Elevate Credit, Inc. - Quarter Report: 2022 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2022

☐ 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 001-37680

ELEVATE CREDIT, INC.

(Exact name of registrant as specified in its charter)


Delaware						46-4714474
State or Other Jurisdiction of Incorporation or Organization						I.R.S. Employer Identification Number

4150 International Plaza,

Suite 300

Fort Worth,

76109

Address of Principal Executive Offices

Zip Code

(817)

928-1500

Registrant’s Telephone Number, Including Area Code

Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report

Securities registered pursuant to Section 12(b) of the Act.


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Shares, $0.0004 par value	ELVT	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.


Yes			☒			No			☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).


Yes			☒			No			☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Non-accelerated filer	☐
Accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☒

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:


Class						Outstanding at November 7, 2022
Common Shares, $0.0004 par value						31,246,534

TABLE OF CONTENTS


Note About Forward-Looking Statements			4
Part I - Financial Information
	Item 1.	Financial Statements
		Condensed Consolidated Balance Sheets as of September 30, 2022 (unaudited) and December 31, 2021	6
		Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2022 and 2021	7

		Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2022 and 2021	8
		Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021	10
		Notes to Unaudited Condensed Consolidated Financial Statements	12
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	43
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	84
	Item 4.	Controls and Procedures	85
Part II - Other Information
	Item 1.	Legal Proceedings	86
	Item 1A.	Risk Factors	86
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	88



	Item 6.	Exhibits	89
SIGNATURES			90

NOTE ABOUT FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act") that are based on our management’s beliefs and assumptions and on information currently available to our management. The forward-looking statements are contained throughout this Quarterly Report on Form 10-Q, including in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and "Risk Factors." Forward-looking statements include information concerning our strategy, future operations, future financial position, future revenues, projected expenses, margins, prospects and plans and objectives of management. Forward-looking statements include all statements that are not historical facts and can be identified by terms such as “anticipate,” “believe,” “could,” “seek,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” or similar expressions and the negatives of those terms. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

•our future financial performance, including our expectations regarding our revenue, cost of revenue, growth rate of revenue, cost of borrowing, credit losses, marketing costs, net charge-offs, gross profit or gross margin, operating expenses, operating margins, loans outstanding, credit quality, ability to generate cash flow and ability to achieve and maintain future profitability;

•the current macroeconomic conditions, including high inflation and the resulting impact on our borrowers to repay their loans;

•the effects of the outbreak and continuation of the novel coronavirus ("COVID-19") on demand for our products, our business, our financial condition and results of operations, underwriting changes we and the bank originators we support are implementing to address credit risk associated with originations during the economic crisis created by the COVID-19 pandemic, and new legislation or other governmental responses to the pandemic;

•the availability of debt financing, funding sources and disruptions in credit markets;

•our ability to meet anticipated cash operating expenses and capital expenditure requirements, including our plans with respect to assessing minimum cash and liquidity requirements and implementing measures to ensure that our cash and liquidity position is maintained through the current economic cycle;

•the outcome or timing of our strategic review to maximize shareholder value;

•anticipated trends, growth rates, seasonal fluctuations and challenges in our business and in the markets in which we operate;

•our ability to anticipate market needs and develop new and enhanced or differentiated products, services and mobile apps to meet those needs, and our ability to successfully monetize them;

•our expectations with respect to trends in our average portfolio effective annual percentage rate;

•our anticipated growth and growth strategies and our ability to effectively manage that growth;

•our anticipated expansion of relationships with strategic partners, including banks;

•customer demand for our product and our ability to respond to fluctuations in demand;

•our ability to attract potential customers and retain existing customers and our cost of customer acquisition;

•the ability of customers to repay loans;

•interest rates and origination fees on loans;

•the impact of competition in our industry and innovation by our competitors;

•our ability to attract and retain necessary qualified directors, officers and employees;

•our reliance on third-party service providers;

•our access to the automated clearing house system;

•the efficacy of our marketing efforts and relationships with marketing affiliates;

•our anticipated direct marketing costs and spending;

•the evolution of technology affecting our products, services and markets;

•continued innovation of our analytics platform, including releases of new credit models;

•our ability to prevent security breaches, disruption in service and comparable events that could compromise the personal and confidential information held in our data systems, reduce the attractiveness of the platform or adversely impact our ability to service loans;

•our ability to detect and filter fraudulent or incorrect information provided to us by our customers or by third parties;

•our ability to adequately protect our intellectual property;

•our compliance with applicable local, state, federal and foreign laws;

•our compliance with, and the effects on our business and results of operations from, current or future applicable regulatory developments and regulations, including developments or changes from the Consumer Financial Protection Bureau ("CFPB") and developments or changes in state law;

•regulatory developments or scrutiny by agencies regulating our business or the businesses of our third-party partners;

•public perception of our business and industry;

•the anticipated effect on our business of litigation or regulatory proceedings to which we or our officers are a party;

•the anticipated effect on our business of natural or man-made catastrophes;

•the increased expenses and administrative workload associated with being a public company;

•failure to maintain an effective system of internal controls necessary to accurately report our financial results and prevent fraud;

•our liquidity and working capital position and requirements;

•the estimates and estimate methodologies used in preparing our condensed consolidated financial statements, including our valuation of our loan portfolio under fair value accounting;

•the utility of non-GAAP financial measures;

•the future trading prices of our common stock and the impact of securities analysts’ reports on these prices;

•our anticipated development and release of certain products and applications and changes to certain products;

•our anticipated investing activity;

•trends anticipated to continue as our portfolio of loans matures; and

•any future repurchases under our share repurchase program, including the timing and amount of repurchases thereunder.

We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.

Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. We discuss these risks in greater detail elsewhere in this Quarterly Report on Form 10-Q, and in "Risk Factors" and elsewhere in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this Quarterly Report on Form 10-Q. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.


Elevate Credit, Inc. and Subsidiaries

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

CONDENSED CONSOLIDATED BALANCE SHEETS


(Dollars in thousands except share amounts)	September 30, 2022		December 31, 2021
	(unaudited)
ASSETS
Cash and cash equivalents*	$	72,599	$	84,978
Restricted cash*	3,852		5,874
Loans receivable at fair value*	621,312		—
Loans receivable, net of allowance for loan losses of $71,204*	—		511,157
Prepaid expenses and other assets*	12,647		12,745
Operating lease right of use assets	10,933		5,718

Receivable from payment processors*	17,038		15,870
Deferred tax assets, net	—		34,229
Investment in unconsolidated affiliate	4,763		—
Property and equipment, net	39,064		33,104
Goodwill, net	6,776		6,776
Intangible assets, net	231		231

Total assets	$	789,215	$	710,682

LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable and accrued liabilities (See Note 13)*	$	38,381	$	82,513
Operating lease liabilities	16,217		9,171
Other taxes payable	410		304
Deferred revenue*	4,480		4,446
Notes payable, net (See Note 6)*	560,569		505,277

Total liabilities	620,057		601,711
COMMITMENTS, CONTINGENCIES AND GUARANTEES (Note 12)
STOCKHOLDERS’ EQUITY
Preferred stock; $0.0004 par value; 24,500,000 authorized shares; none issued and outstanding at September 30, 2022 and December 31, 2021.	—		—
Common stock; $0.0004 par value; 300,000,000 authorized shares; 44,960,438 and 44,960,438 issued; 31,218,030 and 31,810,759 outstanding, respectively	19		19


Additional paid-in capital	210,038		205,860
Treasury stock; at cost; 13,742,408 and 13,149,679 shares of common stock, respectively	(44,901)		(41,746)
Retained earnings (Accumulated deficit)	4,002		(55,162)

Total stockholders’ equity	169,158		108,971
Total liabilities and stockholders’ equity	$	789,215	$	710,682

* These balances include certain assets and liabilities of variable interest entities (“VIEs”) that can only be used to settle the liabilities of that respective VIE. All assets of the Company are pledged as security for the Company’s outstanding debt, including debt held by the VIEs. For further information regarding the assets and liabilities included in the Company's consolidated accounts, see Note 5—Variable Interest Entities.

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


Elevate Credit, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)


	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands, except share and per share amounts)	2022		2021		2022		2021
Revenues	$	125,617	$	112,835	$	367,467	$	287,108
Cost of sales:
Change in fair value of loans receivable	72,311		—		217,926		—
Provision for loan losses	—		54,903		—		103,098
Direct marketing costs	6,478		15,406		20,532		30,353
Other cost of sales	2,968		4,766		9,013		9,718
Total cost of sales	81,757		75,075		247,471		143,169
Gross profit	43,860		37,760		119,996		143,939
Operating expenses:
Compensation and benefits	15,935		20,445		56,585		58,038
Professional services (See Note 13)	6,859		8,423		20,251		24,161
Selling and marketing	896		1,277		2,825		2,520
Occupancy and equipment	5,868		5,521		17,927		15,766
Depreciation and amortization	4,520		4,544		13,001		14,339
Other	942		656		2,577		2,242
Total operating expenses	35,020		40,866		113,166		117,066
Operating income (loss)	8,840		(3,106)		6,830		26,873
Other expense:
Net interest expense (See Note 13)	(13,655)		(9,544)		(37,951)		(26,897)


Equity method investment loss	(358)		—		(1,070)		—
Non-operating income (loss)	—		(198)		1,747		519
Total other expense	(14,013)		(9,742)		(37,274)		(26,378)
Income (loss) before taxes	(5,173)		(12,848)		(30,444)		495
Income tax expense (benefit)	9,861		(1,843)		5,058		1,829


Net loss	$	(15,034)	$	(11,005)	$	(35,502)	$	(1,334)




Basic loss per share	$	(0.48)	$	(0.33)	$	(1.14)	$	(0.04)




Diluted loss per share	$	(0.48)	$	(0.33)	$	(1.14)	$	(0.04)

Basic weighted average shares outstanding	31,068,846		33,786,968		31,237,730		34,841,624
Diluted weighted average shares outstanding	31,068,846		33,786,968		31,237,730		34,841,624

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


Elevate Credit, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

For the periods ended September 30, 2022 and 2021


(Dollars in thousands except share amounts)	Preferred Stock		Common Stock			Additional paid-in capital		Treasury Stock			Retained earnings / Accumulated deficit		Total
	Shares	Amount	Shares	Amount				Shares	Amount
Balances at December 31, 2020	—	—	37,954,138	$	18	$	200,433	7,006,300	$	(16,492)	$	(20,101)	$	163,858
Share-based compensation -US	—	—	—	—		1,602		—	—		—		1,602





Treasury stock acquired	—	—	(2,480,741)	—		—		2,480,741	(10,813)		—		(10,813)
Treasury stock reissued for RSUs vesting	—	—	169,091	—		(417)		(169,091)	621		(621)		(417)
Treasury stock reissued for Stock Option Exercise	—	—	12,500	—		—		(12,500)	73		(46)		27
Net income	—	—	—	—		—		—	—		12,716		12,716

Balances at March 31, 2021	—	—	35,654,988	$	18	$	201,618	9,305,450	$	(26,611)	$	(8,052)	$	166,973
Share-based compensation -US	—	—	—	—		1,787		—	—		—		1,787




Treasury stock acquired	—	—	(2,339,085)	—		—		2,339,085	(7,954)		—		(7,954)
Treasury stock reissued for RSUs vesting	—	—	532,365	—		(562)		(532,365)	687		(687)		(562)
Treasury stock reissued for ESPP purchases	—	—	149,613	—		207		(149,613)	246		—		453
Net loss	—	—	—	—		—		—	—		(3,045)		(3,045)

Balances at June 30, 2021	—	—	33,997,881	$	18	$	203,050	10,962,557	$	(33,632)	$	(11,784)	$	157,652


Share-based compensation -US	—	—	—	—		1,559		—	—		—		1,559





Treasury stock acquired	—	—	(1,566,474)	—		—		1,566,474	(5,686)		—		(5,686)
Treasury stock reissued for RSUs vesting	—	—	117,030	—		(412)		(117,030)	222		(14)		(204)
Net loss	—	—	—	—		—		—	—		(11,005)		(11,005)

Balances at September 30, 2021	—	—	32,548,437	$	18	$	204,197	12,412,001	$	(39,096)	$	(22,803)	$	142,316

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


Elevate Credit, Inc. and Subsidiaries


(Dollars in thousands except share amounts)	Preferred Stock		Common Stock			Additional paid-in capital		Treasury Stock			Retained earnings / Accumulated deficit		Total
	Shares	Amount	Shares	Amount				Shares	Amount
Balances at December 31, 2021	—	—	31,810,759	$	19	$	205,860	13,149,679	$	(41,746)	$	(55,162)	$	108,971
Share-based compensation -US	—	—	—	—		1,658		—	—		—		1,658
Treasury stock acquired	—	—	(972,476)	—		—		972,476	(3,661)		—		(3,661)
Treasury stock reissued for RSUs vesting	—	—	410,800	—		(714)		(410,800)	813		(744)		(645)

Cumulative effect of change in accounting, net of deferred income tax expense of $29.8 million	—	—	—	—		—		—	—		98,603		98,603
Net loss	—	—	—	—		—		—	—		(13,923)		(13,923)
Balances at March 31, 2022	—	—	31,249,083	$	19	$	206,804	13,711,355	$	(44,594)	$	28,774	$	191,003
Share-based compensation -US	—	—	—	—		2,280		—	—		—		2,280
Treasury stock acquired	—	—	(760,129)	—		—		760,129	(2,000)		—		(2,000)
Treasury stock reissued for RSUs vesting	—	—	366,884	—		(183)		(366,884)	781		(780)		(182)
Treasury stock reissued for ESPP purchases	—	—	190,945	—		—		(190,945)	514		(130)		384
Net loss	—	—	—	—		—		—	—		(6,545)		(6,545)
Balances at June 30, 2022	—	—	31,046,783	$	19	$	208,901	13,913,655	$	(45,299)	$	21,319	$	184,940
Share-based compensation -US	—	—	—	—		1,238		—	—		—		1,238

Treasury stock reissued for RSUs vesting	—	—	171,247	—		(101)		(171,247)	398		(398)		(101)
Current period adjustment to cumulative effects of change in accounting, net of deferred income tax benefit of $0.6 million	—	—	—	—		—		—	—		(1,885)		(1,885)
Net loss	—	—	—	—		—		—	—		(15,034)		(15,034)
Balances at September 30, 2022	—	—	31,218,030	$	19	$	210,038	13,742,408	$	(44,901)	$	4,002	$	169,158

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


Elevate Credit, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


(Dollars in thousands)	Nine Months Ended September 30,
	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(35,502)	$	(1,334)


Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	13,001		14,339
Change in fair value of loans receivable	217,926		—
Provision for loan losses	—		103,098
Share-based compensation	5,176		4,948
Amortization of debt issuance costs	703		540
Amortization of loan premium	4,454		3,283
Loss from equity method investment	1,070		—

Amortization of operating leases	(678)		(590)
Deferred income tax expense, net	5,012		1,343


Non-operating gain	(1,747)		(519)
Changes in operating assets and liabilities:
Prepaid expenses and other assets	1,902		(3,282)

Income taxes payable	106		382
Receivables from payment processors	(1,168)		(2,118)
Receivables from CSO lenders	—		1,255
Interest receivable	(47,756)		(22,982)


Deferred revenue	34		(176)
Accounts payable and accrued liabilities	(45,008)		13,379


Net cash provided by operating activities	117,525		111,566
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans receivable originated or participations purchased	(699,484)		(656,404)
Principal collections and recoveries on loans receivable	544,858		471,615
Participation premium paid	(4,328)		(4,020)
Purchases of property and equipment	(16,371)		(11,903)
Investment in unconsolidated affiliate	(4,000)		—
Proceeds from sale of intangible assets	—		1,250


Net cash used in investing activities	(179,325)		(199,462)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


Elevate Credit, Inc. and Subsidiaries


	Nine Months Ended September 30,
(Dollars in thousands)	2022		2021
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable	$	80,000	$	109,500
Payments of notes payable	(25,000)		(112,550)



Debt issuance costs paid	(412)		(75)
Principal payments on insurance premium financing	(1,317)		—

ESPP shares issued	384		453
Common stock repurchased	(5,328)		(24,453)
Proceeds from stock option exercises	—		27
Taxes paid related to net share settlement of equity awards	(928)		(1,183)


Net cash provided by (used in) financing activities	47,399		(28,281)

Net decrease in cash, cash equivalents and restricted cash	(14,401)		(116,177)



Cash and cash equivalents, beginning of period	84,978		197,983
Restricted cash, beginning of period	5,874		3,135
Cash, cash equivalents and restricted cash, beginning of period	90,852		201,118

Cash and cash equivalents, end of period	72,599		79,979
Restricted cash, end of period	3,852		4,962
Cash, cash equivalents and restricted cash, end of period	$	76,451	$	84,941

Supplemental cash flow information:
Interest paid	$	36,639	$	26,939
Taxes paid	$	388	$	148

Non-cash activities:
CSO fees charged-off included in Deferred revenues and Loans receivable	$	—	$	38
CSO fees on loans paid-off prior to maturity included in Receivable from CSO lenders and Deferred revenue	$	—	$	6
Increase in Prepaid expenses and other assets and Accounts payable and accrued liabilities related to insurance premium financing agreement	$	2,305	$	—

Reissuances of Treasury stock	$	1,992	$	1,530


Impact on retained earnings of adoption of ASU 2016-13	$	96,718	$	—




Leasehold improvements allowance included in Property and equipment, net	$	2,589	$	—

Operating lease right of use assets recognized	$	6,994	$	—
Operating lease liabilities recognized	$	9,583	$	—

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


Elevate Credit, Inc. and Subsidiaries

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the three and nine months ended September 30, 2022 and 2021

NOTE 1—BASIS OF PRESENTATION AND ACCOUNTING CHANGES

Business Operations

Elevate Credit, Inc. (the “Company”) is a Delaware corporation. The Company provides technology-driven, progressive online credit solutions to non-prime consumers. The Company uses advanced technology and proprietary risk analytics to provide more convenient and more responsible financial options to its customers, who are not well-served by either banks or legacy non-prime lenders. The Company currently offers unsecured online installment loans, lines of credit and credit cards in the United States (the “US”). The Company’s products, Rise, Elastic and Today Card, reflect its mission of “Good Today, Better Tomorrow” and provide customers with access to competitively priced credit and services while helping them build a brighter financial future with credit building and financial wellness features.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements as of September 30, 2022 and for the three and nine month periods ended September 30, 2022 and 2021 include the accounts of the Company, its wholly owned subsidiaries and variable interest entities ("VIEs") where the Company is the primary beneficiary. All significant intercompany transactions and accounts have been eliminated.

The unaudited condensed consolidated financial information included in this report has been prepared in accordance with accounting principles generally accepted in the US (“US GAAP”) for interim financial information and Article 10 of Regulation S-X and conform, as applicable, to general practices within the finance company industry, assuming the Company will continue as a going concern. The going concern assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business. See Note 2 —Going Conc ern for more information.

The principles for interim financial information do not require the inclusion of all the information and footnotes required by US GAAP for complete financial statements. Therefore, these unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2021 in the Company's Annual Report on Form 10-K, filed with the U.S. Securities and Exchange Commission ("SEC") on February 25, 2022. In the opinion of the Company’s management, the unaudited condensed consolidated financial statements include all adjustments, all of which are of a normal recurring nature, necessary for a fair presentation of the results for the interim periods. The Company's business is seasonal in nature so the results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for the full year.

Correction of Immaterial Error

In accordance with the transition guidance related to ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"), on January 1, 2022, the Company released the allowance for loan losses and measured the combined loans receivable at fair value at adoption. The cumulative-effect adjustment, net of tax, was recognized collectively as a net increase of $98.6 million to opening Retained earnings. During the quarter ended September 30, 2022, the Company identified that the initial adjustment on January 1, 2022 was overstated by $1.9 million related to the loan premiums associated with certain loans within the loan portfolio and made a correction resulting in a net cumulative-effect adjustment to retained earnings of $96.7 million. The Company concluded the error was immaterial to the Condensed Consolidated Financial Statements and did not result in reclassification of previously stated results.

Use of Estimates

The preparation of the unaudited condensed consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.

Significant items subject to such estimates and assumptions include the valuation of the loans receivable, goodwill, long-lived and intangible assets, deferred revenues, contingencies, the income tax provision, valuation of share-based compensation, operating lease right of use assets, operating lease liabilities and the valuation allowance against deferred tax assets. The Company bases its estimates on historical experience, current data and assumptions that are believed to be reasonable. Actual results in future periods could differ from those estimates.


Elevate Credit, Inc. and Subsidiaries

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

For the three and nine months ended September 30, 2022 and 2021

As the impacts of the COVID-19 pandemic and the subsequent substantial inflation pressures in the current macroeconomic environment continue to evolve, estimates and assumptions about future events and their effects cannot be determined with certainty and therefore require increased judgment. These estimates and assumptions may change in future periods and will be recognized in the condensed consolidated financial statements as new events occur and additional information becomes known. To the extent the Company’s actual results differ materially from those estimates and assumptions, the Company's future financial statements could be affected.

Revenue Recognition

The Company recognizes consumer loan fees as revenues for each of the loan products it offers. Revenues on the Condensed Consolidated Statements of Operations include: finance charges, lines of credit fees, fees for services provided through Credit Services Organization ("CSO") programs (“CSO fees”), and interest, as well as any other fees or charges permitted by applicable laws and pursuant to the agreement with the borrower. Other revenues also include marketing and licensing fees received from the originating lender related to the Elastic product and Rise bank-originated loans and from CSO fees related to the Rise product. Revenues related to these fees are recognized when the service is performed.

The Company accrues finance charges on installment loans on a constant yield basis over their terms. The Company accrues and defers fixed fees such as CSO fees and lines of credit fees when they are assessed and recognizes them to earnings as they are earned over the life of the loan. The Company accrues interest on credit cards based on the amount of the credit card balance outstanding and the related contractual interest rate. Credit card membership fees are amortized to revenue over the card membership period. Other credit card fees, such as late payment fees and returned payment fees, are accrued when assessed. The Company does not accrue finance charges and other fees on installment loans or lines of credit for which payment is greater than 60 days past due. Credit card interest charges are recognized based on the contractual provisions of the underlying arrangements and are not accrued when payment is past due more than 90 days. Installment loans and lines of credit are considered past due if a grace period has not been requested and a scheduled payment is not paid on its due date. Credit cards have a grace period of 25 days and are considered delinquent after the grace period. Payments received on past due loans are applied against the loan and accrued interest balance to bring the loan current. Payments are generally first applied to accrued fees and interest and then to the principal loan balance.

The spread of COVID-19 since March 2020 has created a global public health crisis that has resulted in unprecedented disruption to businesses and economies. In response to the pandemic's effects, and in accordance with federal and state guidelines, the Company expanded its payment flexibility programs for its customers, including payment deferrals. This program allows for a deferral of payments for an initial period of 30 to 60 days, and generally up to a maximum of 180 days on a cumulative basis. A customer will return to the normal payment schedule after the end of the deferral period with the extension of the maturity date equivalent to the deferral period, which is generally not to exceed an additional 180 days. Since the third quarter of 2021, the Company no longer offers specific COVID-19 payment assistance programs, but continues to offer other payment flexibility programs if certain qualifications are met. The finance charges will continue to accrue at a lower effective interest rate over the expected term of the loan as adjusted for the deferral period provided (not to exceed an amount greater than the amount at which the borrower could settle the loan) or placed on non-accrual status.

The Company’s business is affected by seasonality, which can cause significant changes in portfolio size and profit margins from quarter to quarter. Although this seasonality does not impact the Company’s policies for revenue recognition, it does generally impact the Company’s results of operations by potentially causing an increase in its profit margins in the first quarter of the year and decreased margins in the second through fourth quarters.

Installment Loans, Lines of Credit and Credit Cards

Effective January 1, 2022, the Company utilizes the fair value option on its entire loans receivable portfolio. As such, loans receivable, including receivables for finance charges, fees and interest, are reported as Loans receivable at fair value on the Condensed Consolidated Balance Sheet at September 30, 2022. To derive the fair value, the Company generally utilizes discounted cash flow analyses that factor in estimated losses and prepayments over the estimated duration of the loans receivable portfolio. Loss and prepayment assumptions are determined using historical loss data and include appropriate consideration of recent trends and anticipated future performance. Future cash flows are discounted using a rate of return that the Company believes a market participant would require.


Elevate Credit, Inc. and Subsidiaries

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

For the three and nine months ended September 30, 2022 and 2021

Loans receivable at fair value include installment loans, lines of credit and credit cards. Installment loans are multi-payment loans that require the pay-down of portions of the outstanding principal balance in multiple installments through the Rise brand. Line of credit accounts include customer cash advances made through the Elastic brand and the Rise brand in two states (which were discontinued in September 2020). Credit cards represent credit card receivable balances, uncollected billed interest and fees through the Today Card brand.

The Company offers Rise installment products directly to customers. Elastic lines of credit, Rise bank-originated installment loans and Today credit card receivables represent participation interests acquired from third-party lenders through a wholly owned subsidiary or by a VIE. Based on agreements with the third-party lenders, the VIEs pay a loan premium on the participation interests purchased. The loan premium is amortized over the expected life of the outstanding loan amount. See Note 5—Variable Interest Entities for more information regarding these participation interests in Rise and Elastic receivables.

The Company classifies its loans as either current or past due. An installment loan or line of credit customer in good standing may request a 16-day grace period when or before a payment becomes due and, if granted, the loan is considered current during the grace period. Credit card customers have a 25-day grace period for each payment. Installment loans and lines of credit are considered past due if a grace period has not been requested and a scheduled payment is not paid on its due date. Credit cards are considered past due if the grace period has passed and the scheduled payment has not been made. Installment loans and lines of credit are charged off when they are over 60 days past due or earlier if deemed uncollectible. Credit cards are charged off when they are over 120 days past due or earlier if deemed uncollectible. Recoveries on losses previously charged-off are treated as a reduction of charge-offs in the period in which the recovery is collected.

The Company considers impaired loans as accounts over 60 days past due (for installment loans and lines of credit) or 120 days past due (for credit cards), or loans which become uncollectible based on information that the Company becomes aware of (e.g., receipt of customer bankruptcy notice). The impaired loans are charged-off at the time that they are deemed to be uncollectible.

A modification of finance receivable terms is considered a troubled debt restructuring ("TDR") if the borrower is experiencing financial difficulty and the Company grants a concession it would not otherwise have considered to a borrower. The Company typically considers TDRs to include all installment and line of credit loans that were modified by granting principal and interest forgiveness or by extension of the maturity date for more than 60 days as a part of a loss mitigation strategy.

On March 22, 2020, federal and state banking regulators issued a joint statement on working with customers affected by COVID-19 (the "Interagency Statement"). The Interagency Statement includes guidance on accounting for loan modifications. In accordance with the Interagency Statement, the Company, and the bank originators the Company supports, have elected to not recognize modified loans as TDRs if the borrower was both: 1) not more than 30 days past due as of March 1, 2020 (or at the requested modification date if originated on or after March 1, 2020); and 2) the modification stems from the effects of the COVID-19 outbreak. The modifications offered by the Company to borrowers that meet both qualifications may include short-term payment deferrals less than six months, interest or fee waivers, extensions of payment terms or delays in payment that are insignificant. If the borrower was not current at March 1, 2020, the Company offers similar modifications that are considered TDRs. This election is applicable from March 1, 2020 until the earlier of 60 days following the date the COVID-19 national emergency comes to an end or January 1, 2022. Effective July 1, 2021, the Company no longer offers specific COVID-19 payment assistance programs and no longer applies the TDR relief provision provided by the Interagency Statement. The Company, along with the bank originators it supports, continues to offer other payment flexibility programs if certain qualifications are met and will apply the TDR guidelines previously established.

Allowance for Loan Losses

Prior to January 1, 2022, the Company maintained an allowance for loan losses for loans and interest receivable for loans not classified as TDRs at a level estimated to be adequate to absorb credit losses inherent in the outstanding loans receivable. The Company primarily utilized historical loss rates by product, stratified by delinquency ranges, to determine the allowance, but also considered recent collection and delinquency trends, as well as macro economic conditions that may affect portfolio losses. Additionally, due to the uncertainty of economic conditions and cash flow resources of the Company’s customers, the estimate of the allowance for loan losses was subject to change in the near term and could significantly impact the consolidated financial statements. If a loan was deemed to be uncollectible before it is fully reserved, it was charged-off at that time. For loans classified as TDRs, impairment was typically measured based on the present value of the expected future cash flows discounted at the original effective interest rate.


Elevate Credit, Inc. and Subsidiaries

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

For the three and nine months ended September 30, 2022 and 2021

Operating Segments

The Company determines operating segments based on how its chief operating decision-maker manages the business, including making operating decisions, deciding how to allocate resources and evaluating operating performance. The Company's chief operating decision-maker is its Chief Executive Officer, who reviews the Company's operating results monthly on a consolidated basis.

The Company has one reportable segment, which provides online financial services for non-prime consumers. 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 distribution methods, the type of customers and the nature of the regulatory environments. All of the Company's assets and revenue are in one geographic location, therefore, segment reporting based on geography does not apply.

Property and Equipment, net

Property and equipment are stated at cost, net of accumulated depreciation and amortization. The following table summarizes the components of net property and equipment. In January 2021 and September 2021, certain assets were determined to be impaired in relation to subleases of facility space.


(Dollars in thousands)	September 30, 2022		December 31, 2021
Property and equipment, gross	$	152,070	$	133,109
Accumulated depreciation and amortization	(113,006)		(100,005)
Property and equipment, net	$	39,064	$	33,104

Cloud Computing Arrangements

In accordance with ASC Subtopic 350-40: Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, the Company has established a control structure to identify cloud computing arrangements ("CCA") for appropriate accounting treatment similar to its procedures for right of use assets. Implementation costs for CCAs that are hosted by third-party vendors are capitalized when incurred during the application development phase. Capitalized amounts related to such arrangements are included in Prepaid expenses and other assets on the Condensed Consolidated Balance Sheets. Amortization is computed using the straight-line method over the estimated useful life of 3 years. For the three months ended September 30, 2022 and 2021, the Company recognized $413 thousand and $216 thousand in amortization expense, respectively, within Occupancy and equipment within the Condensed Consolidated Statements of Operations, and $1.0 million and $0.3 million for the nine months ended September 30, 2022 and 2021, respectively.


(Dollars in thousands)	September 30, 2022		December 31, 2021
CCA implementation costs	$	5,278	$	3,557
Less: accumulated amortization	(1,602)		(572)
Net book value	$	3,676	$	2,985

Goodwill and Indefinite Lived Intangible Assets

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 ASC 350-20-35, Goodwill— Subsequent Measurement, the Company performs a quantitative approach method impairment review of goodwill and intangible assets with an indefinite life annually at October 1 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 completed its annual test as of October 1, 2021 and determined that there was no evidence of impairment of goodwill or indefinite lived intangible assets. The Company has $6.8 million of goodwill (all related to the Elastic reporting unit) remaining on the Condensed Consolidated Balance Sheets as of September 30, 2022.


Elevate Credit, Inc. and Subsidiaries

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

For the three and nine months ended September 30, 2022 and 2021

The fair value of the reporting unit is determined based on a weighted average of the income and market approaches. The income approach establishes fair value based on estimated future cash flows of the reporting units, discounted by an estimated weighted-average cost of capital developed using the capital asset pricing model, which reflects the overall level of inherent risk of the reporting units. The income approach uses the Company’s projections of financial performance for a six- to nine-year period and includes assumptions about future revenues growth rates, operating margins and terminal values. The market approach establishes fair value by applying cash flow multiples to the reporting units’ operating performance. The multiples are derived from other publicly traded companies that are similar but not identical to the Company from an operational and economic standpoint.

Leases

The Company determines if an arrangement is a lease at inception. Operating leases are included in Operating lease right of use (“ROU”) assets and Operating lease liabilities on its Condensed Consolidated Balance Sheets. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. As most of its leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. The operating lease ROU asset may also include initial direct costs incurred and excludes any lease payments made and lease incentives. The Company's lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. The Company has lease agreements with lease and non-lease components. The lease and non-lease components are accounted for as a single lease component.

In accordance with ASC 360-10-35, Property, Plant & Equipment— Subsequent Measurement, the Company evaluates its ROU assets along with its Property and equipment, net for impairment annually and between annual tests as needed based on changes in circumstances or other triggering events.

Comprehensive Income (Loss)

Comprehensive income (loss) is defined as the change in equity during a period from transactions and other events from non-owner sources. As the Company's comprehensive income (loss) is the same as net income (loss) for all periods presented, a separate statement of comprehensive income (loss) is not included in the condensed consolidated financial statements.

Insurance Premium Financing

On May 1, 2022, the Company executed an insurance premium financing agreement of $2.3 million with a premium finance company in order to finance certain of its annual insurance premiums. Beginning on June 1, 2022, the financing agreement is payable in seven monthly installments of principal and interest of approximately $0.3 million and will be paid in full by December 31, 2022. The agreement bears interest at 5.55%. As of September 30, 2022, the balance of the insurance premium financing was $1.0 million and is included in Accounts payable and accrued liabilities in the Condensed Consolidated Balance Sheets.

Equity Method Investment

In January 2022, the Company collaborated with Central Pacific Bank ("CPB") to invest in the launch of a new fintech company, Swell Financial, Inc. ("Swell"). The Company contributed intellectual property as well as cash for its non-controlling interest, and records its interest in Swell under the equity method of accounting. As of September 30, 2022 and December 31, 2021, the carrying value of the Company's investment in Swell was $4.8 million and $0 million, respectively, within Investment in unconsolidated affiliate in the Condensed Consolidated Balance Sheets. Losses of $0.4 million and $1.1 million for the three and nine months ended September 30, 2022, respectively, are included in Equity method investment loss in the Condensed Consolidated Statements of Operations.


Elevate Credit, Inc. and Subsidiaries

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

For the three and nine months ended September 30, 2022 and 2021

Treasury Stock

The Company evaluates each stock repurchase transaction in the period in which it is completed. If the repurchase transaction is significantly in excess of the current market price at purchase, the Company will identify whether the price paid included payment for other agreements, rights, and privileges. Repurchase transactions that do not contain these elements or are not significantly in excess of the current market price at purchase are accounted for using the cost method. The Company anticipates using its treasury stock to fulfill certain employee stock compensation grants and settlements. The Company has elected to use a first in, first out ("FIFO") method for assigning share cost at reissuance. Any gain or loss in the stock value will be credited or charged to paid in capital upon subsequent reissuance of the shares, with losses in excess of previously recognized gains charged to retained earnings. The Company is not obligated to purchase or reissue any shares at any time in accordance with its previously disclosed share repurchase plan.

Recently Adopted Accounting Standards

On March 11, 2021, the American Rescue Plan Act ("ARP Act") was signed into law. The Company reviewed the tax relief provisions of the ARP Act, including the Company's eligibility for such provisions, and determined that the impact is likely to be insignificant with regard to the Company's effective tax rate. The Company continues to monitor and evaluate its eligibility under the ARP Act tax relief provisions to identify any portions that may become applicable in the future.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("ASU 2019-12"). The purpose of ASU 2019-12 is to reduce complexity in the accounting standards for income taxes by removing certain exceptions as well as clarifying certain allocations. This update also addresses the split recognition of franchise taxes that are partially based on income between income-based tax and non-income-based tax. This guidance is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted. The adoption of ASU 2019-12 at January 1, 2021 did not have a material impact on the Company's condensed consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13. ASU 2016-13 is intended to replace the incurred loss impairment methodology in current US GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates to improve the quality of information available to financial statement users about expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments ("ASU 2019-04"). This amendment clarifies the guidance in ASU 2016-13. The guidance in ASU 2016-13 was further clarified by ASU No. 2019-11, Codification Improvements to Topic 326, Financial Instruments ("ASU 2019-11") issued in November 2019. ASU 2019-11 provides transition relief such as permitting entities an accounting policy election regarding existing TDRs, among other things. In May 2019, the FASB issued ASU No. 2019-05, Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief ("ASU 2019-05"). The purpose of this amendment is to provide entities that have certain instruments within the scope of Subtopic 326-20, Financial Instruments-Credit Losses-Measured at Amortized Cost, with an option to irrevocably elect the fair value option in Subtopic 825-10, Financial Instruments-Overall, on an instrument-by-instrument basis. Election of this option is intended to increase comparability of financial statement information and reduce costs for certain entities to comply with ASU 2016-13. In March 2020, the FASB issued ASU No. 2020-03, Codification Improvements to Financial Instruments ("ASU 2020-03"). The purpose of ASU 2020-03 is to clarify, correct errors in or make minor improvements to the codification. Among other revisions, the amendments clarify that an entity should record an allowance for credit losses when an entity regains control of financial assets sold in accordance with Topic 326. ASU 2020-03 also clarifies disclosure requirements for debt securities under Topic 942 and affirms that all entities are required to provide the fair value option disclosures within paragraphs 825-10-50-24 through 50-32 of the codification. The amendments in this update are effective on the latter of the issuance of ASU 2020-03 or the effective date of their related topic.


Elevate Credit, Inc. and Subsidiaries

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

For the three and nine months ended September 30, 2022 and 2021

For public entities, ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. In November 2019, the FASB issued ASU No. 2019-10, Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates ("ASU 2019-10"). The purpose of this amendment is to create a two-tier rollout of major updates, staggering the effective dates between larger public companies and all other entities. This granted certain classes of companies, including Smaller Reporting Companies ("SRCs"), additional time to implement major FASB standards, including ASU 2016-13. Larger public companies will still have an effective date for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. All other entities are permitted to defer adoption of ASU 2016-13, and its related amendments, until fiscal periods beginning after December 15, 2022. In February 2020, the FASB issued ASU No. 2020-02, Financial Instruments - Credit Losses (Topic 326), and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-12 ("ASU 2020-02"). ASU 2020-02 updates the SEC staff guidance related to ASU 2016-13 and all contingent amendments. Under the current SEC definitions, the Company met the definition of an SRC as of the ASU 2019-10 issuance date and chose to defer the adoption of ASU 2016-13 and its related amendments.

The Company adopted ASU 2016-13 and all related amendments effective January 1, 2022 and elected the fair value option provided by the transition relief of ASU 2019-05 on all loans receivable. The Company believes that electing the fair value method of accounting for the loans receivable aligns more closely with its portfolio decision making and better reflects the value of the loans receivable portfolio. In accordance with the transition guidance, the Company released the allowance for estimated losses on loans receivable at that date and measured the loans receivable at fair value. These adjustments are recognized collectively, through a cumulative-effect adjustment to opening retained earnings of $98.6 million. During the quarter ended September 30, 2022, the Company identified that the initial adjustment on January 1, 2022 was overstated by $1.9 million related to the loan premiums associated with certain loans within the loan portfolio resulting in a net cumulative-effect adjustment to retained earnings of $96.7 million. As a result of the adoption of ASU 2016-13, the Company’s loans receivable are carried at fair value with changes in fair value recognized directly in earnings after the effective date of adoption.


Elevate Credit, Inc. and Subsidiaries

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

For the three and nine months ended September 30, 2022 and 2021

Accounting Standards to be Adopted in Future Periods

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("ASU 2020-04"). The purpose of ASU 2020-04 is to provide optional guidance for a period of time related to accounting for reference rate reform on financial reporting. It is intended to reduce the potential burden of reviewing contract modifications related to discontinued rates. The amendments and expedients in this update are effective as of March 12, 2020 through December 31, 2022 and may be elected by topic. In October 2022, the FASB Board voted to amend the sunset date of ASU 2020-04 to December 31, 2024. The Company is assessing the potential impact of electing all or portions of ASU 2020-04 on the Company's condensed consolidated financial statements and does not expect ASU 2020-04 to have a material impact to the financial statements.

In March 2022, the FASB issued ASU No. 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures ("ASU 2022-02"). The primary purpose of ASU 2022-02, among other things, is to eliminate the accounting guidance for TDRs, to enhance the disclosure requirements for certain loan refinancings and restructurings for borrowers experiencing financial difficulty, and to require disclosure of current-period gross writeoffs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments - Credit Losses (Topic 326): Measured at Amortized Cost. This guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption, as well as separate early adoption, is permitted if an entity has adopted ASU 2016-13. The Company is assessing the potential impact of adoption on the Company's condensed consolidated financial statements and does not expect ASU 2022-02 to have a material impact to the financial statements due to the fair value option election related to ASU 2016-13.

In September 2022, the FASB issued ASU No. 2022-04, Liabilities - Supplier Finance Programs (Subtopic 405-50) ("ASU 2022-04"). The purpose of ASU 2022-04 is to provide greater transparency regarding supplier finance programs by establishing explicit disclosure requirements specific to these programs. Additional disclosures include supplier finance program activity during reporting periods, changes from period to period, and the potential magnitude of the program. All amendments within ASU 2022-04 excluding the amendment for rollforward information, are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The amendment regarding rollforward information, which requires the disclosure of the amount of obligations confirmed and the amount of obligations subsequently paid during the annual period, is effective for fiscal years beginning after December 31, 2023. Early adoption is permitted. The Company is assessing the potential impact of adoption on the Company's condensed consolidated financial statements and does not expect ASU 2022-04 to have a material impact to the financial statements.

NOTE 2—GOING CONCERN

The Company assesses its ability to continue as a going concern each reporting period for one year after the date the financial statements are issued. This assessment evaluates whether relevant conditions and events, in the aggregate, raise substantial doubt that the Company will meet future financial obligations as they become due within one year. In accordance with Accounting Standards Codification ("ASC") Subtopic 205-40: Presentation of Financial Statements - Going Concern, the Company's initial evaluation does not consider potential mitigating effects of management's plans unless they have been fully implemented as of the date the financial statements are issued.

As a result of the substantial inflationary pressures of the current macroeconomic environment, the Company is experiencing higher charge-offs and limiting loan portfolio growth, with both resulting in lower cash collections. The Company was in compliance with the terms of its debt agreements, as amended, as of September 30, 2022, however, the reduced collections and higher macroeconomic environment related charge-offs may result in non-compliance with debt agreements in future periods. If such non-compliance is not waived by the Company's lenders, the Company is not able to obtain amendments or other relief, or the Company is otherwise unable to obtain new or alternate methods of financing on acceptable terms, such non-compliance can result in loss of ability to borrow under the facilities and/or events of default. Absent the actions below that management is in the midst of executing, or has already executed, management concluded that the uncertainty surrounding the Company's future non-compliance with its debt facilities, ability to negotiate some of its existing facilities, and maintain sufficient liquidity raises substantial doubt about the Company's ability to continue as a going concern within one year of the issuance date of these financial statements.


Elevate Credit, Inc. and Subsidiaries

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

For the three and nine months ended September 30, 2022 and 2021

Effective August 31, 2022, the Company has obtained amendments to its debt covenants to lower certain covenant thresholds through December 31, 2022. Furthermore, the Company obtained an additional $5.0 million in subordinated debt to improve liquidity. Management is actively engaging with lenders to review and address debt covenant compliance and liquidity position beyond December 31, 2022 as the Company forecasts the impacts of various scenarios associated with the current macroeconomic environment. The Company has implemented measures to assist customers with their payments and additional verification procedures on new and returning originating customers. The Company has also taken aggressive measures to reduce costs for the foreseeable future by reducing operating expenses beginning in the third quarter of 2022. In addition, management and the Board of Directors are conducting a strategic review process with the intention of maximizing shareholder value.

These steps have been taken, and others are under consideration, to help manage the Company's liquidity and preserve capital. Although management believes that the actions that have been implemented and the others that are planned will be sufficient to meet its liquidity needs for the 12 months from the issuance of these financial statements, substantial doubt about the Company’s ability to continue as a going concern exists as management cannot predict with certainty that these efforts will be successful or sufficient.

NOTE 3—EARNINGS PER SHARE

The Company calculates basic earnings (loss) per share ("EPS") by dividing net income (loss) by the weighted average number of common shares outstanding ("WASO") during each period. Also, basic EPS includes any fully vested stock and unit awards that have not yet been issued as common stock. There are no unissued fully vested stock and unit awards at September 30, 2022 and 2021.

The Company calculates diluted EPS by dividing net income (loss) by the WASO during each period plus any unvested stock option awards granted, vested unexercised stock options and unvested restricted stock units ("RSUs") using the treasury stock method but only to the extent that these instruments dilute earnings per share.

The computation of loss per share was as follows for three and nine months ended September 30, 2022 and 2021:


	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands, except share and per share amounts)	2022		2021		2022		2021
Numerator (basic and diluted):


Net loss	$	(15,034)	$	(11,005)	$	(35,502)	$	(1,334)






Denominator (basic):
Basic weighted average number of shares outstanding	31,068,846		33,786,968		31,237,730		34,841,624

Denominator (diluted):
Basic weighted average number of shares outstanding	31,068,846		33,786,968		31,237,730		34,841,624
Effect of potentially dilutive securities:

Employee share plans (options, RSUs and ESPP)	—		—		—		—
Diluted weighted average number of shares outstanding	31,068,846		33,786,968		31,237,730		34,841,624

Basic and diluted loss per share:


Basic loss per share	$	(0.48)	$	(0.33)	$	(1.14)	$	(0.04)



Diluted loss per share	$	(0.48)	$	(0.33)	$	(1.14)	$	(0.04)


Elevate Credit, Inc. and Subsidiaries

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

For the three and nine months ended September 30, 2022 and 2021

For the three months ended September 30, 2022 and 2021, the Company excluded the following potential common shares from its diluted loss per share calculation because including these shares would be anti-dilutive:

•837,406 and 859,024 common shares issuable upon exercise of the Company's stock options; and

•4,321,619 and 2,622,009 common shares issuable upon vesting of the Company's RSUs.

For the nine months ended September 30, 2022 and 2021, the Company excluded the following potential common shares from its diluted loss per share calculation because including these shares would be anti-dilutive:

•778,552 and 878,574 common shares issuable upon exercise of the Company's stock options; and

•4,176,542 and 2,862,857 common shares issuable upon vesting of the Company's RSUs.

NOTE 4—LOANS RECEIVABLE AND REVENUE

Revenues generated from the Company’s consumer loans for the three and nine months ended September 30, 2022 and 2021 were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2022		2021		2022		2021
Finance charges	$	72,419	$	69,731	$	214,916	$	173,707
Lines of credit fees	51,653		41,743		148,070		110,103
CSO fees	—		6		—		607
Other	1,545		1,355		4,481		2,691
Total revenues	$	125,617	$	112,835	$	367,467	$	287,108

The Company's portfolio consists of installment loans, lines of credit and credit card receivables, which are considered the portfolio segments for all periods presented. The Rise product is installment loans, the Elastic product is a line of credit product and the Today Card is a credit card product, all offered in the US.

The following reflects the credit quality of the Company’s loans receivable as of September 30, 2022 and December 31, 2021 as delinquency status has been identified as the primary credit quality indicator. The Company classifies its loans as either current or past due. A customer in good standing may request up to a 16-day grace period when or before a payment becomes due and, if granted, the loan is considered current during the grace period. In response to the COVID-19 pandemic, the Company, along with the banks it supports, had also expanded existing payment flexibility programs to provide temporary payment relief to certain customers who meet the program’s qualifications. These programs allow for a deferral of payments for an initial period of 30 to 60 days, which the Company may extend for an additional 30 days, generally for a maximum of 180 days on a cumulative basis. A customer will return to the normal payment schedule after the end of the deferral period, with the extension of the maturity date equivalent to the deferral period, which is generally not to exceed an additional 180 days. Under the COVID-19 payment flexibility programs, customers that were 30 days past due or less as of March 1, 2020 or the date the customer requested the deferral are considered current. Customers more than 30 days past due as of March 1, 2020 or the date the customer requested the deferral are considered delinquent. The COVID-19-specific payment flexibility programs were no longer offered effective July 1, 2021, eliminating any new payment deferrals up to 180 days. The Company, along with the bank originators it supports, continues to offer other payment flexibility programs if certain qualifications are met. As of September 30, 2022, 2.9% of customers that had loan balances outstanding have been provided relief through a payment deferral program for a total of $16 million in loans with deferred payments.

Installment loans, lines of credit and credit cards not impacted by COVID are considered past due if a grace period has not been requested and a scheduled payment is not paid on its due date. All impaired loans that were not accounted for as a TDR as of September 30, 2022 and December 31, 2021 have been charged off.


Elevate Credit, Inc. and Subsidiaries

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

For the three and nine months ended September 30, 2022 and 2021

Loans Receivable at Fair Value

On January 1, 2022, the Company elected the fair value option for the loans receivable portfolio under the transition relief provided under ASU 2019-05 in connection with its adoption of ASU 2016-13.


	September 30, 2022
(Dollars in thousands)	Rise		Elastic		Today		Total
Current loans	$	266,185	$	187,669	$	44,639	$	498,493
Past due loans	39,242		16,957		12,122		68,321
Total loans receivable	305,427		204,626		56,761		566,814
Net unamortized loan premium	405		1,813		—		2,218

Loans receivable, at book	$	305,832	$	206,439	$	56,761	$	569,032

Additionally, total loans receivable includes approximately $23.2 million of accrued interest and fees receivable at September 30, 2022.


	September 30, 2022
(Dollars in thousands)	Total
Loans receivable - principal - accrual	$	537,086
Loans receivable - principal - non-accrual	8,732
Total Loans receivable - principal	545,818

Loans receivable - principal, at fair value - accrual	589,569
Loans receivable - principal, at fair value - non-accrual	8,529
Loans receivable - principal, at fair value (excluding accrued interest and fees)	$	598,098
Accrued interest and fees receivable	23,214
Loans receivable at fair value	$	621,312
Difference between Loans receivable - principal and Loans receivable - principal, at fair value	$	52,280

The changes in the fair value of Loans receivable at fair value during the three and nine months ended September 30, 2022 are as follows:



(Dollars in thousands)	Three Months Ended September 30, 2022		Nine Months Ended September 30, 2022
Balance beginning of period	$	608,950	$	639,545
Adoption adjustment	(2,454)		(2,454)
Originations, including premium paid	250,322		703,702
Interest and fees, including premium amortization	126,573		366,775
Repayments	(289,768)		(868,330)
Charge-offs, net(1)	(73,607)		(215,476)
Net change in fair value(1)	1,296		(2,450)
Balance end of period	$	621,312	$	621,312

_________

(1)Included in Change in fair value of loans receivable in the Condensed Consolidated Statements of Operations


Elevate Credit, Inc. and Subsidiaries

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

For the three and nine months ended September 30, 2022 and 2021

Loans Receivable at Amortized Cost

Prior to January 1, 2022, the Company carried all loans receivable at amortized cost, including accrued interest, loan premium and allowance for loan losses.


	December 31, 2021
(Dollars in thousands)	Rise		Elastic		Today		Total
Current loans	$	282,276	$	190,946	$	40,994	$	514,216
Past due loans	41,607		14,860		9,224		65,691
Total loans receivable	323,883		205,806		50,218		579,907
Net unamortized loan premium	407		2,047		—		2,454
Less: Allowance for loan losses	(48,219)		(16,698)		(6,287)		(71,204)
Loans receivable, net	$	276,071	$	191,155	$	43,931	$	511,157

Additionally, total loans receivable includes approximately $23.6 million of accrued interest and fees receivable at December 31, 2021.

Total loans receivable includes approximately $12.3 million of loans in a non-accrual status at December 31, 2021.

The changes in the allowance for loan losses during the three and nine months ended September 30, 2021 were as follows:


	Three Months Ended September 30, 2021
(Dollars in thousands)	Rise		Elastic		Today		Total
Balance beginning of period	$	28,099	$	10,372	$	1,850	$	40,321
Provision for loan losses	42,299		10,832		1,772		54,903
Charge-offs	(34,986)		(8,745)		(785)		(44,516)
Recoveries of prior charge-offs	4,776		682		43		5,501


Balance end of period	$	40,188	$	13,141	$	2,880	$	56,209

	Nine Months Ended September 30, 2021
(Dollars in thousands)	Rise		Elastic		Today		Total
Balance beginning of period	$	33,968	$	13,201	$	1,910	$	49,079
Provision for loan losses	78,453		21,377		3,268		103,098
Charge-offs	(81,261)		(23,658)		(2,404)		(107,323)
Recoveries of prior charge-offs	9,028		2,221		106		11,355


Balance end of period	$	40,188	$	13,141	$	2,880	$	56,209

As of September 30, 2021, the CSO owned portfolio has been liquidated and no guarantee obligation associated with this portfolio exists.

Troubled Debt Restructurings

In certain circumstances, the Company modifies the terms of its finance receivables for borrowers experiencing financial difficulties. Modifications may include principal and/or interest forgiveness. A modification of finance receivable terms is considered a TDR if the Company grants a concession to a borrower for economic or legal reasons related to the borrower’s financial difficulties that would not otherwise have been considered. Management considers TDRs to include all installment and line of credit loans that were granted principal and interest forgiveness as a part of a loss mitigation strategy for Rise and Elastic, unless excluded by policy. Once a loan has been classified as a TDR, it is assessed for impairment based on the present value of expected future cash flows discounted at the loan's original effective interest rate considering all available evidence. As of September 30, 2022 and 2021, the Company's TDRs are immaterial to the loans receivable portfolio.


Elevate Credit, Inc. and Subsidiaries

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

For the three and nine months ended September 30, 2022 and 2021

NOTE 5—VARIABLE INTEREST ENTITIES

The Company is involved with four entities that are deemed to be a VIE: Elastic SPV, Ltd., EF SPV, Ltd., EC SPV, Ltd. and one Credit Services Organization ("CSO") lender. The CSO portfolio wind-down was completed in the third quarter of 2021 and the Company has no further involvement in this VIE as of September 30, 2021. Under ASC 810-10-15, Variable Interest Entities, a VIE is an entity that: (1) has an insufficient amount of equity investment at risk to permit the entity to finance its activities without additional subordinated financial support by other parties; (2) the equity investors are unable to make significant decisions about the entity’s activities through voting rights or similar rights; or (3) the equity investors do not have the obligation to absorb expected losses or the right to receive residual returns of the entity. The Company is required to consolidate a VIE if it is determined to be the primary beneficiary, that is, the enterprise has both (1) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and (2) the obligation to absorb losses of the entity that could potentially be significant to the VIE. The Company evaluates its relationships with VIEs to determine whether it is the primary beneficiary of a VIE at the time it becomes involved with the entity and it re-evaluates that conclusion each reporting period.

Each of the below VIE entities were formed by third-party investors for the purpose of purchasing loan participations from third-party bank lenders, and as such, a separate SPV was formed for each program associated with each third-party bank lender. Each SPV obtains debt financing from specific investment funds, which vary by each program and which allows the SPV to purchase the loan participations from each third-party bank lender and has a different interest rate of return for the investment funds. The separation of the SPVs by program provides more flexibility to the third-party bank lender and third-party investors as each program can be negotiated and tailored to the objectives of each party. The Company earns the residual profits from the SPVs which are paid out in the form of Credit Default Premiums.

Elastic SPV, Ltd.

On July 1, 2015, the Company entered into several agreements with a third-party lender and Elastic SPV, Ltd. (“ESPV”), an entity formed by third-party investors for the purpose of purchasing loan participations from the third-party lender. Per the terms of the agreements, the Company provides customer acquisition services to generate loan applications submitted to the third-party lender. In addition, the Company licenses loan underwriting software and provides services to the third-party lender to evaluate the credit quality of those loan applications in accordance with the third-party lender’s credit policies. ESPV accounts for the loan participations acquired in accordance with ASC 860-10-40, Transfers and Services, Derecognition, as the lines of credit acquired meet the criteria of a participation interest.

Once the third-party lender originates the loan, ESPV has the right, but not the obligation, to purchase a 90% interest in each Elastic line of credit. Victory Park Management, LLC (“VPC”) entered into an agreement (the "ESPV Facility") under which it loans ESPV all funds necessary up to a maximum borrowing amount to purchase such participation interests in exchange for a fixed return (see Note 6—Notes Payable—ESPV Facility). The Company entered into a separate credit default protection agreement with ESPV whereby the Company agreed to provide credit protection to the investors in ESPV against Elastic loan losses in return for a credit premium. The Company does not hold a direct ownership interest in ESPV, however, as a result of the credit default protection agreement, ESPV was determined to be a VIE and the Company qualifies as the primary beneficiary.

EF SPV, Ltd.

On October 15, 2018, the Company entered into several agreements with a third-party lender and EF SPV, Ltd. (“EF SPV”), an entity formed by third-party investors for the purpose of purchasing loan participations from the third-party lender. Per the terms of the agreements, the Company provides customer acquisition services to generate loan applications submitted to the third-party lender. In addition, the Company licenses loan underwriting software and provides services to the third-party lender to evaluate the credit quality of those loan applications in accordance with the third-party lender’s credit policies. EF SPV accounts for the loan participations acquired in accordance with ASC 860-10-40, Transfers and Services, Derecognition, as the installment loans acquired meet the criteria of a participation interest.


Elevate Credit, Inc. and Subsidiaries

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

For the three and nine months ended September 30, 2022 and 2021

Once the third-party lender originates the loan, EF SPV has the right, but not the obligation, to purchase a 96% interest in each Rise bank originated installment loan. VPC lends EF SPV all funds necessary up to a maximum borrowing amount to purchase such participation interests in exchange for a fixed return (see Note 6—Notes Payable—EF SPV Facility). The Company entered into a separate credit default protection agreement with EF SPV whereby the Company agreed to provide credit protection to the investors in EF SPV against Rise bank originated loan losses in return for a credit premium. The Company does not hold a direct ownership interest in EF SPV, however, as a result of the credit default protection agreement, EF SPV was determined to be a VIE and the Company qualifies as the primary beneficiary.

EC SPV, Ltd.

In July 2020, the Company entered into several agreements with a third-party lender and EC SPV, Ltd. (“EC SPV”), an entity formed by third-party investors for the purpose of purchasing loan participations from the third-party lender. Per the terms of the agreements, the Company provides customer acquisition services to generate loan applications submitted to the third-party lender. In addition, the Company licenses loan underwriting software and provides services to the third-party lender to evaluate the credit quality of those loan applications in accordance with the third-party lender’s credit policies. EC SPV accounts for the loan participations acquired in accordance with ASC 860-10-40, Transfers and Services, Derecognition, as the installment loans acquired meet the criteria of a participation interest.

Once the third-party lender originates the loan, EC SPV has the right to purchase an interest in each Rise bank originated installment loan. The third-party lender retains 5% of the balances of all the loans originated and sells the remaining 95% participation to EC SPV. VPC will lend EC SPV all funds necessary up to a maximum borrowing amount to purchase such participation interests in exchange for a fixed return (see Note 6—Notes Payable—EC SPV Facility). The Company entered into a separate credit default protection agreement with EC SPV whereby the Company agreed to provide credit protection to the investors in EC SPV against Rise bank originated loan losses in return for a credit premium. The Company does not hold a direct ownership interest in EC SPV, however, as a result of the credit default protection agreement, EC SPV was determined to be a VIE and the Company qualifies as the primary beneficiary.

Summarized Financial Information

As the VIEs that are consolidated have similar economic characteristics, products and services, distribution methods, and regulatory environments, the Company has elected to aggregate their information. The following table summarizes the aggregated assets and liabilities of the VIEs that are included within the Company’s Condensed Consolidated Balance Sheets September 30, 2022 and December 31, 2021:


(Dollars in thousands)	September 30, 2022		December 31, 2021
ASSETS
Cash and cash equivalents	$	44,952	$	53,195
Restricted cash	1,000		1,000
Loans receivable at fair value	474,558		—
Loans receivable, net of allowance for loan losses of $53,100	—		366,932
Prepaid expenses and other assets	8		16
Receivable from payment processors ($659 and $562, respectively, eliminates upon consolidation)	14,500		13,076
Total assets	$	535,018	$	434,219
LIABILITIES
Accounts payable and accrued liabilities ($58,435 and $8,681, respectively, eliminates upon consolidation)	$	67,665	$	17,643
Deferred revenue	4,380		4,346
Reserve deposit liability ($49,500 and $28,100, respectively, eliminates upon consolidation)	49,500		28,100
Notes payable, net	413,473		384,130
Total liabilities	$	535,018	$	434,219


Elevate Credit, Inc. and Subsidiaries

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

For the three and nine months ended September 30, 2022 and 2021

The following tables provides a summary of the aggregated operating results of the VIEs that are included within the Company’s Condensed Consolidated Statements of Operations at September 30, 2022 and 2021:


	Three Months Ended September 30,
(Dollars in thousands)	2022		2021
Revenues	$	102,119	$	88,233
Change in fair value of loans receivable	(54,286)		—
Loan loss provision	—		(43,847)
Other cost of sales ($33,992 and $32,701, respectively, eliminates upon consolidation(1))	(36,673)		(35,494)
Gross profit	11,160		8,892
Interest expense	(9,823)		(7,765)
Net income	$	—	$	—

	Nine Months Ended September 30,
(Dollars in thousands)	2022		2021
Revenues	$	293,795	$	214,629
Change in fair value of loans receivable	(162,321)		—
Loan loss provision	—		(77,822)
Other cost of sales ($92,140 and $106,893, respectively, eliminates upon consolidation(1))	(100,398)		(112,395)
Gross profit	31,076		24,412
Interest expense	(27,391)		(20,976)
Net income	$	—	$	—

_________

(1)Includes the Credit Default Premium and other fee amounts eliminated in consolidation.

CSO Lender

The one CSO lender was considered a VIE of the Company; however, the Company did not have any ownership interest in the CSO lender, did not exercise control over it, and was not the primary beneficiary, and therefore, did not consolidate the CSO lender's results with its results. There were no new loan originations in 2021 under the CSO program and the wind-down of this portfolio was completed in the third quarter of 2021.

NOTE 6—NOTES PAYABLE, NET

The Company has four debt facilities with VPC, the Rise SPV, LLC credit facility (the "VPC Facility"), the ESPV Facility, the EF SPV Facility, and the EC SPV Facility. In October 2021, the Company entered into a debt facility (the "TSPV Facility") with Park Cities Asset Management, LLC ("PCAM"). In January 2022, the Company entered into a subordinated credit agreement with Pine Hill Finance, LLC ("Pine Hill Term Note"). In August 2022, ESPV, EF SPV and EC SPV, individually and collectively, entered into a subordinated credit agreement with PCAM (the "PCAM Term Note"). The facilities had the following terms as of September 30, 2022.


Elevate Credit, Inc. and Subsidiaries

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

For the three and nine months ended September 30, 2022 and 2021

VPC Facility

The VPC facility has a maximum borrowing amount of $200 million (amended as of July 31, 2020) used to fund the Rise loan portfolio (“US Term Note”). Upon the February 1, 2019 amendment date, the interest rate on the debt outstanding as of the amendment date was fixed through the January 1, 2024 maturity date at 10.23% (base rate of 2.73% plus 7.5%, which was reduced to 7.25% and 7.00% on January 1, 2020 and 2021, respectively, as part of the amendment). At December 31, 2021, the weighted average base rate on the outstanding balance was 2.40% and the overall interest rate was 9.40%. At September 30, 2022, the weighted average base rate on the outstanding balance was 2.40% and the overall interest rate was 9.40%. All future borrowings under this facility will bear an interest rate at a base rate (defined as the greater of 3-month LIBOR, the five-year LIBOR swap rate or 1%) plus 7.0% at the borrowing date. The VPC facility has a revolving feature providing the option to pay down up to 20% of the outstanding balance once per year during the first quarter. Amounts paid down may be drawn again at a later date prior to maturity.

The US Term Note matures on January 1, 2024. There are no principal payments due or scheduled until the maturity date. All assets of the Company, excluding the assets of the Company that are pledged to collateralize the TSPV facility, are pledged as collateral to secure the VPC Facility. The VPC Facility contains certain covenants for the Company such as minimum cash requirements and a minimum book value of equity requirement. There are also certain covenants for the product portfolio underlying the facility including, among other things, excess spread requirements, maximum roll rate and charge-off rate levels and maximum loan-to-value ratios. The Company was in compliance with all covenants related to the VPC Facility as of September 30, 2022 and December 31, 2021.

ESPV Facility

The ESPV Facility has a maximum borrowing amount of $350 million used to purchase loan participations from a third-party lender. Upon the February 1, 2019 amendment date, the interest rate on the debt outstanding as of the amendment date was fixed at 15.48% (base rate of 2.73% plus 12.75%). Effective July 1, 2019, the interest rate on the debt outstanding as of the amendment date was set at 10.23% (base rate of 2.73% plus 7.5%, which was reduced to 7.25% and 7.00% on January 1, 2020 and 2021, respectively, as part of the amendment). At December 31, 2021 the weighted average base rate on the outstanding balance was 2.43% and the overall interest rate was 9.43%. At September 30, 2022, the weighted average base rate on the outstanding balance was 2.45% and the overall interest rate was 9.45%. All future borrowings under this facility will bear an interest rate at a base rate (defined as the greater of 3-month LIBOR, the five-year LIBOR swap rate or 1%) plus 7.0% at the borrowing date. The ESPV Term Note has a revolving feature providing the option to pay down up to 20% of the outstanding balance once per year during the first quarter. Amounts paid down may be drawn again at a later date prior to maturity.

The ESPV Term Note matures on January 1, 2024. There are no principal payments due or scheduled until the maturity date. All assets of the Company and ESPV, excluding the assets of the Company that are pledged to collateralize the TSPV facility, are pledged as collateral to secure the ESPV Facility. The ESPV Facility contains certain covenants for the Company such as minimum cash requirements and a minimum book value of equity requirement. There are also certain covenants for the product portfolio underlying the facility including, among other things, excess spread requirements, maximum roll rate and charge-off rate levels, and maximum loan-to-value ratios. The Company was in compliance with all covenants related to the ESPV Facility as of September 30, 2022 and December 31, 2021.

EF SPV Facility

The EF SPV Facility has a maximum borrowing amount of $250 million (amended as of July 31, 2020) used to purchase loan participations from a third-party lender. Upon the February 1, 2019 amendment date the interest rate on the debt outstanding as of the amendment date was fixed through the January 1, 2024 maturity date at 10.23% (base rate of 2.73% plus 7.5%, which was reduced to 7.25% and 7.00% on January 1, 2020 and 2021, respectively, as part of the amendment). The weighted average base rate on the outstanding balance at December 31, 2021 was 1.84% and the overall interest rate was 8.84%. The weighted average base rate on the outstanding balance at September 30, 2022 was 2.01% and the overall interest rate was 9.01%. All future borrowings under this facility will bear an interest rate at a base rate (defined as the greater of 3-month LIBOR, the five-year LIBOR swap rate or 1%) plus 7.0% at the borrowing date. The EF SPV Term Note has a revolving feature providing the option to pay down up to 20% of the outstanding balance once per year during the first quarter. Amounts paid down may be drawn again at a later date prior to maturity.


Elevate Credit, Inc. and Subsidiaries

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

For the three and nine months ended September 30, 2022 and 2021

The EF SPV Term Note matures on January 1, 2024. There are no principal payments due or scheduled until the maturity date. All assets of the Company and EF SPV, excluding the assets of the Company that are pledged to collateralize the TSPV facility, are pledged as collateral to secure the EF SPV Facility. The EF SPV Facility contains certain covenants for the Company such as minimum cash requirements and a minimum book value of equity requirement. There are also certain covenants for the product portfolio underlying the facility including, among other things, excess spread requirements, maximum roll rate and charge-off rate levels, and maximum loan-to-value ratios. The Company was in compliance with all covenants related to the EF SPV Facility as of September 30, 2022 and December 31, 2021.

EC SPV Facility

The EC SPV Facility has a maximum borrowing amount of $100 million used to purchase loan participations from a third-party lender. The weighted average base rate on the outstanding balance at December 31, 2021 was 2.09% and the overall interest rate was 9.09%. The weighted average base rate on the outstanding balance at September 30, 2022 was 2.32% and the overall interest rate was 9.32%. All future borrowings under this facility will bear an interest rate at a base rate (defined as the greater of 3-month LIBOR, the five-year LIBOR swap rate or 1%) plus 7.0% at the borrowing date. The EC SPV Term Note has a revolving feature providing the option to pay down up to 20% of the outstanding balance once per year during the first quarter. Amounts paid down may be drawn again at a later date prior to maturity.

The EC SPV Term Note matures on January 1, 2024. There are no principal payments due or scheduled until the maturity date. All assets of the Company and EC SPV, excluding the assets of the Company that are pledged to collateralize the TSPV facility, are pledged as collateral to secure the EC SPV Facility. The EC SPV Facility contains certain covenants for the Company such as minimum cash requirements and a minimum book value of equity requirement. There are also certain covenants for the product portfolio underlying the facility including, among other things, excess spread requirements, maximum roll rate and charge-off rate levels, and maximum loan-to-value ratios. The Company was in compliance with all covenants related to the EC SPV Facility as of September 30, 2022 and December 31, 2021.

TSPV Facility

On October 12, 2021, a debt facility agreement, the TSPV Facility, was entered into among Today SPV, LLC ("TSPV"), Today Card, LLC ("TC LLC"), both wholly-owned subsidiaries of the Company, and PCAM. The TSPV Facility has a maximum commitment amount of $50 million, which may be increased up to $100 million used to purchase participations in credit card receivable balances from a third-party lender. The base rate on the outstanding balance at December 31, 2021 was 3.25% and the overall rate was 6.85%. The base rate on the outstanding balance at September 30, 2022 was 5.50% and the overall interest rate was 9.10%. All future borrowings under this facility will bear an interest rate at a base rate (defined as the Wall Street Journal Prime Rate with a 3.25% floor) plus 3.60% at the borrowing date.

The TSPV Term Note matures on October 12, 2025. There are no principal payments due or scheduled until the maturity date. All assets of TC LLC and its subsidiaries are pledged as collateral to secure the TSPV Facility. The TSPV Facility includes certain financial covenants for the product portfolio underlying the facility, including risk adjusted yield requirements, minimum cash level requirements, maximum default rate and charge-off rate levels, and maximum loan-to-value ratios. The Company was in compliance with all covenants related to the TSPV Facility as of September 30, 2022 and December 31, 2021.

Pine Hill Term Note

In January 2022, the Company entered into a subordinated credit agreement with Pine Hill Finance, LLC ("Pine Hill") for a $20 million Term Note to supplement its working capital at a base rate (defined as the daily Secured Overnight Financing Rate ("SOFR") rate with a floor of 1%) plus 13.25% per annum. At September 30, 2022, the base rate on the outstanding balance was 2.98% and the overall rate was 16.23%.

The Term Note matures on March 1, 2024. There are no principal payments due or scheduled until the maturity date. The Pine Hill Facility contains certain covenants for the Company, which are consistent with the covenants within the VPC Facility, such as minimum cash requirements and minimum book value of equity requirement. The Company was in compliance with all covenants related to the Pine Hill Facility at September 30, 2022.


Elevate Credit, Inc. and Subsidiaries

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

For the three and nine months ended September 30, 2022 and 2021

PCAM Term Note

On August 8, 2022, ESPV, EF SPV and EC SPV, individually and collectively, entered into a subordinated credit agreement with PCAM for a $15 million Term Note to supplement the Company's working capital at a base rate (defined as the greater of SOFR) or 1.5%) plus 13.25% per annum, with a maximum interest rate of 16.00%. At September 30, 2022, the base rate on the outstanding balance was 2.98% and the overall rate was 16.00%.

The Term Note matures on March 31, 2024. There are no principal payments due or scheduled until the maturity date. The PCAM Term Note contains certain covenants for the Company such as minimum cash requirements and a minimum book value of equity requirement. There are also certain covenants for the product portfolio underlying the facility, including, among other things, excess spread requirements, maximum roll rate and charge-off rate levels, and maximum loan-to-value ratios. The Company was in compliance with all covenants related to the PCAM Term Note at September 30, 2022.

Debt Facilities:

The outstanding balances of Notes payable, net of debt issuance costs, are as follows:


(Dollars in thousands)	September 30, 2022		December 31, 2021
US Term Note bearing interest at the base rate + 7.0%	$	84,600	$	84,600
ESPV Term Note bearing interest at the base rate + 7.0%	197,100		192,100
EF SPV Term Note bearing interest at the base rate + 7.0%	146,800		137,800
EC SPV Term Note bearing interest at the base rate + 7.0%	55,500		55,500
TSPV Term Note bearing interest at the base rate + 3.60%	43,000		37,000
Pine Hill Term Note bearing interest at the base rate + 13.25%	20,000		—
PCAM Term Note bearing interest at the base rate + 13.25%	15,000		—
Debt issuance costs	(1,431)		(1,723)
Total	$	560,569	$	505,277

The change in the facility balances includes the following:

•ESPV Term Note - Draw of $5 million in the third quarter of 2022;

•EF SPV Term Note - Paydown of $15 million in the first quarter of 2022, a draw of $7.5 million in the second quarter of 2022, and a draw of $16.5 million in the third quarter of 2022;

•EC SPV Term Note - Paydown of $10 million in the first quarter of 2022, a draw of $5 million in the second quarter of 2022, and a draw of $5 million in the third quarter of 2022;

•TSPV Term Note - Draw of $3 million in the first quarter of 2022 and a draw of $3 million in the third quarter of 2022;

•Pine Hill Term Note - Funding of $20 million in the first quarter of 2022;

•PCAM Term Note - Funding of $15 million in the third quarter of 2022;

The Company has evaluated the interest rates for its debt and believes they represent market rates based on the Company’s size, industry, operations and recent amendments. As a result, the carrying value for the debt approximates the fair value.


Elevate Credit, Inc. and Subsidiaries

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

For the three and nine months ended September 30, 2022 and 2021

Future debt maturities as of September 30, 2022 are as follows:


Year (dollars in thousands)	September 30, 2022
Remainder of 2022	$	—
2023	—
2024	519,000
2025	43,000
2026	—
Thereafter	—
Total	$	562,000

NOTE 7—GOODWILL AND INTANGIBLE ASSETS

The Company’s goodwill represents the excess purchase price over the estimated fair market value of the net assets acquired by the predecessor parent company, Think Finance, Inc. (“Think Finance”) related to the Elastic reporting unit. The Company performs an impairment review of goodwill and intangible assets with an indefinite life annually at October 1. The annual test was completed as of October 1, 2021 and the Company determined that there was no evidence of impairment of goodwill or indefinite life intangible assets. As a result of the substantial inflationary pressures of the current macroeconomic environment, the Company is experiencing higher charge-offs and limiting loan portfolio growth, with both resulting in lower cash collections. The Company concluded a triggering event had occurred in the third quarter of 2022 and, accordingly, performed a quantitative assessment on the goodwill balances of the Elastic reporting unit. There was no impairment identified during the quantitative assessment. The Company has $6.8 million of goodwill (all related to the Elastic reporting unit) on the Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021, respectively. Of the total goodwill balance, approximately $229 thousand is deductible for tax purposes.

The Company's impairment evaluation of goodwill is based on comparing the fair value of the respective reporting unit to its carrying value. The fair value of the reporting unit is determined based on a weighted average of the income and market approaches. The income approach establishes fair value based on estimated future cash flows of the reporting unit, discounted by an estimated weighted-average cost of capital developed using the capital asset pricing model, which reflects the overall level of inherent risk of the reporting unit. The income approach uses the Company's projections of financial performance for a six-to-nine-year period and includes assumptions about future revenue growth rates, operating margins and terminal values. The market approach establishes fair value by applying cash flow multiples to the reporting unit's operating performance. The multiples are derived from other publicly traded companies that are similar but not identical from an operational and economic standpoint. The Company’s estimates are based upon assumptions believed to be reasonable. However, given the inherent uncertainty in determining the assumptions underlying a discounted cash flow analysis, particularly in the current volatile market, actual results may differ from those used in these valuations which could result in additional impairment charges in the future.

The carrying value of acquired intangible assets as of September 30, 2022 is presented in the table below:


(Dollars in thousands)	Cost		Accumulated Amortization		Net
Assets subject to amortization:
Acquired technology	$	211	$	(211)	$	—
Non-compete	2,461		(2,461)		—
Customers	126		(126)		—
Assets not subject to amortization:
Domain names	231		—		231
Total	$	3,029	$	(2,798)	$	231


Elevate Credit, Inc. and Subsidiaries

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

For the three and nine months ended September 30, 2022 and 2021

The carrying value of acquired intangible assets as of December 31, 2021 is presented in the table below:


(Dollars in thousands)	Cost		Accumulated Amortization		Net
Assets subject to amortization:
Acquired technology	$	211	$	(211)	$	—
Non-compete	2,461		(2,461)		—
Customers	126		(126)		—
Assets not subject to amortization:
Domain names	231		—		231
Total	$	3,029	$	(2,798)	$	231

With a board member's decision to not run for reelection to the Company's Board of Directors in March 2021, the remaining non-compete agreements expired and the Company accelerated the amortization of the assets to coincide with his announcement. Beginning in March 31, 2021, there were no intangible assets subject to amortization with any remaining life. Total amortization expense recognized for the nine months ended September 30, 2021 was approximately $602 thousand.

Additionally, in January 2021, the Company sold a domain name that was held for a gain of $949 thousand, included in Non-operating income in the Condensed Consolidated Statements of Operations.

NOTE 8—LEASES

The Company has non-cancelable operating leases for facility space and equipment with varying terms. All of the leases for facility space qualified for capitalization under FASB ASC 842, Leases. These leases have remaining lease terms of approximately two to eight years, and some may include options to extend the leases for up to ten years. The extension terms are not recognized as part of the right-of-use assets. The Company has elected not to capitalize leases with terms equal to, or less than, one year. As of September 30, 2022 and December 31, 2021, net assets recorded under operating leases totaled $10.9 million and $5.7 million, respectively, and net lease liabilities totaled $16.2 million and $9.2 million, respectively.

The Company analyzes contracts above certain thresholds to identify leases and lease components. Lease and non-lease components are not separated for facility space leases. The Company uses its contractual borrowing rate to determine lease discount rates when an implicit rate is not available.

The Company entered into two sublease contracts with independent third-parties for facility space related to right-of-use assets in January 2021 and September 2021. The Company's obligations under the original leases were not relieved. As the sublease income is immaterial, payments received are recognized as an offset to Occupancy and equipment in the Condensed Consolidated Statements of Operations. The signing of the subleases triggered impairment evaluations and the Company determined the related right-of-use assets were impaired. Impairment losses of $549 thousand for the January sublease and $84 thousand for the September sublease were recognized in Non-operating income (loss) in the Condensed Consolidated Statements of Operations.

Effective May 2022, the Company amended its corporate headquarters lease in Fort Worth, Texas to extend the term through November 2030 and reduce the total leased space to approximately 73,984 square feet. As a result, on the date of the modification, the Company recognized an increase of $7.0 million to right-of-use assets and $9.6 million to lease liabilities, respectively, inclusive of the effect of an incentive of $2.6 million which is recognized in Property and equipment, net in the Condensed Consolidated Balance Sheets. Additionally, the space reduction resulted in a $80.8 thousand gain recognized in Non-operating income (loss) in the Condensed Consolidated Statements of Operations with reductions of $600.6 thousand and $681.3 thousand to right-of-use assets and lease liabilities, respectively.


Elevate Credit, Inc. and Subsidiaries

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

For the three and nine months ended September 30, 2022 and 2021

Total gross lease cost for the three and nine months ended September 30, 2022 and 2021, included in Occupancy and equipment in the Condensed Consolidated Statements of Operations, is detailed in the table below:


	Three Months Ended September 30,
Lease cost (dollars in thousands)	2022		2021
Operating lease cost	$	638	$	766
Short-term lease cost	—		—

Total lease cost	$	638	$	766

	Nine Months Ended September 30,
Lease cost (dollars in thousands)	2022		2021
Operating lease cost	$	2,081	$	2,301
Short-term lease cost	—		—

Total lease cost	$	2,081	$	2,301

Further information related to leases is as follows:


	Three Months Ended September 30,
Supplemental cash flows information (dollars in thousands)	2022			2021
Cash paid for amounts included in the measurement of lease liabilities	$	872		$	973
Right-of-use assets obtained in exchange for lease obligations	$	—		$	—
Weighted average remaining lease term	7.1 years			2.9 years
Weighted average discount rate	8.47		%	10.23		%

	Nine Months Ended September 30,
Supplemental cash flows information (dollars in thousands)	2022			2021
Cash paid for amounts included in the measurement of lease liabilities	$	2,759		$	2,891
Right-of-use assets obtained in exchange for lease obligations(1)	$	6,994		$	—
Weighted average remaining lease term	7.1 years			2.9 years
Weighted average discount rate	8.47		%	10.23		%

_________

(1)Related to Fort Worth corporate headquarters lease modification.

Future minimum lease payments as of September 30, 2022 are as follows:


Year (dollars in thousands)	Operating Leases
2022	$	881
2023	3,415
2024	3,204
2025	3,218
2026	2,639
Thereafter	8,191
Total future minimum lease payments	$	21,548
Less: Imputed interest	(5,331)
Operating lease liabilities	$	16,217


Elevate Credit, Inc. and Subsidiaries

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

For the three and nine months ended September 30, 2022 and 2021

NOTE 9—SHARE-BASED COMPENSATION

Share-based compensation expense recognized for the three months ended September 30, 2022 and 2021 totaled approximately $1.2 million and $1.6 million, respectively, and $5.2 million and $4.9 million for the nine months ended September 30, 2022 and 2021.

2016 Omnibus Incentive Plan

The 2016 Omnibus Incentive Plan ("2016 Plan") was adopted by the Company’s Board of Directors on January 5, 2016 and approved by the Company’s stockholders thereafter. The 2016 Plan became effective on June 23, 2016. The 2016 Plan provides for the grant of incentive stock options to the Company’s employees, and for the grant of non-qualified stock options, stock appreciation rights, restricted stock, RSUs, dividend equivalent rights, cash-based awards (including annual cash incentives and long-term cash incentives), and any combination thereof to the Company’s employees, directors and consultants. In connection with the 2016 Plan, the Company has reserved but not issued 8,136,211 shares of common stock, which includes shares that would otherwise return to the 2014 Equity Incentive Plan (the "2014 Plan") as a result of forfeiture, termination, or expiration of awards previously granted under the 2014 Plan and outstanding when the 2016 Plan became effective.

The 2016 Plan will automatically terminate 10 years following the date it became effective, unless the Company terminates it sooner. In addition, the Company’s Board of Directors has the authority to amend, suspend or terminate the 2016 Plan provided such action does not impair the rights under any outstanding award.

As of September 30, 2022, the total number of shares available for future grants under the 2016 Plan was 2,807,596 shares.

The Company has in the past and may in the future make grants of share-based compensation as inducement awards to new employees who are outside the 2016 Plan. The Company's board may rely on the employment inducement exception under NYSE Rule 303A.08 in order to approve the grants.

2014 Equity Incentive Plan

The Company adopted the 2014 Plan on May 1, 2014. The 2014 Plan permitted the grant of incentive stock options, non-statutory stock options, and restricted stock. On April 27, 2017, the Company's Board of Directors terminated the 2014 Plan as to future awards and confirmed that underlying shares corresponding to awards under the 2014 Plan that were outstanding at the time the 2016 Plan became effective, that are forfeited, terminated or expired, will become available for issuance under the 2016 Plan.

For the nine months ended September 30, 2022, the Company had the following activity related to outstanding share-based awards:

Stock Options

Stock options are awarded to encourage ownership of the Company's common stock by employees and to provide increased incentive for employees to render services and to exert maximum effort for the success of the Company. The Company's stock options generally permit net-share settlement upon exercise. The option exercise price, vesting schedule and exercise period are determined for each grant by the administrator of the applicable plan. The Company's stock options generally have a 10-year contractual term and vest over a 4-year period.

A summary of stock option activity as of and for the nine months ended September 30, 2022 is presented below:


Stock Options	Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)
Outstanding at December 31, 2021	796,685	$	6.19
Granted	—	—
Exercised	—	—
Expired	—	—
Forfeited	(70,000)	5.85
Outstanding at September 30, 2022	726,685	6.22		2.47
Options exercisable at September 30, 2022	726,685	$	6.22	2.47


Elevate Credit, Inc. and Subsidiaries

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

For the three and nine months ended September 30, 2022 and 2021

At September 30, 2022, there were no unrecognized compensation costs related to unvested stock options to be recognized. The total intrinsic value of options exercised for the nine months ended September 30, 2022 was zero.

Restricted Stock Units

RSUs are awarded to serve as a key retention tool for the Company to retain its executives and key employees. RSUs will transfer value to the holder even if the Company’s stock price falls below the price on the date of grant, provided that the recipient provides the requisite service during the period required for the award to “vest.”

The weighted-average grant-date fair value for RSUs granted under the 2016 Plan during the nine months ended September 30, 2022 was $2.87. These RSUs primarily vest 25% on the first anniversary of the effective date, and 25% each year thereafter, until full vesting on the fourth anniversary of the effective date.

A summary of RSU activity as of and for the nine months ended September 30, 2022 is presented below:


RSUs	Shares	Weighted Average Grant-Date Fair Value
Unvested at December 31, 2021	3,691,983	$	3.97
Granted	2,487,729	2.87
Vested(1)	(1,263,001)	4.36
Forfeited	(314,784)	3.50
Unvested at September 30, 2022	4,601,927	3.37
Expected to vest at September 30, 2022	3,536,924	$	3.36

_________

(1)Certain RSUs were net share-settled to cover the required withholding tax and the remaining amounts were converted into an equivalent number of shares of the Company's common stock. The Company withheld 314,070 shares for applicable income and other employment taxes and remitted the cash to the appropriate taxing authorities for the nine months ended September 30, 2022.

At September 30, 2022, there was approximately $8.9 million of unrecognized compensation cost related to unvested RSUs which is expected to be recognized over a weighted average period of 2.2 years. During the nine months ended September 30, 2022, the total intrinsic value of RSUs that vested during the period was approximately $3.6 million. As of September 30, 2022, the aggregate intrinsic value of the vested and expected to vest RSUs was approximately $3.9 million.

Employee Stock Purchase Plan

The Company offers an Employee Stock Purchase Plan ("ESPP") to eligible US employees. There are currently 2,514,365 shares authorized and 909,891 reserved for the ESPP. There were 190,945 shares purchased under the ESPP for the nine months ended September 30, 2022. Within share-based compensation expense for the nine months ended September 30, 2022 and 2021, $347 thousand and $473 thousand, respectively, relates to the ESPP. For the three months ended September 30, 2022 and 2021, $108 thousand and $132 thousand, respectively, relates to the ESPP within share-based compensation expense.

NOTE 10—FAIR VALUE MEASUREMENTS

Recurring Fair Value Measurements

The accounting guidance on fair value measurements establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements).

The Company groups its assets and liabilities measured at fair value in three levels of the fair value hierarchy, based on the fair value measurement technique, as described below:

Level 1—Valuation is based upon quoted prices (unadjusted) for identical assets and liabilities in active exchange markets that the Company has the ability to access at the measurement date.


Elevate Credit, Inc. and Subsidiaries

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

For the three and nine months ended September 30, 2022 and 2021

Level 2—Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques with significant assumptions and inputs that are observable in the market or can be derived principally from or corroborated by observable market data.

Level 3—Valuation is derived from model-based techniques that use inputs and significant assumptions that are supported by little or no observable market data. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include the use of pricing models, discounted cash flow models and similar techniques.

The Company monitors the market conditions and evaluates the fair value hierarchy levels at least quarterly. For any transfers in and out of the levels of the fair value hierarchy, the Company discloses the fair value measurement at the beginning of the reporting period during which the transfer occurred. For the nine month periods ended September 30, 2022 and 2021, there were no significant transfers between levels.

The level of fair value hierarchy within which a fair value measurement in its entirety falls is based on the lowest-level input that is most significant to the fair value measurement in its entirety. In the determination of the classification of assets and liabilities in Level 2 or Level 3 of the fair value hierarchy, the Company considers all available information, including observable market data, indications of market conditions, and its understanding of the valuation techniques and significant inputs used. Based upon the specific facts and circumstances, judgments are made regarding the significance of the Level 3 inputs to the fair value measurements of the respective assets and liabilities in their entirety. If the valuation techniques that are most significant to the fair value measurements are principally derived from assumptions and inputs that are corroborated by little or no observable market data, the asset or liability is classified as Level 3.

The following table contains the Company's financial assets and liabilities that are measured at fair value on a recurring basis in the Condensed Consolidated Balance Sheets as of September 30, 2022:


	September 30, 2022		Fair Value Measurement Using
(Dollars in thousands)			Level 1		Level 2		Level 3
Financial assets:
Loans receivable at fair value(1)	$	621,312	$	—	$	—	$	621,312
Total	$	621,312	$	—	$	—	$	621,312

_________

(1)Loans receivable at fair value includes assets of consolidated VIEs. See Note 5 - Variable Interest Entities for more information.

Effective January 1, 2022, the Company generally uses discounted cash flow analyses that factor estimated losses and prepayments over the estimated duration of the loans receivable portfolio. Using historical data and consideration of recent trends, the Company determines loss and prepayment assumptions. Future cash flows are discounted using a rate of return that the Company believes a market participant would require. The table below presents quantitative information about the key unobservable inputs used for the Company's loans receivable fair value measurements as of September 30, 2022:


	September 30, 2022
Credit loss rate	18	%
Prepayment rate	28	%
Discount rate	21	%


Elevate Credit, Inc. and Subsidiaries

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

For the three and nine months ended September 30, 2022 and 2021

Financial Assets and Liabilities Not Measured at Fair Value

The following tables contain the Company's financial assets and liabilities that are not measured at fair value in the Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021:


	September 30, 2022		Fair Value Measurement Using
(Dollars in thousands)			Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	72,599	$	72,599	$	—	$	—
Restricted cash	3,852		3,852		—		—
Receivable from payment processors	17,038		—		—		17,038
Total	$	93,489	$	76,451	$	—	$	17,038

Financial liabilities:
Accounts payable and accrued liabilities	$	38,381	$	—	$	—	$	38,381
Notes payable, net	560,569		—		—		560,569
Total	$	598,950	$	—	$	—	$	598,950


	December 31, 2021		Fair Value Measurement Using
(Dollars in thousands)			Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	84,978	$	84,978	$	—	$	—
Restricted cash	5,874		5,874		—		—
Loans receivable, net of allowance for loan losses	511,157		—		—		637,091
Receivable from payment processors	15,870		—		—		15,870
Total	$	617,879	$	90,852	$	—	$	652,961

Financial liabilities:
Accounts payable and accrued liabilities	$	82,513	$	—	$	—	$	82,513
Notes payable, net	505,277		—		—		505,277
Total	$	587,790	$	—	$	—	$	587,790

The Company has evaluated Receivable from payment processors and Accounts payable and accrued liabilities, and believes the carrying value approximates the fair value due to the short-term nature of these balances. The Company has also evaluated the interest rates for Notes payable, net and believes they represent market rates based on the Company’s size, industry, operations and recent amendments. As a result, the carrying value for Notes payable, net approximates the fair value. Prior to the adoption of ASU 2016-13, loans receivable were carried net of the allowance for loan losses, which was primarily calculated utilizing historical loss rates by product, stratified by delinquency ranges. The Company enhanced its valuation methodology as of December 31, 2021 using the additional data and valuation assumptions made available by the January 2022 adoption of 2016-13.

The Company classifies its fair value measurement techniques for the fair value disclosures associated with Loans receivable, net of allowance for loan losses, Receivable from payment processors, Accounts payable and accrued liabilities and Notes payable, net as Level 3 in accordance with ASC 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”).


Elevate Credit, Inc. and Subsidiaries

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

For the three and nine months ended September 30, 2022 and 2021

NOTE 11—INCOME TAXES

Income tax expense for the three and nine months ended September 30, 2022 and 2021 consists of the following:


	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2022		2021		2022		2021
Current income tax expense (benefit):

State	$	(79)	$	440	46		486

Total current income tax expense (benefit)	(79)		440		46		486

Deferred income tax expense (benefit):
Federal	8,037		(5,059)		4,355		(366)
State	1,903		2,776		657		1,709



Total deferred income tax expense (benefit)	9,940		(2,283)		5,012		1,343

Total income tax expense (benefit)	$	9,861	$	(1,843)	$	5,058	$	1,829

No material penalties or interest related to taxes, other than as described below, were recognized for the three and nine months ended September 30, 2022 and 2021.

At September 30, 2022, the Company recognized a valuation allowance of $9.9 million related to its net deferred tax asset which is included in Income tax expense (benefit). See further discussion below regarding the assessment of the Deferred tax assets, net.

The Company’s effective tax rates for the nine months ended September 30, 2022 and 2021, including discrete items and excluding any change in the valuation allowance, were 18.7% and 369.5%, respectively. For the nine months ended September 30, 2022, the Company's effective tax rate differed from the standard corporate federal income tax rate of 21% due to permanent non-deductible items and corporate state tax obligations in the states where it has lending activities. For the nine months ended September 30, 2021, the Company's effective tax rate significantly differed from the standard corporate federal income tax rate of 21% primarily due to the Company's recognition of an uncertain tax position of $1.6 million, net in Income tax expense (benefit) (see further discussion in the following paragraph). Other differences are due to discrete items, related to stock compensation and return-to-provision estimate adjustments, other permanent non-deductible items and corporate state tax obligations in the states where it has lending activities.

At September 30, 2022 and December 31, 2021, the gross liability for an uncertain tax position was $1.7 million and $1.5 million, exclusive of interest and penalties, respectively, and of this amount, $1.3 million and $1.2 million, respectively, would affect the Company’s effective tax rate if realized. The Company recognizes interest income from favorable settlements and interest expense and penalties accrued on uncertain tax positions within Income tax expense (benefit) in the Condensed Consolidated Statements of Operations. As of September 30, 2022, the Company had accrued $0.1 million for interest and penalties. The liability for the uncertain tax position results from a recent change in tax regulations in the state of Texas that impacted the Company’s previously recognized research and development state tax credits. The Company has no expectation that this liability on the books at September 30, 2022 will be settled in the next 12 months. The Company’s 2016-2020 tax years remain open to income tax audits in Texas at September 30, 2022.

The Company's tax provision for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items arising in that quarter. In each quarter, the Company updates its estimate of the annual effective tax rate, and if the estimated annual effective tax rate changes, the Company would make a cumulative adjustment in that quarter.

For purposes of evaluating the need for a deferred tax valuation allowance, significant weight is given to evidence that can be objectively verified. The following provides an overview of the assessment that was performed for the Deferred tax assets, net.


Elevate Credit, Inc. and Subsidiaries

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

For the three and nine months ended September 30, 2022 and 2021

Deferred tax assets, net

At September 30, 2022, the Company established a full valuation allowance for its deferred tax assets (“DTA”) based on the impact of the current macroeconomic environment on the performance of our portfolio as well as that environment making it increasingly difficult for management to accurately forecast future generation of taxable income. At December 31, 2021, the company did not establish a valuation allowance for its DTA based on management's expectation of generating sufficient taxable income in a look forward period over the next one to four years. The Federal net operating loss ("NOL") carryforward from operations at December 31, 2021 was $84.1 million. Any research and development credits recognized as a deferred tax asset expire beginning in 2036. The ultimate realization of the resulting DTA is dependent upon generating sufficient taxable income prior to the expiration of carryforwards.

The Company considered the following factors when making its assessment regarding the ultimate realizability of the DTA:

•The Company is projecting a three-year cumulative pre-tax loss position in 2022 (inclusive of certain non-recurring items), which is a significant piece of negative evidence that is difficult to overcome.

•Given the impact of the current macroeconomic environment on the performance of our portfolio and that same environment making it increasingly difficult to accurately forecast future revenue and losses, management believes the Company is not at a more likely than not position that the DTA will be realized.

The Company has given due consideration to all the factors and has concluded that the DTA is not at a more likely than not position to be realized. The amount of the DTA considered realizable, however, could be adjusted in the future if estimates of future taxable income change. As a result, as of September 30, 2022, the Company established a full valuation allowance for the DTA. The valuation allowance does not impact the Company's ability to utilize the DTA in the future.

NOTE 12—COMMITMENTS, CONTINGENCIES AND GUARANTEES

Contingencies

Currently and from time to time, the Company may become a defendant in various legal and regulatory actions that arise in the ordinary course of business. The Company generally cannot predict the eventual outcome, the timing of the resolution or the potential losses, fines or penalties of such legal and regulatory actions. Actual outcomes or losses may differ materially from the Company's current assessments and estimates, which could have a material adverse effect on the Company's business, prospects, results of operations, financial condition or cash flows.

In accordance with applicable accounting guidance, the Company establishes an accrued liability for litigation, regulatory matters and other legal proceedings when those matters present material loss contingencies that are both probable and reasonably estimable. Even when an accrual is recorded, the Company may be exposed to loss in excess of any amounts accrued.

Except as described below, the Company believes that any sum it may be required to pay in connection with proceedings or claims in excess of the amounts recorded would likely not have a material adverse effect upon the Company's results of operations, financial conditions or cash flows on a consolidated annual basis but could have a material adverse impact in a particular quarterly reporting period.


Elevate Credit, Inc. and Subsidiaries

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

For the three and nine months ended September 30, 2022 and 2021

Other Matters:

In December 2019, the Think Finance, Inc. ("TFI") bankruptcy plan was confirmed, and any potential future claims from the TFI Creditors' Committee were assigned to the Think Finance Litigation Trust (“TFLT”). On August 14, 2020, the TFLT filed an adversary proceeding against Elevate Credit, Inc. in the United States Bankruptcy Court for the Northern District of Texas, alleging certain avoidance claims related to Elevate's spin-off from TFI on May 1, 2014 under the Bankruptcy Code and the Texas Uniform Fraudulent Transfer Act ("TUFTA"). Additionally, a class action lawsuit against Elevate was filed on August 14, 2020 in the Eastern District of Virginia alleging violations of usurious interest and aiding and abetting various racketeering activities related to the operations of TFI prior to and immediately after the 2014 spin-off. On October 26, 2020, Elevate filed a motion to dismiss which was denied. On February 4, 2022, the parties to this litigation reached a settlement agreement in which Elevate admitted no liability, agreed to a settlement payment of $33 million to resolve this litigation and committed to purchase 924,495 shares of Elevate stock owned by the TFLT at a set price upon execution of the settlement agreement. The Company accrued a contingent loss in the amount of $17.1 million for the settlement payment related to the TFLT and class actions disputes at December 31, 2021, in addition to the $17 million previously accrued at December 30, 2020. The settlement has been agreed to by all parties, and on August 16, 2022, the United States District Court for the Eastern District of Virginia issued an Order Granting Final Approval of the Class Action Settlement. The stock purchase was completed on February 11, 2022. All payments have been made pursuant to the Settlement Agreement. The first payment of $13.3 million was made on May 4, 2022 and the final payment of $19.7 million was made on August 22, 2022. This accrual, inclusive of related additional legal fees, was $0.7 million and $34.1 million, at September 30, 2022 and December 31, 2021, respectively, and is recognized as Accounts payable and accrued liabilities on the Condensed Consolidated Balance Sheets.

On June 5, 2020, the District of Columbia (the "District") sued Elevate in the Superior Court of the District of Columbia alleging that Elevate may have violated the District's Consumer Protection Procedures Act and the District of Columbia's Municipal Regulations in connection with loans issued by banks in the District of Columbia. This action was removed to federal court, and on August 3, 2020, the District filed a motion to remand to Superior Court. On July 15, 2021, the District Court Judge remanded the case to Superior Court. On January 20, 2022, the Company entered into a Consent Judgment and Order (the "Consent Order") with the District resolving all matters in this action. The Company denies that it has violated any law or engaged in any deceptive or unfair practices as alleged and entered into the Consent Order to avoid the potential expense of further litigation. As part of the Consent Order, Elevate has agreed to not engage in certain business activities in the District of Columbia, provide refunds in 2022 to certain affected District of Columbia consumers, and pay $450 thousand to the District of Columbia in February 2022. The Company accrued a contingent loss in the amount of $4.0 million at December 31, 2021, which is recognized as Accounts payable and accrued liabilities on the Condensed Consolidated Balance Sheets. At September 30, 2022, the Company has completed refunds to District of Columbia consumers in an amount approximating $3.4 million and has no remaining accrual.

In addition, on January 27, 2020, Sopheary Sanh filed a class action complaint in the Western District Court in the state of Washington against Rise Credit Service of Texas, LLC d/b/a Rise, Opportunity Financial, LLC and Applied Data Finance, LLC d/b/a Personify Financial. The Plaintiff in the case claims that Rise and Personify Financial have violated Washington’s Consumer Protection Act by engaging in unfair or deceptive practices, and seeks class certification, injunctive relief to prevent solicitation of consumers to apply for loans, monetary damages and other appropriate relief, including an award of costs, pre- and post-judgment interest, and attorneys' fees. The lawsuit was removed to federal court. On January 12, 2021, the court granted Rise's motion to dismiss, as well as the other non-affiliated service providers. The Judge did, however, allow Plaintiff the opportunity to amend its complaint. On June 22, 2021, the Plaintiff filed its Amended Complaint alleging that Elevate or its subsidiary were not service providers to the originating bank, but rather the true lender. On July 20, 2021, Elevate filed its Motion to Dismiss the Amended Complaint. On September 20, 2021, Plaintiff filed its Response and Opposition to Defendant's Motion to Dismiss. On October 1, 2021, the Company filed a Reply in Support of its Motion to Dismiss the Amended Complaint, and is awaiting a ruling on the motion to dismiss. Elevate disagrees that it has violated the Washington Consumer Protection Act and it intends to vigorously defend its position. In the opinion of management, a material loss is remote at this stage as the Company's favorable ruling on its initial motion to dismiss had a similar fact pattern to the amended complaint.


Elevate Credit, Inc. and Subsidiaries

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

For the three and nine months ended September 30, 2022 and 2021

On March 3, 2020, Heather Crawford filed a lawsuit in the Superior Court of the state of California, county of Los Angeles, against Elevate Credit, Inc., Elevate Credit Service, LLC and Rise Credit of California, LLC alleging unconscionable interest rates on Rise loans and seeking damages and public injunctive relief. Elevate filed a motion to compel arbitration, and Ms. Crawford dismissed the lawsuit without prejudice to refile in arbitration. Ms. Crawford has not yet filed any arbitration demand. In addition, on April 6, 2020, Dahn Le made a demand for arbitration against Elevate Credit, Inc., Elevate Credit Service, LLC and Rise Credit of California, LLC similarly alleging unconscionable interest rates on Rise loans and seeking damages and public injunctive relief. On September 1, 2021, the Arbitrator ruled that Elevate was deemed to be the prevailing party as to all matters in the Danh Le arbitration and all of Claimant's claims were denied. On December 1, 2021, Mr. Le filed a Petition to Vacate the Arbitration Award in the Superior Court of the state of California. The Company filed its motion in Opposition to Petitioner's Motion to Vacate on January 25, 2022, and a hearing was held on February 22, 2022. On February 23, 2022, the Superior Court ruled in Elevate's favor by denying the Petition to Vacate the arbitration judgment. The Claimant has filed notice that they intend to appeal the denial of their Petition to Vacate, however, the Company expects to succeed in defending the appeal and does not expect to incur any reasonably possible loss at this time.

Commitments

The Elastic product, which offers lines of credit to consumers, had approximately $260.0 million and $277.1 million in available and unfunded credit lines at September 30, 2022 and December 31, 2021, respectively. The Today Card product had approximately $21.4 million and $20.0 million in available and unfunded credit lines as of September 30, 2022 and December 31, 2021, respectively. While these amounts represented the total available unused credit lines, the Company has not experienced and does not anticipate that all line of credit customers will access their entire available credit lines at any given point in time. The Company has not recorded a loan loss reserve for unfunded credit lines as the Company has the ability to cancel commitments within a relatively short timeframe.

Effective June 2017, the Company entered into a seven-year lease agreement for office space in California. Upon the commencement of the lease, the Company was required to provide the lessor with an irrevocable and unconditional $500 thousand letter of credit. Provided the Company is not in default of any terms of the lease agreement, the outstanding required balance of the letter of credit will be reduced by $100 thousand per year beginning on the second anniversary of the lease commencement and ending on the fifth anniversary of the lease agreement. The minimum balance of the letter of credit will be at least $100 thousand throughout the duration of the lease. At September 30, 2022 and December 31, 2021, the Company had $100 thousand and $200 thousand, respectively, of cash balances securing the letter of credit which is included in Restricted cash within the Condensed Consolidated Balance Sheets.

Guarantees

CSO Program:

In connection with its prior CSO programs, the Company guaranteed consumer loan payment obligations to CSO lenders and was required to purchase any defaulted loans it has guaranteed. The guarantee represented an obligation to purchase specific loans that go into default. As of September 30, 2022, the guarantee no longer exists as there are no remaining CSO program obligations.

Indemnifications and contingent loss accrual

In the ordinary course of business, the Company may indemnify customers, vendors, lessors, investors, and other parties for certain matters subject to various terms and scopes. For example, the Company may indemnify certain parties for losses due to the Company's breach of certain agreements or due to certain services it provides. As the Company has previously disclosed, the Company has also entered into separate indemnification agreements with the Company’s directors and executive officers, in addition to the indemnification provided for in the Company’s amended and restated bylaws. These agreements, among other things, provide that the Company will indemnify its directors and executive officers for certain expenses, including attorneys’ fees, judgments, penalties, fines and settlement amounts incurred by a director or executive officer in any action or proceeding arising out of their services as one of the Company’s or, where applicable, TFI’s directors or executive officers, or any of the Company’s subsidiaries or any other company or enterprise to which the person provides services at the Company’s request. The indemnification agreements also set forth certain procedures that will apply in the event of a claim for indemnification thereunder.


Elevate Credit, Inc. and Subsidiaries

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

For the three and nine months ended September 30, 2022 and 2021

As of December 31, 2020, the Company had accrued approximately $4.4 million for a contingent loss related to a legal matter for a former executive of the company. This contingent loss was based on a probable settlement composed of both cash and certain amounts that were subject to valuation adjustments until the final settlement. The contingent loss was settled as of March 31, 2021 and no further accrual for this matter remains as of September 30, 2022. As of December 31, 2021, the Company had accrued $1.7 million pursuant to a director indemnification agreement related to a legal matter. As of September 30, 2022, no further accrual remained for this legal matter. Both of these accruals were recognized within Non-operating income (loss) in the Condensed Consolidated Statements of Operations and as Accounts payable and accrued liabilities on the Condensed Consolidated Balance Sheets. The table below presents a roll forward of the net amounts accrued and paid for the three and nine months ended September 30, 2022 and 2021.


	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2022		2021		2022		2021
Beginning balance	$	1,047	$	—	$	1,700	$	4,424
Accruals	—		—		—		(510)
Payments	(1,047)		—		(1,700)		(3,914)
Net contingent loss related to a legal matter	$	—	$	—	$	—	$	—

NOTE 13—RELATED PARTIES

Expenses related to the Company's board of directors, including board fees, travel reimbursements and share-based compensation for the three and nine months ended September 30, 2022 and 2021 are included in Professional services within the Condensed Consolidated Statements of Operations and were as follows:


	Three Months Ended September 30,
(Dollars in thousands)	2022		2021
Fees and travel expenses	$	99	$	111
Stock compensation	257		156

Total board related expenses	$	356	$	267

	Nine Months Ended September 30,
(Dollars in thousands)	2022		2021
Fees and travel expenses	$	448	$	368
Stock compensation	650		342
Total board related expenses	$	1,098	$	710

At September 30, 2022 and December 31, 2021, the Company had approximately $99 thousand and $143 thousand, respectively, due to board members related to the above expenses, which is included in Accounts payable and accrued liabilities within the Condensed Consolidated Balance Sheets.

During the year ended December 31, 2017, a former member of the board of directors entered into a direct investment of $800 thousand in the Rise portion of the VPC Facility. Upon resignation in the first quarter of 2022, they were no longer considered a related party. For the nine months ended September 30, 2022 and 2021, the interest payments on this loan were $19 thousand and $59 thousand, respectively, and $20 thousand for the three months ended September 30, 2021.


Elevate Credit, Inc. and Subsidiaries

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

For the three and nine months ended September 30, 2022 and 2021

In the second quarter of 2021, the Company reached an agreement with a former member of the board of directors for advances of legal fees under the indemnification provisions of their director agreement. Based on this agreement, at September 30, 2022, the Company had no remaining accrual. There was $135 thousand accrued for this matter at December 31, 2021, which is included in Accounts payable and accrued liabilities within the Condensed Consolidated Balance Sheets. The table below presents a roll forward of the amounts accrued and paid for the three and nine months ended September 30, 2022 and 2021.


	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2022		2021		2022		2021
Beginning balance	$	151	$	911	$	135	$	—
Accruals (included in Professional services in the Condensed Consolidated Statements of Operations)	(85)		626		13		1,537
Payments	(66)		(373)		(148)		(373)
Net accrual related to the advance of legal fees	$	—	$	1,164	$	—	$	1,164

In addition to the advances of legal fees, as of December 31, 2021, the Company had accrued $1.7 million pursuant to the director indemnification agreement related to a legal matter. This accrual was recognized as Accounts payable and accrued liabilities on the Condensed Consolidated Balance Sheets. As of September 30, 2022, no accrual remained.

During the fourth quarter of 2021, the Company made a $500 thousand advance applied toward its investment in the newly created Swell entity, which was recognized in Prepaid expenses and other assets on the Condensed Consolidated Balance Sheets. During the first quarter of 2022, the Company made an additional investment of $4 million, as well as intellectual property contributions valued at $1.3 million. The Company records its interest in Swell under the equity method of accounting. The Company's share of Swell's net loss for the three and nine months ended September 30, 2022 is $0.4 million and $1.1 million, respectively, which is included in Equity method investment loss in the Condensed Consolidated Statements of Operations. As of September 30, 2022 and December 31, 2021, the carrying value of the Company's investment in Swell was $4.8 million and $0 million, respectively, within Investment in unconsolidated affiliate in the Condensed Consolidated Balance Sheets.

NOTE 14—SUBSEQUENT EVENTS

The Company evaluated subsequent events as of the date these financial statements were made available and determined there have been no material subsequent events that required recognition or additional disclosure in these condensed consolidated financial statements, except as follows:

On October 28, 2022, Elastic SPV, EF SPV and EC SPV, individually and collectively, entered into the First Amendment to Second-Lien Financing Agreement and Consent (the "Amendment") with Park Cities Asset Management, LLC, to increase the maximum commitment amount to $20.0 million from $15.0 million and to amend certain financial covenants effective as of August 31, 2022. All material terms and maturity date remain unchanged under the Amendment. An additional funding of $5.0 million on this agreement was made on October 31, 2022.

On October 31, 2022, the Company, EF SPV, EC SPV, and Elastic SPV entered into the Omnibus Amendment and Consent ("the Agreement") under each of the VPC facilities, consenting to the Amendment with Park Cities Asset Management, LLC and amending certain financial covenants as of August 31, 2022. All other material terms and maturities are unchanged by this agreement.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to help the reader understand our business, our results of operations and our financial condition. The MD&A is provided as a supplement to, and should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q.

Some of the information contained in this discussion and analysis, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review the "Note About Forward-Looking Statements" section of this Quarterly Report on Form 10-Q for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. We generally refer to loans, customers and other information and data associated with each of our brands (Rise, Elastic and Today Card) as Elevate’s loans, customers, information and data, irrespective of whether Elevate directly originates the credit to the customer or whether such credit is originated by a third party.

OVERVIEW

We provide online credit solutions to consumers in the US who are not well-served by traditional bank products and who are looking for better options than payday loans, title loans, pawn and storefront installment loans. Non-prime consumers now represent a larger market than prime consumers but are riskier to underwrite and serve with traditional approaches. We’re succeeding at it - and doing it responsibly - with best-in-class advanced technology and proprietary risk analytics honed by serving more than 2.8 million customers with $10.6 billion in credit. Our current online credit products, Rise, Elastic and Today Card, reflect our mission to provide customers with access to competitively priced credit and services while helping them build a brighter financial future with credit building and financial wellness features. We call this mission "Good Today, Better Tomorrow."

We earn revenues on the Rise installment loans, on the Rise and Elastic lines of credit and on the Today Card credit card product. Our revenue primarily consists of finance charges and line of credit fees. Finance charges are driven by our average loan balances outstanding and by the average annual percentage rate (“APR”) associated with those outstanding loan balances. We calculate our average loan balances by taking a simple daily average of the ending loan balances outstanding for each period. Line of credit fees are recognized when they are assessed and recorded to revenue over the life of the loan. We present certain key metrics and other information on a “combined” basis to reflect information related to loans originated by us and by our bank partners that license our brands, Republic Bank, FinWise Bank and Capital Community Bank ("CCB"), as well as loans originated by third-party lenders pursuant to CSO programs, which loans originated through CSO programs are not recorded on our balance sheet in accordance with US GAAP. See “—Key Financial and Operating Metrics” and “—Non-GAAP Financial Measures.”

We use our working capital and our credit facility with Victory Park Management, LLC ("VPC” and the "VPC Facility") to fund the loans we directly make to our Rise customers. The VPC Facility has a maximum total borrowing amount available of $200 million at September 30, 2022.

We also license our Rise installment loan brand to two banks. FinWise Bank originates Rise installment loans in 17 states. This bank initially provides all of the funding, retains 4% of the balances of all of the loans originated and sells the remaining 96% loan participation in those Rise installment loans to a third-party SPV, EF SPV, Ltd. ("EF SPV"). These loan participation purchases are funded through a separate financing facility (the "EF SPV Facility"), and through cash flows from operations generated by EF SPV. The EF SPV Facility has a maximum total borrowing amount available of $250 million. We do not own EF SPV, but we have a credit default protection agreement with EF SPV whereby we provide credit protection to the investors in EF SPV against Rise loan losses in return for a credit premium. As the primary beneficiary, Elevate is required to consolidate EF SPV as a variable interest entity ("VIE") under US GAAP and the condensed consolidated financial statements include revenue, losses and loans receivable related to the 96% of the Rise installment loans originated by FinWise Bank and sold to EF SPV.

Since the third quarter of 2020, we have licensed our Rise installment loan brand to an additional bank, CCB, which originates Rise installment loans in three different states than FinWise Bank. Similar to the relationship with FinWise Bank, CCB initially provides all of the funding, retains 5% of the balances of all of the loans originated and sells the remaining 95% loan participation in those Rise installment loans to a third-party SPV, EC SPV, Ltd. ("EC SPV"). These loan participation purchases are funded through a separate financing facility (the "EC SPV Facility"), and through cash flows from operations generated by EC SPV. The EC SPV Facility has a maximum total borrowing amount available of $100 million. We do not own EC SPV, but we have a credit default protection agreement with EC SPV whereby we provide credit protection to the investors in EC SPV against Rise loan losses in return for a credit premium. As the primary beneficiary, Elevate is required to consolidate EC SPV as a VIE under US GAAP and the condensed consolidated financial statements include revenue, losses and loans receivable related to the 95% of the Rise installment loans originated by CCB and sold to EC SPV.

The Elastic line of credit product is originated by a third-party lender, Republic Bank, which initially provides all of the funding for that product. Republic Bank retains 10% of the balances of all loans originated and sells a 90% loan participation in the Elastic lines of credit. An SPV structure was implemented such that the loan participations are sold by Republic Bank to Elastic SPV, Ltd. (“Elastic SPV”) and Elastic SPV receives its funding from VPC in a separate financing facility (the “ESPV Facility”), which was finalized on July 13, 2015. We do not own Elastic SPV, but we have a credit default protection agreement with Elastic SPV whereby we provide credit protection to the investors in Elastic SPV against Elastic loan losses in return for a credit premium. Per the terms of this agreement, under US GAAP, we are the primary beneficiary of Elastic SPV and are required to consolidate the financial results of Elastic SPV as a VIE in our condensed consolidated financial statements. The ESPV Facility has a maximum total borrowing amount available of $350 million at September 30, 2022.

Today Card is a credit card product designed to meet the spending needs of non-prime consumers by offering a prime customer experience. Today Card is originated by CCB under the licensed MasterCard brand, and a 95% participation interest in the credit card receivable is sold to us. These credit card receivable purchases are funded through a separate financing facility (the "TSPV Facility"), and through cash flows from operations generated by the Today Card portfolio. The TSPV Facility has a maximum commitment amount of $50 million, which may be increased up to $100 million. As the lowest APR product in our portfolio, Today Card allows us to serve a broader spectrum of non-prime Americans. The Today Card experienced significant growth in its portfolio size despite the pandemic due to the success of our direct mail campaigns, the primary marketing channel for acquiring new Today Card customers. We are following a specific growth plan to grow the product while monitoring customer responses and credit quality. Customer response to the Today Card has been strong, as we continue to see high response rates, high customer engagement, and positive customer satisfaction scores.

In January 2022, we collaborated with Central Pacific Bank ("CPB") to invest in the launch of a new fintech company, Swell Financial, Inc. ("Swell"). The Swell App includes several groundbreaking features to help customers automatically control their spending, tackle debt, and invest in exclusive private market opportunities with as little as $1 thousand. We will help CPB and Swell offer the Swell Credit line of credit product with APRs between 8% and 24%. Our current total investment carrying value in Swell, using equity method accounting, is $4.8 million and we have a non-controlling interest in Swell.

Our management assesses our financial performance and future strategic goals through key metrics based primarily on the following three themes:

•Revenue growth. Key metrics related to revenue growth that we monitor by product include the ending and average combined loan balances outstanding, the effective APR of our product loan portfolios, the total dollar value of loans originated, the number of new and former customer loans made, the ending number of customer loans outstanding and the related customer acquisition costs (“CAC”) associated with each new customer loan made. We include CAC as a key metric when analyzing revenue growth (rather than as a key metric within margin expansion).

•Stable credit quality. We work with our bank partners that originate loans on our platform to address the appropriate credit risk for the revenues earned. Our management team has extensive experience managing credit quality across loan portfolios. With the adoption of fair value for the loans receivable portfolio effective January 1, 2022, the credit quality metrics we monitor include net charge-offs as a percentage of revenues, change in fair value of loans receivable as a percentage of revenues, the percentage of past due combined loans receivable – principal and net principal charge-offs as a percentage of average combined loans receivable-principal. Prior to our adoption of fair value for the loans receivable portfolio effective January 1, 2022, our credit quality metrics also included the combined loan loss reserve as a percentage of outstanding combined loans and total provision for loan losses as a percentage of revenues. Under fair value accounting, a specific loan loss reserve is no longer required to be recognized as a credit loss estimate is a key assumption used in measuring fair value. See “—Non-GAAP Financial Measures” for further information.

•Margin expansion. We aim to manage our business to achieve a long-term operating margin of 20%. In periods of significant loan portfolio growth, our margins may become compressed due to the upfront costs associated with marketing. Prior to our adoption of fair value for the loans receivable portfolio, we incurred upfront credit provisioning expense associated with loan portfolio growth. When applying fair value accounting, estimated credit loss is a key assumption within the fair value assumptions used each quarter and specific loan loss allowance is no longer required to be recognized. Long term, we anticipate that our direct marketing costs primarily associated with new customer acquisitions will be approximately 10% of revenues and our operating expenses will decline to 20% of revenues. While our operating margins may exceed 20% in certain years, such as in 2020 when we incurred lower levels of direct marketing expense and materially lower credit losses due to a lack of customer demand for loans resulting from the effects of COVID-19, we do not expect our operating margin to increase beyond that level over the long term, as we intend to pass on any improvements over our targeted margins to our customers in the form of lower APRs. We believe this is a critical component of our responsible lending platform and over time will also help us continue to attract new customers and retain existing customers.

Going Concern

We assess our ability to continue as a going concern each reporting period for one year after the date the financial statements are issued. This assessment evaluates whether relevant conditions and events, in the aggregate, raise substantial doubt that we will meet future financial obligations as they become due within one year. In accordance with Accounting Standards Codification ("ASC") Subtopic 205-40: Presentation of Financial Statements - Going Concern, our initial evaluation does not consider potential mitigating effects of our management's plans unless they have been fully implemented as of the date the financial statements are issued.

As a result of the substantial inflationary pressures of the current macroeconomic environment, we are experiencing higher charge-offs and limiting loan portfolio growth, with both resulting in lower cash collections. We were in compliance with the terms of our debt agreements, as amended, as of September 30, 2022, however, the reduced collections and higher macroeconomic environment related charge-offs may result in non-compliance with debt agreements in future periods. If such non-compliance is not waived by our lenders, we are not able to obtain amendments or other relief, or we are otherwise unable to obtain new or alternate methods of financing on acceptable terms, such non-compliance can result in loss of ability to borrow under the facilities and/or events of default. Absent the actions below that our management is in the midst of executing, or has already executed, we concluded that the uncertainty surrounding our future non-compliance with our debt facilities, ability to negotiate some of our existing facilities, and maintain sufficient liquidity raises substantial doubt about our ability to continue as a going concern within one year of the issuance date of these financial statements.

Effective August 31, 2022, we have obtained amendments to our debt covenants to lower certain covenant thresholds through December 31, 2022. Furthermore, we obtained an additional $5.0 million in sub debt to improve liquidity. Our management is actively engaging with lenders to review and address debt covenant compliance and liquidity position beyond December 31, 2022 as we forecast the impacts of various scenarios associated with the current macroeconomic environment.

We have implemented measures to assist customers with their payments and additional verification procedures on new and returning originating customers. We have also taken aggressive measures to reduce costs for the foreseeable future by reducing operating expenses beginning in the third quarter of 2022. In addition, our management and the Board of Directors are conducting a strategic review process with the intention of maximizing shareholder value.

These steps have been taken, and others are under consideration, to help manage our liquidity and preserve capital. Although our management believes that the actions that have been implemented and the others that are planned will be sufficient to meet its liquidity needs for the 12 months from the issuance of these financial statements, substantial doubt about our ability to continue as a going concern exists as we cannot predict with certainty that these efforts will be successful or sufficient.

Strategic Review

On November 9, 2022, we announced that our Board of Directors, along with our management, had initiated a strategic review to consider other ways to achieve maximum shareholder value. There can be no assurances regarding the outcome or timing of the strategic review process.

Election of Fair Value Option

Prior to January 1, 2022, we carried our combined loans receivable portfolio at amortized cost, net of an allowance for estimated loan losses inherent in the combined loan portfolio. Effective January 1, 2022, we elected the fair value option to account for all our combined loan portfolio in conjunction with our early adoption of Measurement of Credit Losses on Financial Instruments ("ASU 2016-13") and the related amendments. We believe the election of the fair value option better reflects the value of our portfolio and its future economic performance, as well as more closely aligns with our decision-making processes that rely on unit economics, corresponding with the discounted cash flow methodologies utilized in fair value accounting. Refer to Note 1 in the Notes to the Condensed Consolidated Financial Statements included in this report for discussion of the election and its impact on our accounting policies.

In accordance with the transition guidance, on January 1, 2022, we released the allowance for loan losses and measured the combined loans receivable at fair value at adoption. The cumulative-effect adjustment, net of tax, was recognized collectively as a net increase of $98.6 million to opening Retained earnings. During the quarter ended September 30, 2022, we identified that the initial adjustment on January 1, 2022 was overstated by $1.9 million related to the loan premiums associated with certain loans within the loan portfolio resulting in a net cumulative-effect adjustment to retained earnings of $96.7 million.

In comparing our current period results under the fair value option to prior periods, it may be helpful to consider that loans receivable are carried at fair value with changes in fair value of loans receivable recorded in the Condensed Consolidated Statements of Operations. The fair value takes into consideration expected lifetime losses of the loans receivable, whereas the prior method incorporated only incurred losses recognized as an allowance for loan losses. As such, changes in credit quality, amongst other significant assumptions, typically have a more significant impact on the carrying value of the combined loans receivable portfolio under the fair value option. See “—Non-GAAP Financial Measures” for further information.

Macroeconomic Factors

During the second quarter of 2022, the broader market environment that had persisted since the second half of 2021 began to soften. The substantial inflation pressures that our economy continues to face have resulted in many challenges, most notably in the form of rising interest rates, softening of consumer demand, and increased labor costs. With the Federal Reserve prioritizing its mandate of price stability, it continues to take actions to reduce and stabilize inflation, increasing the potential recessionary risks posted by such actions. The inflation rate continues to be historically high, with the second quarter inflation rate at the highest in four decades. Our operations have been, and may continue to be adversely impacted by inflation, primarily from higher financing costs. Additionally, inflation has, and may continue to impact our customers' demand for additional debt and their ability to pay back their existing loans, impacting our revenue and charge-off rate.

Although the current macroeconomic environment may have a significant adverse impact on our business, and while uncertainty exists, we continue to take appropriate actions to operate effectively through the present economic environment and expect to have a more cautious approach to portfolio growth through the remainder of 2022. In addition, during the third quarter of 2022, we implemented a cost reduction plan, including furloughing approximately 25% of our workforce, to lower compensation and professional service expense to mitigate the reduced revenue and higher credit losses resulting from the current macroeconomic environment.

Impact of COVID-19

In 2020, we experienced a significant decline in the loan portfolio due to a lack of customer demand for loans resulting from the effects of COVID-19 and related government stimulus programs. These impacts resulted in a lower level of direct marketing expense and materially lower credit losses during 2020 and continuing into early 2021. Beginning in the second quarter of 2021, we experienced a return of demand for the loan products that we, and the bank originators we support, offer, resulting in significant growth in the loan portfolio from that point. This significant loan portfolio growth resulted in compressed margins in 2021 due to the upfront costs associated with marketing and credit provisioning expense related to growing and “rebuilding” the loan portfolio from the impacts of COVID-19.

We implemented a hybrid remote environment where employees may choose to work primarily from the office or from home and gather collectively in the office on a limited basis. We sought to ensure our employees feel secure in their jobs, have flexibility in their work location and have the resources they need to stay safe and healthy. As a 100% online lending solutions provider, our technology and underwriting platform has continued to serve our customers and the bank originators that we support without any material interruption in services.

We continue to monitor the sustained impacts of COVID-19 on our business, loan portfolio, customers and employees, and while uncertainty still exists, we believe we are well-positioned to operate effectively through any future impacts associated with COVID-19.

KEY FINANCIAL AND OPERATING METRICS

As discussed above, we regularly monitor a number of metrics in order to measure our current performance and project our future performance. These metrics aid us in developing and refining our growth strategies and in making strategic decisions.

Certain of our metrics are non-GAAP financial measures. We believe that such metrics are useful in period-to-period comparisons of our core business. However, non-GAAP financial measures are not an alternative to any measure of financial performance calculated and presented in accordance with US GAAP. See “—Non-GAAP Financial Measures” for a reconciliation of our non-GAAP measures to US GAAP.

Revenues


	As of and for the three months ended September 30,						As of and for the nine months ended September 30,
Revenue metrics (dollars in thousands, except as noted)	2022			2021			2022			2021
Revenues	$	125,617		$	112,835		$	367,467		$	287,108
Period-over-period change in revenue	11		%	20		%	28		%	(23)		%
Ending combined loans receivable – principal(1)	$	545,818		$	512,870		$	545,818		$	512,870
Average combined loans receivable – principal(1)(2)	$	541,128		$	459,949		$	529,085		$	398,566
Total combined loans originated – principal	$	248,846		$	311,985		$	699,484		$	655,959
Average customer loan balance(3)	$	2,134		$	1,918		$	2,134		$	1,918
Number of new customer loans	28,182			69,682			73,195			122,558
Ending number of combined loans outstanding	255,740			267,434			255,740			267,434
Customer acquisition costs	$	230		$	221		$	281		$	248
Effective APR of combined loan portfolio	91		%	96		%	92		%	95		%

_________

(1)Combined loans receivable is defined as loans owned by us and consolidated VIEs plus loans originated and owned by third-party lenders pursuant to our CSO programs. See “—Non-GAAP Financial Measures” for more information and for a reconciliation of Combined loans receivable to Loans receivable, net, / Loans receivable at fair value, the most directly comparable financial measures calculated in accordance with US GAAP.

(2)Average combined loans receivable – principal is calculated using an average of daily Combined loans receivable – principal balances.

(3)Average customer loan balance is an average of all three products and is calculated for each product by dividing the ending Combined loans receivable – principal by the number of loans outstanding at period end.

Revenues. Our revenues are composed of Rise finance charges, Rise CSO fees (which are fees we received from customers who obtained a loan through the CSO program for the credit services, including the loan guaranty, we provided), revenues earned on the Elastic line of credit, and finance charges and fee revenues from the Today Card credit card product. See “—Components of our Results of Operations—Revenues.”

Ending and average combined loans receivable – principal. We calculate the average combined loans receivable – principal by taking a simple daily average of the ending combined loans receivable – principal for each period. Key metrics that drive the ending and average combined loans receivable – principal include the amount of loans originated in a period and the average customer loan balance. All loan balance metrics include only the 90% participation in the related Elastic line of credit advances (we exclude the 10% held by Republic Bank), the 96% participation in FinWise Bank originated Rise installment loans, the 95% participation in CCB originated Rise installment loans and the 95% participation in the CCB originated Today Card credit card receivables, but include the full loan balances on CSO loans, which are not presented on our Condensed Consolidated Balance Sheets.

Total combined loans originated – principal. The amount of loans originated in a period is driven primarily by loans to new customers as well as new loans to prior customers, including refinancing of existing loans to customers in good standing.

Average customer loan balance and effective APR of combined loan portfolio. The average loan amount and its related APR are based on the product and the underlying credit quality of the customer. Generally, better credit quality customers are offered higher loan amounts at lower APRs. Additionally, new customers have more potential risk of loss than prior or existing customers due to lack of payment history and the potential for fraud. As a result, newer customers typically will have lower loan amounts and higher APRs to compensate for that additional risk of loss. The effective APR is calculated based on the actual amount of finance charges generated from a customer loan divided by the average outstanding balance for the loan and can be lower than the stated APR on the loan due to waived finance charges and other reasons. For example, a Rise customer may receive a $2,000 installment loan with a term of 24 months and a stated rate of 130%. In this example, the customer’s monthly installment loan payment would be $236.72. As the customer can prepay the loan balance at any time with no additional fees or early payment penalty, the customer pays the loan in full in month eight. The customer’s loan earns interest of $1,657.39 over the eight-month period and has an average outstanding balance of $1,912.37. The effective APR for this loan is 130% over the eight-month period calculated as follows:

($1,657.39 interest earned / $1,912.37 average balance outstanding) x 12 months per year = 130%

8 months

In addition, as an example for Elastic, if a customer makes a $2,500 draw on the customer’s line of credit and this draw required bi-weekly minimum payments of 5% (equivalent to 20 bi-weekly payments), and if all minimum payments are made, the draw would earn finance charges of $1,125. The effective APR for the line of credit in this example is 107% over the payment period and is calculated as follows:

($1,125.00 fees earned / $1,369.05 average balance outstanding) x 26 bi-weekly periods per year = 107%

20 payments

The actual total revenue we realize on a loan portfolio is also impacted by the amount of prepayments and charged-off customer loans in the portfolio. For a single loan, on average, we typically expect to realize approximately 60% of the revenues that we would otherwise realize if the loan were to fully amortize at the stated APR. From the Rise example above, if we waived $350 of interest for this customer, the effective APR for this loan would decrease to 103%. From the Elastic example above, if we waived $125 of fees for this customer, the effective APR for this loan would decrease to 95%.

Number of new customer loans. We define a new customer loan as the first loan or advance made to a customer for each of our products (so a customer receiving a Rise installment loan and then at a later date taking their first cash advance on an Elastic line of credit would be counted twice). The number of new customer loans is subject to seasonal fluctuations. New customer acquisition is typically slowest during the first six months of each calendar year, primarily in the first quarter, compared to the latter half of the year, as our existing and prospective customers usually receive tax refunds during this period and, thus, have less of a need for loans from us. Further, many customers will use their tax refunds to prepay all or a portion of their loan balance during this period, so our overall loan portfolio typically decreases during the first quarter of the calendar year. Overall loan portfolio growth and the number of new customer loans tends to accelerate during the summer months (typically June and July), at the beginning of the school year (typically late August to early September) and during the winter holidays (typically late November to early December).

Customer acquisition costs. A key expense metric we monitor related to loan growth is our CAC. This metric is the amount of direct marketing costs incurred during a period divided by the number of new customer loans originated during that same period. New loans to former customers are not included in our calculation of CAC (except to the extent they receive a loan through a different product) as we believe we incur no material direct marketing costs to make additional loans to a prior customer through the same product.

The following tables summarize the changes in customer loans by product for the three and nine months ended September 30, 2022 and 2021.


	Three Months Ended September 30, 2022
	Rise		Elastic		Today
	(Installment Loans)		(Lines of Credit)		(Credit Card)		Total
Beginning number of combined loans outstanding	115,082		103,607		36,410		255,099
New customer loans originated	18,935		4,406		4,841		28,182
Former customer loans originated	16,848		228		—		17,076
Attrition	(34,491)		(7,187)		(2,939)		(44,617)
Ending number of combined loans outstanding	116,374		101,054		38,312		255,740
Customer acquisition cost (in dollars)	$	285	$	147	$	90	$	230
Average customer loan balance (in dollars)	$	2,523	$	1,957	$	1,422	$	2,134


	Three Months Ended September 30, 2021
	Rise		Elastic		Today
	(Installment Loans)		(Lines of Credit)		(Credit Card)		Total
Beginning number of combined loans outstanding	108,784		92,278		17,481		218,543
New customer loans originated	41,010		18,937		9,735		69,682
Former customer loans originated	18,295		154		—		18,449
Attrition	(35,391)		(3,870)		21		(39,240)
Ending number of combined loans outstanding	132,698		107,499		27,237		267,434
Customer acquisition cost (in dollars)	$	268	$	206	$	52	$	221
Average customer loan balance (in dollars)	$	2,194	$	1,744	$	1,254	$	1,918


	Nine Months Ended September 30, 2022
	Rise		Elastic		Today
	(Installment Loans)		(Lines of Credit)		(Credit Card)		Total
Beginning number of combined loans outstanding	134,414		110,628		35,464		280,506
New customer loans originated	46,711		15,107		11,377		73,195
Former customer loans originated	49,584		555		—		50,139
Attrition	(114,335)		(25,236)		(8,529)		(148,100)
Ending number of combined loans outstanding	116,374		101,054		38,312		255,740
Customer acquisition cost	$	304	$	346	$	97	$	281


	Nine Months Ended September 30, 2021
	Rise		Elastic		Today
	(Installment Loans)		(Lines of Credit)		(Credit Card)		Total
Beginning number of combined loans outstanding	103,940		100,105		10,803		214,848
New customer loans originated	77,370		28,128		17,060		122,558
Former customer loans originated	46,060		380		—		46,440
Attrition	(94,672)		(21,114)		(626)		(116,412)
Ending number of combined loans outstanding	132,698		107,499		27,237		267,434
Customer acquisition cost	$	284	$	261	$	60	$	248

Recent trends. Our revenues for the three months ended September 30, 2022 totaled $125.6 million, an increase of 11% versus the three months ended September 30, 2021. Similarly, our revenues for the nine months ended September 30, 2022 totaled $367.5 million, up 28% versus the prior year. The increase in quarterly and year-to-date revenue is due to higher average combined loans receivable-principal as we saw growth in all of our products in the third quarter of 2022 as compared the prior year period. Rise, Elastic, and the Today products experienced year-over-year growth in revenues for the nine months ended September 30, 2022 of 23%, 28%, and 174%, respectively, which were due to the increased year-over-year average loan balances, as we focused on growing the portfolios beginning in the second half of 2021. The Today Card also benefits from the nature of the product, which provides an added convenience of having a credit card for online purchases of day-to-day items such as groceries or clothing (whereas the primary usage of a Rise installment loan or Elastic line of credit is for emergency financial needs such as a medical deductible or automobile repair).

We and the bank originators experienced a decrease in new customers during the third quarter of 2022 versus the prior year period as a result of our more cautious approach to growth based on recent performance and our expectation of the impact of inflation on our customers. However, all three of our products experienced an increase in principal loan balances in the third quarter of 2022 compared to a year ago. Rise and Elastic principal loan balances at September 30, 2022 totaled $293.6 million and $197.8 million, respectively, up roughly $2.4 million and $10.2 million, respectively, from a year ago. Today Card principal loan balances at September 30, 2022 totaled $54.5 million, up $20.3 million from a year ago.

Our CAC was higher in the third quarter of 2022 at $230 as compared to the third quarter of 2021 at $221 but below our targeted range of $250-$300. The new customer loan volume is being sourced from all our marketing channels including direct mail, digital and our strategic partners channel, where we have improved our technology and risk capabilities to interface with the strategic partners via our application programming interface (APIs) developed within our new technology platform ("Blueprint"). Blueprint will allow us to more efficiently acquire new customers within our targeted CAC range. We believe our CAC in future quarters, and on an annual basis, will be within our target range of $250 to $300 as we continue to take a more cautious approach to growth during the remainder of the year and monitor the macroeconomic environment closely. Long term, we expect to achieve our target range of $250 to $300 as we optimize the efficiency of our marketing channels and continue to grow the Today Card which successfully generates new customers at a sub-$100 CAC.

Credit quality


	As of and for the three months ended September 30,						As of and for the nine months ended September 30,
Credit quality metrics (dollars in thousands), after adoption of fair value	2022			2021 (Pro-forma)(6)			2022			2021 (Pro-forma)(6)
Net charge-offs(1)	$	73,607		$	39,015		$	215,476		$	95,968
Net change in fair value(1)(6)	(1,296)			1,620			2,450			(69)
Total change in fair value of loans receivable (6)	$	72,311		$	40,635		$	217,926		$	95,899

Net charge-offs as a percentage of revenues (1)	59		%	35		%	59		%	33		%
Total change in fair value of loans receivable as a percentage of revenues(6)	58		%	36		%	59		%	33		%
Percentage past due	11		%	9		%	11		%	9		%
Fair value premium(6)	10		%	9		%	10		%	9		%


	As of and for the three months ended September 30,			As of and for the nine months ended September 30,
Credit quality metrics (dollars in thousands), before adoption of fair value	2021			2021
Net charge-offs(2)	$	39,015		$	95,968
Additional provision for loan losses(2)	15,888			7,130
Provision for loan losses	$	54,903		$	103,098

Net charge-offs as a percentage of revenues(2)	35		%	33		%
Total provision for loan losses as a percentage of revenues	49		%	36		%
Percentage past due	9		%	9		%
Combined loan loss reserve(4)	$	56,209		$	56,209
Combined loan loss reserve as a percentage of combined loans receivable(3)(4)(5)	11		%	11		%

_________

(1)Net charge-offs and net change in fair value of loans receivable are not financial measures prepared in accordance with US GAAP. Net charge-offs include the amount of principal and accrued interest on loans that are more than 60 days past due (Rise and Elastic) or 120 days past due (Today Card), or sooner if we receive notice that the loan will not be collected, such as a bankruptcy notice or identified fraud, offset by any recoveries. Net change in fair value reflects the adjustment recognized related to the change in the fair value mark during the reported period. See “—Non-GAAP Financial Measures” for more information and for a reconciliation to Change in fair value of loans receivable, the most directly comparable financial measure calculated in accordance with US GAAP.

(2)Net charge-offs and additional provision for loan losses are not financial measures prepared in accordance with US GAAP. Net charge-offs include the amount of principal and accrued interest on loans that are more than 60 days past due (Rise and Elastic) or 120 days past due (Today Card), or sooner if we receive notice that the loan will not be collected, such as a bankruptcy notice or identified fraud, offset by any recoveries. Additional provision for loan losses is the amount of provision for loan losses needed for a particular period to adjust the combined loan loss reserve to the appropriate level in accordance with our underlying loan loss reserve methodology. See “—Non-GAAP Financial Measures” for more information and for a reconciliation to Provision for loan losses, the most directly comparable financial measure calculated in accordance with US GAAP.

(3)Combined loans receivable is defined as loans owned by us and consolidated VIEs plus loans originated and owned by third-party lenders pursuant to our CSO programs. See “—Non-GAAP Financial Measures” for more information and for a reconciliation of Combined loans receivable to Loans receivable, net, the most directly comparable financial measure calculated in accordance with US GAAP.

(4)Combined loan loss reserve is defined as the loan loss reserve for loans originated and owned by us and consolidated VIEs plus the loan loss reserve for loans owned by third-party lenders and guaranteed by us. See “—Non-GAAP Financial Measures” for more information and for a reconciliation of Combined loan loss reserve to Allowance for loan losses, the most directly comparable financial measure calculated in accordance with US GAAP.

(5)Combined loan loss reserve as a percentage of combined loans receivable is determined using period-end balances.

(6)We have provided pro-forma information reflecting the adoption of fair value in the 2021 financial period to provide comparability to the 2022 financial period. See “—Non-GAAP Financial Measures” for more information and for a reconciliation to previously reported amounts for 2021 calculated in accordance with US GAAP. The pro-forma fair value adjustments reflect fair value methodology acceptable with US GAAP.


Net principal charge-offs as a percentage of average combined loans receivable - principal (1)(2)(3)	First Quarter	Second Quarter	Third Quarter	Fourth Quarter
2022	11%	10%	11%	N/A
2021	6%	5%	6%	10%
2020	11%	10%	4%	5%

_________

(1)Net principal charge-offs is comprised of gross principal charge-offs less recoveries.

(2)Average combined loans receivable - principal is calculated using an average of daily Combined loans receivable - principal balances during each quarter.

(3)Combined loans receivable is defined as loans owned by us and consolidated VIEs plus loans originated and owned by third-party lenders pursuant to our CSO programs. See “—Non-GAAP Financial Measures” for more information and for a reconciliation of Combined loans receivable to the most directly comparable financial measure calculated in accordance with US GAAP.

Net principal charge-offs as a percentage of average combined loans receivable-principal for the third quarter of 2022 is higher than the third quarter of 2021, but consistent with this credit metric both before and after the impact of the COVID-19 pandemic. The above chart depicts the historically low charge-off metrics from the third quarter of 2020 through the third quarter of 2021, due to COVID-19 pandemic impacts such as a lack of new customer demand, our implementation of payment assistance tools, and government stimulus payments received by our customers. Beginning in the fourth quarter of 2021, net principal charge-offs as a percentage of average combined loans receivable-principal have returned to the levels consistent with 2019 due to the increased volume of new customers being originated.

Upon adoption of fair value for the combined loans receivable portfolio on January 1, 2022, in reviewing the credit quality of our loan portfolio, we break out our total change in fair value in loans receivable that is presented on our Condensed Combined Statement of Operations under US GAAP into two separate items—net charge-offs and net change in fair value. Net charge-offs are indicative of the credit quality of our underlying portfolio, while net change in fair value is subject to more fluctuation based on loan portfolio growth and changes in assumptions used in the fair value methodology. The net change in fair value is the change in the reporting period between the current period fair value mark as compared to the beginning of period fair value mark. With all other assumptions held flat and a fair value premium associated with the combined loan portfolio, we would expect the net change in fair value to be positive in periods of growth in the loan portfolio and expect the net change in fair value to be negative in periods of attrition in the loan portfolio.

Net charge-offs. Net charge-offs comprise gross charge-offs offset by recoveries on prior charge-offs. Gross charge-offs include the amount of principal and accrued interest on loans that are more than 60 days past due (Rise and Elastic) or 120 days (Today Card), or sooner if we receive notice that the loan will not be collected, such as a bankruptcy notice or identified fraud. Any payments received on loans that have been charged off are recorded as recoveries and reduce the total amount of gross charge-offs. Recoveries are typically less than 10% of the amount charged off, and thus, we do not view recoveries as a key credit quality metric.

Net charge-offs as a percentage of revenues can vary based on several factors, such as whether or not we experience significant growth or lower the APR of our products. Additionally, although a more seasoned portfolio will typically result in lower net charge-offs as a percentage of revenues, we do not intend to drive down this ratio significantly below our historical ratios and would instead seek to offer our existing products to a broader new customer base to drive additional revenues.

Net charge-offs as a percentage of average combined loans receivable-principal allow us to determine credit quality and evaluate loss experience trends across our loan portfolio.

Net change in fair value. Beginning January 1, 2022, we utilize the fair value option on the combined loans receivable portfolio. As such, loans receivables are carried at fair value in the Condensed Consolidated Balance Sheets with changes in fair value recorded in the Condensed Consolidated Statements of Operations. To derive the fair value, we generally utilize discounted cash flow analyses that factor in estimated losses and prepayments over the estimated duration of the underlying assets. Loss and prepayment assumptions are determined using historical loss data and include appropriate consideration of recent trends and anticipated future performance. Hence, another key credit quality metric we monitor is the percentage of past due combined loans receivable – principal, as an increase in past due loans is a consideration in the credit loss assumption used in the fair value assumptions as a significant increase in the percentage of past due loans may indicate a future increase in credit loss in the portfolio. As such, changes in credit quality, amongst other significant assumptions, typically have a more significant impact on the carrying value of the combined loans receivable portfolio under the fair value option. Future cash flows are discounted using a rate of return that we believe a market participant would require. Accrued and unpaid interest and fees are included in Loans receivable at fair value in the Condensed Consolidated Balance Sheets.

Additional provision for loan losses. For financial data prior to January 1, 2022, in reviewing the credit quality of our loan portfolio, we broke out our total provision for loan losses that was presented on our statement of operations under US GAAP into two separate items—net charge-offs (as discussed above) and additional provision for loan losses. The additional provision for loan losses is the amount needed to adjust the combined loan loss reserve to the appropriate amount at the end of each month based on our loan loss reserve methodology.

Additional provision for loan losses relates to an increase in inherent losses in the loan portfolio as determined by our loan loss reserve methodology. This increase could be due to a combination of factors such as an increase in the size of the loan portfolio or a worsening of credit quality or increase in past due loans. It is also possible for the additional provision for loan losses for a period to be a negative amount, which would reduce the amount of the combined loan loss reserve needed (due to a decrease in the loan portfolio or improvement in credit quality). The amount of additional provision for loan losses is seasonal in nature, mirroring the seasonality of our new customer acquisition and overall loan portfolio growth, as discussed above. The combined loan loss reserve typically decreased during the first quarter or first half of the calendar year due to a decrease in the loan portfolio from year end. Then, as the rate of growth for the loan portfolio started to increase during the second half of the year, additional provision for loan losses was typically needed to increase the reserve for losses associated with the loan growth. Because of this, our provision for loan losses varied significantly throughout the year without a significant change in the credit quality of our portfolio.

Loan loss reserve methodology prior to January 1, 2022. Our loan loss reserve methodology was calculated separately for each product and, in the case of Rise loans originated under the state lending model (including CSO program loans), was calculated separately based on the state in which each customer resides to account for varying state license requirements that affect the amount of the loan offered, repayment terms and other factors. For each product, loss factors were calculated based on the delinquency status of customer loan balances: current, 1 to 30 days past due, 31 to 60 days past due or 61-120 past due (for Today Card only). These loss factors for loans in each delinquency status were based on average historical loss rates by product (or state) associated with each of these three delinquency categories.

Recent trends. Total change in fair value of loans receivable for the three and nine months ended September 30, 2022 were 58% and 59% of revenue, compared to the pro-forma three and nine months ended September 30, 2021 of 36% and 33%, respectively, (See “—Non-GAAP Financial Measures” for more information and for a reconciliation to previously reported amounts for 2021 calculated in accordance with US GAAP.). Net charge-offs as a percentage of revenues for both the three and nine months ended September 30, 2022 were 59%, compared to 35% and 33%, respectively, in the prior year periods. The increase in net charge-offs as a percentage of revenues is due to continued inflationary pressures that have impacted our customers' ability to repay their loans, as well as the growth in the loan portfolio during the second half of 2021 and associated seasoning, which included a higher mix of new customers that carry a higher overall loss rate. In the near term, we expect our portfolio to perform above our targeted range of 45% to 55% based on the current macroeconomic factors being observed in the economy. We continue to monitor the portfolio and will adjust our underwriting and credit policies to mitigate any potential negative impacts as needed. Long term, we would expect to see the portfolio return to our targeted range of 45-55% of revenue.

Past due loan balances at September 30, 2022 were 11% of total combined loans receivable-principal, up from 9% from a year ago, due to the seasoning of the 2021 vintage and portfolio customers impacted by the continued inflationary pressures, which is consistent with our historical past due percentages prior to the pandemic. We, and the bank originators we support, continue to offer payment flexibility programs, if certain qualifications are met, to assist borrowers during the current economic environment. The population of customers utilizing the payment flexibility programs has remained stable, and we continue to see that most customers are meeting their scheduled payments once they exit the payment flexibility program.

Net change in fair value as a percentage of revenue was (1)% and 1% for the three months ended September 30, 2022 and pro-forma September 30, 2021, respectively, and 1% and —% for the nine months ended September 30, 2022 and pro-forma September 30, 2021, respectively (See “—Non-GAAP Financial Measures” for more information and for a reconciliation to previously reported amounts for 2021 calculated in accordance with US GAAP.). The fair value premium of the combined loans receivable-principal portfolio was fairly consistent year-over-year at 10% at September 30, 2022 compared to 9% at September 30, 2021. The key assumptions used in the fair value estimate at September 30, 2022 are as follows:


	September 30, 2022
Credit loss rate	18	%
Prepayment rate	28	%
Discount rate	21	%

Total loan loss provision for the three and nine months ended September 30, 2021, prior to the adoption of fair value, were 49% and 36% of revenues, respectively, which were within and below our targeted range of approximately 45% to 55%. Net charge-offs as a percentage of revenues for the three and nine months ended September 30, 2021 were 35% and 33%, respectively, due to reduced demand and limited loan origination activity in 2020 and early 2021 coupled with customers' receipt of monetary stimulus provided by the US government which allowed customers to continue making payments on their loans.

The combined loan loss reserve as a percentage of combined loans receivable totaled 11% as of September 30, 2021. The lower historical combined loan loss reserve rate reflects the strong credit performance of the portfolio at September 30, 2021 due to the mature nature of the portfolio resulting from limited new loan origination activity in 2020 and early 2021.

We also look at Rise and Elastic principal loan charge-offs (including both credit and fraud losses) by loan vintage as a percentage of combined loans originated-principal. As the below table shows, our cumulative principal loan charge-offs for Rise and Elastic through September 30, 2022 for each annual vintage since the 2013 vintage are generally under 30% and continue to generally trend at or slightly below our 20% to 25% long-term targeted range. Our payment deferral programs and monetary stimulus programs provided by the US government in response to the COVID-19 pandemic have also assisted in reducing losses in our 2019 and 2020 vintages coupled with a lower volume of new loan originations in our 2020 vintage. We would expect the 2021 vintage to be at or near 2018 levels given the increased volume of new customer loans originated during the second half of 2021. While still early, our 2022 vintage is impacted by the continued inflationary pressures on all customer types. It is also possible that the cumulative loss rates on all vintages will increase and may exceed our recent historical cumulative loss experience due to the economic impact of the current inflationary environment.

_________

(1)The 2021 and 2022 vintages are not yet fully mature from a loss perspective.

(2)UK included in the 2013 to 2017 vintages only.

We also look at Today Card principal loan charge-offs (including both credit and fraud losses) by account vintage as a percentage of account principal originations. As the below table shows, our cumulative principal credit card charge-offs through September 30, 2022 for the 2020 annual vintage is between 8% and 9%. As expected, the 2021 account vintage is experiencing losses higher than the 2020 account vintage due to the volume of new customers originated in the second half of 2021 and the performance of certain segments upon the release of the credit model during 2021. The Today Card requires accounts to be charged off that are more than 120 days past due which results in a longer maturity period for the cumulative loss curve related to this portfolio. Therefore, the 2022 vintage is not mature enough for analysis. Our 2018 and 2019 vintages are considered to be test vintages and were comprised of limited originations volume and not reflective of our current underwriting standards.

Margins


	Three Months Ended September 30,						Nine Months Ended September 30,
Margin metrics (dollars in thousands)	2022			2021			2022			2021
Revenues	$	125,617		$	112,835		$	367,467		$	287,108
Net charge-offs(1)	(73,607)			(39,015)			(215,476)			(95,968)
Net change in fair value(1)	1,296			—			(2,450)			—
Additional provision for loan losses(1)	—			(15,888)			—			(7,130)
Direct marketing costs	(6,478)			(15,406)			(20,532)			(30,353)
Other cost of sales	(2,968)			(4,766)			(9,013)			(9,718)
Gross profit	43,860			37,760			119,996			143,939
Operating expenses	(35,020)			(40,866)			(113,166)			(117,066)
Operating income (loss)	$	8,840		$	(3,106)		$	6,830		$	26,873
As a percentage of revenues:
Net charge-offs	59		%	35		%	59		%	33		%
Net change in fair value	(1)			—			1			—
Additional provision for loan losses	—			14			—			2
Direct marketing costs	5			14			6			11
Other cost of sales	2			4			2			3
Gross margin	35			33			33			50
Operating expenses	28			36			31			41
Operating margin	7		%	(3)		%	2		%	9		%

_________

(1)Non-GAAP measure. See “—Non-GAAP Financial Measures—Net charge-offs and Net change in fair value” and “—Non-GAAP Financial Measures—Net charge-offs and additional provision for loan losses.”

Gross margin is calculated as revenues minus cost of sales, or gross profit, expressed as a percentage of revenues, and operating margin is calculated as operating income expressed as a percentage of revenues. Due to the negative impact of COVID-19 and the current economic environment on our loan balances and revenue, we are monitoring our profit margins closely. Long term, we intend to continue to manage the business to a targeted 20% operating margin.

Recent operating margin trends. For the three months ended September 30, 2022, our operating margin was 7%, which was an increase from (3)% in the prior year period, as originally reported, and a decrease from 10% on a pro-forma basis considering the pro-forma adoption of fair value at the beginning of 2021 (See “—Non-GAAP Financial Measures” for more information and for a reconciliation to previously reported amounts for 2021 calculated in accordance with US GAAP.). For the nine months ended September 30, 2022, our operating margin was 2%, which was a decrease from 9% in the prior year period, and 12% on a pro-forma basis considering the pro-forma adoption of fair value at the beginning of 2021 (See “—Non-GAAP Financial Measures” for more information and for a reconciliation to previously reported amounts for 2021 calculated in accordance with US GAAP.). The year-over-year margin decreases we are experiencing in 2022 are primarily driven by the continued inflationary pressures as well as increased net charge-offs in 2022 due to a higher volume of new customers originated in the loan portfolio during the second half of 2021 and associated seasoning. As the portfolio matures and we manage the mix of new and returning customers to the portfolio over the long term, we expect to see our net charge-offs as a percentage of revenue return to our target range of 45-55% and would expect our gross margin to normalize in future periods with our past historical performance. In the short term, we expect our expense metrics to remain above our target of 20% of revenue as we take a more cautious approach in executing our growth strategy over the remainder of the year, but have implemented our operating expense reduction plan to mitigate the reduced revenue and higher credit losses resulting from the current macroeconomic environment. In the long term, as we grow the loan portfolio while actively managing our operating expenses, we expect to see our operating expense metrics return to approximately 20% of revenue.

NON-GAAP FINANCIAL MEASURES

We believe that the inclusion of the following non-GAAP financial measures in this Quarterly Report on Form 10-Q can provide a useful measure for period-to-period comparisons of our core business, provide transparency and useful information to investors and others in understanding and evaluating our operating results, and enable investors to better compare our operating performance with the operating performance of our competitors. Management uses these non-GAAP financial measures frequently in its decision-making because they provide supplemental information that facilitates internal comparisons to the historical operating performance of prior periods and give an additional indication of our core operating performance. However, non-GAAP financial measures are not a measure calculated in accordance with US generally accepted accounting principles, or US GAAP, and should not be considered an alternative to any measures of financial performance calculated and presented in accordance with US GAAP. Other companies may calculate these non-GAAP financial measures differently than we do.

Adjusted Earnings (Loss)

Adjusted earnings (loss) for the three and nine months ended September 30, 2022 and 2021 represent our net loss from continuing operations adjusted to exclude the impact of:

•Valuation allowance on deferred tax asset; and

•Uncertain tax position

Adjusted diluted earnings (loss) per share is Adjusted earnings (loss) divided by Diluted weighted average shares outstanding.

The following table presents a reconciliation of net loss and diluted earnings (loss) per share to Adjusted earnings (loss) and Adjusted diluted earnings (loss) per share, which excludes the impact of the valuation allowance and uncertain tax position for each of the periods indicated:



	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands except per share amounts)	2022		2021		2022		2021
Net loss	$	(15,034)	$	(11,005)	$	(35,502)	$	(1,334)
Impact of uncertain tax position	—		1,582		—		1,582
Impact of valuation allowance on deferred tax asset, net	9,940		—		9,940		—

Adjusted earnings (loss)	$	(5,094)	$	(9,423)	$	(25,562)	$	248

Diluted loss per share	$	(0.48)	$	(0.33)	$	(1.14)	$	(0.04)
Impact of uncertain tax position	—		0.05		—		0.05
Impact of valuation allowance on deferred tax asset net	0.32		—		0.32		—

Adjusted diluted earnings (loss) per share	$	(0.16)	$	(0.28)	$	(0.82)	$	0.01

Diluted weighted average shares outstanding	31,068,846		33,786,968		31,237,730		34,841,624
Effect of potentially dilutive shares outstanding(1)	—		—		—		632,631
Adjusted diluted weighted average shares outstanding	31,068,846		33,786,968		31,237,730		35,474,255

_________

(1)Represents potentially dilutive shares that had not been included in the Company's nine months ended September 30, 2021 diluted weighted average shares outstanding as the Company is in a net loss position under U.S. GAAP. Including those shares would have been anti-dilutive when in a net loss position.

Adjusted EBITDA and Adjusted EBITDA Margin

Adjusted EBITDA represents our net loss adjusted to exclude:

•Net interest expense primarily associated with notes payable under the debt facilities used to fund the loan portfolios;

•Share-based compensation;

•Depreciation and amortization expense on fixed assets and intangible assets;

•Gains or losses from an equity method investment;

•Settlement related to a legal matter or gains and losses from dispositions included in non-operating income; and

•Income taxes.

Adjusted EBITDA margin is Adjusted EBITDA divided by revenue.

Management believes that Adjusted EBITDA and Adjusted EBITDA margin are useful supplemental measures to assist management and investors in analyzing the operating performance of the business and provide greater transparency into the results of operations of our core business.

Adjusted EBITDA and Adjusted EBITDA margin should not be considered as alternatives to net income (loss) or any other performance measure derived in accordance with US GAAP. Our use of Adjusted EBITDA and Adjusted EBITDA margin has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under US GAAP. Some of these limitations are:

•Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect expected cash capital expenditure requirements for such replacements or for new capital assets;

•Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; and

•Adjusted EBITDA does not reflect interest associated with notes payable used for funding the loan portfolios, for other corporate purposes or tax payments that may represent a reduction in cash available to us.

The following table presents a reconciliation of net loss to Adjusted EBITDA and Adjusted EBITDA margin for each of the periods indicated:


	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands)	2022			2021			2022			2021
Net loss	$	(15,034)		$	(11,005)		$	(35,502)		$	(1,334)
Adjustments:
Net interest expense	13,655			9,544			37,951			26,897
Share-based compensation	1,238			1,559			5,176			4,948
Depreciation and amortization	4,520			4,544			13,001			14,339
Equity method investment loss	358			—			1,070			—
Non-operating income (loss)	—			198			(1,747)			(519)
Income tax expense (benefit)	9,861			(1,843)			5,058			1,829
Adjusted EBITDA	$	14,598		$	2,997		$	25,007		$	46,160

Adjusted EBITDA margin	11.6		%	2.7		%	6.8		%	16.1		%

Unaudited pro-forma condensed consolidated financial information

The following unaudited pro-forma condensed consolidated statement of operations information reflects the adoption of ASU 2016-13 as of January 1, 2021. Management has made significant estimates and assumptions in its determination of the pro-forma accounting adjustments based on certain currently available information and certain assumptions and methodologies that we believe are reasonable and consistent with US GAAP. Management believes the pro-forma financial information is a useful supplemental measure to assist management and investors in analyzing the operating performance of the business and provide greater transparency into the results of operations of our core business.


	Three Months Ended September 30, 2021								Nine Months Ended September 30, 2021
(Dollars in thousands except per share amounts)	As reported			Fair value adjustments		Pro-forma financial information			As reported			Fair value adjustments		Pro-forma financial information
Revenues	$	112,835		$	—	$	112,835		$	287,108		$	—	$	287,108
Cost of sales:
Provision for loan losses	54,903			(54,903)		—			103,098			(103,098)		—
Change in fair value of loans receivable	—			40,635		40,635			—			95,899		95,899
Direct marketing and other costs of sales	20,172			—		20,172			40,071			—		40,071
Total costs of sales	75,075			(14,268)		60,807			143,169			(7,199)		135,970
Gross profit	37,760			14,268		52,028			143,939			7,199		151,138
Total operating expenses	40,866			—		40,866			117,066			—		117,066
Operating income (loss)	(3,106)			14,268		11,162			26,873			7,199		34,072

Total other expense	(9,742)			—		(9,742)			(26,378)			—		(26,378)
Income (loss) before taxes	(12,848)			14,268		1,420			495			7,199		7,694
Income tax expense (benefit)	(1,843)			3,053		1,210			1,829			1,335		3,164
Net income (loss)	$	(11,005)		$	11,215	$	210		$	(1,334)		$	5,864	$	4,530

Basic earnings (loss) per share	$	(0.33)		$	0.34	$	0.01		$	(0.04)		$	0.17	$	0.13
Diluted earnings (loss) per share	$	(0.33)		$	0.34	$	0.01		$	(0.04)		$	0.17	$	0.13

Basic weighted average shares outstanding	33,786,968			—		33,786,968			34,841,624			—		34,841,624
Diluted weighted average shares outstanding (1)	33,786,968			545,509		34,332,477			34,841,624			632,631		35,474,255

Adjusted EBITDA	$	2,997		$	14,268	$	17,265		$	46,160		$	7,199	$	53,359
Adjusted EBITDA margin	2.7		%			15.3		%	16.1		%			18.6		%

_________

(1)Represents potentially dilutive shares that were anti-dilutive in the Company's three and nine months ended September 30, 2021 diluted weighted average shares outstanding as the Company was in a net loss position. The pro-forma adjustments result in net income for the periods and therefore result in inclusion of the anti-dilutive shares.

Free cash flow

Free cash flow (“FCF”) represents our net cash provided by operating activities, adjusted to include:

•Net charge-offs – combined principal loans; and

•Capital expenditures.

The following table presents a reconciliation of net cash provided by operating activities to FCF for each of the periods indicated:


	Nine Months Ended September 30,
(Dollars in thousands)	2022		2021

Net cash provided by operating activities(1)	$	117,525	$	111,566
Adjustments:
Net charge-offs – combined principal loans	(167,544)		(70,636)
Capital expenditures	(16,371)		(11,903)
FCF(2)	$	(66,390)	$	29,027

_________

(1)Net cash provided by operating activities includes net charge-offs – combined finance charges.

(2)FCF includes approximately $37 million in cash payments associated with legal settlements for the nine months ended September 30, 2022.

Net charge-offs and net change in fair value

We break out our total change in fair value into two separate items—first, the amount related to net charge-offs, and second, the net change in fair value needed to adjust the current period fair value mark from the fair value mark from the beginning of the reporting period. We believe this presentation provides more detail related to the components of our total change in fair value when analyzing the gross margin of our business.

Net change in fair value. The net change in fair value is the change in the reporting period between the current period fair value mark as compared to the beginning of period fair value mark. With all other assumptions held flat and fair value premium associated with the combined loan portfolio, we would expect the net change in fair value to be positive in periods of growth in the loan portfolio and expect the net change in fair value to be negative in periods of attrition in the loan portfolio.


	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2022		2021 (pro-forma)(1)		2022		2021 (pro-forma)(1)

Net charge-offs	$	73,607	$	39,015	$	215,476	$	95,968
Net change in fair value	(1,296)		1,620		2,450		(69)
Total change in fair value of loans receivable	$	72,311	$	40,635	$	217,926	$	95,899

_________

(1)We have provided pro-forma information reflecting the adoption of fair value in the 2021 financial period to provide comparability to the 2022 financial period. See “—Non-GAAP Financial Measures” for more information and for a reconciliation to previously reported amounts for 2021 calculated in accordance with US GAAP. The pro-forma fair value adjustments reflect fair value methodology acceptable with US GAAP.

Net charge-offs and additional provision for loan losses

Prior to the adoption of the fair value option, we also broke out our total provision for loan losses. Just like our presentation of our total change in fair value, we first presented the net charge-offs. We then presented the additional provision for loan losses needed to adjust the combined loan loss reserve to the appropriate amount at the end of each month based on our loan loss provision methodology. We believed this presentation provided more detail related to the components of our total provision for loan losses when analyzing the gross margin of our business.

Additional provision for loan losses. Additional provision for loan losses is the amount of provision for loan losses needed for a particular period to adjust the combined loan loss reserve to the appropriate level in accordance with our underlying loan loss reserve methodology.


	Three Months Ended September 30,		Nine Months Ended September 30,
(Dollars in thousands)	2021		2021

Net charge-offs	$	39,015	$	95,968
Additional provision for loan losses	15,888		7,130
Provision for loan losses	$	54,903	$	103,098

Combined loan information

The information presented in the tables below on a combined basis are non-GAAP measures based on a combined portfolio of loans, which includes the total amount of outstanding loans receivable that we own and that are on our balance sheets plus outstanding loans receivable originated and owned by third parties that we guarantee pursuant to CSO programs in which we participated. There were no new loan originations in 2021 under our CSO programs, but we continued to have obligations as the CSO until the wind-down of this portfolio was completed in the third quarter of 2021. See “—Basis of Presentation and Critical Accounting Policies—Allowance and liability for estimated losses on consumer loans.”

We believe these non-GAAP measures provide investors with important information needed to evaluate the magnitude of potential loan losses and the opportunity for revenue performance of the combined loan portfolio on an aggregate basis. We also believe that the comparison of the combined amounts from period to period is more meaningful than comparing only the amounts reflected on our balance sheet since both revenues and cost of sales as reflected in our financial statements are impacted by the aggregate amount of loans we own and those CSO loans we guaranteed.

Our use of total combined loans and fees receivable has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under US GAAP. Some of these limitations are:

•Rise CSO loans were originated and owned by a third-party lender; and

•Rise CSO loans were funded by a third-party lender and were not part of the VPC Facility.

As of each of the period ends indicated, the following table presents a reconciliation of:

•Loans receivable, net and at fair value, Company owned (which reconciles to our Condensed Consolidated Balance Sheets included elsewhere in this Quarterly Report on Form 10-Q);

•Loans receivable, net, guaranteed by the Company (as disclosed in Note 4 of our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q);

•Combined loans receivable (which we use as a non-GAAP measure); and

•Combined loan loss reserve (which we use as a non-GAAP measure).


	2021						2022
(Dollars in thousands)	September 30			December 31			March 31			June 30			September 30
Company Owned Loans:
Loans receivable – principal, current, company owned	$	466,140		$	501,552		$	457,259		$	477,721		$	486,242
Loans receivable – principal, past due, company owned	46,730			57,207			54,060			54,712			59,576
Loans receivable – principal, total, company owned	512,870			558,759			511,319			532,433			545,818
Loans receivable – finance charges, company owned	22,960			23,602			22,991			23,079			23,214
Loans receivable – company owned	535,830			582,361			534,310			555,512			569,032
Allowance for loan losses on loans receivable, company owned(5)	(56,209)			(71,204)			—			—			—
Fair value adjustment, loans receivable- principal(7)	—			—			49,844			53,438			52,280
Loans receivable, net, company owned / Loans receivable at fair value	$	479,621		$	511,157		$	584,154		$	608,950		$	621,312
Third Party Loans Guaranteed by the Company:
Loans receivable – principal, current, guaranteed by company	$	—		$	—		$	—		$	—		$	—
Loans receivable – principal, past due, guaranteed by company	—			—			—			—			—
Loans receivable – principal, total, guaranteed by company(1)	—			—			—			—			—
Loans receivable – finance charges, guaranteed by company(2)	—			—			—			—			—
Loans receivable – guaranteed by company	—			—			—			—			—
Liability for losses on loans receivable, guaranteed by company	—			—			—			—			—
Loans receivable, net, guaranteed by company(3)	$	—		$	—		$	—		$	—		$	—
Combined Loans Receivable(3):
Combined loans receivable – principal, current	$	466,140		$	501,552		$	457,259		$	477,721		$	486,242
Combined loans receivable – principal, past due	46,730			57,207			54,060			54,712			59,576
Combined loans receivable – principal	512,870			558,759			511,319			532,433			545,818
Combined loans receivable – finance charges	22,960			23,602			22,991			23,079			23,214
Combined loans receivable	$	535,830		$	582,361		$	534,310		$	555,512		$	569,032
Combined Loan Loss Reserve(3):
Allowance for loan losses on loans receivable, company owned(5)	$	(56,209)		$	(71,204)		$	—		$	—		$	—
Liability for losses on loans receivable, guaranteed by company	—			—			—			—			—
Combined loan loss reserve(5)	$	(56,209)		$	(71,204)		$	—		$	—		$	—
Combined loans receivable – principal, past due(3)	$	46,730		$	57,207		$	54,060		$	54,712		$	59,576
Combined loans receivable – principal(3)	512,870			558,759			511,319			532,433			545,818
Percentage past due	9		%	10		%	11		%	10		%	11		%
Combined loan loss reserve as a percentage of combined loans receivable(3)(4)(5)	11		%	12		%	—		%	—		%	—		%
Allowance for loan losses as a percentage of loans receivable – company owned(5)	11		%	12		%	—		%	—		%	—		%
Fair value adjustment, combined loans receivable- principal(6)(7)	$	47,677		$	54,730		$	49,844		$	53,438		$	52,280
Combined loans receivable at fair value(6)	583,507			637,091			584,154			608,950			621,312
Fair value as a percentage of combined loans receivable- principal(3)(6)	109		%	110		%	110		%	110		%	110		%

_________

(1)Represents loans originated by third-party lenders through the CSO programs, which are not included in our condensed consolidated financial statements. The wind-down of the CSO program was completed in the third quarter of 2021.

(2)Represents finance charges earned by third-party lenders through the CSO programs, which are not included in our condensed consolidated financial statements. The wind-down of the CSO program was completed in the third quarter of 2021.

(3)Non-GAAP measure

(4)Combined loan loss reserve as a percentage of combined loans receivable is determined using period-end balances.

(5)Effective January 1, 2022, upon the election to carry the loan portfolio at fair value, a combined loan loss reserve and allowance for loan losses is no longer required as a loan loss assumption has been included in the fair value assumptions for the loan portfolio.

(6)The periods of September 30, 2021 to December 31, 2021 include pro-forma adjustments reflecting the combined loans receivable at fair value consistent with a fair value methodology acceptable with U.S. GAAP.

(7)The period of September 30, 2022 includes a fair value adoption adjustment of $2.4 million.

COMPONENTS OF OUR RESULTS OF OPERATIONS

Revenues

Our revenues are composed of Rise finance charges and CSO fees (inclusive of finance charges attributable to the participation in Rise installment loans originated by FinWise Bank and CCB), cash advance fees attributable to the participation in Elastic lines of credit that we consolidate, finance charges and fee revenues related to the Today Card credit card product (inclusive of finance charges attributable to the participations in the credit card receivables originated by CCB), and marketing and licensing fees received from third-party lenders related to the Rise, Rise CSO, Elastic, and Today Card products. See “—Overview” above for further information on the structure of Elastic.

Cost of sales

Change in Fair value. Beginning January 1, 2022, we elected the fair value option for our loans receivable portfolio. As such, loans receivable are carried at fair value in the Condensed Consolidated Balance Sheets with changes in fair value recorded in the Condensed Consolidated Statements of Operations. To derive the fair value, we generally utilize discounted cash flow analyses that factor in estimated losses and prepayments over the estimated duration of the underlying assets. Loss and prepayment assumptions are determined using historical loss data and include appropriate consideration of recent trends and anticipated future performance. Future cash flows are discounted using a rate of return that we believe a market participant would require.

Provision for loan losses. Prior to January 1, 2022, provision for loan losses consisted of amounts charged against income during the period related to net charge-offs and the additional provision for loan losses needed to adjust the loan loss reserve to the appropriate amount at the end of each month based on our loan loss methodology.

Direct marketing costs. Direct marketing costs consist of online marketing costs such as sponsored search and advertising on social networking sites, and other marketing costs such as purchased television and radio advertising and direct mail print advertising. In addition, direct marketing cost includes affiliate costs paid to marketers in exchange for referrals of potential customers. All direct marketing costs are expensed as incurred.

Other cost of sales. Other cost of sales includes data verification costs associated with the underwriting of potential customers and automated clearing house transaction costs associated with customer loan funding and payments.

Operating expenses

Operating expenses consist of compensation and benefits, professional services, selling and marketing, occupancy and equipment, depreciation and amortization as well as other miscellaneous expenses.

Compensation and benefits. Salaries and personnel-related costs, including benefits, bonuses and share-based compensation expense, comprise a majority of our operating expenses and these costs are driven by our number of employees.

Professional services. These operating expenses include costs associated with legal, accounting and auditing, recruiting and outsourced customer support and collections.

Selling and marketing. Selling and marketing costs include costs associated with the use of agencies that perform creative services and monitor and measure the performance of the various marketing channels. Selling and marketing costs also include the production costs associated with media advertisements that are expensed as incurred over the licensing or production period. These expenses do not include direct marketing costs incurred to acquire customers, which comprises CAC.

Occupancy and equipment. Occupancy and equipment include rent expense on our leased facilities, as well as telephony and web hosting expenses.

Depreciation and amortization. We capitalize all acquisitions of property and equipment of $500 or greater as well as certain software development costs. Costs incurred in the preliminary stages of software development are expensed. Costs incurred thereafter, including external direct costs of materials and services as well as payroll and payroll-related costs, are capitalized. Post-development costs are expensed. Depreciation is computed using the straight-line method over the estimated useful lives of the depreciable assets.

Other expense

Net interest expense. Net interest expense primarily includes the interest expense associated with our debt facilities and term notes. See Part I, Item 1 of this Form 10-Q in the Notes to Condensed Consolidated Financial Statements in Note 6, "Notes Payable" for more information about our debt. Interest expense also includes any amortization of deferred debt issuance cost and prepayment penalties incurred associated with the debt facilities.

Equity method investment gain or loss. Equity method investment loss includes our portion of the earnings or loss associated with an investment in an unconsolidated subsidiary beginning in the first quarter of 2022.

STATEMENTS OF OPERATIONS

The following table sets forth our condensed consolidated statements of operations data for each of the periods indicated.


	Three Months Ended September 30,				Nine Months Ended September 30,
Condensed consolidated statements of operations data (Dollars in thousands)	2022		2021		2022		2021
Revenues	$	125,617	$	112,835	$	367,467	$	287,108
Cost of sales:
Change in fair value of loans receivable	72,311		—		217,926		—
Provision for loan losses	—		54,903		—		103,098
Direct marketing costs	6,478		15,406		20,532		30,353
Other cost of sales	2,968		4,766		9,013		9,718
Total cost of sales	81,757		75,075		247,471		143,169
Gross profit	43,860		37,760		119,996		143,939
Operating expenses:
Compensation and benefits	15,935		20,445		56,585		58,038
Professional services	6,859		8,423		20,251		24,161
Selling and marketing	896		1,277		2,825		2,520
Occupancy and equipment	5,868		5,521		17,927		15,766
Depreciation and amortization	4,520		4,544		13,001		14,339
Other	942		656		2,577		2,242
Total operating expenses	35,020		40,866		113,166		117,066
Operating income (loss)	8,840		(3,106)		6,830		26,873
Other expense:
Net interest expense	(13,655)		(9,544)		(37,951)		(26,897)
Equity method investment loss	(358)		—		(1,070)		—
Non-operating income (loss)	—		(198)		1,747		519
Total other expense	(14,013)		(9,742)		(37,274)		(26,378)
Income (loss) before taxes	(5,173)		(12,848)		(30,444)		495
Income tax expense (benefit)	9,861		(1,843)		5,058		1,829
Net loss	$	(15,034)	$	(11,005)	$	(35,502)	$	(1,334)


	Three Months Ended September 30,				Nine Months Ended September 30,
As a percentage of revenues	2022		2021		2022		2021
Revenues
Cost of sales:
Change in fair value of loans receivable	58	%	—	%	59	%	—	%
Provision for loan losses	—		49		—		36
Direct marketing costs	5		14		6		11
Other cost of sales	2		4		2		3
Total cost of sales	65		67		67		50
Gross profit	35		33		33		50
Operating expenses:
Compensation and benefits	13		18		15		20
Professional services	5		7		6		8
Selling and marketing	1		1		1		1
Occupancy and equipment	5		5		5		5
Depreciation and amortization	4		4		4		5
Other	1		1		1		1
Total operating expenses	28		36		31		41
Operating income (loss)	7		(3)		2		9
Other expense:
Net interest expense	(11)		(8)		(10)		(9)
Equity method investment loss	—		—		—		—
Non-operating income (loss)	—		—		—		—
Total other expense	(11)		(9)		(10)		(9)
Income (loss) before taxes	(4)		(11)		(8)		—
Income tax expense (benefit)	8		(2)		1		1
Net loss	(12)	%	(10)	%	(10)	%	—	%

Comparison of the three months ended September 30, 2022 and 2021

Revenues


	Three Months Ended September 30,
	2022				2021				Period-to-period change
(Dollars in thousands)	Amount		Percentage of revenues		Amount		Percentage of revenues		Amount		Percentage
Finance charges	$	124,072	99	%	$	111,480	99	%	$	12,592	11	%
Other	1,545		1		1,355		1		190		14
Revenues	$	125,617	100	%	$	112,835	100	%	$	12,782	11	%

Revenues increased by $12.8 million, or 11%, from $112.8 million for the three months ended September 30, 2021 to $125.6 million for the three months ended September 30, 2022. The increase in revenue is primarily attributable to higher average combined loans receivable-principal as we saw growth in all of our products year over year.

The tables below break out this change in revenue (including CSO fees and cash advance fees) by product:


	Three Months Ended September 30, 2022
	Rise			Elastic			Today
(Dollars in thousands)	(Installment Loans)			(Lines of Credit)			(Credit Card)			Total
Average combined loans receivable – principal(2)	$	287,793		$	199,778		$	53,557		$	541,128
Effective APR	100		%	93		%	35		%	91		%
Finance charges	$	72,419		$	46,987		$	4,666		$	124,072
Other	145			77			1,323			1,545
Total revenue	$	72,564		$	47,064		$	5,989		$	125,617


	Three Months Ended September 30, 2021
	Rise(1)			Elastic			Today
(Dollars in thousands)	(Installment Loans)			(Lines of Credit)			(Credit Card)			Total
Average combined loans receivable – principal(2)	$	264,785		$	167,684		$	27,480		$	459,949
Effective APR	104		%	94		%	30		%	96		%
Finance charges	$	69,738		$	39,662		$	2,080		$	111,480
Other	275			331			749			1,355
Total revenue	$	70,013		$	39,993		$	2,829		$	112,835

________

(1)Includes loans originated by third-party lenders through the CSO programs, which are not included in our condensed consolidated financial statements.

(2)Average combined loans receivable - principal is calculated using daily Combined loans receivable – principal balances. Not a financial measure prepared in accordance with US GAAP. See reconciliation table accompanying this release for a reconciliation of non-GAAP financial measures to the most directly comparable financial measure calculated in accordance with US GAAP.

Our average combined loans receivable-principal increased $81 million for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021. This increase in average balance is primarily due to the loan portfolio growth during the second half of 2021 and early 2022 and contributed approximately $19 million to the change in revenue for the period. Our average APR declined from 96% for the three months ended September 30, 2021 to 91% for the three months ended September 30, 2022. This reduction in the effective APR is primarily due to a lower quarterly APR on Rise due to a reduced mix of new loans in the portfolio for the three months ended September 30, 2022 as compared to the prior year quarter along with the growth of Today Card, which has the lowest APR, relative to the total loan portfolio. The lower APR on Rise and the mix of products within the overall lower effective APR reduced the change in revenue for the period by approximately $6 million.

Cost of sales


	Three Months Ended September 30,								Period-to-period change
	2022				2021
(Dollars in thousands)	Amount		Percentage of revenues		Amount		Percentage of revenues		Amount		Percentage
Cost of sales:
Change in fair value of loans receivable	$	72,311	58	%	$	—	—	%	$	72,311	—	%
Provision for loan losses	—		—		54,903		49		(54,903)		(100)
Direct marketing costs	6,478		5		15,406		14		(8,928)		(58)
Other cost of sales	2,968		2		4,766		4		(1,798)		(38)
Total cost of sales	$	81,757	65	%	$	75,075	67	%	$	6,682	9	%

Change in fair value of loans receivable. Change in fair value of loans receivable was $72.3 million for the three months ended September 30, 2022 as compared to $40.6 million on a pro-forma basis for the period ended September 30, 2021, representing an approximately 78% increase on a pro-forma basis. See “—Non-GAAP Financial Measures” for more information and for a reconciliation to previously reported amounts for 2021 calculated in accordance with US GAAP.

The table below breaks out these changes by loan product:


	Three Months Ended September 30, 2022
	Rise			Elastic			Today
(Dollars in thousands)	(Installment Loans)			(Lines of Credit)			(Credit Card)			Total
Net charge-offs(1)	$	47,752		$	20,495		$	5,360		$	73,607
Net change in fair value(1)	(773)			(1,329)			806			(1,296)
Total change in fair value of loans receivable	$	46,979		$	19,166		$	6,166		$	72,311

Net charge-offs as a percentage of revenues	66		%	44		%	89		%	59		%
Total change in fair value of loans receivable as a percentage of revenues	65		%	41		%	103		%	58		%
Percentage past due	12		%	8		%	20		%	11		%

_________

Total change in fair value of loans receivable for the three months ended September 30, 2022 and pro-forma three months ended September 30, 2021, was 58% and 36% of revenues, respectively, (See “—Non-GAAP Financial Measures” for more information and for a reconciliation to previously reported amounts for 2021 calculated in accordance with US GAAP.). Of the total change in fair value of loans receivable, net charge-offs as a percentage of revenues for the three months ended September 30, 2022 and 2021 were 59% and 35%, respectively. The increase in net charge-offs as a percentage of revenues is due to continued inflationary pressures that have impacted our customers' ability to repay their loans, as well as the growth in the loan portfolio during the second half of 2021 and associated seasoning, which included a higher mix of new customers that carry a higher overall loss rate.

Net change in fair value as a percentage of revenue for the three months ended September 30, 2022 and pro-forma three months ended September 30, 2021 was (1)% and 1%, respectively, (See “—Non-GAAP Financial Measures” for more information and for a reconciliation to previously reported amounts for 2021 calculated in accordance with US GAAP.). The fair value premium of the combined loans receivable-principal portfolio was 10% at September 30, 2022 compared to a pro-forma estimate of 9% at September 30, 2021 as we ramped up our loan growth starting in the third quarter of 2021 leading to a higher mix of new, and therefore riskier, customers in the loan portfolio which carry a lower fair value premium.

Provision for loan losses. Provision for loan losses decreased by 100%, from $54.9 million for the three months ended September 30, 2021 to $0.0 million for the three months ended September 30, 2022 due to adoption of fair value effective January 1, 2022 and no longer having a requirement to recognize a loan loss provision and loan loss allowance subsequent to that date.

The table below breaks out these changes by loan product for the prior year period:


	Three Months Ended September 30, 2021
	Rise			Elastic			Today
(Dollars in thousands)	(Installment Loans)			(Lines of Credit)			(Credit Card)			Total
Combined loan loss reserve(1):
Beginning balance	$	28,099		$	10,372		$	1,850		$	40,321
Net charge-offs	(30,210)			(8,063)			(742)			(39,015)
Provision for loan losses	42,299			10,832			1,772			54,903
Ending balance	$	40,188		$	13,141		$	2,880		$	56,209
Combined loans receivable(1)(2)	$	306,229		$	194,459		$	35,142		$	535,830
Net charge-offs as a percentage of revenues	43		%	20		%	26		%	35		%
Combined loan loss reserve as a percentage of ending combined loans receivable	13		%	7		%	8		%	11		%
Provision for loan losses as a percentage of revenues	60		%	27		%	63		%	49		%

_________

(1)Not a financial measure prepared in accordance with US GAAP. See “—Non-GAAP Financial Measures” for more information and for a reconciliation to the most directly comparable financial measure calculated in accordance with US GAAP.

(2)Includes loans originated by third-party lenders through the CSO programs, which are not included in our condensed consolidated financial statements.

Total loan loss provision for the three months ended September 30, 2021, which was within our targeted range of approximately 45% to 55%, was 49%. Net charge-offs as a percentage of revenues for the three months ended September 30, 2021 was 35% due to reduced demand and limited origination activity in 2020 and early 2021 coupled with customers' receipt of monetary stimulus provided by the US government which allowed customers to continue making payments on their loans. The combined loan loss reserve as a percentage of combined loans receivable totaled 11% as of September 30, 2021.

Direct marketing costs. Direct marketing costs decreased by $8.9 million, or 58%, from $15.4 million for the three months ended September 30, 2021 to $6.5 million for the three months ended September 30, 2022. In the third quarter of 2021, we returned to a more normalized new customer acquisition in all three products as the economy began to recover from the COVID-19 pandemic and demand for the loan products returned, resulting in an increase in marketing activities. Due to the inflationary economic environment in the third quarter of 2022, we had a cautious approach to growth, resulting in reduced overall marketing spend. For the three months ended September 30, 2022, the number of new customers acquired decreased significantly to 28,182, compared to 69,682 during the three months ended September 30, 2021. Our CAC was higher in the third quarter of 2022 at $230 as compared to the third quarter of 2021 at $221, but still below our target range of $250 to $300.

Other cost of sales. Other cost of sales decreased by $1.8 million, or 38%, from $4.8 million for the three months ended September 30, 2021 to $3.0 million for the three months ended September 30, 2022 due to decreased data verification costs resulting from reduced new loan origination volume.

Operating expenses


	Three Months Ended September 30,								Period-to-period change
	2022				2021
(Dollars in thousands)	Amount		Percentage of revenues		Amount		Percentage of revenues		Amount		Percentage
Operating expenses:
Compensation and benefits	$	15,935	13	%	$	20,445	18	%	$	(4,510)	(22)	%
Professional services	6,859		5		8,423		7		(1,564)		(19)
Selling and marketing	896		1		1,277		1		(381)		(30)
Occupancy and equipment	5,868		5		5,521		5		347		6
Depreciation and amortization	4,520		4		4,544		4		(24)		(1)
Other	942		1		656		1		286		44
Total operating expenses	$	35,020	28	%	$	40,866	36	%	$	(5,846)	(14)	%

Compensation and benefits. Compensation and benefits decreased by $4.5 million, or 22%, from $20.4 million for the three months ended September 30, 2021 to $15.9 million for the three months ended September 30, 2022 due to an operating expense reduction plan we implemented in the third quarter of 2022, including furloughing approximately 25% of our workforce.

Professional services. Professional services decreased by $1.6 million, or 19%, from $8.4 million for the three months ended September 30, 2021 to $6.9 million for the three months ended September 30, 2022 primarily due to lower legal expenses.

Selling and marketing. Selling and marketing decreased by $0.4 million, or 30%, from $1.3 million for the three months ended September 30, 2021 to $0.9 million for the three months ended September 30, 2022 primarily due to reduced marketing agency fees.

Occupancy and equipment. Occupancy and equipment increased by $0.3 million, or 6%, from $5.5 million for the three months ended September 30, 2021 to $5.9 million for the three months ended September 30, 2022 primarily due to increased web hosting expenses.

Depreciation and amortization. Depreciation and amortization remained flat at $4.5 million for both the three months ended September 30, 2021 and 2022.

Other. Other operating expenses increased by $0.3 million, or 44% from $0.7 million for the three months ended September 30, 2021 to $0.9 million for the three months ended September 30, 2022 primarily due to an increase in travel and meals expenses.

Net interest expense


	Three Months Ended September 30,								Period-to-period change
	2022				2021
(Dollars in thousands)	Amount		Percentage of revenues		Amount		Percentage of revenues		Amount		Percentage
Net interest expense	$	13,655	11	%	$	9,544	8	%	$	4,111	43	%

Net interest expense increased 43% during the three months ended September 30, 2022 as compared to the prior year period. Our average balance of notes payable outstanding under the debt facilities in the third quarter of 2022 increased $166.2 million from the third quarter of 2021 which contributed additional interest expense of approximately $4 million. Furthermore, our average effective interest rate on all debt outstanding, inclusive of funding facilities and sub-debt, increased from 9.8% for the three months ended September 30, 2021 to 9.9% for the three months ended September 30, 2022, resulting in a increase in interest expense of approximately $0.1 million. The majority of our debt is at a locked base rate through its maturity date of January 2024, while the base rate is adjusted for incremental borrowings on these facilities and therefore exposed to the current rising interest rate environment.

The following table shows the effective cost of funds of each debt facility and term note for the period:


	Three Months Ended September 30,
(Dollars in thousands)	2022			2021
VPC Facility
Average facility balance during the period	$	84,600		$	71,230
Net interest expense	2,052			1,779


Effective cost of funds	9.6		%	9.9		%


ESPV Facility
Average facility balance during the period	$	195,633		$	163,187
Net interest expense	4,864			4,177
Effective cost of funds	9.9		%	10.2		%

EF SPV Facility
Average facility balance during the period	$	143,327		$	109,882
Net interest expense	3,288			2,544
Effective cost of funds	9.1		%	9.2		%

EC SPV Facility
Average facility balance during the period	$	54,033		$	42,587
Net interest expense	1,301			1,044
Effective cost of funds	9.6		%	9.7		%

TSPV Facility
Average facility balance during the period	$	40,489		$	—
Net interest expense	965			—
Effective cost of funds	9.5		%	—		%

Pine Hill Term Note
Average note balance during the period	$	20,000		$	—
Net interest expense	815			—
Effective cost of funds	16.2		%	—		%

PCAM Term Note
Average note balance during the period(1)	$	15,000		$	—
Net interest expense	370			—
Effective cost of funds	16.7		%	—		%

_________

(1)Average note balance from inception at August 8, 2022 to September 30, 2022.

In October 2021, we entered into a debt facility agreement to fund the growth of the Today Card portfolio, the TSPV Facility, and we have drawn $43 million as of September 30, 2022. In January 2022, we entered into a $20 million credit agreement for working capital purposes, the Pine Hill Term Note. As of September 30, 2022, we have drawn $20 million. On August 8, 2022, ESPV, EF SPV, and EC SPV, individually and collectively, entered into a credit agreement for working capital purposes, the PCAM Term Note. As of September 30, 2022, we have drawn $15 million, with an additional $5 million drawn on October 31, 2022.

Equity method investment loss

In January 2022, we made an investment in Swell, a new fintech company offering credit and banking solutions. We do not consolidate Swell and apply the equity method of accounting based on our ownership percentage. We recognized an equity method investment loss of $358 thousand for the three months ended September 30, 2022.

Non-operating income


	Three Months Ended September 30,								Period-to-period change
	2022				2021
(Dollars in thousands)	Amount		Percentage of revenues		Amount		Percentage of revenues		Amount		Percentage
Non-operating loss	$	—	—	%	$	(198)	—	%	$	198	(100)	%

For the three months ended September 30, 2021, we had an impairment loss related to a subleased asset resulting in non-operating loss of $0.2 million.

Income tax expense (benefit)


	Three Months Ended September 30,								Period-to-period change
	2022				2021
(Dollars in thousands)	Amount		Percentage of revenues		Amount		Percentage of revenues		Amount		Percentage
Income tax expense (benefit)	$	9,861	8	%	$	(1,843)	(2)	%	$	11,704	(635)	%

Our income tax expense (benefit) increased $11.7 million, from a benefit of $1.8 million for the three months ended September 30, 2021 to a tax expense of $9.9 million for the three months ended September 30, 2022. The increase in tax expense is a result of the impact of a valuation allowance on our Deferred tax assets, net of $9.9 million. See Part I, Item 1 of this Form 10-Q in the Notes to Condensed Consolidated Financial Statements in Note 1 1, "Income Taxes" for more information about our tax expense.

Net loss


	Three Months Ended September 30,								Period-to-period change
	2022				2021
(Dollars in thousands)	Amount		Percentage of revenues		Amount		Percentage of revenues		Amount		Percentage
Net loss	$	(15,034)	(12)	%	$	(11,005)	(10)	%	$	(4,029)	(37)	%

Our net loss increased $4.0 million or 37% from $11.0 million for the three months ended September 30, 2021 to $15.0 million for the three months ended September 30, 2022. On a pro-forma basis, we had net income of $0.2 million for the three months ended September 30, 2021 and a pro-forma decrease of $15.2 million. The overall increase in net loss is primarily composed of the increased tax expense and interest expense partially offset by an increase in gross profit and a decrease in operating expenses.

Comparison of the nine months ended September 30, 2022 and 2021

Revenues


	Nine Months Ended September 30,
	2022				2021				Period-to-period change
(Dollars in thousands)	Amount		Percentage of revenues		Amount		Percentage of revenues		Amount		Percentage
Finance charges	$	362,986	99	%	$	284,417	99	%	$	78,569	28	%
Other	4,481		1		2,691		1		1,790		67
Revenues	$	367,467	100	%	$	287,108	100	%	$	80,359	28	%

Revenues increased by $80.4 million, or 28%, from $287.1 million for the nine months ended September 30, 2021 to $367.5 million for the nine months ended September 30, 2022. The increase in revenue is primarily attributable to higher average combined loans receivable-principal as we saw growth in all of our products year over year.

The tables below break out this change in revenue (including CSO fees and cash advance fees) by product:


	Nine Months Ended September 30, 2022
	Rise			Elastic			Today
(Dollars in thousands)	(Installment Loans)			(Lines of Credit)			(Credit Card)			Total
Average combined loans receivable – principal(2)	$	285,769		$	192,229		$	51,087		$	529,085
Effective APR	101		%	94		%	34		%	92		%
Finance charges	$	214,916		$	135,196		$	12,874		$	362,986
Other	358			268			3,855			4,481
Total revenue	$	215,274		$	135,464		$	16,729		$	367,467

	Nine Months Ended September 30, 2021
	Rise(1)			Elastic			Today
(Dollars in thousands)	(Installment Loans)			(Lines of Credit)			(Credit Card)			Total
Average combined loans receivable – principal(2)	$	229,203		$	149,534		$	19,829		$	398,566
Effective APR	102		%	94		%	30		%	95		%
Finance charges	$	174,314		$	105,650		$	4,453		$	284,417
Other	536			492			1,663			2,691
Total revenue	$	174,850		$	106,142		$	6,116		$	287,108

_________

(1)Includes loans originated by third-party lenders through the CSO programs, which are not included in our condensed consolidated financial statements.

Our average combined loans receivable-principal increased $131 million for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021. This increase in average balance is primarily due to the loan portfolio growth during the second half of 2021 and early 2022 and contributed approximately $90 million to the change in revenue for the period. Our average APR declined from 95% for the nine months ended September 30, 2021 to 92% for the nine months ended September 30, 2022. This reduction in the effective APR is primarily due to the growth of Today Card, which has the lowest APR, relative to the total loan portfolio. The mix of products within the overall lower effective APR reduced the change in revenue for the period by approximately $11 million.

Cost of sales


	Nine Months Ended September 30,								Period-to-period change
	2022				2021
(Dollars in thousands)	Amount		Percentage of revenues		Amount		Percentage of revenues		Amount		Percentage
Cost of sales:
Change in fair value of loans receivable	$	217,926	59	%	$	—	—	%	$	217,926	—	%
Provision for loan losses	—		—		103,098		36		(103,098)		(100)
Direct marketing costs	20,532		6		30,353		11		(9,821)		(32)
Other cost of sales	9,013		2		9,718		3		(705)		(7)
Total cost of sales	$	247,471	67	%	$	143,169	50	%	$	104,302	73	%

Change in fair value of loans receivable. Change in fair value of loans receivable was $217.9 million for the nine months ended September 30, 2022 as compared to $95.9 million on a pro-forma basis for the period ended September 30, 2021, representing a 127% increase on a pro-forma basis. See “—Non-GAAP Financial Measures” for more information and for a reconciliation to Change in fair value of loans receivable, the most directly comparable financial measure calculated in accordance with US GAAP.

The table below breaks out these changes by loan product:


	Nine Months Ended September 30, 2022
	Rise			Elastic			Today
(Dollars in thousands)	(Installment Loans)			(Lines of Credit)			(Credit Card)			Total
Net charge-offs(1)	$	143,875		$	56,310		$	15,291		$	215,476
Net change in fair value(1)	555			(437)			2,332			2,450
Total change in fair value of loans receivable	$	144,430		$	55,873		$	17,623		$	217,926

Net charge-offs as a percentage of revenues	67		%	42		%	91		%	59		%
Total change in fair value of loans receivable as a percentage of revenues	67		%	41		%	105		%	59		%
Percentage past due	12		%	8		%	20		%	11		%

_________

Total change in fair value of loans receivable for the nine months ended September 30, 2022 and pro-forma nine months ended September 30, 2021, was 59% and 33% of revenues, respectively, (See “—Non-GAAP Financial Measures” for more information and for a reconciliation to previously reported amounts for 2021 calculated in accordance with US GAAP.). Of the total change in fair value of loans receivable, net charge-offs as a percentage of revenues for the nine months ended September 30, 2022 and 2021 were 59% and 33%, respectively. The increase in net charge-offs as a percentage of revenues is due to continued inflationary pressures that have impacted our customers' ability to repay their loans, as well as the growth in the loan portfolio during the second half of 2021 and associated seasoning, which included a higher mix of new customers that carry a higher overall loss rate.

Net change in fair value as a percentage of revenue was 1% and —% for the nine months ended September 30, 2022 and pro-forma nine months ended September 30, 2021, respectively, (See “—Non-GAAP Financial Measures” for more information and for a reconciliation to previously reported amounts for 2021 calculated in accordance with US GAAP.). The fair value premium of the combined loans receivable-principal portfolio was 10% at September 30, 2022 compared to pro-forma estimates of 9% at September 30, 2021 as we ramped up our loan growth starting in the third quarter of 2021, leading to a higher mix of new, and therefore riskier, customers in the loan portfolio, which carry a lower fair value premium.

Provision for loan losses. Provision for loan losses decreased by $103.1 million, or 100%, from $103.1 million for the nine months ended September 30, 2021 to $0.0 million for the nine months ended September 30, 2022 due to adoption of fair value effective January 1, 2022 and no longer having a requirement to recognize a loan loss provision and loan loss allowance subsequent to that date.

The table below breaks out these changes by loan product for the prior year period:


	Nine Months Ended September 30, 2021
	Rise			Elastic			Today
(Dollars in thousands)	(Installment Loans)			(Lines of Credit)			(Credit Card)			Total
Combined loan loss reserve(1):
Beginning balance	$	33,968		$	13,201		$	1,910		$	49,079
Net charge-offs	(72,233)			(21,437)			(2,298)			(95,968)
Provision for loan losses	78,453			21,377			3,268			103,098
Ending balance	$	40,188		$	13,141		$	2,880		$	56,209
Combined loans receivable(1)(2)	$	306,229		$	194,459		$	35,142		$	535,830
Net charge-offs as a percentage of revenues	41		%	20		%	38		%	33		%
Combined loan loss reserve as a percentage of ending combined loans receivable	13		%	7		%	8		%	11		%
Provision for loan losses as a percentage of revenues	45		%	20		%	53		%	36		%

_________

(2)Includes loans originated by third-party lenders through the CSO programs, which are not included in our condensed consolidated financial statements.

Total loan loss provision for the nine months ended September 30, 2021 was 36% of revenues, which was below our targeted range of 45% to 55%. For the nine months ended September 30, 2021, net charge-offs as a percentage of revenues was 33% due to reduced demand and limited origination activity in 2020 and early 2021 coupled with customers' receipt of monetary stimulus provided by the US government which allowed customers to continue making payments on their loans. The combined loan loss reserve as a percentage of combined loans receivable totaled 11% as of September 30, 2021.

Direct marketing costs. Direct marketing costs decreased by $9.8 million, or 32%, from $30.4 million for the nine months ended September 30, 2021 to $20.5 million for the nine months ended September 30, 2022 as we took a measured approach to growth during the second and third quarters of 2022. For the nine months ended September 30, 2022, the number of new customers acquired decreased to 73,195 compared to 122,558 during the nine months ended September 30, 2021. Our CAC was higher for the nine months ended September 30, 2022 at $281 as compared to the nine months ended September 30, 2021 at $248, but within our target range of $250 to $300, due to our measured approach to growth.

Other cost of sales. Other cost of sales decreased by $0.7 million, or 7%, from $9.7 million for the nine months ended September 30, 2021 to $9.0 million for the nine months ended September 30, 2022 primarily due to decreased data verification costs, partially offset by increased processing costs associated with the greater loan portfolio size.

Operating expenses


	Nine Months Ended September 30,								Period-to-period change
	2022				2021
(Dollars in thousands)	Amount		Percentage of revenues		Amount		Percentage of revenues		Amount		Percentage
Operating expenses:
Compensation and benefits	$	56,585	15	%	$	58,038	20	%	$	(1,453)	(3)	%
Professional services	20,251		6		24,161		8		(3,910)		(16)
Selling and marketing	2,825		1		2,520		1		305		12
Occupancy and equipment	17,927		5		15,766		5		2,161		14
Depreciation and amortization	13,001		4		14,339		5		(1,338)		(9)
Other	2,577		1		2,242		1		335		15
Total operating expenses	$	113,166	31	%	$	117,066	41	%	$	(3,900)	(3)	%

Compensation and benefits. Compensation and benefits decreased slightly by $1.5 million, or 3%, from $58.0 million for the nine months ended September 30, 2021 to $56.6 million for the nine months ended September 30, 2022 due to the initial effects of our operating expense reduction plan implemented in the third quarter of 2022.

Professional services. Professional services decreased by $3.9 million, or 16%, from $24.2 million for the nine months ended September 30, 2021 to $20.3 million for the nine months ended September 30, 2022 primarily due to reduced legal expenses, partially offset by increased consulting expenses.

Selling and marketing. Selling and marketing increased $0.3 million or 12% from $2.5 million for the nine months ended September 30, 2021 to $2.8 million for the nine months ended September 30, 2022 primarily due to increased marketing agency fees in the first half of 2022.

Occupancy and equipment. Occupancy and equipment increased by $2.2 million, or 14%, from $15.8 million for the nine months ended September 30, 2021 to $17.9 million for the nine months ended September 30, 2022 primarily due to increased web hosting expenses.

Depreciation and amortization. Depreciation and amortization decreased by $1.3 million, or 9%, from $14.3 million for the nine months ended September 30, 2021 to $13.0 million for the nine months ended September 30, 2022 primarily due to the one-time impact of the acceleration of a board member's non-compete agreement amortization in 2021, partially offset by an increase in software development depreciation expense in 2022.

Other. Other operating expenses increased by $0.3 million, or 15% from $2.2 million for the nine months ended September 30, 2021 to $2.6 million for the nine months ended September 30, 2022 primarily due to an increase in travel and meals expenses.

Net interest expense


	Nine Months Ended September 30,								Period-to-period change
	2022				2021
(Dollars in thousands)	Amount		Percentage of revenues		Amount		Percentage of revenues		Amount		Percentage
Net interest expense	$	37,951	10	%	$	26,897	9	%	$	11,054	41	%

Net interest expense increased 41% during the nine months ended September 30, 2022 as compared to the prior year period. Our average balance of notes payable outstanding under the debt facilities in the first nine months of 2022 increased $178.6 million from the first nine months of 2021 which contributed additional interest expense of approximately $12 million. Conversely, our average effective interest rate on all debt outstanding, inclusive of funding facilities and sub-debt, decreased from 10.0% for the nine months ended September 30, 2021 to 9.7% for the nine months ended September 30, 2022, resulting in a decrease in interest expense of approximately $1 million. The majority of our debt is at a locked base rate through its maturity date of January 2024, while the base rate is adjusted for incremental borrowings on these facilities and therefore exposed to the current rising interest rate environment.

The following table shows the effective cost of funds of each debt facility for the period:


	Nine Months Ended September 30,
(Dollars in thousands)	2022			2021
VPC Facility
Average facility balance during the period	$	84,600		$	78,183
Net interest expense	6,093			5,912


Effective cost of funds	9.6		%	10.1		%


ESPV Facility
Average facility balance during the period	$	193,290		$	161,247
Net interest expense	14,247			12,286
Effective cost of funds	9.9		%	10.2		%

EF SPV Facility
Average facility balance during the period	$	135,349		$	87,725
Net interest expense	9,129			6,177
Effective cost of funds	9.0		%	9.4		%

EC SPV Facility
Average facility balance during the period	$	51,617		$	33,747
Net interest expense	3,645			2,513
Effective cost of funds	9.4		%	10.0		%

TSPV Facility
Average facility balance during the period	$	39,956		$	—
Net interest expense	2,437			—
Effective cost of funds	8.2		%	—		%

Pine Hill Term Note
Average note balance during the period(1)	$	19,671		$	—
Net interest expense	2,030			—
Effective cost of funds	15.1		%	—		%

PCAM Term Note
Average note balance during the period(2)	$	15,000		$	—
Net interest expense	370			—
Effective cost of funds	16.7		%	—		%

_________

(1)Average note balance from inception at January 31, 2022 to September 30, 2022.

(2)Average note balance from inception at August 8, 2022 to September 30, 2022.

In October 2021, we entered into a facility to fund the growth of the Today Card portfolio, the TSPV Facility, and we have drawn $43 million as of September 30, 2022. In January 2022, we entered into a $20 million credit agreement for working capital purposes, the Pine Hill Term Note. As of September 30, 2022 we have drawn $20 million. On August 8, 2022, ESPV, EF SPV, and EC SPV, individually and collectively, entered into a credit agreement for working capital purposes, the PCAM Term Note. As of September 30, 2022, we have drawn $15 million, with an additional $5 million drawn on October 31, 2022.

Equity method investment loss

In January 2022, we made an investment in Swell, a new fintech company offering credit and banking solutions. We do not consolidate Swell and apply the equity method of accounting based on our ownership percentage. We recognized an equity method investment loss of $1.1 million for the nine months ended September 30, 2022.

Non-operating income


	Nine Months Ended September 30,								Period-to-period change
	2022				2021
(Dollars in thousands)	Amount		Percentage of revenues		Amount		Percentage of revenues		Amount		Percentage
Non-operating income	$	1,747	—	%	$	519	—	%	$	1,228	237	%

For the nine months ended September 30, 2022, we had non-operating income of $1.7 million, primarily due to a $1.3 million gain related to intangibles and services contributed to Swell and an approximately $0.4 million gain related to the change in value of our stock purchased as part of the legacy litigation settlement under a forward agreement. For the nine months ended September 30, 2021, we received a partial recovery of an indemnification payment we made related to a lawsuit for $0.5 million and also recognized a gain on the sale of an intangible asset of $0.9 million, partially offset by impairment losses related to subleased assets of $0.9 million, resulting in non-operating income of $0.5 million.

Income tax expense


	Nine Months Ended September 30,								Period-to-period change
	2022				2021
(Dollars in thousands)	Amount		Percentage of revenues		Amount		Percentage of revenues		Amount		Percentage
Income tax expense	$	5,058	1	%	$	1,829	1	%	$	3,229	177	%

Our income tax expense increased $3.2 million, from $1.8 million for the nine months ended September 30, 2021 to $5.1 million for the nine months ended September 30, 2022, inclusive of a valuation allowance on our Deferred tax assets of $9.9 million. See Part I, Item 1 of this Form 10-Q in the Notes to Condensed Consolidated Financial Statements in Note 1 1, "Income Taxes" for more information about our tax expense.

Net loss


	Nine Months Ended September 30,								Period-to-period change
	2022				2021
(Dollars in thousands)	Amount		Percentage of revenues		Amount		Percentage of revenues		Amount		Percentage
Net loss	$	(35,502)	(10)	%	$	(1,334)	—	%	$	(34,168)	2,561	%

Our loss of $35.5 million for the nine months ended September 30, 2022 increased $34.2 million from a loss of $1.3 million for the prior year period. On a pro-forma basis, net income for the nine months ended September 30, 2021 was $4.5 million and a pro-forma decrease of $40 million. The overall increase in net loss is primarily due to a decrease in gross profit resulting from increased net charge-offs offset by higher revenue, as well as higher interest expense.

LIQUIDITY AND CAPITAL RESOURCES

We are closely monitoring the impacts of the current macroeconomic environment across our business, including the resulting uncertainties around customer demand, credit performance of the loan portfolio, our levels of liquidity and our ongoing compliance with debt covenants. We had cash and cash equivalents available of $73 million as of September 30, 2022 compared to cash and cash equivalents available of $85 million as of December 31, 2021, a decrease of $12 million primarily due to the growth in the loan portfolio and legal settlement payments

We are continuing to assess our minimum cash and liquidity requirements and implementing measures to ensure that our cash and liquidity position is maintained through the current economic cycle. We assess our ability to continue as a going concern each reporting period for one year after the date the financial statements are issued. This assessment evaluates whether relevant conditions and events, in the aggregate, raise substantial doubt that we will meet future financial obligations as they become due within one year. In accordance with ASC Subtopic 205-40: Presentation of Financial Statements - Going Concern, our initial evaluation does not consider potential mitigating effects of our management's plans unless they have been fully implemented as of the date the financial statements are issued. As a result of the continued inflationary pressures of the current macroeconomic environment, we are experiencing higher charge-offs and limiting loan portfolio growth, with both resulting in lower cash collections. We were in compliance with the terms of our debt agreements, as amended, as of September 30, 2022, however, the reduced collections and higher macroeconomic environment related charge-offs may result in non-compliance with debt agreements in future periods. If such non-compliance is not waived by our lenders, we are not able to obtain amendments or other relief, or we are otherwise unable to obtain new or alternate methods of financing on acceptable terms, such non-compliance can result in loss of ability to borrow under the facilities and/or events of default. Absent the actions below that our management is in the midst of executing, or has already executed, we concluded that the uncertainty surrounding our future non-compliance with our debt facilities, ability to negotiate some of our existing facilities, and maintain sufficient liquidity raises substantial doubt about our ability to continue as a going concern within one year of the issuance date of these financial statements.

Effective August 31, 2022, we have obtained amendments to our debt covenants to lower certain covenant thresholds through December 31, 2022. Furthermore, we obtained an additional $5.0 million in subordinated debt to improve liquidity. Our management is actively engaging with lenders to review and address debt covenant compliance and liquidity position beyond December 31, 2022 as we forecast the impacts of various scenarios associated with the current macroeconomic environment.

These steps have been taken, and others are under consideration, to help manage our liquidity and preserve capital. Although our management believes that the actions that have been implemented and the others that are planned will be sufficient to meet our liquidity needs for the 12 months from the issuance of these financial statements, substantial doubt about our ability to continue as a going concern exists as we cannot predict with certainty that these efforts will be successful or sufficient.

While the ultimate impact of the current economic environment on our business, financial condition, liquidity and results of operations is dependent on future developments which are highly uncertain, we believe that our actions taken to date, future cash provided by operating activities, availability under our debt facilities underlying the loan portfolios with VPC and Park Cities Asset Management, LLC ("PCAM"), access to additional subordinated debt financing and possibly the capital markets, as well as certain potential measures within our control that could be put in place to maintain a sound financial position and liquidity will provide adequate resources to fund our operating and financing needs.

We principally rely on our working capital and our credit facilities with VPC and PCAM to fund the loans we make to our customers. At September 30, 2022, we had contractual obligations for our operating leases and long-term debt totaling $0.9 million for the remainder of 2022 and an additional $526 million in total due in the next two years. If our loan growth or our credit losses exceed our expectations or other unexpected liquidity needs arise, our available cash balances may be insufficient to satisfy our liquidity requirements, and we may seek additional equity or debt financing. This additional capital may not be available on reasonable terms, or at all.

Stock Repurchase Program

At September 30, 2022, we had an outstanding stock repurchase program authorized by our Board of Directors providing for the repurchase of up to $80 million of our common stock through July 31, 2024. During the nine months ended September 30, 2022, and as part of the settlement agreement related to the legacy litigation matters, we purchased 1.73 million common shares, roughly 5% of common shares outstanding at the beginning of the year for a total of $5.3 million under our previously approved common stock repurchase program with $24.0 million available for further repurchases. As of September 30, 2022, we had repurchased approximately 36% of all common shares issued and outstanding since August 2019 under this common stock repurchase program.

The stock repurchase program, as amended, provides that up to a maximum aggregate amount of $35 million shares may be repurchased in any given fiscal year. Repurchases will be made in accordance with applicable securities laws from time-to-time in the open market and/or in privately negotiated transactions at our discretion, subject to market conditions and other factors. The share repurchase program does not require the purchase of any minimum number of shares and may be implemented, modified, suspended or discontinued in whole or in part at any time without further notice. Any repurchased shares will be available for use in connection with equity plans and for other corporate purposes. We will continue to evaluate future purchases under the share repurchase plan as we continue to review our liquidity position to ensure that we have adequate cash balances to fund the expected loan portfolio growth and other cash requirements.

Cash and cash equivalents, restricted cash, loans receivable at fair value or net of allowance, and cash flows

The following table summarizes our cash and cash equivalents, restricted cash, loans receivable at fair value, loans receivable, net and cash flows for the periods indicated:


	As of and for the nine months ended September 30,
(Dollars in thousands)		2022		2021
Cash and cash equivalents		$	72,599	$	79,979
Restricted cash		3,852		4,962
Loans receivable at fair value		621,312		—
Loans receivable, net		—		479,621
Cash provided by (used in):
Operating activities		117,525		111,566
Investing activities		(179,325)		(199,462)
Financing activities		47,399		(28,281)

Our cash and cash equivalents at September 30, 2022 were held primarily for working capital purposes. We may, from time to time, use excess cash and cash equivalents to fund our lending activities, paydown debt or repurchase stock. We do not enter into investments for trading or speculative purposes. Our policy is to invest any cash in excess of our immediate working capital requirements in investments designed to preserve the principal balance and provide liquidity. Accordingly, our excess cash is invested primarily in demand deposit accounts that are currently providing only a minimal return.

Net cash provided by operating activities

We generated $117.5 million in cash from our operating activities for the nine months ended September 30, 2022. This was up approximately $6.0 million from the $111.6 million of cash provided by operating activities during the nine months ended September 30, 2021 due to the increase in revenue realized for the nine months ended September 30, 2022, partially offset by settlement payments.

Net cash used in investing activities

For the nine months ended September 30, 2022 and 2021, cash used in investing activities was $179.3 million and $199.5 million, respectively. The decrease was primarily attributable to a reduction in net loans issued to customers, partially offset by an investment in an unconsolidated affiliate, and increased purchases of property and equipment. The following table summarizes cash used in investing activities for the periods indicated:


	Nine Months Ended September 30,
(Dollars in thousands)		2022		2021
Cash used in investing activities
Loans issued to consumers, less repayments		$	(154,626)	$	(184,789)
Participation premium paid		(4,328)		(4,020)
Purchases of property and equipment		(16,371)		(11,903)
Investment in unconsolidated affiliate		(4,000)		—
Proceeds from sale of intangible assets		—		1,250
		$	(179,325)	$	(199,462)

Net cash provided by (used in) financing activities

Cash flows from financing activities primarily include cash received from issuing notes payable, payments on notes payable, and activity related to stock awards. For the nine months ended September 30, 2022 and 2021, cash provided by (used in) financing activities was $47.4 million and $(28.3) million, respectively. The following table summarizes cash used in financing activities for the periods indicated:


	Nine Months Ended September 30,
(Dollars in thousands)		2022		2021
Cash provided by (used in) financing activities
Proceeds from issuance of Notes payable, net		$	80,000	$	109,500
Payments on Notes payable		(25,000)		(112,550)
Debt issuance costs paid		(412)		(75)
Principal payments on insurance premium financing		(1,317)		—
Common stock repurchased		(5,328)		(24,453)
Proceeds from issuance of stock, net		384		480
Taxes paid related to net share settlement		(928)		(1,183)
		$	47,399	$	(28,281)

The change in cash provided by (used in) financing activities for the nine months ended September 30, 2022 versus the comparable period of 2021 was primarily due to a decrease in paydowns on our debt facilities and a decrease in common stock repurchases.

Free Cash Flow

In addition to the above, we also review FCF when analyzing our cash flows from operations. We calculate free cash flow as cash flows from operating activities, adjusted for the principal loan net charge-offs and capital expenditures incurred during the period. While this is a non-GAAP measure, we believe it provides a useful presentation of cash flows derived from our core operating activities. The below tables provides a reconciliation of free cash flow to our cash flows from operations.


	Nine Months Ended September 30,
(Dollars in thousands)		2022		2021
Net cash provided by operating activities(1)		$	117,525	$	111,566
Adjustments:
Net charge-offs – combined principal loans		(167,544)		(70,636)
Capital expenditures		(16,371)		(11,903)
FCF(2)		$	(66,390)	$	29,027

_________

(1)Net cash provided by operating activities includes net charge-offs – combined finance charges.

(2)FCF includes approximately $37 million in cash payments associated with legal settlements for the nine months ended September 30, 2022.

Our FCF was $(66.4) million for the nine months ended September 30, 2022 compared to $29.0 million for the comparable prior year period. While our net cash provided by operating activities increased by $6.0 million, this was offset by an increase of $96.9 million in net charge-offs - combined principal loans and a $4.5 million increase in capital expenditures.

COMMITMENTS AND CONTRACTUAL OBLIGATIONS

Debt Facilities

We have debt facilities to support the loans we make directly to our customers and the loan and credit card participations we, or our consolidated VIEs purchase from the third-party banks that license our brands. Each of these facilities have certain covenants for the Company overall, as well as certain covenants for the underlying product portfolios. All of our assets are pledged as collateral to secure one or more of the debt facilities.

See Note 6 - Notes Payable, Net in the Notes to the Condensed Consolidated Financial Statements included in this report for further information. See also Note 1 4 - Subsequent Events included in this report for information regarding recent debt activities.

The outstanding balances of notes payable as of September 30, 2022 and December 31, 2021 are as follows:


(Dollars in thousands)	September 30, 2022		December 31, 2021
US Term Note bearing interest at the base rate + 7.0%	$	84,600	$	84,600
ESPV Term Note bearing interest at the base rate + 7.0%	197,100		192,100
EF SPV Term Note bearing interest at the base rate + 7.0%	146,800		137,800
EC SPV Term Note bearing interest at the base rate + 7.0%	55,500		55,500
TSPV Term Note bearing interest at the base rate + 3.60%	43,000		37,000
Pine Hill Term Note bearing interest at the base rate + 13.25%	20,000		—
PCAM Term Note bearing interest at the base rate + 13.25%	15,000		—
Total	$	562,000	$	507,000

The following table presents the future debt maturities as of September 30, 2022:


Year (dollars in thousands)	September 30, 2022
Remainder of 2022	$	—
2023	—
2024	519,000
2025	43,000
2026	—
Thereafter	—
Total	$	562,000

Other Commitments

We are a party to other contractual obligations involving commitments to make payments to third parties. These obligations may impact our short-term or long-term liquidity and capital resource needs. Our primary contractual obligations include our operating leases and various compensation and benefit plans. See Note 8 - Leases and Note 9 - Share-based Compensation in the Notes to the Condensed Consolidated Financial Statements included in this report for further information on our leases and compensation plans, respectively.

OFF-BALANCE SHEET ARRANGEMENTS

We previously provide services in connection with installment loans originated by independent third-party lenders (“CSO lenders”) whereby we acted as a credit service organization/credit access business on behalf of consumers in accordance with applicable state laws through our “CSO program.” The CSO program included arranging loans with CSO lenders, assisting in the loan application, documentation and servicing processes. Under the CSO program, we guaranteed the repayment of a customer’s loan to the CSO lenders as part of the credit services we provided to the customer. As of September 30, 2021, the CSO program has completed its wind-down and the Company no longer has a guarantee under this program.

RECENT REGULATORY DEVELOPMENTS

Set forth below are regulatory developments since the filing of our quarterly reports on Form 10-Q for the quarters ended March 31, 2022 and June 30, 2022. See those reports and our Annual Report on Form 10-K for additional information about prior regulatory developments that are currently impacting us or may impact us in the future.

Federal Regulations:

On August 31, 2021, the U.S. District Court for the Western District of Texas issued an order in Community Financial Services Association of America, LTD. v. Consumer Financial Protection Bureau, granting the Bureau's motion for summary judgment and staying the date for complying with the Consumer Financial Protection Bureau's ("CFPB") Rulemaking on Payday, Vehicle Title, and High-Cost Installment Loans for 286 days until June 13, 2022. On October 1, 2021, the trade groups appealed the Texas federal district court’s final judgment and argued that the compliance date should be 286 days after their appeal to the Fifth Circuit is resolved. On October 14, 2021, the Fifth Circuit Court of Appeals agreed to an extension of the compliance date until after resolution of the appeal. On October 19, 2022, the Fifth Circuit Court of Appeals issued a ruling in favor of the trade groups, declaring the CFPB's structure to be unconstitutional and vacating the CFPB's 2017 Payday Lending Rule. The CFPB is expected to request a stay and appeal this decision. Should the CFPB appeal and be successful in that appeal, it is anticipated that the rule will increase costs and create challenges in our collection activities.

On March 16, 2022, the CFPB updated its examination manual adopting the novel position that it can examine entities for alleged discriminatory conduct under its unfair, deceptive or abusive acts and practices authority. This action prompted the United States Chamber of Commerce, American Bankers Association, Consumer Bankers Association and other trade groups to file a lawsuit on September 28, 2022 against the CFPB and CFPB Director Chopra in the United States District Court for the Eastern District of Texas challenging the updates that were made on unfair, deceptive or abusive acts and practices (“UDAAPs”), which now characterizes discriminatory conduct as "unfair" under the Dodd-Frank Act. The plaintiffs allege that the Bureau’s changes to the examination manual are invalid for several reasons, including that (1) the Dodd-Frank Act does not give the CFPB statutory authority to characterize discriminatory practices as UDAAPs, (2) the changes violated the Administrative Procedures Act because they were not subject to a proper notice-and-comment process, and (3) the CFPB’s ability to self-fund violates the Appropriations Clause of the U.S. Constitution because it prevents Congress from exercising its power to check the Executive Branch by approving appropriations.

On April 26, 2022, the CFPB announced its intention to invoke its dormant authority to examine non-banks whose activities the CFPB has reasonable cause to determine pose risks to consumers. The CFPB clarified that this authority is not specific to any particular consumer financial product or service. While the procedural rule granting this authority has existed since 2013, the CFPB is clarifying its intent to invoke this authority. We intend to monitor this development closely.

State Privacy Laws: The California Consumer Privacy Act went into effect January 1, 2020, and enforcement by California’s Office of the Attorney General began July 1, 2020. The California Privacy Rights Act ("CPRA") ballot initiative passed in November 2020, and the California Privacy Protection Agency ("CPPA") released its draft regulations for the CPRA on May 27, 2022, in advance of the CPPA's June 8, 2022 meeting. Amended draft regulations were released on October 18, 2022, in advance of the CPPA's October 28-29, 2022 meeting. The CPRA will go into effect January 1, 2023, however finalization of the regulations has yet to occur and whether this delay will impact the CPRA's enforcement date remains to be seen.

BASIS OF PRESENTATION AND CRITICAL ACCOUNTING POLICIES

There have been no material changes from the Basis of Presentation and Critical Accounting Policies described in Item 7. “Management's Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, except as follows:

Fair value measurements on consumer loans (Beginning January 1, 2022)

We adopted ASU 2016-13 and all related amendments effective January 1, 2022 and elected the fair value option provided by the transition relief of ASU 2019-05 on all loans receivable. We believe that electing the fair value method of accounting for the loans receivable aligns more closely with our portfolio decision making and better reflects the value of the loans receivable portfolio. We classify our fair value measurement techniques for the fair value disclosures associated with Loans receivable at fair value as Level 3 in accordance with ASC 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”).

We use discounted cash flow analyses that factor estimated losses and prepayments over the estimated duration of the loans receivable. Future cash flows are discounted using a rate of return that we believe a market participant would require. Using historical data and consideration of recent trends, we determine loss and prepayment assumptions. We classify loans as either current or past due. An installment loan or line of credit customer in good standing may request a 16-day grace period when or before a payment becomes due and, if granted, the loan is considered current during the grace period. Credit card customers have a 25-day grace period for each payment. Installment loans and lines of credit are considered past due if a grace period has not been requested and a scheduled payment is not paid on its due date. Credit cards are considered past due if the grace period has passed and the scheduled payment has not been made. An increase in past due loans is a consideration in the credit loss assumption as a significant increase in the percentage of past due loans may indicate a future increase in credit loss on the portfolio. Future cash flows are discounted using a rate of return that we believe a market participant would require.

Allowance and liability for estimated losses on consumer loans (Prior to January 1, 2022)

We previously had adopted Financial Accounting Standards Board (“FASB”) guidance for disclosures about the credit quality of financing receivables and the allowance for loan losses (“allowance”). We maintained an allowance for loan losses for loans and interest receivable for loans not classified as TDRs at a level estimated to be adequate to absorb credit losses inherent in the outstanding loans receivable. We primarily utilized historical loss rates by product, stratified by delinquency ranges, to determine the allowance, but we also considered recent collection and delinquency trends, as well as macroeconomic conditions that may affect portfolio losses. Additionally, due to the uncertainty of economic conditions and cash flow resources of our customers, the estimate of the allowance for loan losses was subject to change in the near term and could have significantly impact the condensed consolidated financial statements. If a loan was deemed to be uncollectible before it was fully reserved, it was charged-off at that time. For loans classified as TDRs, impairment was typically measured based on the present value of the expected future cash flows discounted at the original effective interest rate. We have elected to adopt the Current Expected Credit Losses ("CECL") model as of January 1, 2022, which requires a broader range of reasonable and supportable information to inform credit loss estimates. See "- Recently Issued Accounting Pronouncements And JOBS Act Election" for more information.

We classify loans as either current or past due. An installment loan or line of credit customer in good standing may request a 16-day grace period when or before a payment becomes due and, if granted, the loan is considered current during the grace period. Credit card customers have a 25-day grace period for each payment. Installment loans and lines of credit are considered past due if a grace period has not been requested and a scheduled payment is not paid on its due date. Credit cards are considered past due if the grace period has passed and the scheduled payment has not been made. Increases in the allowance were created by recording a Provision for loan losses in the Condensed Consolidated Statements of Operations. Installment loans and lines of credit are charged off, which reduced the allowance, when they are over 60 days past due or earlier if deemed uncollectible. Credit cards are charged off, which reduced the allowance, when they are over 120 days past due or earlier if deemed uncollectible. Recoveries on losses previously charged to the allowance were credited to the allowance when collected.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS AND JOBS ACT ELECTION

Under the Jumpstart Our Business Startups Act (the “JOBS Act”), we meet the definition of an emerging growth company. We have irrevocably elected to opt out of the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act.

Recently Adopted Accounting Standards

See Note 1 in the Notes to the Condensed Consolidated Financial Statements included in this report for a discussion of recent accounting pronouncements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable as we are a smaller reporting company.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a- 15(e) and 15d- 15(e) under the Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of such date, our disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

In the ordinary course of business, from time to time, we have been and may be named as a defendant in various legal proceedings arising in connection with our business activities. We may also be involved, from time to time, in reviews, investigations and proceedings (both formal and informal) by governmental agencies regarding our business (collectively, “regulatory matters”). We contest liability and/or the amount of damages as appropriate in each such pending matter. We do not anticipate that the ultimate liability, if any, arising out of any such pending matter will have a material effect on our financial condition, results of operations or cash flows. Our material legal proceedings are described in Part I, Item 1 of this Form 10-Q in the Notes to Condensed Consolidated Financial Statements in Note 1 2, "Commitments, Contingencies and Guarantees" under the heading "Other Matters."

Item 1A. Risk Factors

There have been no material changes from the Risk Factors described in Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, except as set forth below.

RISKS RELATED TO OUR BUSINESS AND INDUSTRY

There is substantial doubt about our ability to continue as a going concern.

As a result of the substantial inflationary pressures of the current macroeconomic environment, we are experiencing higher charge-offs and limiting loan portfolio growth, with both resulting in lower cash collections. While we were in compliance with the terms of our debt agreements, as amended, as of September 30, 2022, the reduced collections and higher charge-offs may result in non-compliance with debt agreements in future periods. In the future, if we were to be in non-compliance with our debt agreements, and our lenders did not waive the non-compliance, amend the debt agreements, or otherwise provide relief, or we could not obtain new or alternative methods of financing on acceptable terms, such non-compliance could result in loss of ability to borrow under the facilities and/or events of default. The uncertainty surrounding our future non-compliance with our debt facilities, our ability to negotiate some of our existing facilities, and our ability to maintain sufficient liquidity raises substantial doubt about our ability to continue as a going concern.

If we are unable to obtain sufficient funding to support our operations, it will adversely impact our business, prospects, results of operations, financial condition and cash flows, and we may be unable to continue as a going concern. If we seek additional financing to fund our business activities in the future and there remains substantial doubt about our ability to continue as a going concern, investors or other financing sources may be unwilling to provide additional funding to us on acceptable terms or at all.

We are subject to risks and uncertainties related to our strategic review.

On November 9, 2022, we announced that our Board of Directors and our management had initiated a strategic review to consider other ways to maximize shareholder value. There can be no assurances the strategic review will result in any transaction, and the process of exploring strategic alternatives may involve the dedication of significant resources and incur significant costs and expenses. Speculation and uncertainty regarding the strategic review process may cause or result in:

•disruption of our business;

•distraction of our employees;

•difficulty in recruiting, hiring, motivating, and retaining talented and skilled personnel;

•difficulty in maintaining or negotiating and consummating new business or strategic relationships or transactions; and

•increased stock price volatility.

If we are unable to mitigate these or other potential risks related to the uncertainty caused by the strategic review process, it may disrupt our business or adversely impact our business, prospects, results of operations, financial condition or cash flows.

RISKS RELATED TO THE SECURITIES MARKETS AND OWNERSHIP OF OUR COMMON STOCK

If our stock price falls and remains below $1.00 per share, our common stock may be subject to delisting from New York Stock Exchange, which would materially reduce the liquidity of our common stock and have an adverse effect on our market price.

Our securities are currently listed on the “NYSE.” For continued listing, we are required to meet specified listing standards, including a minimum stock price, market capitalization, and stockholders’ equity. If we are unable to meet the NYSE’s listing standards, including the requirement that our common stock continue to trade at over $1.00 per share, the NYSE would delist our securities. At that point, it is possible that our securities could be quoted on the over-the-counter bulletin board or the pink sheets. This could have negative consequences, including a negative effect on the price of our securities, reduced liquidity for stockholders, reduced trading levels for our securities, limited availability of market quotations or analyst coverage of our securities; stricter trading rules for brokers trading our securities, and reduced access to financing alternatives for us. We also would be subject to greater state securities regulation if our common stock was no longer listed on a national securities exchange. In the event of a delisting, we can provide no assurance that any action taken by us to restore compliance with listing requirements would allow our securities to become listed again, stabilize the market price or improve the liquidity of our securities, prevent our securities from dropping below the NYSE minimum share price requirement or prevent future non-compliance with NYSE's listing requirements.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Repurchases of Equity Securities

During the nine months ended September 30, 2022, we repurchased $5.3 million of common shares under our outstanding stock repurchase program authorized by our Board of Directors. The stock repurchase program, as amended, provides for the repurchase of up to $80 million of our common stock through July 31, 2024 and up to a maximum aggregate amount of $35 million shares may be repurchased in any given fiscal year. Repurchases will be made in accordance with applicable securities laws from time-to-time in the open market and/or in privately negotiated transactions at our discretion, subject to market conditions and other factors. The share repurchase plan does not require the purchase of any minimum number of shares and may be implemented, modified, suspended or discontinued in whole or in part at any time without further notice. All repurchased shares may potentially be withheld for fulfillment of certain employee stock equity programs.

The following table provides information about our common stock repurchases during the quarter ended September 30, 2022:


Period	Total number of shares purchased (1)	Average price paid per share		Total number of shares purchased as part of the publicly announced program	Approximate dollar value of shares that may yet be purchased under the program (2)
July 1, 2022 to July 31, 2022	—	$	—	—	$	23,973,632
August 1, 2022 to August 31, 2022	47,319	$	2.13	—	$	23,973,632
September 1, 2022 to September 30, 2022	—	$	—	—	$	23,973,632
Total	47,319	$	2.13	—

_________

(1)During the quarter ended September 30, 2022, certain RSUs were net share-settled to cover the required withholding tax and the remaining amounts were converted into an equivalent number of shares of the Company's common stock. The Company withheld 47,319 shares for applicable income and other employment taxes and remitted the cash to the appropriate taxing authorities during the quarter ended September 30, 2022.

(2)Includes fees and commissions associated with the shares repurchased.

Item 6. Exhibits


Exhibit number			Description
10.1#			Second Amendment to Fifth Amended and Restated Financing Agreement, dated January 17, 2022, by and among Rise SPV, LLC as borrower, the other borrowers party thereto, the guarantors party thereto, the lenders party thereto and Victory Park Management, LLC as administrative agent and collateral agent
10.2#			Third Amendment to Financing Agreement, dated January 17, 2022, by and among EF SPV, LTD. as borrower, the guarantors party thereto, the lenders park thereto and Victory Park Management, LLC as administrative agent and collateral agent
10.3#			First Amendment to Financing Agreement, dated January 17, 2022, by and among EC SPV, Ltd. as the borrower, the guarantors party thereto, the lenders party thereto and Victory Park Management, LLC as agent
10.4#			First Amendment of Financing Agreement, dated February 15, 2022, effective January 1, 2022, by and among Today SPV, LLC; Today Card, LLC; the Other Credit Parties; PCAM Credit XV, LLC; and Park Cities Asset Management, LLC
10.5+#			Employment, Confidentiality and Non-Compete Agreement, dated May 4, 2022, by and between Steve Trussell and Elevate Credit Service, LLC
10.6#			Third Amendment to Lease Agreement, dated May 19, 2022, by and between FLDR/TLC Overton Centre, L.P. and Elevate Credit Service, LLC
10.7#			Omnibus Amendment, dated July 20, 2022, by and among the Borrowers party hereto, the Guarantors party hereto, and the Agents
10.8#			Forms of Indemnification Agreements between the Registrant and each of its directors and its officers
10.9			Second-lien Financing Agreement, dated August 8, 2022, by and among Elastic SPV, LTD., EF SPV, LTD., and EC SPV, LTD. individually and collectively as the Borrower, the guarantors from time to time party hereto, the lenders party hereto and Park Cities Asset Management, LLC, as agent
10.10			First Amendment to Second-lien Financing Agreement and Consent, dated October 28, 2022, by and among the Borrower, the Guarantors, and the Lender party hereto and Agent.
10.11			Omnibus Amendment and Consent, dated October 31, 2022, by and among the Borrowers party hereto, the Guarantors party hereto, and the Agents.
31.1			Certification pursuant to Rule 13a-14a and Rule 15d-14(a) of the Securities and Exchange Act, as amended
31.2			Certification pursuant to Rule 13a-14a and Rule 15d-14(a) of the Securities and Exchange Act, as amended
32.1&			Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2&			Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS			XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH			Inline XBRL Taxonomy Extension Schema Document.
101.CAL			Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF			Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB			Inline XBRL Taxonomy Extension Labels Linkbase Document.
101.PRE			Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104			XBRL for cover page of the Company's Quarterly Report on Form 10-Q, included in the Exhibit 101 Inline XBRL Document Set.


#						Previously filed.

+						Indicates a management contract or compensatory plan.
&						This certification is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.


		Elevate Credit, Inc.

Date:	November 9, 2022	By:	/s/ Jason Harvison
			Jason Harvison
			President & Chief Executive Officer (Principal Executive Officer)

Date:	November 9, 2022	By:	/s/ Steven A. Trussell
			Steven A. Trussell
			Chief Financial Officer (Principal Financial Officer)