock Option or even if so designated does not qualify as an Incentive Stock Option on or subsequent to its grant date, it shall constitute a Nonqualified Stock Option.
SECTION 7. STOCK APPRECIATION RIGHTS
The Committee is hereby authorized to grant Stock Appreciation Rights to Eligible Individuals subject to the terms of the Plan, and such Stock Appreciation Rights may be granted as separate Awards or in tandem with Stock Options. Each Stock Appreciation Right granted under the Plan shall confer on the holder upon exercise the right to receive, as determined by the Committee, cash or a number of Shares or a combination of cash and Shares having a Fair Market Value on the date of exercise equal to the excess of (a) the Fair Market Value of one Share on the date of exercise (or, if the Committee shall so determine at the time of grant, the average selling price of one Share during a specified period that is within 30 days before the date of exercise) over (b) the grant price (the “Grant Price”) of the Stock Appreciation Right, which Grant Price shall not be less than 100% of the Fair Market Value of one Share on the date of grant of the Stock Appreciation Right. Subject to the terms of the Plan, the Grant Price, term, methods of exercise, dates of exercise, medium of settlement, the effect of termination of employment (by reason of death, disability, retirement or otherwise) on the exercisability and any other terms and conditions (including conditions or restrictions on the exercise thereof) of any Stock Appreciation Right shall be as determined by the Committee, PROVIDED, that in no event shall the term of a Stock Appreciation Right be longer than ten years.
SECTION 8. PERFORMANCE UNITS
(a) The Committee shall have sole and complete authority to determine the Eligible Individuals who shall receive Performance Units, the number of such Performance Units for each Performance Cycle, the Performance Goals on which each Award shall be contingent, and the duration of each Performance Cycle. There may be more than one Performance Cycle in existence at any one time, and the duration of Performance Cycles may differ from each other. The Committee may, prior to or at the time of the grant, designate Awards of Performance Units as Qualified Performance-Based Awards, in which event it shall condition the settlement thereof upon the Committee’s certification that the amount to be paid under each such Award has been earned on the basis of performance achieved in relation to the established Performance Goals applicable to that Award.
(b) The Committee shall establish Performance Goals for each Performance Cycle on the basis of such criteria and to accomplish such objectives as the Committee may from time to time select.
(c) As soon as practicable after the end of a Performance Cycle, the Committee shall determine the number of Performance Units which have been earned under each Award on the basis of performance in relation to the established Performance Goals.
(d) Except as otherwise provided under the terms of an Award and subject to the requirements of Code Section 409A, payment in respect of earned Performance Units shall be distributed to the Participant or, if the Participant has died, to the Participant’s Designated Beneficiary, as soon as practicable after the expiration of the Performance Cycle and the Committee’s determination under paragraph (c) above. The Committee shall determine whether payment is to be made in the form of cash or Shares.
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SECTION 9. RESTRICTED STOCK AND RESTRICTED STOCK UNITS
The Committee is hereby authorized to grant Restricted Stock and Restricted Stock Units to Eligible Individuals with the following terms and conditions and with such additional terms and conditions not inconsistent with the provisions of the Plan as the Committee shall determine:
(a) RESTRICTIONS. Shares of Restricted Stock and Restricted Stock Units shall be subject to such restrictions as the Committee may impose (including, without limitation, limitation on transfer, forfeiture conditions, limitation on the right to vote a Share of Restricted Stock or the right to receive any dividend or other right or property with respect thereto), which restrictions may lapse separately or in combination at such time or times, in such installments or otherwise as the Committee may deem appropriate. The grant or vesting of Restricted Stock and Restricted Stock Units may be performance-based or time-based or both. Restricted Stock and Restricted Stock Units may be Qualified Performance-Based Awards, in which event the grant or vesting, as applicable, of such Restricted Stock or Restricted Stock Units shall be conditioned upon the attainment of Performance Goals and the Committee’s certification that the Performance Goals have been met.
(b) PERFORMANCE-BASED AWARDS. The Committee shall establish the Performance Cycle and the Performance Goals on which the grant or vesting of each Award of performance-based Restricted Stock or Restricted Stock Units shall be contingent. The Committee may, prior to or at the time of the grant, designate performance-based Restricted Stock or Restricted Stock Units as Qualified Performance-Based Awards, in which event the grant or vesting, as applicable, of any such Restricted Stock or Restricted Stock Units shall be conditioned upon the attainment during the specified Performance Cycle of the Performance Goals established by the Committee and the Committee’s certification that the Performance Goals have been met with respect to such Restricted Stock or Restricted Stock Units.
(c) STOCK CERTIFICATES; DELIVERY OF SHARES.
(i) Any Restricted Stock granted under the Plan shall be evidenced in such manner as the Committee may deem appropriate, including book-entry registration or issuance of one or more stock certificates. Any certificate issued in respect of Shares of Restricted Stock shall be registered in the name of such Participant and shall bear an appropriate legend referring to the applicable Award Agreement and possible forfeiture of such shares of Restricted Stock. The Committee may require that the certificates evidencing such shares be held in custody by the Company until the restrictions thereon shall have lapsed and that, as a condition of any Award of Restricted Stock, the Participant shall have delivered a stock power, endorsed in blank, relating to the Shares covered by such Award.
(ii) In the case of Restricted Stock Units, no Shares or other property shall be issued at the time such Awards are granted. Upon the lapse or waiver of restrictions and the Restricted Period relating to Restricted Stock Units (or at such later time as may be determined by the Committee and specified at the time of grant in accordance with the requirements of Code Section 409A), Shares or other cash or property shall be issued to the holder of the Restricted Stock Units and evidenced in such manner as the Committee may deem appropriate, including book-entry registration or issuance of one or more stock certificates.
(d) FORFEITURE. Except as otherwise determined by the Committee, upon a Participant’s termination of employment or other applicable service (as determined under criteria established by the Committee) during the applicable Restricted Period, all applicable Restricted Stock Units and Shares of Restricted Stock subject to restriction at such time shall be forfeited. To the extent other vesting conditions are not met as of the last day of the applicable Restricted Period, all applicable Restricted Stock Units and Shares of Restricted Stock subject to such vesting conditions shall be forfeited.
SECTION 10. OTHER SHARE-BASED OR SHARE-RELATED AWARDS
In addition to granting Options, Stock Appreciation Rights, Restricted Stock and Restricted Stock Units, the Committee shall have authority to grant to Participants and to specify the terms and conditions of other forms of Share-based or Share-related awards not described above that the Committee determines to be consistent with the purpose of the Plan and the interests of the Company.
SECTION 11. DIRECTORS’ RESTRICTED STOCK UNITS
(a) GRANT OF RESTRICTED STOCK UNITS. Except as provided in subsection (b), each Director who is (i) a member of the Board and (ii) not a Section 16 Officer as of the conclusion of a Stockholders Meeting shall automatically be granted Restricted Stock Units on the date of such Stockholders Meeting, with the number of shares to be determined by dividing the applicable Grant Value by the Fair Market Value of the Shares on that date. As used herein, “Grant Value” means the value for the annual grant authorized by the Board, from time to time; PROVIDED, HOWEVER, in no event shall the Grant Value exceed $250,000 per year.
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(b) COMMITTEE DISCRETION NOT TO GRANT RESTRICTED STOCK UNITS. The Committee shall have sole discretion to determine that an Award shall not be granted pursuant to this Section 11 to one or more Directors.
(c) TERMS AND CONDITIONS OF RESTRICTED STOCK UNITS. At the time of grant, the Committee shall specify the forfeiture and vesting conditions to which the Restricted Stock Units granted pursuant to this Section 11 shall be subject. Grantees will only be entitled to receive Shares upon the vesting of Restricted Stock Units. Upon a Change in Control, all unvested Restricted Stock Units shall automatically vest and grantees shall be entitled to receive Shares for all such vested Restricted Stock Units as of such Change in Control. The Restricted Stock Units granted pursuant to this Section 11 shall be subject to such other terms and conditions as the Committee may specify.
SECTION 12. DIRECTORS’ SHARES
(a) ELECTION GENERALLY. Each Director who is not an Employee on the last day of a calendar year may make an election (the “Annual Election”) to have payment of the annual retainer, meeting fees and committee meeting fees (collectively, the “Fees”) he or she earns during the next succeeding calendar year deferred under the Plan. Such election may be made in writing, through an interactive telephone or internet-based system or in such other manner as the Committee may prescribe.
(b) TIMING OF ELECTION.
(i) GENERAL. A Director’s Annual Election for the Fees earned during a calendar year must be made before the first day of such calendar year and within the enrollment period established by the Committee, except as provided in subsection (b)(ii).
(ii) New Directors . If an individual initially becomes a Director during a calendar year, such individual may make a prospective Annual Election within 30 days after the date on which he is elected as a Director. Such election will apply to the Director’s Fees for services performed after the effective date of the election, so that the election will apply to the quarterly retainer for the first quarter beginning after the date of the election. This subsection (b)(ii) shall only apply to the extent permitted under Code Section 409A.
(c) TERM OF ELECTION. Upon the latest of the deadlines specified in (b) above that applies to a Director, such Director’s Annual Election, or failure to elect, shall become irrevocable for the calendar year except as provided under this subsection (c). Each Director’s Annual Election for a calendar year shall remain in effect for such calendar year and all subsequent calendar years until the earlier of (i) the date the Director Separates from Service as a Director, or (ii) the effective date of the Director’s subsequent irrevocable Annual Election for amounts earned during a subsequent calendar year. The Annual Election may be cancelled in the discretion of the Committee only as permitted under Code Section 409A.
(d) AMOUNT . A Director may elect to defer his Fees in 10% increments, up to a maximum of 100 percent (or such other maximum percentage and/or amount, if any, established by the Committee from time to time).
(e) ACCOUNTS AND CREDITING OF CONTRIBUTIONS. All Fees deferred under this Section 12 shall be credited to a bookkeeping account for the Director and deemed invested in Shares on the last trading day of the calendar month in which the Fees are earned or as soon as practicable thereafter.
(f) RABBI TRUST. Each time Fees are deferred under the Plan, the Company shall deposit an equal amount in a Rabbi trust. The amount deposited in the trust shall be invested in Shares. The trustee shall retain all dividends and other distributions paid or made with respect thereto in the trust (which shall be reinvested in Shares), and shall adjust the Director’s accounts for such amounts. The Shares credited to the account of a Director shall remain subject to the claims of the Company’s creditors, and the interests of the Director in his or her account under the Plan may not be anticipated, alienated, sold, assigned, transferred, pledged, encumbered, attached or garnished by creditors of such Director, except by will or by the laws of descent and distribution. Notwithstanding the foregoing, no assets will be set aside to fund benefits under the Plan if such setting aside would be treated as a transfer of property under Code Section 83 pursuant to Code Section 409A(b).
(g) DISTRIBUTIONS.
(i) GENERAL TIMING AND SCHEDULE OF DISTRIBUTIONS. Any portion of a Director’s account under this Section for which no election is made pursuant to subsection (ii) below shall be paid in a single sum (A) except as provided in clause (B) of this paragraph, within 60 days after the Director Separates from Service; or (B) in the case of a Director who is a specified employee (as defined in Code Section 409A) on the date of his or her Separation from Service, to the extent required by Code Section 409A, six months after the date the Director Separates from Service.
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(ii) Payment Election . A Director may elect, at the time he makes an Annual Election, to have the portion of his account balance attributable to such Annual Election distributed in accordance with one of the following options (in each case, provided that, in the case of a Director who is a specified employee (as defined in Code Section 409A) on the date of his or her Separation from Service, to the extent required by Code Section 409A, no payment will be made earlier than six months after the date the Director Separates from Service):
(A) In a single sum within 60 days after the later of (1) a date selected by the Director that is on or before the Director’s 65 th birthday, and specified in the Annual Election, or (2) the date of the Director’s Separation from Service; or
(B) In substantially equal annual installments paid over a number of years (not less than 2 and not more than 20) specified in the Annual Election, beginning within 60 days after the date the Director Separates from Service.
(iii) MEDIUM OF PAYMENT. Distribution of a Director’s account under this Section shall be made in Shares; provided, the value of any fractional Shares shall be distributed in cash.
SECTION 13. AMENDMENT AND TERMINATION
(a) AMENDMENTS TO THE PLAN. The Board may amend, alter, suspend, discontinue or terminate the Plan at any time; PROVIDED, HOWEVER, that no amendment, alteration, suspension, discontinuance or termination may be made that would cause a Participant to become subject to tax under Code Section 409A(a)(1), and, notwithstanding any other provision of the Plan or any Award Agreement, without the approval of the stockholders of the Company, no amendment, alteration, suspension, discontinuation or termination shall be made that:
(i) requires stockholder approval under the rules or regulations of the applicable Exchange;
(ii) increases the number of Shares authorized under the Plan as specified in Section 5(a) of the Plan, except as permitted under Section 5(c) of the Plan; or
(iii) without such stockholder approval, would cause the Company to be unable, under the Code, to grant Incentive Stock Options under the Plan.
(b) AMENDMENTS TO AWARDS. The Committee may waive any conditions of or rights of the Company under any outstanding Award, prospectively or retroactively. Except as otherwise provided herein or in an Award Agreement, the Committee may not amend, alter, suspend, discontinue or terminate any outstanding Award, prospectively or retroactively, if such action would adversely affect the rights of the holder of such Award, without the consent of the Participant or holder or beneficiary thereof. The Committee may not amend any Qualified Performance-Based Award in a manner that would cause such Award to cease to qualify for the Section 162(m) Exemption.
(c) CORRECTION OF DEFECTS, OMISSIONS AND INCONSISTENCIES. The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award in the manner and to the extent it shall deem desirable to carry out the intent of the Plan.
SECTION 14. GENERAL PROVISIONS
(a) WITHHOLDING. No later than the date as of which an amount first becomes includible in the gross income of a Participant for federal income tax purposes (or the income tax laws of any other foreign jurisdiction) with respect to any Award under the Plan, the Participant shall pay to the Company, or make arrangements satisfactory to the Company regarding the payment of, any federal, state, local or foreign taxes of any kind required by law to be withheld with respect to such amount. The obligations of the Company under the Plan shall be conditional on such payment or arrangements, and the Company and its Affiliates shall, to the extent permitted by law, be entitled to take such action and establish such procedures as it deems appropriate to withhold or collect all applicable payroll, withholding, income or other taxes from such Participant. In order to assist a Participant in paying all or a portion of the federal, state, local and foreign taxes to be withheld or collected upon exercise, settlement or receipt of (or the lapse of restrictions relating to) an Award, the Committee, in its discretion and subject to such additional terms and conditions as it may adopt, may permit the Participant to satisfy such tax obligation by (i) electing to have the Company withhold a portion of the Shares or other property otherwise to be delivered upon exercise, settlement or receipt of (or the lapse of restrictions relating to) such Award with a Fair Market Value equal to the amount of such taxes or (ii) delivering to the Company whole Shares or other property other than Shares issuable upon exercise, settlement or receipt of (or the lapse of restrictions relating to) such Award with a Fair Market Value equal to the amount of such taxes, PROVIDED that, in either case, not more than the legally required minimum withholding, rounded
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up for any fraction of a Share, may be settled with Shares. Any such election must be made on or before the date that the amount of tax to be withheld is determined.
(b) AWARDS. Each Award hereunder shall be evidenced by an Award Agreement, delivered or made available electronically to the Participant and shall specify the terms and conditions thereof and any rules applicable thereto, including but not limited to the effect on such Award of the death, retirement or other termination of employment of the Participant and the effect thereon, if any, of a Change in Control of the Company.
(c) NO RIGHTS TO AWARDS. No Eligible Individual or other person shall have any claim to be granted any Award under the Plan, and there is no obligation for uniformity of treatment of Eligible Individuals or holders or beneficiaries of Awards under the Plan. The terms and conditions of Awards need not be the same with respect to any Participant or with respect to different Participants.
(d) NO RIGHT TO EMPLOYMENT. No person shall have any claim or right to be granted an Award, and the grant of an Award shall not be construed as giving a Participant the right to be retained in the employ of the Employer. Further, the Employer expressly reserves the right at any time to dismiss a Participant free from any liability, or any claim under the Plan, except as provided herein or in any agreement entered into with respect to an Award.
(e) NO RIGHTS AS STOCKHOLDER. Subject to the provisions of the applicable Award or otherwise determined by the Committee in accordance with the Plan, no Participant or Designated Beneficiary shall have any rights as a stockholder with respect to any Shares to be distributed under the Plan until he or she has become the holder thereof. Notwithstanding the foregoing, in connection with each Award of Restricted Stock granted under Section 9, the applicable Award Agreement shall specify if and to what extent the Participant shall not be entitled to the rights of a stockholder in respect of such Award of Restricted Stock.
(f) DIVIDENDS AND DIVIDEND EQUIVALENTS. In the sole and complete discretion of the Committee, an Award granted pursuant to Sections 9, 10 and 11, may provide the Participant with dividends or dividend equivalents (payable on a current or deferred basis), and the Award Agreement shall specify if dividends or dividend equivalents are to be payable. Such dividends or dividend equivalents shall be payable at the time and pursuant to the payment schedule specified by the Committee in the Award Agreement, subject to the requirements of Code Section 409A, or, if the Award Agreement does not provide a time and schedule of payment at the time of grant, any dividends or dividend equivalents shall be payable in a lump sum on the date the dividend is payable to stockholders generally.
(g) CONSTRUCTION OF THE PLAN. The validity, construction, interpretation, administration and effect of the Plan and of its rules and regulations, and rights relating to the Plan, shall be determined solely in accordance with the laws of the State of Illinois.
(h) CHANGE IN CONTROL. In order to preserve a Participant’s rights under an Award in the event of a Change in Control, the Committee in its discretion and without the consent of the Participant may, at the time an Award is made or any time thereafter, take one or more of the following actions: (i) provide for the acceleration of any time period relating to the exercise or vesting of the Award, (ii) provide for the purchase or termination of the Award for an amount of cash or other property that could have been received upon the exercise or realization of the Award had the Award been currently exercisable or payable, (iii) adjust the terms of the Award in a manner determined by the Committee to reflect the Change in Control, (iv) cause the Award to be assumed, or new rights substituted therefore, by another entity, or (v) make such other provision as the Committee may consider equitable and in the best interests of the Company. No actions may be taken under this subsection (h) that would cause the Participant to become subject to tax under Code Section 409A(a)(1).
(i) FORMS OF PAYMENT UNDER AWARDS.
(i) GENERALLY. Subject to the terms of the Plan and the applicable requirements of Code Section 409A, payments or transfers to be made by the Company or an Affiliate upon the grant, exercise or settlement of an Award may be made in such medium or media as the Committee shall determine (including, without limitation, cash, Shares, promissory notes (PROVIDED, HOWEVER, that the acceptance of such notes does not conflict with Section 402 of the Sarbanes-Oxley Act of 2002), other securities, other Awards or other property or any combination thereof). In addition, such payments or transfers may be made in a single payment or transfer, in installments or on a deferred basis, in each case as determined by the Committee at the time of grant in accordance with the requirements of Code Section 409A and rules and procedures established by the Committee. The Company shall have no liability to a Participant, or any other party (in damages or otherwise) in the event that any amount or benefit under the Plan becomes subject to penalties under Section 409A of the Code. Such rules and procedures may include, without limitation, provisions for the payment or crediting of reasonable interest on installment or deferred payments or the grant or crediting of dividends or dividend equivalents with respect to installment or deferred payments. Notwithstanding anything in the Plan to the contrary, (A) for Restricted Stock Units and
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any other Awards that provide nonqualified deferred compensation subject to Code Section 409A(a)(2), payment of the Award to a “specified employee,” as defined in Code Section 409A, upon Separation from Service, to the extent required under Code Section 409A, shall not be made before six months after the date on which the Separation from Service occurs, and (B) Restricted Stock Units and any other Awards that provide for nonqualified deferred compensation subject to Code Section 409A(a)(2) through (4) shall not be settled with promissory notes. All distributions under the Plan shall be made in the form of a single sum, unless otherwise specified under the terms of the Plan, Award Agreement or by the Committee at the time of grant.
(ii) Deferrals . If permitted by the Committee for a given Award, all or a portion of an Award may be deferred (and paid in a form permitted by the Committee) at the election of a Participant, PROVIDED that all such deferral elections shall comply with Code Section 409A. To the extent that the Award provides for deferred compensation subject to Code Section 409A(a)(2), any cash payments provided in lieu of an Award may not change the timing of payment of such Award.
(iii) CASH PAYMENTS. Cash payments shall be payable (A) at the time and pursuant to the payment schedule specified by the Committee at the time of grant, subject to the requirements of Code Section 409A, or (B) if the Committee does not provide a time and schedule of payment at the time of grant for amounts subject to Code Section 409A, in a lump sum within 90 days after the Participant’s Separation from Service; PROVIDED, to the extent required by Code Section 409A, no such cash payment will be made within the 6-month period following Separation from Service for a Participant who is a “specified employee,” as defined in Code Section 409A, on the date of his or her Separation from Service. Cash payments shall not be conditioned on the exercise of an Option or Stock Appreciation Right or otherwise be structured in such a way as to reduce the exercise price of the Option or Stock Appreciation Right.
(j) SECTION 16 COMPLIANCE. The Plan is intended to comply in all respects with Rule 16b-3 or any successor provision, as in effect from time to time, and in all events the Plan shall be construed in accordance with the requirements of Rule 16b-3. If any Plan provision does not comply with Rule 16b-3 as hereafter amended or interpreted, the provision shall be deemed inoperative. The Board, in its absolute discretion, may bifurcate the Plan so as to restrict, limit or condition the use of any provision of the Plan with respect to persons who are Section 16 Officers or are Directors subject to Section 16 of the Exchange Act without so restricting, limiting or conditioning the Plan with respect to other Eligible Individuals.
(k) RESTRICTIONS. Shares shall not be issued pursuant to the exercise or payment of the Exercise Price or purchase price relating to an Award unless such exercise or payment and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of Applicable Law. As a condition to the exercise or payment of the Exercise Price or purchase price relating to such Award, the Company may require that the person exercising or paying the Exercise Price or purchase price represent and warrant that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation and warranty is required by law. All Shares or other securities delivered under the Plan pursuant to any Award or the exercise thereof shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable, and the Committee may direct appropriate stop transfer orders and cause other legends to be placed on the certificates for such Shares or other securities to reflect such restrictions.
(l) LIMITS ON TRANSFER OF AWARDS. No Award and no right under any such Award shall be transferable by a Participant otherwise than by will or by the laws of descent and distribution and the Company shall not be required to recognize any attempted assignment of such rights by any Participant; PROVIDED, HOWEVER, that, if so determined by the Committee, a Participant may, in the manner established by the Committee, designate a beneficiary or beneficiaries to exercise the rights of the Participant and receive any property distributable with respect to any Award upon the death of the Participant; and PROVIDED, FURTHER, that, if so determined by the Committee, a Participant may transfer a Nonqualified Stock Option to any Family Member (as such term is defined in the General Instructions to Form S-8 (or successor to such Instructions or such Form)) at any time that such Participant holds such Stock Option, whether directly or indirectly or by means of a trust or partnership or otherwise, PROVIDED that the Participant may not receive any consideration for such transfer, the Family Member may not make any subsequent transfers other than by will or by the laws of descent and distribution and the Company receives written notice of such transfer. Except as otherwise determined by the Committee, each Award (other than an Incentive Stock Option) or right under any such Award shall be exercisable during the Participant’s lifetime only by the Participant or, if permissible under Applicable Laws, by the Participant’s guardian or legal representative. Except as otherwise determined by the Committee for an Award that does not provide nonqualified deferred compensation subject to Code Section 409A(a)(2), no Award (other than an Incentive Stock Option) or right under any such Award may be anticipated, assigned, garnished, pledged, alienated, attached or otherwise encumbered, and any purported anticipation, assignment, garnishment, pledge, alienation, attachment or other encumbrance thereof shall be void and unenforceable against the Company or any Affiliate. Notwithstanding the above, in the discretion of the Committee, awards may be transferable pursuant to a Qualified Domestic Relations Order, as determined by the Committee or its designee.
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(m) SEVERABILITY. If any provision of the Plan or any Award is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to Applicable Laws, or if it cannot be so construed or deemed amended without, in the determination of the Committee, materially altering the purpose or intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction or Award, and the remainder of the Plan or any such Award shall remain in full force and effect.
(n) WAIVER OF JURY TRIAL. THE COMPANY AND EACH PARTICIPANT SHALL IRREVOCABLY AND UNCONDITIONALLY (A) WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY PROCEEDING (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THE PLAN OR ANY AWARD AGREEMENT, (B) AGREE THAT SERVICE OF PROCESS IN ANY SUCH PROCEEDING MAY BE EFFECTED BY MAILING A COPY OF SUCH PROCESS BY REGISTERED OR CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO SUCH PARTY, IN THE CASE OF A PARTICIPANT, AT THE PARTICIPANT’S ADDRESS SHOWN IN THE BOOKS AND RECORDS OF THE COMPANY OR, IN THE CASE OF THE COMPANY, AT THE COMPANY’S PRINCIPAL OFFICES, ATTENTION GENERAL COUNSEL, AND (C) AGREE THAT NOTHING IN THE PLAN SHALL AFFECT THE RIGHT TO EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY THE LAWS OF THE STATE OF ILLINOIS.
(o) COMPENSATION RECOVERY. Notwithstanding anything in the Plan to the contrary, in the event that the Company is required to materially restate its financial results due to the Company’s material noncompliance with any financial reporting requirement under Federal securities laws, excluding a restatement of such financial results due solely to a change in generally accepted accounting principles in the United States or such other accounting principles that may be adopted by the Securities and Exchange Commission and are or become applicable to the Company, the Committee may, in its discretion or as necessary to comply with Applicable Laws, (i) cancel part or all of the outstanding portion of any Award, whether or not vested, and/or (ii) require a Participant to repay the Company an amount equal to all or any portion of the value of Shares that have been issued and other payments that have been made to the Participant pursuant to any Award within the two years preceding the date on which the Company is required to prepare an accounting restatement, to the extent that such value or payment amount was based on the erroneous data and exceeded the value or amount that would have been paid to the Participant under the accounting restatement. Such cancellation or repayment obligation shall be effective as of the date specified by the Committee. Any repayment obligation shall be satisfied in cash or in such other form of consideration, such as Shares, permitted by Applicable Laws and acceptable to the Committee, and the Committee may provide for an offset to any future payments owed by the Company or its Affiliates to the Participant if necessary to satisfy the repayment obligation; PROVIDED HOWEVER, that if any such offset is prohibited under Applicable Laws, the Committee shall not permit any such offset and may require immediate repayment by the Participant. Notwithstanding the foregoing, to the extent required to comply with Applicable Laws, and/or any compensation recovery or clawback policy adopted by the Company after the Effective Date, the Company may unilaterally amend this Section 14(o) and such amendment shall be binding on all Participants; PROVIDED, HOWEVER, regardless of whether the Company makes such a unilateral amendment, all Participants shall be bound by any compensation recovery or clawback policy adopted by the Company after the Effective Date.
SECTION 15. EFFECTIVE DATE OF PLAN
The Plan became effective on October 24, 2014.
SECTION 16. TERM OF THE PLAN
The Plan will terminate on the tenth anniversary of the Effective Date or any earlier date of discontinuation or termination established pursuant to Section 3 of the Plan. However, unless otherwise expressly provided in the Plan or in an applicable Award Agreement, any Award granted prior to such discontinuation or termination may extend beyond such date, and the authority of the Committee provided for hereunder with respect to the Plan and any Awards, and the authority of the Board to amend the Plan, shall extend beyond the termination of the Plan.
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EXHIBIT 31.1
CERTIFICATION OF CEO PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, David Fisher, certify that:
1. |
I have reviewed this report on Form 10-Q of Enova International, Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
c) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: November 14, 2014 |
|
/s/ David Fisher |
David Fisher |
President and Chief Executive Officer |
EXHIBIT 31.2
CERTIFICATION OF CFO PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT
I, Robert S. Clifton, certify that:
1. |
I have reviewed this report on Form 10-Q of Enova International, Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
c) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: November 14, 2014 |
|
/s/ Robert S. Clifton |
Robert S. Clifton |
Vice President—Chief Financial Officer and Treasurer |
EXHIBIT 32.1
CERTIFICATION OF CEO PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Enova International, Inc. (the “Company”) for the quarterly period ended September 30, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David Fisher, President and Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Enova International, Inc. and will be retained by Enova International, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
The undersigned expressly disclaims any obligation to update the foregoing certification except as required by law.
/s/ David Fisher |
David Fisher |
President and Chief Executive Officer |
Date: November 14, 2014 |
The foregoing certification is being furnished solely pursuant to the requirements of 18 U.S.C. § 1350 and is not being filed as a part of the Report or as a separate disclosure document.
EXHIBIT 32.2
CERTIFICATION OF CFO PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Enova International, Inc. (the “Company”) for the quarterly period ended September 30, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert S. Clifton, Vice President—Chief Financial Officer and Treasurer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Enova International, Inc. and will be retained by Enova International, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
The undersigned expressly disclaims any obligation to update the foregoing certification except as required by law.
/s/ Robert S. Clifton |
Robert S. Clifton |
Vice President—Chief Financial Officer and Treasurer |
Date: November 14, 2014 |
The foregoing certification is being furnished solely pursuant to the requirements of 18 U.S.C. § 1350 and is not being filed as a part of the Report or as a separate disclosure document.