Enova International, Inc. - Quarter Report: 2018 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, 2018

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

For the transition period from to

Commission File Number 1-35503

Enova International, Inc.

(Exact name of registrant as specified in its charter)

Delaware		45-3190813
(State or other jurisdiction of Incorporation or organization)		(I.R.S. Employer Identification No.)

175 West Jackson Blvd. Chicago, Illinois		60604
(Address of principal executive offices)		(Zip Code)

(312) 568-4200

(Registrant’s telephone number, including area code)

NONE

(Former name, former address and former fiscal year, if changed since last report)

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

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically 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 definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	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 ☒

34,274,785 of the Registrant’s common shares, $.00001 par value, were outstanding as of October 30, 2018.

CAUTIONARY NOTE CONCERNING FACTORS THAT MAY AFFECT FUTURE RESULTS

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You should not place undue reliance on these statements. These forward-looking statements give current expectations or forecasts of future events and reflect the views and assumptions of senior management with respect to the business, financial condition, operations and prospects of Enova International, Inc. and its subsidiaries (collectively, the “Company”). When used in this report, terms such as “believes,” “estimates,” “should,” “could,” “would,” “plans,” “expects,” “intends,” “anticipates,” “may,” “forecast,” “project” and similar expressions or variations as they relate to the Company or its management are intended to identify forward-looking statements. Forward-looking statements address matters that involve risks and uncertainties that are beyond the ability of the Company to control and, in some cases, predict. Accordingly, there are or will be important factors that could cause the Company’s actual results to differ materially from those indicated in these statements. Key factors that could cause the Company’s actual financial results, performance or condition to differ from the expectations expressed or implied in such forward-looking statements include, but are not limited to, the following:

•

the effect of laws and regulations targeting our industry that directly or indirectly regulate or prohibit our operations or render them unprofitable or impractical;

•

the effect of and compliance with domestic and international consumer credit, tax (including the enacted Tax Cuts and Jobs Act) and other laws and government rules and regulations applicable to our business, including changes in such laws, rules and regulations, or changes in the interpretation or enforcement thereof, and the regulatory and examination authority of the Consumer Financial Protection Bureau with respect to providers of consumer financial products and services in the United States and the Financial Conduct Authority in the United Kingdom (“U.K.”);

•

changes in our U.K. business practices in response to the requirements of the Financial Conduct Authority;

•

the effect of and compliance with enforcement actions, orders and agreements issued by applicable regulators, such as the November 2013 Consent Order issued by the Consumer Financial Protection Bureau;

•

our ability to process or collect payments through the Automated Clearing House system;

•

the deterioration of the political, regulatory or economic environment in countries where we operate or in the future may operate;

•

the actions of third parties who provide, acquire or offer products and services to, from or for us;

•

public and regulatory perception of the consumer loan business, the receivables purchases industry and our business practices;

•

the effect of any current or future litigation proceedings and any judicial decisions or rulemaking that affects us, our products or the legality or enforceability of our arbitration agreements;

•

changes in demand for our services, changes in competition and the continued acceptance of the online channel by our customers;

•

changes in our ability to satisfy our debt obligations or to refinance existing debt obligations or obtain new capital to finance growth;

•

a prolonged interruption in the operations of our facilities, systems and business functions, including our information technology and other business systems;

•

our ability to maintain an allowance or liability for estimated losses on loans and finance receivables that is adequate to absorb losses;

•

compliance with laws and regulations applicable to our international operations, including anti-corruption laws such as the Foreign Corrupt Practices Act and the U.K. Bribery Act 2010 and international anti-money laundering, trade and economic sanctions laws;

•

our ability to attract and retain qualified officers;

•

interest rate and foreign currency exchange rate fluctuations;

•

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

•

cyber-attacks or security breaches;

•

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

•

the ability to successfully integrate acquired businesses into our operations;

•

changes in the capital markets, including the debt and equity markets;

•

the effect of any of the above changes on our business or the markets in which we operate; and

•

other risks and uncertainties described herein.

The foregoing list of factors is not exhaustive and new factors may emerge or changes to these factors may occur that would impact the Company’s business and cause actual results to differ materially from those expressed in any of our forward-looking statements. Additional information regarding these and other factors may be contained in the Company’s filings with the Securities and Exchange Commission (the “SEC”). Readers of this report are encouraged to review all of the Risk Factors contained in the Company’s filings with the SEC to obtain more detail about the Company’s risks and uncertainties. All forward-looking statements involve risks, assumptions and uncertainties. The occurrence of the events described, and the achievement of the expected results, depends on many events, some or all of which are not predictable or within the Company’s control. If one or more events related to these or other risks or uncertainties materialize, or if management’s underlying assumptions prove to be incorrect, actual results may differ materially from what the Company anticipates. The forward-looking statements in this report are made as of the date of this report, and the Company disclaims any intention or obligation to update or revise any forward-looking statements to reflect events or circumstances occurring after the date of this report. All forward-looking statements in this report are expressly qualified in their entirety by the foregoing cautionary statements.

ENOVA INTERNATIONAL, INC.

INDEX TO FORM 10-Q


		Page
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)
	Consolidated Balance Sheets – September 30, 2018 and 2017 and December 31, 2017	1
	Consolidated Statements of Income – Three and Nine Months Ended September 30, 2018 and 2017	2
	Consolidated Statements of Comprehensive Income – Three and Nine Months Ended September 30, 2018 and 2017	3
	Consolidated Statements of Stockholders’ Equity – Three and Nine Months Ended September 30, 2018 and 2017	4
	Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2018 and 2017	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	40
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	63
Item 4.	Controls and Procedures	63

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	64
Item 1A.	Risk Factors	64
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	65
Item 3.	Defaults upon Senior Securities	65
Item 4.	Mine Safety Disclosures	66
Item 5.	Other Information	66
Item 6.	Exhibits	66

SIGNATURES		67

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share data)

(Unaudited)

	September 30,						December 31,
	2018			2017			2017
Assets
Cash and cash equivalents	$	164,122		$	110,054		$	68,684
Restricted cash (includes restricted cash of consolidated VIEs of $18,678, $22,161 and $21,696 as of September 30, 2018 and 2017 and December 31, 2017, respectively)		20,897			29,866			29,460
Loans and finance receivables, net (includes loans of consolidated VIEs of $319,769, $296,478 and $282,724 and allowance for losses of $28,096, $22,115 and $22,728 as of September 30, 2018 and 2017 and December 31, 2017, respectively)		838,783			637,736			704,705
Income taxes receivable		45,639			9,319			4,092
Other receivables and prepaid expenses		25,699			23,796			23,817
Property and equipment, net		48,514			46,557			48,525
Goodwill		267,013			267,015			267,015
Intangible assets, net		3,523			4,593			4,325
Other assets		12,078			10,842			8,837
Total assets	$	1,426,268		$	1,139,778		$	1,159,460
Liabilities and Stockholders' Equity
Accounts payable and accrued expenses	$	76,188		$	78,897		$	77,123
Deferred tax liabilities, net		46,321			20,681			12,108
Long-term debt (includes long-term debt of consolidated VIEs of $226,218, $186,533 and $211,406 and debt issuance costs of $1,659, $762 and $3,271, as of September 30, 2018 and 2017 and December 31, 2017, respectively)		951,091			765,395			788,542
Total liabilities		1,073,600			864,973			877,773
Commitments and contingencies (Note 10)
Stockholders' equity:
Common stock, $0.00001 par value, 250,000,000 shares authorized, 34,764,648, 33,828,668 and 33,932,673 shares issued and 34,274,785, 33,608,611 and 33,504,555 outstanding as of September 30, 2018 and 2017 and December 31, 2017, respectively		—			—			—
Preferred stock, $0.00001 par value, 25,000,000 shares authorized, no shares issued and outstanding		—			—			—
Additional paid in capital		44,657			26,749			29,781
Retained earnings		327,744			257,812			264,695
Accumulated other comprehensive loss		(12,468	)		(7,017	)		(7,086	)
Treasury stock, at cost (489,863, 220,057 and 428,118 shares as of September 30, 2018 and 2017 and December 31, 2017, respectively)		(7,265	)		(2,739	)		(5,703	)
Total stockholders' equity		352,668			274,805			281,687
Total liabilities and stockholders' equity	$	1,426,268		$	1,139,778		$	1,159,460

See notes to consolidated financial statements.

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2018			2017			2018			2017
Revenue	$	293,879		$	217,878		$	801,478		$	600,045
Cost of Revenue		163,763			107,341			393,810			269,087
Gross Profit		130,116			110,537			407,668			330,958
Expenses
Marketing		36,011			27,000			93,133			69,993
Operations and technology		28,260			27,163			80,993			72,512
General and administrative		24,360			25,164			79,576			77,105
Depreciation and amortization		3,688			3,533			11,363			10,396
Total Expenses		92,319			82,860			265,065			230,006
Income from Operations		37,797			27,677			142,603			100,952
Interest expense, net		(20,244	)		(18,292	)		(59,272	)		(52,526	)
Foreign currency transaction gain (loss)		27			65			(2,265	)		354
Loss on early extinguishment of debt		(12,469	)		(14,927	)		(17,179	)		(14,927	)
Income (Loss) before Income Taxes		5,111			(5,477	)		63,887			33,853
(Benefit from) provision for income taxes		(10,193	)		(2,109	)		2,460			11,496
Net Income (Loss)	$	15,304		$	(3,368	)	$	61,427		$	22,357
Earnings Per Share:
Net income (loss) per common share:
Basic	$	0.45		$	(0.10	)	$	1.81		$	0.67
Diluted	$	0.43		$	(0.10	)	$	1.75		$	0.66
Weighted average common shares outstanding:
Basic		34,168			33,670			33,938			33,533
Diluted		35,665			33,670			35,200			34,119

See notes to consolidated financial statements.

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2018			2017			2018			2017
Net Income (Loss)	$	15,304		$	(3,368	)	$	61,427		$	22,357
Other comprehensive (loss) gain, net of tax:
Foreign currency translation (loss) gain⁽¹⁾		(1,563	)		2,052			(3,760	)		4,561
Reclassification of certain deferred tax effects		—			—			(1,622	)		—
Total other comprehensive (loss) gain, net of tax		(1,563	)		2,052			(5,382	)		4,561
Comprehensive Income (Loss)	$	13,741		$	(1,316	)	$	56,045		$	26,918

(1)	Net of tax benefit (provision) of $456 and $(1,161) for the three months ended September 30, 2018 and 2017, respectively and $766 and $(2,578) for the nine months ended September 30, 2018 and 2017, respectively.

See notes to consolidated financial statements.

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

(Unaudited)

									Accumulated
					Additional				Other									Total
	Common Stock				Paid in		Retained		Comprehensive			Treasury Stock, at cost						Stockholders'
	Shares		Amount		Capital		Earnings		Loss			Shares			Amount			Equity
Balance at December 31, 2016		33,365	$	—	$	18,446	$	235,455	$	(11,578	)		(71	)	$	(624	)	$	241,699
Stock-based compensation expense		—		—		8,303		—		—			—			—			8,303
Shares issued under stock-based plans		464		—		—		—		—			—			—			—
Net income		—		—		—		22,357		—			—			—			22,357
Foreign currency translation gain, net of tax		—		—		—		—		4,561			—			—			4,561
Purchases of treasury shares, at cost		—		—		—		—		—			(149	)		(2,115	)		(2,115	)
Balance at September 30, 2017		33,829	$	—	$	26,749	$	257,812	$	(7,017	)		(220	)	$	(2,739	)	$	274,805

Balance at December 31, 2017		33,933	$	—	$	29,781	$	264,695	$	(7,086	)		(428	)	$	(5,703	)	$	281,687
Stock-based compensation expense		—		—		8,149		—		—			—			—			8,149
Shares issued under stock-based plans		832		—		6,727		—		—			—			—			6,727
Net income		—		—		—		61,427		—			—			—			61,427
Foreign currency translation loss, net of tax		—		—		—		—		(3,760	)		—			—			(3,760	)
Purchases of treasury shares, at cost		—		—		—		—		—			(62	)		(1,562	)		(1,562	)
Reclassification of certain deferred tax effects		—		—		—		1,622		(1,622	)		—			—			—
Balance at September 30, 2018		34,765	$	—	$	44,657	$	327,744	$	(12,468	)		(490	)	$	(7,265	)	$	352,668

See notes to consolidated financial statements.

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

	Nine Months Ended
	September 30,
	2018			2017
Cash Flows from Operating Activities
Net Income	$	61,427		$	22,357
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		11,363			10,396
Amortization of deferred loan costs and debt discount		4,526			4,515
Cost of revenue		393,810			269,087
Stock-based compensation expense		8,149			8,303
Loss on early extinguishment of debt		17,179			14,927
Deferred income taxes, net		34,894			3,802
Other		55			—
Changes in operating assets and liabilities:
Finance and service charges on loans and finance receivables		(24,465	)		(10,232	)
Other receivables and prepaid expenses		(2,285	)		(3,290	)
Accounts payable and accrued expenses		5,054			1,033
Current income taxes		(41,547	)		(9,601	)
Net cash provided by operating activities		468,160			311,297
Cash Flows from Investing Activities
Loans and finance receivables originated or acquired		(1,277,958	)		(998,333	)
Loans and finance receivables repaid		772,020			672,474
Purchases of property and equipment		(11,303	)		(10,804	)
Other investing activities		93			1,798
Net cash used in investing activities		(517,148	)		(334,865	)
Cash Flows from Financing Activities
Borrowings under revolving line of credit		109,000			30,000
Repayments under revolving line of credit		(109,000	)		(30,000	)
Borrowings under securitization facilities		162,413			137,200
Repayments under securitization facilities		(147,601	)		(116,085	)
Issuance of senior notes		375,000			250,000
Repayments of senior notes		(228,514	)		(155,000	)
Debt issuance costs paid		(9,156	)		(9,564	)
Debt prepayment penalty paid		(13,073	)		(11,335	)
Payment of promissory note		(3,000	)		—
Proceeds from exercise of stock options		6,727			—
Treasury shares purchased		(1,562	)		(2,115	)
Net cash provided by financing activities		141,234			93,101
Effect of exchange rates on cash, cash equivalents and restricted cash		(5,371	)		4,147
Net increase in cash, cash equivalents and restricted cash		86,875			73,680
Cash, cash equivalents and restricted cash at beginning of year		98,144			66,240
Cash, cash equivalents and restricted cash at end of period	$	185,019		$	139,920

Supplemental Disclosures
Loans and finance receivables renewed	$	282,486		$	234,258

See notes to consolidated financial statements.

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1.	Significant Accounting Policies

Basis of Presentation

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

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

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

The consolidated financial statements presented as of September 30, 2018 and 2017 and for the three and nine-month periods ended September 30, 2018 and 2017 are unaudited but, in management’s opinion, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for such interim periods. Operating results for the three and nine-month periods are not necessarily indicative of the results that may be expected for the full fiscal year.

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

Restricted Cash

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

Cash, Cash Equivalents and Restricted Cash

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

	September 30,
	2018		2017
Cash and cash equivalents	$	164,122	$	110,054
Restricted cash		20,897		29,866
Total cash, cash equivalents and restricted cash	$	185,019	$	139,920

Revenue Recognition

The Company recognizes revenue based on the financing products and services it offers and on loans it acquires. “Revenue” in the consolidated statements of income includes: interest income, finance charges, fees for services provided through the Company’s credit services organization and credit access business programs (“CSO programs”) (“CSO fees”), revenue on RPAs, service charges, draw fees, minimum billing fees, purchase fees, origination fees, late fees and non-sufficient funds fees as permitted by applicable laws and

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

pursuant to the agreement with the customer. For short-term loans that the Company offers, interest and finance charges are recognized on an effective yield basis over the term of the loan. For line of credit accounts, interest is recognized over the reporting period based upon the balance outstanding and the contractual interest rate, draw fees are recognized on an effective yield basis over the estimated outstanding period of the draw, and minimum billing fees are recognized when assessed to the customer. For installment loans, interest and origination fees are recognized on an effective yield basis over the term of the loan. For RPAs, revenue and purchase fees are recognized on an effective yield basis over the projected delivery term of the agreements and fees are recognized when assessed. CSO fees are recognized on an effective yield basis over the term of the loan. Late and nonsufficient funds fees are recognized when assessed to the customer. Direct costs associated with originating loans and purchasing RPAs, such as third-party customer acquisition costs, are deferred and amortized against revenue on an effective yield basis over the term of the loan or the projected delivery term of the finance receivable. Short-term loans, line of credit accounts, installment loans, RPAs, unpaid and accrued interest, fees and revenue and deferred origination costs are included in “Loans and finance receivables, net” in the consolidated balance sheets.

Goodwill

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

The Company first assesses qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. In assessing the qualitative factors, management considers relevant events and circumstances including but not limited to macroeconomic conditions, industry and market environment, overall financial performance of the Company, cash flow from operating activities, market capitalization and stock price. If the Company determines that the two-step quantitative impairment test is required, management uses the income approach to complete its annual goodwill assessment. The income approach uses future cash flows and estimated terminal values for the Company that are discounted using a market participant perspective to determine the fair value, which is then compared to the carrying value to determine if there is impairment. The income approach includes assumptions about revenue growth rates, operating margins and terminal growth rates discounted by an estimated weighted-average cost of capital derived from other publicly-traded companies that are similar but not identical from an operational and economic standpoint. The Company completed its annual assessment of goodwill as of June 30, 2018 based on qualitative factors and determined that the fair value of its goodwill exceeded carrying value, and, as a result, no impairment existed at that date. Although no goodwill impairment was noted, there can be no assurances that future goodwill impairments will not occur.

Reclassification of Accumulated Other Comprehensive Income to Net Income

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

Adopted Accounting Standards

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

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

In May 2017, the FASB issued ASU 2017-09, Compensation–Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU 2017-09”) clarifying when a change to the terms or conditions of a share-based payment award must be accounted for as a modification. The new guidance requires modification accounting if the fair value, vesting condition or the classification of the award is not the same immediately before and after a change to the terms and conditions of the award. The new guidance is effective on a prospective basis for annual periods beginning after December 15, 2017, and interim periods within those annual periods, with early adoption permitted. The Company adopted ASU 2017-09 as of January 1, 2018. The adoption of ASU 2017-09 did not have a material impact on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU 2017-05, Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets (“ASU 2017-05”) to clarify the scope of Subtopic 610-20, Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets, and to add guidance for partial sales of nonfinancial assets. ASU 2017-05 is effective at the same time as the amendments in ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). Therefore, for public entities, the amendments are effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. The Company adopted ASU 2017-05 as of January 1, 2018. The adoption of ASU 2017-05 did not have a material effect on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805) – Clarifying the Definition of a Business (“ASU 2017-01”). ASU 2017-01 provides a screen to determine when an asset or group of assets acquired is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This screen reduces the number of transactions that need to be further evaluated. ASU 2017-01 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017. The Company adopted ASU 2017-01 as of January 1, 2018. The adoption of ASU 2017-01 did not have a material effect on the Company’s consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230), Restricted Cash (“ASU 2016-18”). ASU 2016-18 clarifies certain existing principles in ASC 230, Statement of Cash Flows, including providing additional guidance related to transfers between cash and restricted cash and how entities present, in their statement of cash flows, the cash receipts and cash payments that directly affect the restricted cash accounts. ASU 2016-18 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company adopted ASU 2016-18 as of January 1, 2018. The adoption of ASU 2016-18 resulted in a $3.0 million decrease in net cash used in investing activities and a $0.5 million increase in the effect of exchange rates on cash for the nine months ended September 30, 2017.

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory (“ASU 2016-16”), which requires entities to recognize the income tax impact of an intra-entity sale or transfer of an asset other than inventory when the sale or transfer occurs, rather than when the asset has been sold to an outside party. ASU 2016-16 is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. The Company adopted ASU 2016-16 as of January 1, 2018. The adoption of ASU 2016-16 did not have a material effect on the Company’s consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016‑01”), which requires that equity investments, except for those accounted for under the equity method or those that result in consolidation of the investee, be measured at fair value, with subsequent changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. ASU 2016-01 also impacts the presentation and disclosure requirements for financial instruments. ASU 2016-01 is effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. The Company adopted ASU 2016-01 as of January 1, 2018. The adoption of ASU 2016‑01 did not have a material effect on the Company’s consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which supersedes the revenue recognition requirements in Accounting Standards Codification 605, Revenue Recognition. ASU 2014-09 is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The Company adopted this ASU under the modified-retrospective method effective January 1, 2018. The Company completed its assessment of the guidance and determined its loan and finance receivables are excluded from the scope of ASU 2014-09. As a result of this scope exception, the adoption of this ASU was not material to the Company’s consolidated financial statements.

Accounting Standards to be Adopted in Future Periods

In August 2018, the FASB issued ASU 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract (“ASU 2018-15”). ASU 2018-15 requires implementation costs incurred by customers in cloud computing arrangements to be deferred over the noncancellable term of the cloud computing arrangements plus any optional renewal periods (1) that are reasonably certain to be exercised by the customer or (2) for which exercise of the renewal option is controlled by the cloud service provider. The effective date of this pronouncement is for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, and early adoption is permitted. The standard can be adopted either using the prospective or retrospective transition approach. The Company does not expect that the adoption of ASU 2018-15 will have a material effect on its consolidated financial statements.

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

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

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 requires lessee recognition on the balance sheet of a right-of-use asset and a lease liability, initially measured at the present value of the lease payments. It further requires recognition in the income statement of a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a generally straight-line basis. Finally, it requires classification of all cash payments within operating activities in the statement of cash flows. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements (“ASU 2018-11”), which provides targeted improvements to ASU 2016-02 by providing an additional optional transition method and a lessor practical expedient for lease and nonlease components. ASU 2016-02 is effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2018. Upon adoption of ASU 2016-02 in the quarter ending March 31, 2019, the Company will use the optional transition method permitted by ASU 2018-11. The Company expects to report higher assets and liabilities as a result of including additional leases on the consolidated balance sheet. The Company does not expect the adoption of ASU 2016-02 to have a material impact on the consolidated statements of income or the consolidated statements of stockholders' equity.

2.	Acquisitions

On June 23, 2015, the Company completed the purchase of certain assets of a company operating as The Business Backer, LLC, which purchases discounted future accounts receivables from small businesses in the United States through RPAs, which provide working capital for small businesses. The total consideration of $26.4 million was comprised of $17.7 million in cash at closing, a $3.0 million promissory note (included in “Accounts payable and accrued expenses” in the consolidated balance sheets) and estimated contingent consideration of $5.7 million based on future earn-out opportunities. The promissory note and all accrued but unpaid interest was paid on June 22, 2018. The contingent purchase consideration was recorded at its estimated fair value at the date of acquisition based upon the Company’s assessment of the probable earnings attributable to the business as defined in the purchase agreement. To the extent operating results exceeded the Company’s estimate, additional contingent consideration would have been due, however the total consideration paid could not exceed $71 million. The contingent purchase consideration was revalued each reporting period with changes in fair value of the contingent consideration obligations recognized as a gain or loss on fair value remeasurement in our consolidated statements of income. The fair value of the contingent purchase consideration was remeasured as of December 31, 2016 and a gain from the fair value remeasurement of $3.3 million was recognized. Based on future expected

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

earnings, the Company did not expect to pay any additional contingent consideration and recorded an adjustment to write-off the remaining liability in 2017. As of September 30, 2018 the Company had not made and was no longer potentially liable for any contingent payments related to this acquisition.

This purchase was not material to the Company’s consolidated financial statements. The operating results of the purchased assets, which were not material, have been included in the Company’s consolidated financial statements from the date of acquisition.

3.	Loans and Finance Receivables, Credit Quality Information and Allowances and Liabilities for Estimated Losses on Loans and Finance Receivables

Revenue generated from the Company’s loans and finance receivables for the three and nine months ended September 30, 2018 and 2017 was as follows (dollars in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2018		2017		2018		2017
Short-term loans	$	57,851	$	49,875	$	161,538	$	144,074
Line of credit accounts		98,666		68,889		256,633		187,172
Installment loans and RPAs		137,107		98,929		382,264		268,069
Total loans and finance receivables revenue		293,624		217,693		800,435		599,315
Other		255		185		1,043		730
Total revenue	$	293,879	$	217,878	$	801,478	$	600,045

Current and Delinquent Loans and Finance Receivables

The Company classifies its loans and finance receivables as either current or delinquent. Short-term loans are considered delinquent when payment of an amount due is not made as of the due date. If a line of credit account or installment loan customer misses one payment, that payment is considered delinquent and the balance of the loan is considered current. If a line of credit account or installment loan customer does not make two consecutive payments, the entire account or loan is classified as delinquent and placed on a non-accrual status. The Company allows for normal payment processing time before considering a loan delinquent but does not provide for any additional grace period.

The Company does not accrue interest on delinquent loans and does not resume accrual of interest on a delinquent loan unless it is returned to current status. In addition, delinquent loans generally may not be renewed, and if, during its attempt to collect on a delinquent loan, the Company allows additional time for payment through a payment plan or a promise to pay, it is still considered delinquent. Generally, all payments received are first applied against accrued but unpaid interest and fees and then against the principal balance of the loan.

Allowance and Liability for Estimated Losses on Loans and Finance Receivables

The Company monitors the performance of its loan and finance receivable portfolios and maintains either an allowance or liability for estimated losses on loans and finance receivables (including revenue, fees and/or interest) at a level estimated to be adequate to absorb losses inherent in the portfolio. The allowance for losses on the Company’s owned loans and finance receivables reduces the outstanding loans and finance receivables balance in the consolidated balance sheets. The liability for estimated losses related to loans guaranteed under its CSO programs is initially recorded at fair value and is included in “Accounts payable and accrued expenses” in the consolidated balance sheets.

In determining the allowance or liability for estimated losses on loans and finance receivables, the Company applies a documented systematic methodology. In calculating the allowance or liability for receivable losses, outstanding loans and finance receivables are divided into discrete groups of short-term loans, line of credit accounts, installment loans and RPAs and are analyzed as current or delinquent. Increases in either the allowance or the liability, net of charge-offs and recoveries, are recorded as a “Cost of revenue” in the consolidated statements of income.

The allowance or liability for short-term loans classified as current is based on historical loss rates adjusted for recent default trends for current loans. For delinquent short-term loans, the allowance or liability is based on a six-month rolling average of loss rates by stage of collection. For line of credit account, installment loan and RPA portfolios, the Company generally uses either a migration analysis or roll-rate based methodology to estimate losses inherent in the portfolio. The allowance or liability calculation under the migration analysis and roll-rate methodology is based on historical charge-off experience and the loss emergence period, which

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

represents the average amount of time between the first occurrence of a loss event and the charge-off of a loan or RPA. The factors the Company considers to assess the adequacy of the allowance or liability include past due performance, historical behavior of monthly vintages, underwriting changes and recent trends in delinquency in the migration analysis. The roll-rate methodology is based on delinquency status, payment history and recency factors to estimate future charge-offs.

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

The components of Company-owned loans and finance receivables at September 30, 2018 and 2017 and December 31, 2017 were as follows (dollars in thousands):

	As of September 30, 2018
	Short-term			Line of Credit			Installment Loans and
	Loans			Accounts			RPAs			Total
Current receivables	$	46,679		$	203,960		$	638,910		$	889,549
Delinquent receivables:
Delinquent payment amounts⁽¹⁾		—			10,270			2,531			12,801
Receivables on non-accrual status		31,829			2,394			53,795			88,018
Total delinquent receivables		31,829			12,664			56,326			100,819
Total loans and finance receivables, gross		78,508			216,624			695,236			990,368
Less: Allowance for losses		(23,004	)		(41,478	)		(87,103	)		(151,585	)
Loans and finance receivables, net	$	55,504		$	175,146		$	608,133		$	838,783

	As of September 30, 2017
	Short-term			Line of Credit			Installment Loans and
	Loans			Accounts			RPAs			Total
Current receivables	$	40,588		$	146,891		$	480,522		$	668,001
Delinquent receivables:
Delinquent payment amounts⁽¹⁾		—			5,913			3,382			9,295
Receivables on non-accrual status		27,131			1,885			36,484			65,500
Total delinquent receivables		27,131			7,798			39,866			74,795
Total loans and finance receivables, gross		67,719			154,689			520,388			742,796
Less: Allowance for losses		(19,161	)		(26,810	)		(59,089	)		(105,060	)
Loans and finance receivables, net	$	48,558		$	127,879		$	461,299		$	637,736

	As of December 31, 2017
	Short-term			Line of Credit			Installment Loans and
	Loans			Accounts			RPAs			Total
Current receivables	$	45,552		$	161,070		$	537,634		$	744,256
Delinquent receivables:
Delinquent payment amounts⁽¹⁾		—			7,696			3,635			11,331
Receivables on non-accrual status		28,120			1,302			42,740			72,162
Total delinquent receivables		28,120			8,998			46,375			83,493
Total loans and finance receivables, gross		73,672			170,068			584,009			827,749
Less: Allowance for losses		(19,917	)		(31,148	)		(71,979	)		(123,044	)
Loans and finance receivables, net	$	53,755		$	138,920		$	512,030		$	704,705

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Changes in the allowance for losses for the Company-owned loans and finance receivables and the liability for losses on the Company’s guarantees of third-party lender-owned loans during the three and nine months ended September 30, 2018 and 2017 were as follows (dollars in thousands):

	Three Months Ended September 30, 2018
	Short-term			Line of Credit			Installment Loans and
	Loans			Accounts			RPAs			Total
Allowance for losses for Company-owned loans and finance receivables:
Balance at beginning of period	$	18,861		$	31,050		$	71,873		$	121,784
Cost of revenue		26,080			46,749			90,782			163,611
Charge-offs		(27,906	)		(40,010	)		(90,090	)		(158,006	)
Recoveries		6,071			3,689			14,829			24,589
Effect of foreign currency translation		(102	)		—			(291	)		(393	)
Balance at end of period	$	23,004		$	41,478		$	87,103		$	151,585
Liability for third-party lender-owned loans:
Balance at beginning of period	$	1,883		$	—		$	209		$	2,092
Increase in liability		94			—			58			152
Balance at end of period	$	1,977		$	—		$	267		$	2,244

	Three Months Ended September 30, 2017
	Short-term			Line of Credit			Installment Loans and
	Loans			Accounts			RPAs			Total
Allowance for losses for Company-owned loans and finance receivables:
Balance at beginning of period	$	15,688		$	22,847		$	45,304		$	83,839
Cost of revenue		23,724			23,439			60,102			107,265
Charge-offs		(25,521	)		(22,708	)		(57,228	)		(105,457	)
Recoveries		5,082			3,232			10,630			18,944
Effect of foreign currency translation		188			—			281			469
Balance at end of period	$	19,161		$	26,810		$	59,089		$	105,060
Liability for third-party lender-owned loans:
Balance at beginning of period	$	1,761		$	—		$	180		$	1,941
Increase (decrease) in liability		125			—			(49	)		76
Balance at end of period	$	1,886		$	—		$	131		$	2,017

	Nine Months Ended September 30, 2018
	Short-term			Line of Credit			Installment Loans and
	Loans			Accounts			RPAs			Total
Allowance for losses for Company-owned loans and finance receivables:
Balance at beginning of period	$	19,917		$	31,148		$	71,979		$	123,044
Cost of revenue		67,011			103,343			223,470			393,824
Charge-offs		(82,006	)		(103,371	)		(251,040	)		(436,417	)
Recoveries		18,332			10,358			43,820			72,510
Effect of foreign currency translation		(250	)		—			(1,126	)		(1,376	)
Balance at end of period	$	23,004		$	41,478		$	87,103		$	151,585
Liability for third-party lender-owned loans:
Balance at beginning of period	$	2,105		$	—		$	153		$	2,258
(Decrease) increase in liability		(128	)		—			114			(14	)
Balance at end of period	$	1,977		$	—		$	267		$	2,244

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

	Nine Months Ended September 30, 2017
	Short-term			Line of Credit			Installment Loans and
	Loans			Accounts			RPAs			Total
Allowance for losses for Company-owned loans and finance receivables:
Balance at beginning of period	$	17,770		$	26,594		$	54,581		$	98,945
Cost of revenue		55,865			63,138			150,063			269,066
Charge-offs		(70,962	)		(73,252	)		(177,002	)		(321,216	)
Recoveries		16,009			10,330			30,782			57,121
Effect of foreign currency translation		479			—			665			1,144
Balance at end of period	$	19,161		$	26,810		$	59,089		$	105,060
Liability for third-party lender-owned loans:
Balance at beginning of period	$	1,716		$	—		$	280		$	1,996
Increase (decrease) in liability		170			—			(149	)		21
Balance at end of period	$	1,886		$	—		$	131		$	2,017

Guarantees of Consumer Loans

In connection with its CSO programs, the Company guarantees consumer loan payment obligations to unrelated third-party lenders for short-term and installment loans and is required to purchase any defaulted loans it has guaranteed. The guarantee represents an obligation to purchase specific loans that go into default. As of September 30, 2018 and 2017 and December 31, 2017, the amount of consumer loans guaranteed by the Company was $30.1 million, $28.9 million and $34.1 million, respectively, representing amounts due under consumer loans originated by third-party lenders under the CSO programs. The estimated fair value of the liability for estimated losses on consumer loans guaranteed by the Company of $2.2 million, $2.0 million and $2.3 million, as of September 30, 2018 and 2017 and December 31, 2017, respectively, is included in “Accounts payable and accrued expenses” in the consolidated balance sheets.

Bank Program Loans

In order to leverage its online lending platform, the Company launched a program with a bank in 2016 to provide technology, marketing services, and loan servicing for near-prime unsecured consumer installment loans. Under the program, the Company receives marketing and servicing fees while the bank receives an origination fee. The bank has the ability to sell the loans it originates to the Company. The Company does not guarantee the performance of the loans originated by the bank.

4.	Investment in Unconsolidated Investee

The Company records an investment in the preferred stock of a privately-held developing financial services entity under the cost method. The carrying value of the Company’s investment in this unconsolidated investee was $6.7 million as of September 30, 2018 and 2017 and December 31, 2017, and was held in “Other assets” in the Company’s consolidated balance sheets. The Company evaluates this investment for impairment if an event occurs or circumstances change that would more likely than not reduce the fair value of the investment below carrying value. Based on the Company’s evaluation of this investment at September 30, 2018, the Company determined that an impairment loss was not probable at that date.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

5.	Long-term debt

The Company’s long-term debt instruments and balances outstanding as of September 30, 2018 and 2017 and December 31, 2017 were as follows (dollars in thousands):

	September 30,						December 31,
	2018			2017			2017

Securitization notes	$	226,218		$	186,533		$	211,406
9.75% senior notes due 2021		115,821			342,407			342,558
8.50% senior notes due 2024		250,000			250,000			250,000
8.50% senior notes due 2025		375,000			—			—
Subtotal		967,039			778,940			803,964
Less: Long-term debt issuance costs		(15,948	)		(13,545	)		(15,422	)
Total long-term debt	$	951,091		$	765,395		$	788,542

8.50% Senior Unsecured Notes Due 2025

On September 19, 2018, the Company issued and sold $375.0 million in aggregate principal amount of 8.50% Senior Notes due 2025 (the “2025 Senior Notes”). The 2025 Senior Notes were sold to qualified institutional buyers in accordance with Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”) and outside the United States pursuant to Regulation S under the Securities Act. The 2025 Senior Notes bear interest at a rate of 8.50% annually on the principal amount payable semi-annually in arrears on March 15 and September 15 of each year, beginning on March 15, 2019. The 2025 Senior Notes were sold at a price of 100%. The 2025 Senior Notes will mature on September 15, 2025. The 2025 Senior Notes are unsecured debt obligations of the Company, and are unconditionally guaranteed by certain of the Company’s domestic subsidiaries.

The 2025 Senior Notes are redeemable at the Company’s option, in whole or in part, (i) at any time prior to September 15, 2021 at 100% of the aggregate principal amount of 2025 Senior Notes redeemed plus the applicable “make whole” premium specified in the indenture that governs the Company’s 2025 Notes (the “2025 Senior Notes Indenture”), plus accrued and unpaid interest, if any, to the redemption date and (ii) at any time on or after September 15, 2021 at the premium, if any, specified in the 2025 Senior Notes Indenture that will decrease over time, plus accrued and unpaid interest, if any, to the redemption date. In addition, prior to September 15, 2021, at its option, the Company may redeem up to 40% of the aggregate principal amount of the 2025 Senior Notes at a redemption price of 108.5% of the aggregate principal amount of 2025 Senior Notes redeemed, plus accrued and unpaid interest, if any, to the redemption date, with the proceeds of certain equity offerings as described in the 2025 Senior Notes Indenture.

The 2025 Senior Notes and the related guarantees have not been and will not be registered under the Securities Act, or the securities laws of any state or other jurisdiction, and may not be offered or sold in the United States without registration or an applicable exemption from the registration requirements of the Securities Act and applicable state securities or blue sky laws and foreign securities laws.

The Company used a portion of the net proceeds of the 2025 Senior Notes offering to retire $178.5 million of the remaining outstanding 9.75% senior notes due 2021 (the “2021 Senior Notes) through a cash tender offer, to pay the related accrued interest, premiums, fees and expenses associated therewith and for general corporate purposes, which may include working capital and future repurchases of its outstanding debt securities. In October 2018, the Company used a portion of the remaining net proceeds of the 2025 Senior Notes to redeem the remaining $116.5 million principal balance of the 2021 Senior Notes.

As of September 30, 2018, the carrying amount of the 2025 Senior Notes was $368.4 million, which includes unamortized issuance costs of $6.6 million. The issuance costs are being amortized to interest expense over a period of seven years, through the maturity date of September 15, 2025. The total interest expense recognized for the nine months ended September 30, 2018 was $1.1 million, of which less than $0.1 million represented the non-cash amortization of the issuance costs.

8.50% Senior Unsecured Notes Due 2024

On September 1, 2017, the Company issued and sold $250.0 million in aggregate principal amount of 8.50% Senior Notes due 2024 (the “2024 Senior Notes”). The 2024 Senior Notes were sold to qualified institutional buyers in accordance with Rule 144A under the Securities Act and outside the United States pursuant to Regulation S under the Securities Act. The 2024 Senior Notes bear interest at a rate of 8.50% annually on the principal amount payable semi-annually in arrears on March 1 and September 1 of each year, beginning on March 1, 2018. The 2024 Senior Notes were sold at a price of 100%. The 2024 Senior Notes will mature on

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

September 1, 2024. The 2024 Senior Notes are unsecured debt obligations of the Company, and are unconditionally guaranteed by certain of the Company’s domestic subsidiaries.

The 2024 Senior Notes are redeemable at the Company’s option, in whole or in part, (i) at any time prior to September 1, 2020 at 100% of the aggregate principal amount of 2024 Senior Notes redeemed plus the applicable “make whole” premium specified in the indenture that governs the Company’s 2024 Notes (the “2024 Senior Notes Indenture”), plus accrued and unpaid interest, if any, to the redemption date and (ii) at any time on or after September 1, 2020 at the premium, if any, specified in the 2024 Senior Notes Indenture that will decrease over time, plus accrued and unpaid interest, if any, to the redemption date. In addition, prior to September 1, 2020, at its option, the Company may redeem up to 40% of the aggregate principal amount of the 2024 Senior Notes at a redemption price of 108.5% of the aggregate principal amount of 2024 Senior Notes redeemed, plus accrued and unpaid interest, if any, to the redemption date, with the proceeds of certain equity offerings as described in the 2024 Senior Notes Indenture.

The 2024 Senior Notes and the related guarantees have not been and will not be registered under the Securities Act, or the securities laws of any state or other jurisdiction, and may not be offered or sold in the United States without registration or an applicable exemption from the registration requirements of the Securities Act and applicable state securities or blue sky laws and foreign securities laws.

The Company used the net proceeds of the 2024 Senior Notes offering to retire a portion of its outstanding 9.75% senior notes due 2021, to pay the related accrued interest, premiums, fees and expenses associated therewith and for general corporate purposes, which may include working capital and future repurchases of its outstanding debt securities.

As of September 30, 2018 and 2017 and December 31, 2017, the carrying amount of the 2024 Senior Notes was $243.6 million, $242.5 million and $242.8 million, respectively, which includes unamortized issuance costs of $6.4 million, $7.5 million and $7.2 million, respectively. The issuance costs are being amortized to interest expense over a period of seven years, through the maturity date of September 1, 2024. The total interest expense recognized for the nine months ended September 30, 2018 and 2017 was $16.7 million and $1.9 million, respectively, of which $0.8 million and $0.1 million, respectively, represented the non-cash amortization of the issuance costs.

Consumer Loan Securitization

2018-1 Facility

On July 23, 2018, the Company and several of its subsidiaries entered into a receivables funding (the “2018‑1 Facility”) with Pacific Western Bank, as lender (the “2018‑1 Lender”). The 2018‑1 Facility collateralizes unsecured consumer installment loans (“Receivables”) that have been and will be originated or acquired under the Company’s NetCredit brand by several of the Company’s subsidiaries and that meet specified eligibility criteria in exchange for a revolving note. Under the 2018‑1 Facility, Receivables are sold to a wholly-owned special purpose subsidiary of the Company (the “2018‑1 Debtor”) and serviced by another subsidiary of the Company.

The 2018‑1 Debtor has issued a revolving note with an initial maximum principal balance of $150.0 million, which is required to be secured by 1.25 times the drawn amount in eligible Receivables. The 2018‑1 Facility is non-recourse to the Company and matures on July 22, 2023.

The 2018‑1 Facility is governed by a loan and security agreement, dated as of July 23, 2018, between the 2018‑1 Lender and the 2018‑1 Debtor. The 2018-1 Facility bears interest at a rate per annum equal to LIBOR (subject to a floor) plus an applicable margin, which rate per annum is initially 4.00%. In addition, the 2018‑1 Debtor paid certain customary upfront closing fees to the 2018‑1 Lender. Interest payments on the 2018‑1 Facility will be made monthly. The 2018‑1 Debtor shall be permitted to prepay the 2018‑1 Facility, subject to certain fees and conditions. In the event of prepayment for the purposes of securitizations, no fees shall apply. Any remaining amounts outstanding will be payable no later than July 22, 2023, the final maturity date.

All amounts due under the 2018‑1 Facility are secured by all of the 2018‑1 Debtor’s assets, which include the Receivables transferred to the 2018‑1 Debtor, related rights under the Receivables, a bank account and certain other related collateral.

The 2018‑1 Facility documents contain customary provisions for securitizations, including: representations and warranties as to the eligibility of the Receivables and other matters; indemnification for specified losses not including losses due to the inability of consumers to repay their loans; covenants regarding special purpose entity matters; and default and termination provisions which provide for the acceleration of the 2018‑1 Facility in circumstances including, but not limited to, failure to make payments when due, servicer defaults, certain insolvency events, breaches of representations, warranties or covenants, failure to maintain the security interest in the receivables and defaults under other material indebtedness of the 2018‑1 Debtor.

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

As of September 30, 2018, the carrying amount of the 2018‑1 Facility was $46.6 million. In connection with the issuance of the 2018‑1 Facility, the Company incurred debt issuance costs of approximately $1.4 million. The unamortized balance of these costs as of September 30, 2018 is included in “Other assets” in the consolidated balance sheets. These costs are being amortized to interest expense over a period of 60 months, the term of the 2018‑1 Facility. The total interest expense recognized was $0.5 million for the nine months ended September 30, 2018, of which $0.1 million represented the non-cash amortization of the issuance costs.

2016-1 Facility

On January 15, 2016, the Company and certain of its subsidiaries entered into a receivables securitization (as amended, the “2016-1 Securitization Facility”) with certain purchasers, Jefferies Funding LLC, as administrative agent (the “Administrative Agent”), and Bankers Trust Company, as indenture trustee and securities intermediary (the “Indenture Trustee”). The 2016-1 Securitization Facility securitizes Receivables that have been, or will be, originated or acquired under the Company’s NetCredit brand by several of the Company’s subsidiaries and that meet specified eligibility criteria. Under the 2016-1 Securitization Facility, Receivables are sold to EFR 2016-1, LLC, a wholly-owned special purpose subsidiary (the “Issuer”), and serviced by another subsidiary. The 2016-1 Securitization Facility was amended on July 26, 2016, August 17, 2016, September 12, 2016, October 20, 2016, November 14, 2016 and December 14, 2016. The 2016-1 Securitization Facility, as amended, provided for a maximum principal amount of $275 million, variable funding notes maximum principal amount of $30 million per month and a revolving period of the facility ending in October 2017.

On October 20, 2017 (the “Amendment Closing Date”), the Company and certain of its subsidiaries amended and restated the 2016‑1 Securitization Facility (the “Amended Facility”). The counterparties to the Amended Facility included certain purchasers, the Administrative Agent and the Indenture Trustee. The Amended Facility relates to Receivables that have been and will be originated or acquired under the Company’s NetCredit brand and that meet specified eligibility criteria. The eligible Receivables that were owned by the Issuer remained in the Amended Facility and the ineligible Receivables were removed. Under the Amended Facility, additional eligible Receivables may be sold to the Issuer and serviced by another subsidiary of the Company.

In connection with the amendment and restatement, all of the outstanding notes issued by the Issuer prior to the Amendment Closing Date were redeemed and the Issuer issued an initial term note with an initial principal amount of $181.1 million (the “2017 Initial Term Note”) and variable funding notes (the “2017 Variable Funding Notes”) with an aggregate committed availability of $75 million per quarter with an option to increase the commitment to $90 million with the consent of the holders of the 2017 Variable Funding Notes. As described below, the Issuer will subsequently issue term notes (the “2017 Term Notes” and, together with the 2017 Initial Term Note and the 2017 Variable Funding Notes the “2017 Securitization Notes”) at the end of each calendar quarter. The maximum principal amount of the 2017 Securitization Notes that may be outstanding at any time under the Amended Facility is $275 million.

On each of January 2, 2018, April 2, 2018, July 2, 2018, October 1, 2018, December 31, 2018 and April 1, 2019, the Receivables financed under the 2017 Variable Funding Notes were or will be allocated to a 2017 Term Note, which 2017 Term Note will be issued to the holders of the 2017 Variable Funding Notes and the 2017 Variable Funding Note on such date will be reduced to zero. The 2017 Securitization Notes are non-recourse to the Company and mature at various dates, the latest of which will be April 15, 2022 (the “2017 Final Maturity Date”).

The 2017 Securitization Notes are issued pursuant to an amended and restated indenture, dated as of the Amendment Closing Date, between the Issuer and the Indenture Trustee. The 2017 Securitization Notes bear interest at a rate per annum equal to one-month LIBOR (subject to a floor) plus 7.50%. In addition, the Issuer paid certain customary upfront closing fees to the Administrative Agent and will pay customary annual commitment and other fees to the purchasers under the Amended Facility. Subject to certain exceptions, the Issuer is not permitted to prepay or redeem any of the 2017 Securitization Notes prior to April 15, 2019 except for a one-time prepayment of the 2017 Securitization Notes related to a removal of Receivables in an amount no greater than $100 million. Following such date, the Issuer is permitted to voluntarily prepay any of the 2017 Securitization Notes, subject to an optional redemption premium. Interest and principal payments on the 2017 Securitization Notes will be made monthly. Any remaining amounts outstanding will be payable no later than the 2017 Final Maturity Date.

All amounts due under the 2017 Securitization Notes are secured by all of the Issuer’s assets, which include the Receivables transferred to the Issuer, related rights under the Receivables, specified bank accounts and certain other related collateral.

The Amended Facility documents contain customary provisions for securitizations, including: representations and warranties as to the eligibility of the Receivables and other matters; indemnification for specified losses not including losses due to the inability of consumers to repay their loans; covenants regarding special purpose entity matters and other subjects; and default and termination provisions which provide for the acceleration of the 2017 Securitization Notes under the Amended Facility in circumstances including, but not limited to, failure to make payments when due, servicer defaults, certain insolvency events, breaches of representations,

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

warranties or covenants, failure to maintain the security interest in the receivables, and defaults under other material indebtedness. From time to time, the Company repurchases Receivables at its discretion or under the terms of the Amended Facility.

On October 25, 2017, the Issuer and the Indenture Trustee amended the Amended Facility to permit a holder of a 2017 Term Note or the 2017 Initial Term Note to exchange such notes for notes with an alternative structure with terms not materially different to the Issuer than the exchanged Term Notes or Initial Term Notes.

As of September 30, 2018 and 2017 and December 31, 2017, the carrying amount of the Amended Facility or 2016-1 Securitization Facility was $162.9 million, $173.7 million and $193.0 million, respectively, which included unamortized issuance costs of $1.7 million, $0.8 million and $3.3 million, respectively. The issuance costs related to the Amended Facility are being amortized to interest expense over a period of three years. The total interest expense recognized related to the Amended Facility and the 2016-1 Securitization facility was $14.5 million, of which $1.6 million represented the non-cash amortization of the issuance costs, and $11.4 million, of which $1.1 million represented the non-cash amortization of the issuance costs for the nine months ended September 30, 2018 and 2017, respectively.

2016-2 Facility

On December 1, 2016, the Company and certain of its subsidiaries entered into a receivables securitization (the “2016‑2 Facility”) with Redpoint Capital Asset Funding, LLC, as lender (the “Lender”). The 2016‑2 Facility securitizes Receivables that have been and will be originated or acquired under the Company’s NetCredit brand by several of the Company’s subsidiaries and that meet specified eligibility criteria, including that the annual percentage rate for each securitized consumer loan is greater than or equal to 90%. Under the 2016‑2 Facility, Receivables are sold to a wholly-owned special purpose subsidiary of the Company (the “Debtor”) and serviced by another subsidiary of the Company.

The Debtor has issued a revolving note with an initial maximum principal balance of $20.0 million (the “Initial Facility Size”), which is required to be secured by $25.0 million in unsecured consumer loans. The Initial Facility Size may be increased under the 2016‑2 Facility to $40 million. The 2016‑2 Facility is non-recourse to the Company and matures on December 1, 2019.

The 2016‑2 Facility is governed by a loan and security agreement, dated as of December 1, 2016, between the Lender and the Debtor. The 2016‑2 Facility bears interest at a rate per annum equal to LIBOR (subject to a floor) plus an applicable margin, which rate per annum was initially 12.50%. In addition, the Debtor paid certain customary upfront closing fees to the Lender. Interest payments on the 2016‑2 Facility will be made monthly. Subject to certain exceptions, the Debtor is not permitted to prepay the 2016‑2 Facility prior to October 1, 2018. Following such date, the Debtor is permitted to voluntarily prepay the 2016‑2 Facility without penalty. Any remaining amounts outstanding will be payable no later than December 1, 2019.

All amounts due under the 2016‑2 Facility are secured by all of the Debtor’s assets, which include the Receivables transferred to the Debtor, related rights under the Receivables, a bank account and certain other related collateral.

The 2016‑2 Facility documents contain customary provisions for securitizations, including: representations and warranties as to the eligibility of the Receivables and other matters; indemnification for specified losses not including losses due to the inability of consumers to repay the related Receivables; and default and termination provisions which provide for the acceleration of the 2016‑2 Facility in circumstances including, but not limited to, failure to make payments when due, certain insolvency events, breaches of representations, warranties or covenants, failure to maintain the security interest in the receivables and defaults under other material indebtedness of the Debtor.

As of September 30, 2018 and 2017 and December 31, 2017, the carrying amount of the 2016‑2 Facility was $15.1 million, $12.1 million and $15.1 million, respectively. In connection with the issuance of the 2016‑2 Facility, the Company incurred debt issuance costs of approximately $0.2 million. The unamortized balance of these costs as of September 30, 2018 is included in “Other assets” in the consolidated balance sheets. These costs are being amortized to interest expense over a period of 36 months, the term of the 2016‑2 Facility. The total interest expense recognized was $1.7 million and $1.4 million for the nine months ended September 30, 2018 and 2017, respectively, of which $0.1 million represented the non-cash amortization of the issuance costs for each of the nine months ended September 30, 2018 and 2017.

Revolving Credit Facility

On June 30, 2017, the Company and certain of its operating subsidiaries entered into a secured revolving credit agreement with a syndicate of banks including TBK Bank, SSB (“TBK”), as administrative agent and collateral agent, Jefferies Finance LLC and TBK as Joint Lead Arrangers and joint lead bookrunners, and Green Bank, N.A., as lender (as amended the “2017 Credit Agreement”). On

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

April 13, 2018, the 2017 Credit Agreement was amended to include Pacific Western Bank, as lender in the syndicate of lenders from the 2017 Credit Agreement.

The 2017 Credit Agreement is secured by domestic receivables. The borrowing limit in the 2017 Credit Agreement is $75 million (an increase from $40 million) and its maturity date is May 1, 2020. The Company had no outstanding borrowings under the 2017 Credit Agreement as of September 30, 2018 and 2017 and December 31, 2017.

The 2017 Credit Agreement provides for a revolving credit line with interest on borrowings under the facility at prime rate plus 1.00%. In addition, the 2017 Credit Agreement provides for payment of a commitment fee calculated with respect to the unused portion of the line, and ranges from 0.30% per annum to 0.50% per annum depending on usage. A portion of the revolving credit facility, up to a maximum of $20 million, is available for the issuance of letters of credit. The Company had outstanding letters of credit under the 2017 Credit Agreement of $3.6 million, $8.0 million and $8.0 million as of September 30, 2018 and 2017 and December 31, 2017, respectively. The 2017 Credit Agreement provides for certain prepayment penalties if it is terminated on or before its first and second anniversary date, subject to certain exceptions.

The 2017 Credit Agreement contains certain limitations on the incurrence of additional indebtedness, investments, the attachment of liens to the Company’s property, the amount of dividends and other distributions, fundamental changes to the Company or its business and certain other activities of the Company. The 2017 Credit Agreement contains standard financial covenants for a facility of this type based on a leverage ratio and a fixed charge coverage ratio. The 2017 Credit Agreement also provides for customary affirmative covenants, including financial reporting requirements, and certain events of default, including payment defaults, covenant defaults and other customary defaults.

In connection with the issuance and amendment of the 2017 Credit Agreement the Company incurred debt issuance costs of approximately $2.5 million, which primarily consisted of underwriting fees and legal expenses. The unamortized balance of these costs as of September 30, 2018 is included in “Other assets” in the consolidated balance sheets. These costs are being amortized to interest expense over a period of 34 months, the term of the 2017 Credit Agreement.

9.75% Senior Unsecured Notes Due 2021

On May 30, 2014, the Company issued and sold $500.0 million in aggregate principal amount of 9.75% Senior Notes due 2021. The 2021 Senior Notes bear interest at a rate of 9.75% annually on the principal amount payable semi-annually in arrears on June 1 and December 1 of each year, beginning on December 1, 2014. The 2021 Senior Notes were sold at a discount of the principal amount to yield 10.0% to maturity and will mature on June 1, 2021.

During the nine months ended September 30, 2018, the Company repurchased $228.5 million principal amount of the 2021 Senior Notes for aggregate cash consideration of $241.6 million plus accrued interest. In connection with these purchases, the Company recorded a loss on extinguishment of debt of approximately $17.2 million ($13.6 million net of tax), which is included in “Loss on early extinguishment of debt” in the consolidated statements of income. In September 2018, the Company issued a conditional full notice of redemption (the “Redemption Notice”) to redeem the remaining $116.5 million of 2021 Senior Notes principal outstanding. The Company paid the remaining balance in October 2018 (see Note 16 for additional information).

As of September 30, 2018 and 2017 and December 31, 2017, the carrying amount of the 2021 Senior Notes was $114.5 million, $337.1 million and $337.6 million, respectively, which included an unamortized discount of $0.7 million, $2.6 million and $2.4 million, respectively, and unamortized issuance costs of $1.3 million, $5.3 million and $4.9 million, respectively. The discount and issuance costs are being amortized to interest expense over a period of seven years, through the maturity date of June 1, 2021. The total interest expense recognized for the nine months ended September 30, 2018 and 2017 was $22.6 million and $38.0 million, respectively, of which $0.4 million and $0.6 million, respectively represented the non-cash amortization of the discount and $0.9 million and $1.5 million, respectively, represented the non-cash amortization of the issuance costs.

Weighted-average interest rates on long-term debt were 9.80% and 10.58% during the nine months ended September 30, 2018 and 2017, respectively.

As of September 30, 2018 and 2017 and December 31, 2017, the Company was in compliance with all covenants and other requirements set forth in the prevailing long-term debt agreement(s).

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

6.	Income Taxes

The Company’s effective tax rate for the nine months ended September 30, 2018, decreased to 3.9% from 34.0% for the nine months ended September 30, 2017. The decrease was attributable to the estimated tax effects of optimizing the timing of certain income tax deductions for prior year loan and fixed asset related deferred tax items, coupled with the overall decrease in the federal tax rate from 35% to 21% resulting from the Tax Cuts and Jobs Act, which was enacted into law on December 22, 2017.

With respect to the estimated tax effects related to the timing of certain prior year tax deductions mentioned above, an increase in unrecognized tax benefits was recorded in the current quarter. As of September 30, 2018, the balance of unrecognized tax benefits was $13.9 million ($13.8 million net of the federal benefit of state matters), all of which, if recognized, would favorably affect the effective tax rate in any future periods. The Company had $0.6 million ($0.6 million net of the federal benefit of state matters) of unrecognized tax benefits as of September 30, 2017. The Company believes it is reasonably possible that, within the next twelve months, unrecognized domestic tax benefits will change by a significant amount. The Company records interest and penalties related to tax matters as income tax expense in the consolidated statement of income.

A reconciliation of the beginning and ending amount of total unrecognized tax benefits is as follows (in thousands):

	2017					2018
	Third			Fourth		First		Second		Third
	Quarter			Quarter		Quarter		Quarter		Quarter
Balance, beginning of period	$	562		$	631	$	727	$	812	$	863
Increases related to prior year tax positions		67			—		—		—		12,956
Decreases related to prior year tax positions		(11	)		—		—		—		(2	)
Increases related to current year tax positions		13			96		85		51		38
Balance, end of period	$	631		$	727	$	812	$	863	$	13,855

The Company’s U.S. tax returns are subject to examination by federal and state taxing authorities. The Internal Revenue Service (the ”IRS”) audits for tax years 2011 through 2014 were concluded with no adjustments to the Company’s consolidated financial statements. The 2017, 2016 and 2015 tax years are open to examination by the IRS. The years open to examination by state, local, and foreign government authorities vary by jurisdiction, but the statute of limitation is generally three years from the date the tax return is filed.

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

7.	Accumulated Other Comprehensive Loss

There were no amounts reclassified out of accumulated other comprehensive loss, net of tax for the three months ended September 30, 2018 and 2017.

The following table sets forth the components of accumulated other comprehensive loss, net of tax for the nine months ended September 30, 2018 and 2017 (in thousands):

	Foreign
	currency
	translation
	gain (loss)			Total
Balance at December 31, 2016	$	(11,578	)	$	(11,578	)
Other comprehensive income, before reclassifications and tax		7,139			7,139
Tax impact		(2,578	)		(2,578	)
Balance at September 30, 2017	$	(7,017	)	$	(7,017	)

Balance at December 31, 2017	$	(7,086	)	$	(7,086	)
Other comprehensive loss, before reclassifications and tax		(6,869	)		(6,869	)
Tax impact		1,547			1,547
Australia and Canada liquidation ⁽¹⁾		2,343			2,343
Tax impact		(781	)		(781	)
Reclassification of certain deferred tax effects ⁽²⁾		(1,622	)		(1,622	)
Balance at September 30, 2018	$	(12,468	)	$	(12,468	)

(1)

Amount reclassified from accumulated other comprehensive loss represents the realization of foreign currency translation losses on the Company’s Australia and Canada businesses for the nine months ended September 30, 2018. These amounts were recorded in “Foreign currency transaction gain (loss)” on the consolidated statements of income. See Note 1 for additional information.

(2)

Amount reclassified from accumulated other comprehensive loss represents stranded tax effects resulting from the newly enacted federal corporate income tax rate under the Tax Cuts and Jobs Act. The amount of the reclassification is the difference between the historical corporate income tax rate and the newly enacted 21 percent corporate income tax rate. These amounts were recorded to retained earnings on the consolidated balance sheets. See Note 1 for additional information.

8.	Earnings Per Share

Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated by giving effect to the potential dilution that could occur if securities or other contracts to issue common shares were exercised and converted into common shares during the period. Restricted stock units issued under the Company’s stock-based employee compensation plans are included in diluted shares upon the granting of the awards even though the vesting of shares will occur over time.

The following table sets forth the reconciliation of numerators and denominators of basic and diluted earnings per share computations for the three and nine months ended September 30, 2018 and 2017 (in thousands, except per share amounts):

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2018		2017			2018		2017
Numerator:
Net income (loss)	$	15,304	$	(3,368	)	$	61,427	$	22,357
Denominator:
Total weighted average basic shares		34,168		33,670			33,938		33,533
Shares applicable to stock-based compensation		1,497		—			1,262		586
Total weighted average diluted shares		35,665		33,670			35,200		34,119
Earnings per share:
Net income (loss) per share – basic	$	0.45	$	(0.10	)	$	1.81	$	0.67
Net income (loss) per share – diluted	$	0.43	$	(0.10	)	$	1.75	$	0.66

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

For the three months ended September 30, 2018, 18,213 shares of common stock underlying stock options and 3,558 shares of common stock underlying restricted stock units were excluded from the calculation of diluted net income per share because their effect would have been antidilutive. For the three months ended September 30, 2017, 2,138,180 shares of common stock underlying stock options and 1,592,937 shares of common stock underlying restricted stock units were excluded from the calculation of diluted net income per share because their effect would have been antidilutive. For the nine months ended September 30, 2018 and 2017, 403,319 and 1,552,045 shares of common stock underlying stock options, respectively, and 100,698 and 242,677 shares of common stock underlying restricted stock units, respectively, were excluded from the calculation of diluted net income per share because their effect would have been antidilutive.

9.	Operating Segment Information

The Company provides online financial services to alternative credit consumers and small businesses in the United States, United Kingdom and Brazil and has one reportable segment, which is composed of the Company’s domestic and international operations and corporate services. Corporate services primarily includes personnel, occupancy and other operating expenses for shared functions, such as executive management, technology, analytics, business development, legal and licensing, compliance, risk management, internal audit, human resources, payroll, treasury, finance, accounting, and tax. Corporate Services assets primarily include: corporate property and equipment, nonqualified savings plan assets, marketable securities, restricted cash and prepaid expenses. The Company has aggregated all components of its business into a single reportable segment based on the similarities of the economic characteristics, the nature of the products and services, the nature of the production and distribution methods, the type of customer and the nature of the regulatory environment.

The following tables present information on the Company’s domestic, international operations and corporate services as of and for the three and nine months ended September 30, 2018 and 2017 (dollars in thousands):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2018			2017			2018			2017
Revenue
Domestic	$	251,054		$	181,584		$	677,658		$	504,326
International		42,825			36,294			123,820			95,719
Total revenue	$	293,879		$	217,878		$	801,478		$	600,045

Income from operations
Domestic	$	63,409		$	55,767		$	223,351		$	176,402
International		513			(1,983	)		3,301			3,939
Corporate services		(26,125	)		(26,107	)		(84,049	)		(79,389	)
Total income from operations	$	37,797		$	27,677		$	142,603		$	100,952

Depreciation and amortization
Domestic	$	1,800		$	1,634		$	5,555		$	4,692
International		358			396			1,101			1,136
Corporate services		1,530			1,503			4,707			4,568
Total depreciation and amortization	$	3,688		$	3,533		$	11,363		$	10,396

Expenditures for property and equipment
Domestic	$	1,927		$	2,231		$	6,131		$	4,271
International		1,186			1,281			3,140			3,401
Corporate services		1,125			1,991			2,032			3,132
Total expenditures for property and equipment	$	4,238		$	5,503		$	11,303		$	10,804

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

	September 30,
	2018		2017
Property and equipment, net
Domestic	$	19,360	$	22,541
International		9,056		7,106
Corporate services		20,098		16,910
Total property and equipment, net	$	48,514	$	46,557

Assets
Domestic	$	1,079,652	$	899,495
International		138,217		126,583
Corporate services		208,399		113,700
Total assets	$	1,426,268	$	1,139,778

Geographic Information

The following table presents the Company’s revenue by geographic region for the three and nine months ended September 30, 2018 and 2017 (dollars in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2018		2017		2018		2017
Revenue
United States	$	251,054	$	181,584	$	677,658	$	504,326
United Kingdom		36,564		30,679		105,563		82,528
Other international countries		6,261		5,615		18,257		13,191
Total revenue	$	293,879	$	217,878	$	801,478	$	600,045

The Company’s long-lived assets, which consist of the Company’s property and equipment, were $48.5 million and $46.6 million at September 30, 2018 and 2017, respectively. The operations for the Company’s domestic and international businesses are primarily located within the United States, and the value of any long-lived assets located outside of the United States is immaterial.

10.	Commitments and Contingencies

Litigation

On April 23, 2018, the Commonwealth of Virginia, through Attorney General Mark R. Herring, filed a lawsuit in the Circuit Court for the County of Fairfax, Virginia against NC Financial Solutions of Utah, LLC (“NC Utah”), a subsidiary of the Company. The lawsuit alleges violations of the Virginia Consumer Protection Act (“VCPA”) relating to NC Utah’s communications with customers, collections of certain payments, its loan agreements, and the rates it charged to Virginia borrowers. The plaintiff is seeking to enjoin NC Utah from continuing its current lending practices in Virginia, restitution, civil penalties, and costs and expenses in connection with the same. Neither the likelihood of an unfavorable decision nor the ultimate liability, if any, with respect to this matter can be determined at this time, and the Company is currently unable to estimate a range of reasonably possible losses, as defined by ASC 450-20-20, Contingencies–Loss Contingencies–Glossary, for this litigation. The Company carefully considered applicable Virginia law before NC Utah began lending in Virginia and, as a result, believes that the Plaintiff’s claims in the complaint are without merit and intends to vigorously defend this lawsuit.

The Company is also involved in certain routine legal proceedings, claims and litigation matters encountered in the ordinary course of its business. Certain of these matters may be covered to an extent by insurance or by indemnification agreements with third parties. The Company has recorded accruals in its consolidated financial statements for those matters in which it is probable that it has incurred a loss and the amount of the loss, or range of loss, can be reasonably estimated. In the opinion of management, the resolution of these matters will not have a material adverse effect on the Company’s financial position, results of operations or liquidity.

Headquarters Relocation

During 2014 the Company accelerated the lease expiration date for approximately 86,000 rentable square feet at its prior headquarters office space effective June 30, 2015. The Company relocated to its current headquarters in 2015 and recognized an expense of $3.7 million which was included as “General and administrative expense” and consisted of a lease exit liability of $2.9 million for the

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

remaining lease payments, net of estimated sublease income of $1.7 million, and $0.8 million for the removal of property and restoration costs related to the prior headquarters lease. The Company did not incur further material costs related to the relocation.

The following table is a summary of the exit and disposal activity and liability balances as a result of the headquarters relocation for the twelve months ended December 31, 2017 (in thousands):

	Lease Termination Costs			Other Exit Costs			Total
Balance at January 1, 2017	$	637		$	135		$	772
Payments		(554	)		(9	)		(563	)
Adjustments		(83	)		(126	)		(209	)
Balance at December 31, 2017	$	—		$	—		$	—

11.	Derivative Instruments

The Company periodically uses derivative instruments to manage risk from changes in market conditions that may affect the Company’s financial performance. The Company has primarily used derivative instruments to manage its primary market risks, which are interest rate risk and foreign currency exchange rate risk.

The Company has periodically used forward currency exchange contracts to minimize the effects of foreign currency risk in the United Kingdom and Brazil. The forward currency exchange contracts are non-designated derivatives. Any gain or loss resulting from these contracts is recorded as income or loss and is included in “Foreign currency transaction gain (loss)” in the Company’s consolidated statements of income. As of September 30, 2018, the Company did not manage its exposure to risk from foreign currency exchange rate fluctuations through the use of forward currency exchange contracts in the United Kingdom or Brazil.

The Company had no outstanding derivative instruments as of September 30, 2018 and 2017.

The following table presents information related to the Company’s derivative instruments as of December 31, 2017 (in thousands):

Non-designated derivatives:

	As of December 31, 2017
			Gross Amounts		Gross Amounts		Net Amounts of Assets
			of Recognized		Offset in the		Presented in the
	Notional		Financial		Consolidated		Consolidated Balance
Forward currency exchange contracts	Amount		Instruments		Balance Sheets⁽¹⁾		Sheets⁽²⁾
Assets	$	—	$	—	$	—	$	—
Liabilities	$	12,039	$	55	$	—	$	55

(1)

As of December 31, 2017, the Company had no gross amounts of recognized derivative instruments that the Company makes an accounting policy election not to offset. In addition, there was no financial collateral related to the Company’s derivatives. The Company has no assets or liabilities that are subject to an enforceable master netting agreement or similar arrangement.

(2)	Represents the fair value of forward currency contracts, which is recorded in “Accounts payable and accrued expenses” in the consolidated balance sheets.

The following table presents information on the effect of derivative instruments on the consolidated results of operations and accumulated other comprehensive income (“AOCI”) for the nine months ended September 30, 2018 and 2017 (dollars in thousands):

	Gains (Losses)								Gains (Losses)
	Recognized in				Gains (Losses)				Reclassified From
	Income				Recognized in AOCI				AOCI into Income
	Nine Months Ended				Nine Months Ended				Nine Months Ended
	September 30,				September 30,				September 30,
	2018		2017		2018		2017		2018		2017
Non-designated derivatives:
Forward currency exchange contracts⁽¹⁾	$	243	$	—	$	—	$	—	$	—	$	—
Total	$	243	$	—	$	—	$	—	$	—	$	—

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(1)	The gains (losses) on these derivatives substantially offset the (losses) gains on the economically hedged portion of the foreign intercompany balances.

12.	Related Party Transactions

An officer of the Company, who resigned effective July 1, 2018, had an ongoing ownership interest in the small business from which the Company acquired certain assets and assumed certain liabilities in June 2015 (see Note 2 for additional information). Pursuant to the acquisition, a subsidiary of the Company issued a promissory note to the small business in the amount of $3.0 million (the “Promissory Note”) and granted the company an opportunity to earn certain contingent purchase consideration (see Note 2 for additional information), both of which were guaranteed by the Company. The Promissory Note accrued interest at a rate of 4.0% per annum and the total outstanding principal and accrued interest of $3.4 million was paid on June 22, 2018. During the nine months ended September 30, 2018 and 2017, the Company incurred interest expense of $62 thousand and $95 thousand, respectively, related to the Promissory Note. In addition, as a condition precedent to the acquisition, a subsidiary of the Company executed a Transition Services Agreement with the small business from which the Company acquired certain assets whereby it agreed to provide certain transition services to the business for three years following the acquisition. During the nine months ended September 30, 2018 and 2017, the Company was paid $20 thousand and $24 thousand, respectively, for such services.

In October 2017, the Company entered into an agreement for direct mail production and fulfillment services with a marketing services company where David Fisher, the Company’s Chief Executive Officer and Chairman of the Board, also serves as a member of the marketing services company’s board of directors. During the nine months ended September 30, 2018, the Company paid $6.8 million to the agency. As of September 30, 2018, the Company owed the agency $1.4 million related to services provided.

13.	Variable Interest Entities

As part of the Company’s overall funding strategy and as part of its efforts to support its liquidity from sources other than its traditional capital market sources, the Company has established a securitization program through the 2016-1, 2016-2 and 2018-1 Securitization Facilities. The Company transferred certain consumer loan receivables to wholly owned, bankruptcy-remote special purpose subsidiaries (VIEs), which issue term notes backed by the underlying consumer loan receivables and are serviced by another wholly owned subsidiary.

The Company is required to evaluate the VIEs for consolidation. The Company has the ability to direct the activities of the VIEs that most significantly impact the economic performance of the entities as the servicer of the securitized loan receivables. Additionally, the Company has the right to receive residual payments, which expose it to potentially significant losses and returns. Accordingly, the Company determined it is the primary beneficiary of the VIEs and is required to consolidate them.

The assets and liabilities related to the VIEs are included in the Company’s consolidated financial statements and are accounted for as secured borrowings.

The Company parenthetically discloses on its consolidated balance sheets the VIEs’ assets that can only be used to settle the VIEs’ obligations and the VIE liabilities if the VIEs’ creditors have no recourse against the Company’s general credit. The carrying amounts of consolidated VIE assets and liabilities associated with the Company’s securitization entities were as follows (dollars in thousands):

	September 30,				December 31,
	2018		2017		2017
Assets
Cash and cash equivalents	$	120	$	—	$	—
Restricted cash		18,678		22,161		21,696
Loans and finance receivables, net		291,673		274,363		259,996
Other receivables and prepaid expenses		2,381		—		—
Other assets		2,228		2,056		178
Total assets	$	315,080	$	298,580	$	281,870
Liabilities
Accounts payable and accrued expenses	$	2,514	$	1,793	$	1,671
Long-term debt		224,559		185,771		208,135
Total liabilities	$	227,073	$	187,564	$	209,806

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

14.	Fair Value Measurements

Recurring Fair Value Measurements

In accordance with ASC 820, Fair Value Measurements and Disclosures, certain of the Company’s assets and liabilities, which are carried at fair value, are classified in one of the following three categories:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.

Level 3: Unobservable inputs that are not corroborated by market data.

During the nine months ended September 30, 2018 and 2017, there were no transfers of assets or liabilities in or out of Level 1, Level 2 or Level 3 fair value measurements. It is the Company’s policy to value any transfers between levels of the fair value hierarchy based on end of period fair values.

The Company’s financial assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2018 and 2017 and December 31, 2017 are as follows (dollars in thousands):

	September 30,			Fair Value Measurements Using
	2018			Level 1		Level 2			Level 3
Financial assets (liabilities):
Non-qualified savings plan assets⁽¹⁾	$	2,214		$	2,214	$	—		$	—
Total	$	2,214		$	2,214	$	—		$	—

	September 30,			Fair Value Measurements Using
	2017			Level 1		Level 2			Level 3
Financial assets (liabilities):
Non-qualified savings plan assets⁽¹⁾	$	1,443		$	1,443	$	—		$	—
Contingent consideration		(2,358	)		—		—			(2,358	)
Total	$	(915	)	$	1,443	$	—		$	(2,358	)

	December 31,			Fair Value Measurements Using
	2017			Level 1		Level 2			Level 3
Financial assets (liabilities):
Forward currency exchange contracts	$	(55	)	$	—	$	(55	)	$	—
Non-qualified savings plan assets⁽¹⁾		1,460			1,460		—			—
Total	$	1,405		$	1,460	$	(55	)	$	—

(1)	The non-qualified savings plan assets are included in “Other receivables and prepaid expenses” in the Company’s consolidated balance sheets and have an offsetting liability of equal amount, which is included in “Accounts payable and accrued expenses” in the Company’s consolidated balance sheets.

The Company determined the fair value of the liability for the contingent consideration based on a probability-weighted discounted cash flow analysis. This analysis reflects the contractual terms of the purchase agreement and utilizes assumptions with regard to future earnings, probabilities of achieving such future earnings, the timing of expected payments and a discount rate. Significant increases with respect to assumptions as to future earnings and probabilities of achieving such future earnings would result in a higher fair value measurement while an increase in the discount rate would result in a lower fair value measurement. The fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement as defined in the fair value hierarchy. Based on future expected earnings, the Company did not expect to pay any additional contingent consideration and recorded an adjustment to write-off the remaining liability in 2017. As of September 30, 2018 the Company had not made and was no longer potentially liable for any contingent payments related to this acquisition.

The changes in the fair value of the contingent consideration, which is a Level 3 liability measured at fair value on a recurring basis, are summarized in the table below for the nine months ended September 30, 2017 (dollars in thousands):

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Contingent consideration		Total
Balance at December 31, 2016	$	2,358	$	2,358
Adjustments		—		—
Balance at September 30, 2017	$	2,358	$	2,358

Fair Value Measurements on a Non-Recurring Basis

The Company measures non-financial assets and liabilities such as property and equipment and intangible assets at fair value on a non-recurring basis or when events or circumstances indicate that the carrying amount of the assets may be impaired. At September 30, 2018 and 2017 and December 31, 2017, there were no assets or liabilities recorded at fair value on a non-recurring basis.

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Financial Assets and Liabilities Not Measured at Fair Value

The Company’s financial assets and liabilities as of September 30, 2018 and 2017 and December 31, 2017 that are not measured at fair value in the consolidated balance sheets are as follows (dollars in thousands):

	Balance at
	September 30,		Fair Value Measurements Using
	2018		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	164,122	$	164,122	$	—	$	—
Short-term loans and line of credit accounts, net ⁽¹⁾		230,650		—		—		230,650
Installment loans and RPAs, net ⁽¹⁾⁽⁴⁾		608,133		—		—		637,880
Restricted cash ⁽⁵⁾		20,897		20,897		—		—
Investment in unconsolidated investee⁽²⁾⁽³⁾		6,703		—		—		6,703
Total	$	1,030,505	$	185,019	$	—	$	875,233
Financial liabilities:
Liability for estimated losses on consumer loans guaranteed by the Company	$	2,244	$	—	$	—	$	2,244
Securitization Notes		226,218		—		228,819		—
9.75% senior notes due 2021		115,821		—		121,657		—
8.50% senior notes due 2024		250,000		—		253,125		—
8.50% senior notes due 2025		375,000		—		371,250		—
Total	$	969,283	$	—	$	974,851	$	2,244

	Balance at
	September 30,		Fair Value Measurements Using
	2017		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	110,054	$	110,054	$	—	$	—
Short-term loans and line of credit accounts, net ⁽¹⁾		176,437		—		—		176,437
Installment loans and RPAs, net ⁽¹⁾⁽⁴⁾		461,299		—		—		496,377
Restricted cash ⁽⁵⁾		29,866		29,866		—		—
Investment in unconsolidated investee⁽²⁾⁽³⁾		6,703		—		—		6,703
Total	$	784,359	$	139,920	$	—	$	679,517
Financial liabilities:
Liability for estimated losses on consumer loans guaranteed by the Company	$	2,017	$	—	$	—	$	2,017
Promissory note		3,000		—		—		3,245
Securitization Notes		186,533		—		189,005		—
9.75% senior notes due 2021		342,407		—		363,796		—
8.50% senior notes due 2024		250,000		—		252,000		—
Total	$	783,957	$	—	$	804,801	$	5,262

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

	Balance at
	December 31,		Fair Value Measurements Using
	2017		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	68,684	$	68,684	$	—	$	—
Short-term loans and line of credit accounts, net ⁽¹⁾		192,675		—		—		192,675
Installment loans and RPAs, net ⁽¹⁾⁽⁴⁾		512,030		—		—		544,799
Restricted cash ⁽⁵⁾		29,460		29,460		—		—
Investment in unconsolidated investee⁽²⁾⁽³⁾		6,703		—		—		6,703
Total	$	809,552	$	98,144	$	—	$	744,177
Financial liabilities:
Liability for estimated losses on consumer loans guaranteed by the Company	$	2,258	$	—	$	—	$	2,258
Promissory note		3,000		—		—		3,287
Securitization Notes		211,406		—		215,063		—
9.75% senior notes due 2021		342,558		—		365,700		—
8.50% senior notes due 2024		250,000		—		255,000		—
Total	$	809,222	$	—	$	835,763	$	5,545

(1)	Short-term loans, line of credit accounts, installment loans and RPAs are included in “Loans and finance receivables, net” in the consolidated balance sheets.

(2)	Investment in unconsolidated investee is included in “Other assets” in the consolidated balance sheets.

(3)	See Note 4 for additional information related to the investment in unconsolidated investee.

(4)	Installment loan and RPAs, net include $291.7 million, $274.4 million and $260.0 million in net assets of consolidated VIEs as of September 30, 2018 and 2017 and December 31, 2017, respectively.

(5)	Restricted cash includes $18.7 million, $22.2 million and $21.7 million in assets of consolidated VIEs as of September 30, 2018 and 2017 and December 31, 2017, respectively.

Cash and cash equivalents and restricted cash bear interest at market rates and have original maturities of less than 90 days. The carrying amount of cash and cash equivalents and restricted cash approximates fair value.

Short-term loans, line of credit accounts, installment loans and RPAs are carried in the consolidated balance sheet net of the allowance for estimated losses, which is calculated by applying historical loss rates combined with recent default trends to the gross receivable balance. Short-term loans and line of credit accounts have relatively short maturity periods that are generally 12 months or less. The unobservable inputs used to calculate the fair value of these receivables include historical loss rates, recent default trends and estimated remaining loan term; therefore, the carrying value approximates the fair value. The fair value of installment loans and RPAs is estimated using discounted cash flow analyses, which consider interest rates on loans and discounts offered for receivables with similar terms to customers with similar credit quality, the timing of expected payments, estimated customer default rates and/or valuations of comparable portfolios. As of September 30, 2018 and 2017 and December 31, 2017, the fair value of the Company’s installment loans and RPAs was greater than the carrying value of these loans and finance receivables. Unsecured installment loans typically have terms between two and 60 months. RPAs typically have estimated delivery terms between six and 18 months.

The Company measures the fair value of its investment in unconsolidated investee using Level 3 inputs. Because the unconsolidated investee is a private company and financial information is limited, the Company estimates the fair value based on the best available information at the measurement date. As of September 30, 2018 and 2017 and December 31, 2017, the Company estimated the fair value of its investment to be approximately equal to the book value.

In connection with its CSO programs, the Company guarantees consumer loan payment obligations to unrelated third-party lenders for short-term and installment loans the Company arranges for consumers on the third-party lenders’ behalf and is required to purchase any defaulted loans it has guaranteed. The estimated fair value of the liability for estimated losses on consumer loans guaranteed by the Company was $2.2 million, $2.0 million and $2.3 million as of September 30, 2018 and 2017 and December 31, 2017, respectively. The Company measures the fair value of its liability for third-party lender-owned consumer loans under Level 3 inputs. The fair value of these liabilities is calculated by applying historical loss rates combined with recent default trends to the gross consumer loan balance. The unobservable inputs used to calculate the fair value of these loans include historical loss rates, recent default trends and estimated remaining loan terms; therefore, the carrying value of these liabilities approximates the fair value.

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The Company measured the fair value of the Promissory Note using Level 3 inputs. The fair value of the Promissory Note was estimated using a discounted cash flow analysis. There was no outstanding balance for the Promissory Note as of September 30, 2018. As of September 30, 2017 and December 31, 2017, the Promissory Note had a higher fair value than the carrying value.

The Company measures the fair value of its Securitization Notes using Level 2 inputs. The fair value of the Company’s Securitization Notes is estimated based on quoted prices in markets that are not active. As of September 30, 2018 and 2017 and December 31, 2017, the Company’s Securitization Notes had a higher fair value than the carrying value.

The Company measures the fair value of its 9.75% senior notes due 2021 using Level 2 inputs. The fair value of the Company’s 9.75% senior notes due 2021 is estimated based on quoted prices in markets that are not active. As of September 30, 2018 and 2017 and December 31, 2017, the Company’s 9.75% senior notes due 2021 had a higher fair value than the carrying value.

The Company measures the fair value of its 8.50% senior notes due 2024 using Level 2 inputs. The fair value of the Company’s 8.50% senior notes due 2024 is estimated based on quoted prices in markets that are not active. As of September 30, 2018 and 2017 and December 31, 2017, the Company’s 8.50% senior notes due 2024 had a higher fair value than the carrying value.

The Company measures the fair value of its 8.50% senior notes due 2025 using Level 2 inputs. The fair value of the Company’s 8.50% senior notes due 2025 is estimated based on quoted prices in markets that are not active. As of September 30, 2018, the Company’s 8.50% senior notes due 2025 had a lower fair value than the carrying value.

15.	Condensed Consolidating Financial Statements

The Company’s 2021 Senior Notes are unconditionally guaranteed by certain of the Company’s subsidiaries (the “Guarantor Subsidiaries”) and are not secured by its other subsidiaries (the “Non-Guarantor Subsidiaries”). The Guarantor Subsidiaries are 100% owned, all guarantees are full and unconditional, and all guarantees are joint and several. As a result of the guarantee arrangements, the Company is required, in accordance with Rule 3-10 of Regulation S-X, to present the following condensed consolidating financial statements.

The condensed consolidating financial statements reflect the investments in subsidiaries of the Company using the equity method of accounting. The principal elimination entries eliminate investments in subsidiaries and intercompany balances and transactions. Condensed consolidating financial statements of Enova International, Inc. (the “Parent”), its Guarantor Subsidiaries and Non-Guarantor Subsidiaries as of September 30, 2018 and 2017 and December 31, 2017 and for the periods ended September 30, 2018 and 2017 are shown on the following pages.

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

CONDENSED CONSOLIDATING BALANCE SHEETS

As of September 30, 2018

(dollars in thousands)

				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Assets
Cash and cash equivalents	$	99,862		$	63,530		$	730		$	—		$	164,122
Restricted cash		—			2,219			18,678			—			20,897
Loans and finance receivables, net		—			547,110			291,673			—			838,783
Income taxes receivable		135,283			(89,676	)		32			—			45,639
Other receivables and prepaid expenses		110			22,373			3,216			—			25,699
Property and equipment, net		—			48,103			411			—			48,514
Goodwill		—			267,013			—			—			267,013
Intangible assets, net		—			3,523			—			—			3,523
Investment in subsidiaries		502,430			64,237			—			(566,667	)		—
Intercompany receivable		347,844			—			—			(347,844	)		—
Other assets		1,658			8,192			2,228			—			12,078
Total assets	$	1,087,187		$	936,624		$	316,968		$	(914,511	)	$	1,426,268
Liabilities and Stockholders' Equity
Accounts payable and accrued expenses	$	8,079		$	64,250		$	3,859		$	—		$	76,188
Intercompany payables		—			315,308			32,536			(347,844	)		—
Income taxes currently payable		—			—			—			—			—
Deferred tax liabilities, net		(92	)		46,803			(390	)		—			46,321
Long-term debt		726,532			—			224,559			—			951,091
Total liabilities		734,519			426,361			260,564			(347,844	)		1,073,600
Commitments and contingencies
Stockholders' equity		352,668			510,263			56,404			(566,667	)		352,668
Total liabilities and stockholders' equity	$	1,087,187		$	936,624		$	316,968		$	(914,511	)	$	1,426,268

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

CONDENSED CONSOLIDATING BALANCE SHEETS

As of September 30, 2017

(dollars in thousands)

				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Assets
Cash and cash equivalents	$	54,055		$	50,996		$	5,003		$	—		$	110,054
Restricted cash		—			7,705			22,161			—			29,866
Loans and finance receivables, net		—			351,627			286,109			—			637,736
Income taxes receivable		105,140			(95,852	)		31			—			9,319
Other receivables and prepaid expenses		245			21,271			2,280			—			23,796
Property and equipment, net		—			45,925			632			—			46,557
Goodwill		—			267,015			—			—			267,015
Intangible assets, net		—			4,593			—			—			4,593
Investment in subsidiaries		362,991			45,924			—			(408,915	)		—
Intercompany receivable		343,514			—			—			(343,514	)		—
Other assets		1,826			6,960			2,056			—			10,842
Total assets	$	867,771		$	706,164		$	318,272		$	(752,429	)	$	1,139,778
Liabilities and Stockholders' Equity
Accounts payable and accrued expenses	$	13,795		$	62,348		$	2,754		$	—		$	78,897
Intercompany payables		—			252,154			91,360			(343,514	)		—
Deferred tax liabilities, net		(453	)		21,634			(500	)		—			20,681
Long-term debt		579,624			—			185,771			—			765,395
Total liabilities		592,966			336,136			279,385			(343,514	)		864,973
Commitments and contingencies
Stockholders' equity		274,805			370,028			38,887			(408,915	)		274,805
Total liabilities and stockholders' equity	$	867,771		$	706,164		$	318,272		$	(752,429	)	$	1,139,778

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

CONDENSED CONSOLIDATING BALANCE SHEETS

As of December 31, 2017

(dollars in thousands)

				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Assets
Cash and cash equivalents	$	12,183		$	54,659		$	1,842		$	—		$	68,684
Restricted cash		—			7,764			21,696			—			29,460
Loans and finance receivables, net		—			442,516			262,189			—			704,705
Income taxes receivable		114,494			(110,852	)		450			—			4,092
Other receivables and prepaid expenses		833			20,731			2,253			—			23,817
Property and equipment, net		—			47,965			560			—			48,525
Goodwill		—			267,015			—			—			267,015
Intangible assets, net		—			4,325			—			—			4,325
Investment in subsidiaries		388,538			63,956			—			(452,494	)		—
Intercompany receivable		354,457			—			—			(354,457	)		—
Other assets		1,785			6,874			178			—			8,837
Total assets	$	872,290		$	804,953		$	289,168		$	(806,951	)	$	1,159,460
Liabilities and Stockholders' Equity
Accounts payable and accrued expenses	$	10,336		$	64,541		$	2,246		$	—		$	77,123
Intercompany payables		—			331,425			23,032			(354,457	)		—
Deferred tax liabilities, net		(140	)		12,726			(478	)		—			12,108
Long-term debt		580,407			—			208,135			—			788,542
Total liabilities		590,603			408,692			232,935			(354,457	)		877,773
Commitments and contingencies
Stockholders' equity		281,687			396,261			56,233			(452,494	)		281,687
Total liabilities and stockholders' equity	$	872,290		$	804,953		$	289,168		$	(806,951	)	$	1,159,460

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

CONDENSED CONSOLIDATING STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

For the Three Months Ended September 30, 2018

(in thousands)

				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Revenue	$	—		$	251,593		$	42,286		$	—		$	293,879
Cost of Revenue		—			130,719			33,044			—			163,763
Gross Profit		—			120,874			9,242			—			130,116
Expenses
Marketing		—			34,725			1,286			—			36,011
Operations and technology		2			26,567			1,691			—			28,260
General and administrative		75			23,450			835			—			24,360
Depreciation and amortization		—			3,648			40			—			3,688
Total Expenses		77			88,390			3,852			—			92,319
(Loss) Income from Operations		(77	)		32,484			5,390			—			37,797
Interest expense, net		(14,680	)		14			(5,578	)		—			(20,244	)
Foreign currency transaction gain (loss)		29			(2	)		—			—			27
Loss on early extinguishment of debt		(12,469	)		—			—			—			(12,469	)
(Loss) Income before Income Taxes and Equity in Net Earnings of Subsidiaries		(27,197	)		32,496			(188	)		—			5,111
Provision for (benefit from) income taxes		4,750			(12,135	)		(2,808	)		—			(10,193	)
(Loss) Income before Equity in Net Earnings of Subsidiaries		(31,947	)		44,631			2,620			—			15,304
Net earnings of subsidiaries		47,251			2,620			—			(49,871	)		—
Net Income (Loss)	$	15,304		$	47,251		$	2,620		$	(49,871	)	$	15,304
Other comprehensive (loss) gain, net of tax:
Foreign currency translation (loss) gain		(1,563	)		(1,499	)		(63	)		1,562			(1,563	)
Total other comprehensive (loss) gain, net of tax		(1,563	)		(1,499	)		(63	)		1,562			(1,563	)
Comprehensive Income (Loss)	$	13,741		$	45,752		$	2,557		$	(48,309	)	$	13,741

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

CONDENSED CONSOLIDATING STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

For the Three Months Ended September 30, 2017

(in thousands)

				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Revenue	$	—		$	178,908		$	40,374		$	(1,404	)	$	217,878
Cost of Revenue		—			79,349			27,992			—			107,341
Gross Profit		—			99,559			12,382			(1,404	)		110,537
Expenses
Marketing		—			26,423			577			—			27,000
Operations and technology		—			22,911			4,252			—			27,163
General and administrative		131			25,746			691			(1,404	)		25,164
Depreciation and amortization		—			3,486			47			—			3,533
Total Expenses		131			78,566			5,567			(1,404	)		82,860
(Loss) Income from Operations		(131	)		20,993			6,815			—			27,677
Interest expense, net		(14,238	)		(33	)		(4,021	)		—			(18,292	)
Foreign currency transaction gain		65			—			—			—			65
Loss on early extinguishment of debt		(14,927	)		—			—			—			(14,927	)
(Loss) Income before Income Taxes and Equity in Net Earnings of Subsidiaries		(29,231	)		20,960			2,794			—			(5,477	)
(Benefit from) provision for income taxes		(9,760	)		6,746			905			—			(2,109	)
(Loss) Income before Equity in Net Earnings of Subsidiaries		(19,471	)		14,214			1,889			—			(3,368	)
Net earnings of subsidiaries		16,103			1,889			—			(17,992	)		—
Net (Loss) Income	$	(3,368	)	$	16,103		$	1,889		$	(17,992	)	$	(3,368	)
Other comprehensive gain (loss), net of tax:
Foreign currency translation gain (loss)		2,052			1,304			749			(2,053	)		2,052
Total other comprehensive gain (loss), net of tax		2,052			1,304			749			(2,053	)		2,052
Comprehensive (Loss) Income	$	(1,316	)	$	17,407		$	2,638		$	(20,045	)	$	(1,316	)

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

CONDENSED CONSOLIDATING STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

For the Nine Months Ended September 30, 2018

(in thousands)

				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Revenue	$	—		$	681,126		$	120,352		$	—		$	801,478
Cost of Revenue		—			314,476			79,334			—			393,810
Gross Profit		—			366,650			41,018			—			407,668
Expenses
Marketing		—			90,255			2,878			—			93,133
Operations and technology		5			77,647			3,341			—			80,993
General and administrative		207			76,511			2,858			—			79,576
Depreciation and amortization		—			11,238			125			—			11,363
Total Expenses		212			255,651			9,202			—			265,065
(Loss) Income from Operations		(212	)		110,999			31,816			—			142,603
Interest expense, net		(42,685	)		(431	)		(16,156	)		—			(59,272	)
Foreign currency transaction gain (loss)		84			(2,349	)		—			—			(2,265	)
Loss on early extinguishment of debt		(17,179	)		—			—			—			(17,179	)
(Loss) Income before Income Taxes and Equity in Net Earnings of Subsidiaries		(59,992	)		108,219			15,660			—			63,887
(Benefit from) provision for income taxes		(2,310	)		4,167			603			—			2,460
(Loss) Income before Equity in Net Earnings of Subsidiaries		(57,682	)		104,052			15,057			—			61,427
Net earnings of subsidiaries		119,109			15,057			—			(134,166	)		—
Net Income (Loss)	$	61,427		$	119,109		$	15,057		$	(134,166	)	$	61,427
Other comprehensive (loss) gain, net of tax:
Foreign currency translation (loss) gain		(3,760	)		(5,272	)		(110	)		5,382			(3,760	)
Reclassification of certain deferred tax effects		(1,622	)		—			—			—			(1,622	)
Total other comprehensive (loss) gain, net of tax		(5,382	)		(5,272	)		(110	)		5,382			(5,382	)
Comprehensive Income (Loss)	$	56,045		$	113,837		$	14,947		$	(128,784	)	$	56,045

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

CONDENSED CONSOLIDATING STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

For the Nine Months Ended September 30, 2017

(in thousands)

				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Revenue	$	—		$	497,081		$	106,902		$	(3,938	)	$	600,045
Cost of Revenue		—			197,281			71,806			—			269,087
Gross Profit		—			299,800			35,096			(3,938	)		330,958
Expenses
Marketing		—			68,686			1,307			—			69,993
Operations and technology		—			65,090			7,422			—			72,512
General and administrative		265			76,060			4,718			(3,938	)		77,105
Depreciation and amortization		—			10,261			135			—			10,396
Total Expenses		265			220,097			13,582			(3,938	)		230,006
(Loss) Income from Operations		(265	)		79,703			21,514			—			100,952
Interest expense, net		(40,780	)		(97	)		(11,649	)		—			(52,526	)
Foreign currency transaction gain		349			5			—			—			354
Loss on early extinguishment of debt		(14,927	)		—			—			—			(14,927	)
(Loss) Income before Income Taxes and Equity in Net Earnings of Subsidiaries		(55,623	)		79,611			9,865			—			33,853
(Benefit from) provision for income taxes		(18,889	)		27,034			3,351			—			11,496
(Loss) Income before Equity in Net Earnings of Subsidiaries		(36,734	)		52,577			6,514			—			22,357
Net earnings of subsidiaries		59,091			6,514			—			(65,605	)		—
Net Income (Loss)	$	22,357		$	59,091		$	6,514		$	(65,605	)	$	22,357
Other comprehensive gain (loss), net of tax:
Foreign currency translation gain (loss)		4,561			4,197			365			(4,562	)		4,561
Total other comprehensive gain (loss), net of tax		4,561			4,197			365			(4,562	)		4,561
Comprehensive Income (Loss)	$	26,918		$	63,288		$	6,879		$	(70,167	)	$	26,918

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

For the Nine Months Ended September 30, 2018

(in thousands)

				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Cash Flows from Operating Activities	$	(50,389	)	$	547,588		$	(13,982	)	$	(15,057	)	$	468,160
Cash Flows from Investing Activities
Loans and finance receivables originated or acquired		—			(1,277,958	)		—			—			(1,277,958	)
Securitized loans transferred		—			242,087			(242,087	)		—			—
Loans and finance receivables repaid		—			517,805			254,215			—			772,020
Purchases of property and equipment		—			(11,232	)		(71	)		—			(11,303	)
Capital contributions to subsidiaries		—			14,776			—			(14,776	)		—
Other investing activities		—			93			—			—			93
Net cash (used in) provided by investing activities		—			(514,429	)		12,057			(14,776	)		(517,148	)
Cash Flows from Financing Activities
(Payments for) proceeds from member's equity		—			(15,057	)		(14,776	)		29,833			—
Debt issuance costs paid		(510	)		(6,624	)		(2,022	)		—			(9,156	)
Debt prepayment penalty		(13,073	)		—			—			—			(13,073	)
Payment of promissory note		—			(3,000	)		—			—			(3,000	)
Treasury shares purchased		(1,562	)		—			—			—			(1,562	)
Issuance of Senior Notes		375,000			—			—			—			375,000
Repayments of Senior Notes		(228,514	)		—			—			—			(228,514	)
Borrowings under revolving line of credit		109,000			—			—			—			109,000
Repayments under revolving line of credit		(109,000	)		—			—			—			(109,000	)
Borrowings under securitization facility		—			—			162,413			—			162,413
Repayments under securitization facility		—			—			(147,601	)		—			(147,601	)
Proceeds from exercise of stock options		6,727			—			—			—			6,727
Net cash provided by (used in) financing activities		138,068			(24,681	)		(1,986	)		29,833			141,234
Effect of exchange rates on cash, cash equivalents and restricted cash		—			(5,152	)		(219	)		—			(5,371	)
Net increase (decrease) in cash, cash equivalents and restricted cash		87,679			3,326			(4,130	)		—			86,875
Cash, cash equivalents and restricted cash at beginning of year		12,183			62,423			23,538			—			98,144
Cash, cash equivalents and restricted cash at end of period	$	99,862		$	65,749		$	19,408		$	—		$	185,019

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

For the Nine Months Ended September 30, 2017

(in thousands)

				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Cash Flows from Operating Activities	$	(17,931	)	$	346,948		$	(8,712	)	$	(9,008	)	$	311,297
Cash Flows from Investing Activities
Loans and finance receivables originated or acquired		—			(974,211	)		(24,122	)		—			(998,333	)
Securitized loans transferred		—			201,518			(201,518	)		—			—
Loans and finance receivables repaid		—			467,011			205,463			—			672,474
Purchases of property and equipment		—			(10,651	)		(153	)		—			(10,804	)
Capital contributions to subsidiaries		—			(11,785	)		—			11,785			—
Other investing activities		—			1,798			—			—			1,798
Net cash (used in) provided by investing activities		—			(326,320	)		(20,330	)		11,785			(334,865	)
Cash Flows from Financing Activities
(Payments for) proceeds from member's equity		—			(9,008	)		11,785			(2,777	)		—
Debt issuance costs paid		(9,564	)		—			—			—			(9,564	)
Debt prepayment penalty		(11,335	)		—			—			—			(11,335	)
Treasury shares purchased		(2,115	)		—			—			—			(2,115	)
Issuance of Senior Notes		250,000			—			—			—			250,000
Repayments of Senior Notes		(155,000	)		—			—			—			(155,000	)
Borrowings under revolving line of credit		30,000			—			—			—			30,000
Repayments under revolving line of credit, net		(30,000	)		—			—			—			(30,000	)
Borrowings under securitization facility		—			—			137,200			—			137,200
Repayments under securitization facility		—			—			(116,085	)		—			(116,085	)
Net cash provided by (used in) financing activities		71,986			(9,008	)		32,900			(2,777	)		93,101
Effect of exchange rates on cash		—			4,186			(39	)		—			4,147
Net increase in cash and cash equivalents		54,055			15,806			3,819			—			73,680
Cash and cash equivalents at beginning of year		—			42,895			23,345			—			66,240
Cash and cash equivalents at end of period	$	54,055		$	58,701		$	27,164		$	—		$	139,920

16.	Subsequent Events

Subsequent events have been reviewed through the date these financial statements were available to be issued.

2018-A Notes

On October 25, 2018, the Company announced that an indirect subsidiary intends to offer, subject to market and other customary conditions, $95,000,000 Class A Asset Backed Notes (the “Class A Notes”) and $30,400,000 Class B Asset Backed Notes (the “Class B Notes” and, collectively with the Class A Notes, the “2018-A Notes”), with an anticipated closing date of on or about October 31, 2018 (the “2018-A Closing Date”). The Class A Notes will bear interest at 4.20% and the Class B Notes will bear interest at 7.37%. The 2018-A Notes will be backed by a pool of Receivables and will represent obligations of the issuer only. The 2018-A Notes will not be guaranteed by the Company.

The net proceeds of the offering of the 2018-A Notes on the 2018-A Closing Date will be used to acquire the Receivables from the Company, fund a reserve account and pay fees and expenses incurred in connection with the transaction.

The 2018-A Notes will be offered only to “qualified institutional buyers” pursuant to Rule 144A under the Securities Act and to certain persons outside of the United States in compliance with Regulation S under the Securities Act. The 2018-A Notes have not been registered under the Securities Act, or the securities laws of any state or other jurisdiction, and may not be offered or sold in the United States without registration or an applicable exemption from the Securities Act and applicable state securities or blue sky laws and foreign securities laws.

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

2018-2 Facility

On October 23, 2018, the Company and several of its subsidiaries entered into a receivables funding agreement (the “2018-2 Facility”) with Credit Suisse AG, New York Branch, as agent (the “Agent”). The 2018-2 Facility collateralizes Receivables that have been and will be originated or acquired under the Company’s NetCredit brand by several of the Company’s subsidiaries and that meet specified eligibility criteria in exchange for a revolving note. Under the 2018-2 Facility, Receivables are sold to a wholly-owned special purpose subsidiary of the Company (the “2018-2 Debtor”) and serviced by another subsidiary of the Company.

The 2018-2 Debtor has issued a revolving note with an initial maximum principal balance of $150.0 million, which is required to be secured by 1.25 times the drawn amount in eligible Receivables. The 2018-2 Facility is non-recourse to the Company and matures on October 23, 2022.

The 2018-2 Facility is governed by a loan and security agreement, dated as of October 23, 2018, between the Agent, the 2018-2 Debtor and certain other lenders and agent parties thereto. The 2018-2 Facility bears interest at a rate per annum equal to one-month LIBOR (subject to a floor) plus an applicable margin, which rate per annum is 3.75%. In addition, the 2018-2 Debtor paid certain customary upfront closing fees to the Agent. Interest payments on the 2018-2 Facility will be made monthly. The 2018-2 Debtor shall be permitted to prepay the 2018-2 Facility, subject to certain fees and conditions. Any remaining amounts outstanding will be payable no later than October 23, 2022, the final maturity date.

All amounts due under the 2018-2 Facility are secured by all of the 2018-2 Debtor’s assets, which include the Receivables transferred to the 2018-2 Debtor, related rights under the Receivables, a bank account and certain other related collateral.

The 2018-2 Facility documents contain customary provisions for securitizations, including: representations and warranties as to the eligibility of the Receivables and other matters; indemnification for specified losses not including losses due to the inability of consumers to repay their loans; covenants regarding special purpose entity matters; and default and termination provisions that provide for the acceleration of the 2018-2 Facility in circumstances including, but not limited to, failure to make payments when due, servicer defaults, certain insolvency events, breaches of representations, warranties or covenants, failure to maintain the security interest in the Receivables and defaults under other material indebtedness of the 2018-2 Debtor.

Redemption of 2021 Senior Notes

On October 11, 2018, the Company redeemed the remaining $116.5 million in principal amount of the outstanding 2021 Senior Notes. The redemption price of the 2021 Senior Notes, as set forth in the 2021 Senior Notes Indenture, was equal to 104.875% of the principal amount of such 2021 Senior Notes redeemed, plus accrued and unpaid interest thereon. In connection with these purchases, the Company recorded a loss on extinguishment of debt of approximately $7.6 million, which will be included in “Loss on early extinguishment of debt” in the consolidated statements of income.

Amendment of 2017 Credit Agreement

On October 5, 2018, the Company and certain of its operating subsidiaries entered into an amendment of the 2017 Credit Agreement (the “Amended Credit Agreement”). The Amended Credit Agreement is secured by domestic receivables and amends the Company’s existing credit facility that was entered into on June 30, 2017 (as previously amended, the “Original Credit Facility”).

The Amended Credit Agreement, amongst other changes, increases the borrowing limit to $125 million from $75 million in the Original Credit Facility and expands the definition of eligible accounts. The maturity date of May 1, 2020, and the interest rate on borrowings of prime rate plus 1.00%, however, remain the same as the Original Credit Facility. In addition, Axos Bank, as lender, in the Amended Credit Agreement joins the syndicate of lenders from the Original Credit Facility that includes TBK Bank, SSB (“TBK”), as administrative agent and collateral agent, Jefferies Finance LLC and TBK as joint lead arrangers and joint lead bookrunners, and Green Bank, N.A. and Pacific Western Bank, as lenders.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of financial condition, results of operations, liquidity and capital resources and certain factors that may affect future results, including economic and industry-wide factors, of Enova International, Inc. and its subsidiaries should be read in conjunction with our consolidated financial statements and accompanying notes included under Part I, Item 1 of this Quarterly Report on Form 10-Q, as well as with Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2017. This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements. The matters discussed in these forward-looking statements are subject to risk, uncertainties, and other factors that could cause actual results to differ materially from those made, projected or implied in the forward-looking statements. Please see “Risk Factors” and “Cautionary Statement Concerning Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions associated with these statements.

BUSINESS OVERVIEW

We are a leading technology and analytics company focused on providing online financial services to consumers and small businesses. In 2017, we extended approximately $2.1 billion in credit to borrowers. As of September 30, 2018, we offered or arranged loans or draws on lines of credit to consumers in 32 states in the United States and in the United Kingdom and Brazil. We also offered financing to small businesses in all 50 states and Washington D.C. in the United States. We use our proprietary technology, analytics and customer service capabilities to quickly evaluate, underwrite and fund loans or provide financing, allowing us to offer consumers and small businesses credit or financing when and how they want it. Our customers include the large and growing number of consumers who and small businesses which have bank accounts but use alternative financial services because of their limited access to more traditional credit from banks, credit card companies and other lenders. We were an early entrant into online lending, launching our online business in 2004, and through September 30, 2018, we have completed over 46.3 million customer transactions and collected more than 24 terabytes of currently accessible customer behavior data since launch, allowing us to better analyze and underwrite our specific customer base. We have significantly diversified our business over the past several years having expanded the markets we serve and the financing products we offer. These financing products include short-term loans, line of credit accounts, installment loans and receivables purchase agreements (“RPAs”).

We believe our customers highly value our products and services as an important component of their personal or business finances because our products are convenient, quick and often less expensive than other available alternatives. We attribute the success of our business to our advanced and innovative technology systems, the proprietary analytical models we use to predict the performance of loans and finance receivables, our sophisticated customer acquisition programs, our dedication to customer service and our talented employees.

We have developed proprietary underwriting systems based on data we have collected over our 14 years of experience. These systems employ advanced risk analytics to decide whether to approve financing transactions, to structure the amount and terms of the financings we offer pursuant to jurisdiction-specific regulations and to provide customers with their funds quickly and efficiently. Our systems closely monitor collection and portfolio performance data that we use to continually refine the analytical models and statistical measures used in making our credit, purchase, marketing and collection decisions.

Our flexible and scalable technology platform allows us to process and complete customers’ transactions quickly and efficiently. In 2017, we processed approximately 3.9 million transactions, and we continue to grow our loans and finance receivable portfolios and increase the number of customers we serve through desktop, tablet and mobile platforms. Our highly customizable technology platform allows us to efficiently develop and deploy new products to adapt to evolving regulatory requirements and consumer preference, and to enter new markets quickly. In 2012, we launched a new product in the United States designed to serve near-prime customers, and in April 2014 we introduced a similar product in the United Kingdom. In June 2014, we launched our business in Brazil, where we lend to borrowers through a local Brazilian financing structure. In addition, in July 2014, we introduced a new line of credit product in the United States to serve the needs of small businesses. In June 2015, we further expanded our product offering by acquiring certain assets of a company that provides financing to small businesses by offering RPAs (see Note 2 in the Notes to Consolidated Financial Statements included in this report). In May 2017, we expanded products available to small businesses by offering installment loans. These new products are intended to allow us to further diversify our product offerings, customer base and geographic scope. In the nine-month period ended September 30, 2018, we derived 84.6% of our total revenue from the United States and 15.4% of our total revenue internationally, with 85.3% of international revenue (representing 13.2% of our total revenue) generated in the United Kingdom.

We have been able to consistently acquire new customers and successfully generate repeat business from returning customers when they need financing. We believe our customers are loyal to us because they are satisfied with our products and services. We acquire new customers from a variety of sources, including visits to our own websites, mobile sites or applications, and through direct

marketing, affiliate marketing, lead providers and relationships with other lenders. We believe that the online convenience of our products and our 24/7 availability to accept applications with quick approval decisions are important to our customers.

Once a potential customer submits an application, we quickly provide a credit or purchase decision. If a loan or financing is approved, we or our lending partners typically fund the loan or financing the next business day or, in some cases, the same day. During the entire process, from application through payment, we provide access to our well-trained customer service team. All of our operations, from customer acquisition through collections, are structured to build customer satisfaction and loyalty, in the event that a customer has a need for our products in the future. We have developed a series of sophisticated proprietary scoring models to support our various products. We believe that these models are an integral component of our operations and they allow us to complete a high volume of customer transactions while actively managing risk and the related quality of our loan and finance receivable portfolios. We believe our successful application of these technology innovations differentiates our capabilities relative to competitive platforms as evidenced by our history of strong growth and stable portfolio quality.

PRODUCTS AND SERVICES

Our online financing products and services provide customers with a deposit of funds into their bank account in exchange for a commitment to repay the amount deposited plus fees, interest and/or revenue. We originate, arrange, guarantee or purchase short-term consumer loans, line of credit accounts, installment loans and RPAs. We have one reportable segment that includes all of our online financial services.

•

Short-term consumer loans. Short-term consumer loans are unsecured loans written by us or by a third-party lender through our credit services organization and credit access business programs, which we refer to as our CSO programs, that we arrange and guarantee. As of September 30, 2018, we offered or arranged short-term consumer loans in 17 states in the United States and in the United Kingdom. Short-term consumer loans generally have terms of seven to 90 days, with proceeds promptly deposited in the customer’s bank account in exchange for a pre-authorized debit from their account. Due to the credit risk and high transaction costs of serving our customer segment, the interest and/or fees we charge are generally considered to be higher than the interest or fees charged to consumers with superior credit histories by banks and similar lenders who are typically unwilling to make unsecured loans to alternative credit consumers. Our short-term consumer loans contributed approximately 20.2% of our total revenue for the nine months ended September 30, 2018 and 24.0% for the nine months ended September 30, 2017.

•

Line of credit accounts. As of September 30, 2018, we offered new consumer line of credit accounts in seven states (and continue to service existing line of credit accounts in one additional state) in the United States and business line of credit accounts in 36 states in the United States, which allow customers to draw on their unsecured line of credit in increments of their choosing up to their credit limit. Customers may pay off their account balance in full at any time or make required minimum payments in accordance with the terms of their line of credit account. As long as the customer’s account is in good standing and has credit available, customers may continue to borrow on their line of credit. Our line of credit accounts contributed approximately 32.0% of our total revenue for the nine months ended September 30, 2018 and 31.2% for the nine months ended September 30, 2017.

•

Installment loans. Installment loans are longer-term loans that require the outstanding principal balance to be paid down in multiple installments. We offer, or arrange through our CSO programs or market and purchase through our Bank program, multi-payment unsecured consumer installment loan products in 17 states in the United States and small business installment loans in 18 states. We also offer multi-payment unsecured consumer installment loan products in the United Kingdom and Brazil. Terms for our installment loan products range between two and 60 months. These loans generally have higher principal amounts than short-term loans. Loans may be repaid early at any time with no additional prepayment charges. Installment loans that we originated and purchased contributed approximately 46.5% of our total revenue for the nine months ended September 30, 2018 and 42.7% for the nine months ended September 30, 2017.

•

Receivables purchase agreements. Under RPAs, small businesses receive funds in exchange for a portion of the business’s future receivables at an agreed upon discount. In contrast, lending is a commitment to repay principal and interest. A small business customer who enters into a RPA commits to delivering a percentage of its receivables through ACH or wire debits or by splitting credit card receipts until all purchased receivables are delivered. We offer RPAs in all 50 states and in Washington D.C. in the United States. Revenue earned from RPAs contributed 1.2% of our total revenue for the nine months ended September 30, 2018 and 2.0% for the nine months ended September 30, 2017.

•

CSO Programs. Through our CSO programs, we provide services related to third-party lenders’ short-term and installment consumer loan products by acting as a credit services organization or credit access business on behalf of consumers in accordance with applicable state laws. Services offered under our CSO programs include credit-related services such as arranging loans with independent third-party lenders and assisting in the preparation of loan applications and loan documents (“CSO loans”). Under our CSO programs, we guarantee consumer loan payment obligations to the third party lender in the event the customer defaults on the loan. When a consumer executes an agreement with us under our CSO programs, we agree, for a fee payable to us by the consumer, to provide certain services, one of which is to guarantee the consumer’s obligation to

repay the loan received by the consumer from the third-party lender if the consumer fails to do so. For CSO loans, each lender is responsible for providing the criteria by which the consumer’s application is underwritten and, if approved, determining the amount of the consumer loan. We in turn are responsible for assessing whether or not we will guarantee such loan. The guarantee represents an obligation to purchase specific short-term loans, which generally have terms of less than 90 days, and specific installment loans, which have terms of four to 12 months, if they go into default.

As of September 30, 2018 and 2017, the outstanding amount of active short-term consumer loans originated by third-party lenders under the CSO programs was $25.5 million and $24.2 million, respectively, which were guaranteed by us.

As of September 30, 2018 and 2017, the outstanding amount of active installment loans originated by third-party lenders under the CSO programs was $4.6 million and $4.7 million, respectively, which were guaranteed by us.

•

Bank program. In March 2016, we launched a program with a state-chartered bank where we provide technology, loan servicing and marketing services to the bank. Our bank partner offered unsecured consumer installment loans with an annual percentage rate (“APR”) at or below 36%. We also had the ability to purchase loans originated through this program. In May 2018, as a result of a change in the law in Ohio, our bank partner suspended lending and we suspended purchasing loans through this program. Revenue generated from this program for the nine months ended September 30, 2018 and 2017 was 1.9% and 2.1% of our total revenue, respectively.

•

Analytics-as-a-Service. In 2016, we launched a product that uses our proprietary technology and analytics capabilities to offer businesses a solution for real-time decisioning at scale.

OUR MARKETS

We currently provide our services in the following countries:

•

United States. We began our online business in the United States in May 2004. As of September 30, 2018, we provided services in all 50 states and Washington D.C. We market our financing products under the names CashNetUSA at www.cashnetusa.com, NetCredit at www.netcredit.com, Headway Capital at www.headwaycapital.com and The Business Backer at www.businessbacker.com.

•

United Kingdom. We provide services in the United Kingdom under the names QuickQuid at www.quickquid.co.uk, Pounds to Pocket at www.poundstopocket.co.uk and On Stride Financial at www.onstride.co.uk. We began our QuickQuid short-term consumer loan business in July 2007, our Pounds to Pocket installment loan business in September 2010, and our On Stride near-prime installment loan business in April 2014.

•

Brazil. On June 30, 2014, we launched our business in Brazil where we provide installment loans to borrowers under the name Simplic at www.simplic.com.br. We plan to continue to invest and expand our lending in Brazil.

Our internet websites and the information contained therein or connected thereto are not intended to be incorporated by reference into this Quarterly Report on Form 10-Q.

RECENT REGULATORY DEVELOPMENTS

On July 24, 2018, the Ohio Legislature passed House Bill 123, a bill that places limits on short-term loans and extensions of credit. The legislation sets specific limits for fees, charges and interest that can be assessed on small loans with a maximum loan amount of $1,000 and an overall cap on fees, charges and interest of 60% of the loan amount. The governor of Ohio signed the legislation into law on July 30, 2018, and it will apply to credit extended beginning on April 27, 2019. Management does not anticipate that the legislation will have a material adverse effect on the Company. We cannot currently assess the likelihood of any future unfavorable federal, state, local or international legislation or regulations being proposed or enacted that could affect our products and services.

CRITICAL ACCOUNTING POLICIES

There have been no changes in critical accounting policies as described in our Annual Report on Form 10-K for the year ended December 31, 2017.

Recent Accounting Pronouncements

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

RESULTS OF OPERATIONS

HIGHLIGHTS

Our financial results for the three-month period ended September 30, 2018, or the current quarter, are summarized below.

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Consolidated total revenue increased $76.0 million, or 34.9%, to $293.9 million in the current quarter compared to $217.9 million for the three months ended September 30, 2017, or the prior year quarter. Domestic revenue increased $69.5 million, or 38.3%, to $251.1 million in the current quarter from $181.6 million for the prior year quarter and international revenue increased $6.5 million, or 18.0%, to $42.8 million from $36.3 million.

•

Consolidated gross profit increased $19.6 million, or 17.7%, to $130.1 million in the current quarter compared to $110.5 million in the prior year quarter.

•

Consolidated income from operations increased $10.1 million, or 36.6%, to $37.8 million in the current quarter, compared to $27.7 million in the prior year quarter.

•

Consolidated net income was $15.3 million in the current quarter compared to a net loss of $3.4 million in the prior year quarter. Consolidated diluted income per share was $0.43 in the current quarter compared to diluted loss per share of $0.10 in the prior year quarter.

OVERVIEW

The following tables reflect our results of operations for the periods indicated, both in dollars and as a percentage of total revenue (dollars in thousands, except per share data):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Revenue
Loans and finance receivables revenue	$	293,624		$	217,693		$	800,435		$	599,315
Other		255			185			1,043			730
Total Revenue		293,879			217,878			801,478			600,045
Cost of Revenue		163,763			107,341			393,810			269,087
Gross Profit		130,116			110,537			407,668			330,958
Expenses
Marketing		36,011			27,000			93,133			69,993
Operations and technology		28,260			27,163			80,993			72,512
General and administrative		24,360			25,164			79,576			77,105
Depreciation and amortization		3,688			3,533			11,363			10,396
Total Expenses		92,319			82,860			265,065			230,006
Income from Operations		37,797			27,677			142,603			100,952
Interest expense, net		(20,244	)		(18,292	)		(59,272	)		(52,526	)
Foreign currency transaction gain (loss)		27			65			(2,265	)		354
Loss on early extinguishment of debt		(12,469	)		(14,927	)		(17,179	)		(14,927	)
Income (Loss) before Income Taxes		5,111			(5,477	)		63,887			33,853
(Benefit from) provision for income taxes		(10,193	)		(2,109	)		2,460			11,496
Net Income (Loss)	$	15,304		$	(3,368	)	$	61,427		$	22,357
Diluted net income (loss) per share	$	0.43		$	(0.10	)	$	1.75		$	0.66

Revenue
Loans and finance receivables revenue		99.9	%		99.9	%		99.9	%		99.9	%
Other		0.1			0.1			0.1			0.1
Total Revenue		100.0			100.0			100.0			100.0
Cost of Revenue		55.7			49.3			49.1			44.8
Gross Profit		44.3			50.7			50.9			55.2
Expenses
Marketing		12.2			12.4			11.6			11.7
Operations and technology		9.6			12.5			10.1			12.1
General and administrative		8.3			11.5			10.0			12.9
Depreciation and amortization		1.3			1.6			1.4			1.7
Total Expenses		31.4			38.0			33.1			38.4
Income from Operations		12.9			12.7			17.8			16.8
Interest expense, net		(6.9	)		(8.4	)		(7.4	)		(8.8	)
Foreign currency transaction gain (loss)		—			—			(0.3	)		0.1
Loss on early extinguishment of debt		(4.3	)		(6.8	)		(2.1	)		(2.5	)
Income (Loss) before Income Taxes		1.7			(2.5	)		8.0			5.6
Provision for (benefit from) income taxes		(3.5	)		(1.0	)		0.3			1.9
Net Income (Loss)		5.2	%		(1.5	%)		7.7	%		3.7	%

NON-GAAP DISCLOSURE

In addition to the financial information prepared in conformity with generally accepted accounting principles, or GAAP, we provide historical non-GAAP financial information. Management believes that presentation of non-GAAP financial information is meaningful and useful in understanding the activities and business metrics of our operations. Management believes that these non-GAAP financial measures reflect an additional way of viewing aspects of our business that, when viewed with its GAAP results, provide a more complete understanding of factors and trends affecting our business.

Management provides non-GAAP financial information for informational purposes and to enhance understanding of our GAAP consolidated financial statements. Readers should consider the information in addition to, but not instead of or superior to, our consolidated financial statements prepared in accordance with GAAP. This non-GAAP financial information may be determined or calculated differently by other companies, limiting the usefulness of those measures for comparative purposes.

Adjusted Earnings Measures

In addition to reporting financial results in accordance with GAAP, we have provided adjusted earnings and adjusted earnings per share, or, collectively, the Adjusted Earnings Measures, which are non-GAAP measures. Management believes that the presentation of these measures provides investors with greater transparency and facilitates comparison of operating results across a broad spectrum of companies with varying capital structures, compensation strategies, derivative instruments and amortization methods, which provides a more complete understanding of our financial performance, competitive position and prospects for the future. Management also believes that investors regularly rely on non-GAAP financial measures, such as the Adjusted Earnings Measures, to assess operating performance and that such measures may highlight trends in our business that may not otherwise be apparent when relying on financial measures calculated in accordance with GAAP. In addition, management believes that the adjustments shown below are useful to investors in order to allow them to compare our financial results during the periods shown without the effect of each of these expense items.

The following table provides reconciliations between net income and diluted earnings per share calculated in accordance with GAAP to the Adjusted Earnings Measures, which are shown net of tax (in thousands, except per share data):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2018			2017			2018			2017
Net Income (Loss)	$	15,304		$	(3,368	)	$	61,427		$	22,357
Adjustments:
Loss on early extinguishment of debt		12,469			14,927			17,179			14,927
Intangible asset amortization		268			269			803			811
Stock-based compensation expense		2,882			2,996			8,149			8,303
Foreign currency transaction (gain) loss		(27	)		(65	)		2,265			(354	)
Cumulative tax effect of adjustments		(3,332	)		(6,121	)		(6,088	)		(8,044	)
Discrete tax adjustments		(11,237	)		—			(11,237	)		—
Adjusted earnings	$	16,327		$	8,638		$	72,498		$	38,000

Diluted net income (loss) per share	$	0.43		$	(0.10	)	$	1.75		$	0.66
Adjustments:
Loss on early extinguishment of debt		0.35			0.44			0.49			0.44
Intangible asset amortization		0.01			0.01			0.02			0.02
Stock-based compensation expense		0.08			0.08			0.23			0.24
Foreign currency transaction (gain) loss		—			—			0.06			(0.01	)
Cumulative tax effect of adjustments		(0.09	)		(0.18	)		(0.17	)		(0.24	)
Discrete tax adjustments		(0.32	)		—			(0.32	)		—
Adjusted earnings per share	$	0.46		$	0.25		$	2.06		$	1.11

Adjusted EBITDA

The table below shows Adjusted EBITDA, which is a non-GAAP measure that we define as earnings excluding depreciation, amortization, interest, foreign currency transaction gains or losses, taxes, and stock-based compensation expense. Management believes Adjusted EBITDA is used by investors to analyze operating performance and evaluate our ability to incur and service debt and our capacity for making capital expenditures. Adjusted EBITDA is also useful to investors to help assess our estimated enterprise value. In addition, management believes that the adjustment for loss on early extinguishment of debt shown below is useful to investors in order to allow them to compare our financial results during the periods shown without the effect of the expense item. The computation of Adjusted EBITDA, as presented below, may differ from the computation of similarly-titled measures provided by other companies (in thousands):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2018			2017			2018			2017
Net Income (Loss)	$	15,304		$	(3,368	)	$	61,427		$	22,357
Depreciation and amortization expenses		3,688			3,533			11,363			10,396
Interest expense, net		20,244			18,292			59,272			52,526
Foreign currency transaction (gain) loss		(27	)		(65	)		2,265			(354	)
(Benefit from) provision for income taxes		(10,193	)		(2,109	)		2,460			11,496
Stock-based compensation expense		2,882			2,996			8,149			8,303
Adjustment:
Loss on early extinguishment of debt		12,469			14,927			17,179			14,927
Adjusted EBITDA	$	44,367		$	34,206		$	162,115		$	119,651

Adjusted EBITDA margin calculated as follows:
Total Revenue	$	293,879		$	217,878		$	801,478		$	600,045
Adjusted EBITDA		44,367			34,206			162,115			119,651
Adjusted EBITDA as a percentage of total revenue		15.1	%		15.7	%		20.2	%		19.9	%

Constant Currency Basis

In addition to reporting financial results in accordance with GAAP, we have provided certain other non-GAAP financial information on a constant currency basis. We operate in the United Kingdom and Brazil. During the current quarter 14.6% of our revenue originated in currencies other than the U.S. Dollar, principally the British Pound Sterling. As a result, changes in our reported revenue and profits include the impacts of changes in foreign currency exchange rates. As additional information to the reader, we provide constant currency assessments in the following discussion and analysis to remove and/or quantify the impact of the fluctuation in foreign exchange rates and utilize constant currency results in our analysis of performance. Our constant currency assessment assumes foreign exchange rates in the current fiscal periods remained the same as in the prior fiscal year periods. All conversion rates below are based on the U.S. Dollar equivalent to one of the applicable foreign currencies:

	Three Months Ended
	September 30,
	2018		2017		% Change
British Pound		1.3034		1.3091		(0.4	)%
Brazilian real		0.2530		0.3162		(20.0	)%

	Nine Months Ended
	September 30,
	2018		2017		% Change
British Pound		1.3519		1.2760		5.9	%
Brazilian real		0.2797		0.3153		(11.3	)%

Management believes that our non-GAAP constant currency assessments are a useful measure, as they indicate the actual growth and profitability of our operations.

Combined Loans and Finance Receivables Measures

In addition to reporting loans and finance receivables balance information in accordance with GAAP (see Note 3 in the Notes to Consolidated Financial Statements included in this report), we have provided metrics on a combined basis. The Combined Loans and Finance Receivables Measures are non-GAAP measures that include both loans and RPAs we own or have purchased and loans we

guarantee, which are either GAAP items or disclosures required by GAAP. See “—Loan and Finance Receivable Balances,” “—Loans and Finance Receivables Loss Experience” and “—Loans and Finance Receivables Loss Experience by Product” below for reconciliations between Company owned and purchased loans and finance receivables, gross, allowance and liability for losses, cost of revenue and charge-offs (net of recoveries) calculated in accordance with GAAP to the Combined Loans and Finance Receivables Measures.

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

THREE MONTHS ENDED SEPTEMBER 30, 2018 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2017

Revenue and Gross Profit

Revenue increased $76.0 million, or 34.9%, to $293.9 million for the current quarter as compared to $217.9 million for the prior year quarter. On a constant currency basis, revenue increased by $77.8 million, or 35.7%, for the current quarter compared to the prior year quarter. Our domestic operations contributed an increase of $69.5 million, primarily resulting from a 40.6% increase in installment loan and RPA revenue and a 43.3% increase in line of credit account revenue in the current quarter compared to the prior year quarter driven by strong customer demand for these products. Our international operations contributed an increase of $6.5 million (an increase of $8.3 million on a constant currency basis), primarily resulting from a 29.0% increase in installment loan and RPA revenue and a 7.0% increase in short-term loan revenue.

Our gross profit increased by $19.6 million to $130.1 million for the current quarter from $110.5 million for the prior year quarter. On a constant currency basis, gross profit increased by $20.2 million for the current quarter compared to the prior year quarter. Our consolidated gross profit as a percentage of revenue, or our gross profit margin, decreased to 44.3% for the current quarter, from 50.7% for the prior year quarter.

The following tables set forth the components of revenue and gross profit, separated by product and between domestic and international for the current quarter and the prior year quarter (in thousands):

	Three Months Ended September 30,
	2018			2017			$ Change		% Change
Revenue by product:
Short-term loans	$	57,851		$	49,875		$	7,976		16.0	%
Line of credit accounts		98,666			68,889			29,777		43.2
Installment loans and RPAs		137,107			98,929			38,178		38.6
Total loans and finance receivables revenue		293,624			217,693			75,931		34.9
Other		255			185			70		37.8
Total revenue	$	293,879		$	217,878		$	76,001		34.9	%

Revenue by product (% to total):
Short-term loans		19.7	%		22.9	%
Line of credit accounts		33.6			31.6
Installment loans and RPAs		46.7			45.4
Total loans and finance receivables revenue		99.9			99.9
Other		0.1			0.1
Total revenue		100.0	%		100.0	%

	Three Months Ended September 30,
	2018			2017			$ Change			% Change
Domestic:
Revenue	$	251,054		$	181,584		$	69,470			38.3	%
Cost of revenue		142,702			88,419			54,283			61.4
Gross profit	$	108,352		$	93,165		$	15,187			16.3
Gross profit margin		43.2	%		51.3	%		(8.1	)%		(15.8	)%
International:
Revenue	$	42,825		$	36,294		$	6,531			18.0	%
Cost of revenue		21,061			18,922			2,139			11.3
Gross profit	$	21,764		$	17,372		$	4,392			25.3
Gross profit margin		50.8	%		47.9	%		2.9	%		6.1	%
Total:
Revenue	$	293,879		$	217,878		$	76,001			34.9	%
Cost of revenue		163,763			107,341			56,422			52.6
Gross profit	$	130,116		$	110,537		$	19,579			17.7
Gross profit margin		44.3	%		50.7	%		(6.4	)%		(12.6	)%

Loan and Finance Receivable Balances

Our loan and finance receivable balance in our consolidated financial statements for September 30, 2018 and 2017 was $990.4 million and $742.8 million, respectively, before the allowance for losses of $151.6 million and $105.1 million, respectively. The combined loan and finance receivable balance includes $30.1 million and $28.9 million as of September 30, 2018 and 2017, respectively, of consumer loan balances that are guaranteed by us but not owned by us, which are not included in our consolidated financial statements for September 30, 2018 and 2017, respectively, before the liability for estimated losses of $2.2 million and $2.0 million provided in “Accounts payable and accrued expenses” in our consolidated financial statements for September 30, 2018 and 2017, respectively.

The ending portfolio balance of company owned loans and finance receivables, net of allowance for losses, increased $201.0 million, or 31.5%, to $838.8 million as of September 30, 2018 from $637.7 million as of September 30, 2017, and the outstanding combined portfolio balance of loans and finance receivables, net of allowance and liability for estimated losses, increased $202.0 million, or 30.4%, to $866.6 million as of September 30, 2018 from $664.7 million as of September 30, 2017, primarily due to increased demand for all of our installment products and, to a lesser extent, our short-term and line of credit products. The outstanding loan balance for our domestic near-prime product increased 37.3% in the current quarter compared to the prior year quarter resulting in a domestic near-prime portfolio balance that comprises 44.4% of our total loan and finance receivable portfolio balance while short-term loans comprised approximately 10.2% of our total loan and finance receivable portfolio balance in the current quarter, compared to 11.9% in the prior year quarter. Management expects the loan balances for our domestic near-prime installment loan product will continue to comprise a larger percentage of the total loan and finance receivable portfolio, due to customer demand for these products and their longer loan term. Our portfolio of loans and finance receivables serving the needs of small businesses decreased to 7.8% in the current quarter from 10.9% in the prior year quarter due to a 5.3% decrease in the small business loan and finance receivables balance and strong growth in our consumer products. See “—Non-GAAP Disclosure—Combined Loans and Finance Receivables” above for additional information related to combined loans and finance receivables.

The following tables summarize loan and finance receivable balances outstanding as of September 30, 2018 and 2017 (in thousands):

	As of September 30,
	2018									2017
				Guaranteed									Guaranteed
	Company			by the						Company			by the
	Owned^(a)			Company^(a)			Combined^(b)			Owned^(a)			Company^(a)			Combined^(b)
Ending loans and finance receivables balances:
Short-term loans	$	78,508		$	25,533		$	104,041		$	67,719		$	24,248		$	91,967
Line of credit accounts		216,624			—			216,624			154,689			—			154,689
Installment loans and RPAs		695,236			4,573			699,809			520,388			4,695			525,083
Total ending loans and finance receivables, gross		990,368			30,106			1,020,474			742,796			28,943			771,739
Less: Allowance and liabilities for losses^(a)		(151,585	)		(2,244	)		(153,829	)		(105,060	)		(2,017	)		(107,077	)
Total ending loans and finance receivables, net	$	838,783		$	27,862		$	866,645		$	637,736		$	26,926		$	664,662
Allowance and liability for losses as a % of loans and finance receivables, gross		15.3	%		7.5	%		15.1	%		14.1	%		7.0	%		13.9	%

	As of September 30,
	2018						2017
			Guaranteed						Guaranteed
	Company		by the				Company		by the
	Owned^(a)		Company^(a)		Combined^(b)		Owned^(a)		Company^(a)		Combined^(b)
Ending loans and finance receivables:
Total domestic, gross	$	867,916	$	30,106	$	898,022	$	640,793	$	28,943	$	669,736
Total international, gross		122,452		—		122,452		102,003		—		102,003
Total ending loans and finance receivables, gross	$	990,368	$	30,106	$	1,020,474	$	742,796	$	28,943	$	771,739

(a)	GAAP measure. The loans and finance receivables balances guaranteed by us relate to loans originated by third-party lenders through the CSO programs and are not included in our consolidated financial statements.

(b)	Except for allowance and liability for estimated losses, amounts shown represent non-GAAP measures.

Average Amount Outstanding per Loan

The average amount outstanding per loan is calculated as the total combined loans, gross balance at the end of the period divided by the total number of combined loans outstanding at the end of the period. The following table shows the average amount outstanding per loan by product at September 30, 2018 and 2017:

	As of September 30,
	2018		2017
Average amount outstanding per loan (in ones)^(a)
Short-term loans^(b)	$	460	$	480
Line of credit accounts		1,491		1,378
Installment loans^(b)(c)		2,014		1,989
Total loans^(b)(c)	$	1,404	$	1,333

(a)	The disclosure regarding the average amount per loan and finance receivable is statistical data that is not included in our consolidated financial statements.

(b)	Includes loans guaranteed by us, which represent loans originated by third-party lenders through the CSO programs and are not included in our consolidated financial statements.

(c)	Excludes RPAs.

The average amount outstanding per loan increased to $1,404 from $1,333 during the current quarter compared to the prior year quarter, primarily due to a greater mix of installment loans and line of credit accounts, which have higher average amounts outstanding relative to short-term loans, in the current quarter compared to the prior year quarter.

Average Loan Origination

The average loan origination amount is calculated as the total amount of combined loans originated and renewed for the period divided by the total number of combined loans originated and renewed for the period. The following table shows the average loan origination amount by product for the current quarter compared to the prior year quarter:

	Three Months Ended
	September 30,
	2018		2017
Average loan origination amount (in ones) ^(a)
Short-term loans ^(b)	$	452	$	459
Line of credit accounts ^(c)		351		314
Installment loans ^(b)(d)		1,631		1,661
Total loans ^(b)(d)	$	572	$	560

(a)	The disclosure regarding the average loan origination amount is statistical data that is not included in our consolidated financial statements.

(b)	Includes loans guaranteed by us, which represent loans originated by third-party lenders through the CSO programs and are not included in our consolidated financial statements.

(c)	Represents the average amount of each incremental draw on line of credit accounts.

(d)	Excludes RPAs.

The average loan origination amount increased to $572 from $560 during the current quarter compared to the prior year quarter, mainly due to a greater mix of installment loan originations which have higher principal amounts.

Loans and Finance Receivables Loss Experience

The allowance and liability for estimated losses as a percentage of combined loans and RPAs increased to 15.1% as of September 30, 2018 from 13.9% as of September 30, 2017.

The cost of revenue in the current quarter was $163.8 million, which was composed of $163.6 million related to Company-owned loans and finance receivables and a $0.2 million increase in the liability for estimated losses related to loans we guaranteed through the CSO programs. The cost of revenue in the prior year quarter was $107.4 million, which was composed of $107.3 million related to Company-owned loans and finance receivables and a $0.1 million increase in the liability for estimated losses related to loans we guaranteed through the CSO programs. Total charge-offs, net of recoveries, were $133.4 million and $86.5 million in the current quarter and the prior year quarter, respectively.

The following tables show loan and finance receivable balances and fees receivable and the relationship of the allowance and liability for losses to the combined balances of loans and finance receivables for each of the last five quarters (in thousands):

	2017						2018
	Third			Fourth			First			Second			Third
	Quarter			Quarter			Quarter			Quarter			Quarter
Loans and finance receivables:
Gross - Company owned	$	742,796		$	827,749		$	817,359		$	871,915		$	990,368
Gross - Guaranteed by the Company^(a)		28,943			34,134			26,594			28,681			30,106
Combined loans and finance receivables, gross^(b)		771,739			861,883			843,953			900,596			1,020,474
Allowance and liability for losses on loans and finance receivables		107,077			125,302			115,693			123,876			153,829
Combined loans and finance receivables, net^(b)	$	664,662		$	736,581		$	728,260		$	776,720		$	866,645
Allowance and liability for losses as a % of loans and finance receivables, gross^(b)		13.9	%		14.5	%		13.7	%		13.8	%		15.1	%

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

(b)	Non-GAAP measure.

Loans and Finance Receivables Loss Experience by Product

Management evaluates loss rates for all financing products in our portfolio to determine credit quality and evaluate trends. For our products, we evaluate loans and finance receivables losses as a percentage of the average loan and finance receivable balance outstanding or the average combined loan and finance receivable balance outstanding, whichever is applicable, for each portfolio.

Short-term Loans

Demand for our short-term loan product in the United States has historically been highest in the third and fourth quarters of each year, corresponding to the holiday season, and lowest in the first quarter of each year, corresponding to our customers’ receipt of income tax refunds. Strong customer demand for short-term loans in both the United States and the United Kingdom has led to higher short-term consumer loan balances year over year.

Our gross profit margin for short-term loans is typically highest in the first quarter of each year, corresponding to the seasonal decline in consumer loan balances outstanding. The cost of revenue as a percentage of the average combined loan balance for short-term loans outstanding is typically lower in the first quarter and generally peaks in the second half of the year with higher loan demand.

The following table includes information related only to short-term loans and shows our loss experience trends for short-term loans for each of the last five quarters (in thousands):

	2017						2018
	Third			Fourth			First			Second			Third
	Quarter			Quarter			Quarter			Quarter			Quarter
Short-term loans:
Cost of revenue	$	23,849		$	22,129		$	20,323		$	20,386		$	26,174
Charge-offs (net of recoveries)		20,439			21,201			22,213			19,626			21,835
Average short-term combined loan balance, gross:
Company owned^(a)		65,949			70,040			71,442			66,171			73,476
Guaranteed by the Company^(a)(b)		25,787			26,785			26,383			23,638			25,913
Average short-term combined loan balance, gross^(a)(c)	$	91,736		$	96,825		$	97,825		$	89,809		$	99,389
Ending short-term combined loan balance, gross:
Company owned	$	67,719		$	73,672		$	65,858		$	67,255		$	78,508
Guaranteed by the Company^(b)		24,248			28,875			21,409			24,764			25,533
Ending short-term combined loan balance, gross^(c)	$	91,967		$	102,547		$	87,267		$	92,019		$	104,041
Ending allowance and liability for losses	$	21,047		$	22,022		$	20,397		$	20,744		$	24,981

Short-term loan ratios:
Cost of revenue as a % of average short-term combined loan balance, gross^(a)(c)		26.0	%		22.9	%		20.8	%		22.7	%		26.3	%
Charge-offs (net of recoveries) as a % of average short-term combined loan balance, gross^(a)(c)		22.3	%		21.9	%		22.7	%		21.9	%		22.0	%
Gross profit margin		52.2	%		58.5	%		61.9	%		59.5	%		54.8	%
Allowance and liability for losses as a % of combined loan balance, gross^(c)(d)		22.9	%		21.5	%		23.4	%		22.5	%		24.0	%

(a)	The average short-term combined loan balance is the average of the month-end balances during the period.

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

(c)	Non-GAAP measure.

(d)	Allowance and liability for losses as a % of combined loan balance, gross, is determined using period-end balances.

Line of Credit Accounts

The cost of revenue as a percentage of average loan balance for line of credit accounts exhibits a similar quarterly seasonal trend to short-term loan loss rates as the ratio is typically lower in the first quarter and increases throughout the remainder of the year, peaking in the second half of the year with higher loan demand. The gross profit margin is generally lower for line of credit accounts as compared to short-term loans because the highest levels of default are exhibited in the early stages of the account, while revenue is recognized over the term of the account. Underwriting changes made in the second quarter of 2017 have led to improved credit quality and higher year over year gross margin.

The following table includes information related only to line of credit accounts and shows our loss experience trends for line of credit accounts for each of the last five quarters (in thousands):

	2017						2018
	Third			Fourth			First			Second			Third
	Quarter			Quarter			Quarter			Quarter			Quarter
Line of credit accounts:
Cost of revenue	$	23,439		$	30,278		$	25,383		$	31,211		$	46,749
Charge-offs (net of recoveries)		19,476			25,940			29,411			27,281			36,321
Average loan balance^(a)		145,398			161,905			168,118			168,881			200,710
Ending loan balance		154,689			170,068			160,923			181,134			216,624
Ending allowance for losses balance	$	26,810		$	31,148		$	27,120		$	31,050		$	41,478

Line of credit account ratios:
Cost of revenue as a % of average loan balance^(a)		16.1	%		18.7	%		15.1	%		18.5	%		23.3	%
Charge-offs (net of recoveries) as a % of average loan balance^(a)		13.4	%		16.0	%		17.5	%		16.2	%		18.1	%
Gross profit margin		66.0	%		59.9	%		67.6	%		60.8	%		52.6	%
Allowance for losses as a % of loan balance^(b)		17.3	%		18.3	%		16.9	%		17.1	%		19.1	%

(a)	The average loan balance for line of credit accounts is the average of the month-end balances during the period.

(b)	Allowance for losses as a % of loan balance is determined using period-end balances.

Installment Loans and RPAs

The cost of revenue as a percentage of average loan and finance receivable balance for installment loans and RPAs is typically more consistent throughout the year as compared to short-term loans and line of credit accounts. Due to the scheduled monthly or bi-weekly payments and delivery of receivables that are inherent with installment loans and RPAs, we do not experience the higher level of repayments in the first quarter for these products as we experience with short-term loans and, to a lesser extent, line of credit accounts.

The gross profit margin is generally lower for the installment loan product than for other loan products, primarily because the highest levels of default are exhibited in the early stages of the loan, while revenue is recognized over the term of the loan. In addition, installment loans and RPAs typically have higher average origination amounts. Another factor contributing to the lower gross profit margin is that the product yield for installment loans and RPAs is typically lower than the yield for the other financing products we offer. As a result, particularly in periods of higher growth for the installment loan and RPA portfolios, which has been the case in recent years, the gross profit margin is typically lower for this product than for our short-term loan and line of credit products. Our average installment combined loan and RPA portfolio balance outstanding at September 30, 2018 increased 35.7% in the current quarter compared to the prior year quarter.

The following table includes information related only to our installment loans and RPAs and shows our loss experience trends for installment loans and RPAs for each of the last five quarters (in thousands):

	2017						2018
	Third			Fourth			First			Second			Third
	Quarter			Quarter			Quarter			Quarter			Quarter
Installment loans and RPAs:
Cost of revenue	$	60,053		$	75,138		$	62,847		$	69,897		$	90,840
Charge-offs (net of recoveries)		46,598			62,116			67,081			64,878			75,261
Average installment and RPA combined loan and finance receivable balance, gross:
Company owned^(a)		487,436			552,003			591,739			605,025			663,387
Guaranteed by the Company^(a)(b)		4,628			5,025			5,760			4,500			4,325
Average installment and RPA combined loan and finance receivable balance, gross^(a)(c)	$	492,064		$	557,028		$	597,499		$	609,525		$	667,712
Ending installment and RPA combined loan and finance receivable balance, gross:
Company owned	$	520,388		$	584,009		$	590,578		$	623,526		$	695,236
Guaranteed by the Company^(b)		4,695			5,259			5,185			3,917			4,573
Ending installment and RPA combined loan and finance receivable balance, gross ^(c)	$	525,083		$	589,268		$	595,763		$	627,443		$	699,809
Ending allowance and liability for losses	$	59,220		$	72,132		$	68,176		$	72,082		$	87,370

Installment and RPA loan ratios:
Cost of revenue as a % of average installment and RPA combined loan and finance receivable balance, gross^(a)(c)		12.2	%		13.5	%		10.5	%		11.5	%		13.6	%
Charge-offs (net of recoveries) as a % of average installment and RPA combined loan and finance receivable balance, gross^(a)(c)		9.5	%		11.2	%		11.2	%		10.6	%		11.3	%
Gross profit margin		39.3	%		34.4	%		48.5	%		43.2	%		33.7	%
Allowance and liability for losses as a % of combined loan and finance receivable balance, gross^(c)(d)		11.3	%		12.2	%		11.4	%		11.5	%		12.5	%

(a)	The average installment and RPA combined loan and finance receivable balance is the average of the month-end balances during the period.

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

(c)	Non-GAAP measure.

(d)	Allowance and liability for losses as a % of combined loan and finance receivable balance, gross, is determined using period-end balances.

Total Expenses

Total expenses increased $9.4 million, or 11.4%, to $92.3 million in the current quarter, compared to $82.9 million in the prior year quarter. On a constant currency basis, total expenses increased $10.3 million, or 12.5%, in the current quarter as compared to the prior year quarter.

Marketing expense increased to $36.0 million in the current quarter compared to $27.0 million in the prior year quarter. The increase was primarily due to higher direct mail costs related to our domestic products, volume from lead providers in both our domestic and international businesses and domestic television advertising.

Operations and technology expense increased to $28.3 million in the current quarter compared to $27.2 million in the prior year quarter, primarily due to higher volume-driven underwriting and transaction expenses and headcount costs in our call center.

General and administrative expense increased $0.8 million, or 3.2%, to $24.4 million in the current quarter compared to $25.2 million in the prior year quarter, primarily due to higher corporate services personnel costs primarily driven by an increase in headcount in the current quarter compared to the prior year quarter.

Depreciation and amortization expense remained flat compared to the prior year quarter.

Interest Expense, Net

Interest expense, net increased $1.9 million, or 10.7%, to $20.2 million in the current quarter compared to $18.3 million in the prior year quarter. The increase was primarily due to an increase in the average amount of debt outstanding, which increased $106.0 million to $823.4 million during the current quarter from $717.4 million during the prior year quarter, partially offset by a decrease in the weighted average interest rate on our outstanding debt to 9.55% during the current quarter from 10.42% during the prior year quarter.

Benefit from Income Taxes

Benefit from income taxes increased $8.1 million, or 383.3%, to $10.2 million in the current quarter compared to $2.1 million in the prior year quarter. The tax benefit in the current quarter was primarily related to the estimated tax effects of optimizing the timing of certain income tax deductions for prior year loan and fixed asset related deferred tax items, coupled with the overall decrease in the federal tax rate from 35% to 21% as a result of the Tax Cuts and Jobs Act.

We account for uncertainty in income taxes in accordance with ASC 740, which requires that a more-likely-than-not threshold (greater than 50 percent) be met before the benefit of a tax position be recognized in the consolidated financial statements and prescribes how such benefit should be measured. Tax positions taken on our tax returns are evaluated for all periods that are open to examination by taxing authorities. Our judgement is required to estimate as to whether and to what extent such positions are more-likely-than-not to be sustained based on merit. While we believe our tax return positions are appropriate and supportable under tax law, reserves are established when we believe that certain positions may not be fully sustained upon review by tax authorities.

As of September 30, 2018, the balance of unrecognized tax benefits was $13.9 million ($13.8 million net of the federal benefit of state matters), all of which, if recognized, would favorably affect the effective tax rate in any future periods. We had $0.6 million ($0.6 million net of the federal benefit of state matters) of unrecognized tax benefits as of September 30, 2017. We do not believe it is reasonably possible that, within the next twelve months, unrecognized domestic tax benefits will change by a significant amount. We record interest and penalties related to tax matters as income tax expense in the consolidated statement of income.

Our U.S. tax returns are subject to examination by federal and state taxing authorities. The Internal Revenue Service (the “IRS”) audits for tax years 2011 through 2014 were concluded with no adjustments to our consolidated financial statements. The 2017, 2016 and 2015 tax years are open to examination by the IRS. The years open to examination by state, local, and foreign government authorities vary by jurisdiction, but the statute of limitation is generally three years from the date the tax return is filed.

Net Income (Loss)

Net income (loss) increased $18.7 million, or 554.4%, to $15.3 million during the current quarter compared to a net loss of $3.4 million during the prior year quarter. The increase was primarily due to higher revenue from all products partially offset by higher loan loss provision and higher operating expenses incurred to support the loan growth in the current quarter and an estimated income tax benefit related to optimizing the timing of certain income tax deductions for prior year loan and fixed asset related deferred tax items, coupled with the overall decrease in the federal tax rate from 35% to 21% as a result of the Tax Cuts and Jobs Act.

NINE MONTHS ENDED SEPTEMBER 30, 2018 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2017

Revenue and Gross Profit

Revenue increased $201.5 million, or 33.6%, to $801.5 million for the nine-month period ended September 30, 2018, or current nine-month period, as compared to $600.0 million for the nine-month period ended September 30, 2017, or prior year nine-month period. On a constant currency basis, revenue increased by $198.2 million, or 33.0%, for the current nine-month period compared to the prior year nine-month period. Our domestic operations contributed an increase of $173.3 million, resulting from a 42.6% increase in domestic installment loan and RPA revenue and a 37.2% increase in line of credit revenue in the current nine-month period compared to the prior year nine-month period primarily driven by growth in our installment and line of credit account products. Additionally, international operations of revenue increased $28.1 million (an increase of $24.9 million on a constant currency basis).

Our gross profit increased by $76.7 million to $407.7 million for the current nine-month period from $331.0 million for the prior year nine-month period. On a constant currency basis, gross profit increased by $74.3 million for the current nine-month period compared to the prior year nine-month period. Our consolidated gross profit margin decreased to 50.9% for the current nine-month period, from 55.2% for the prior year nine-month period. The decrease in gross profit margin was primarily driven by the strong new customer growth of our domestic and international installment loan portfolios resulting in a higher mix of new customers overall which requires higher loss provisions as new customers default at a higher rate than returning customers with a successful history of loan

performance. Management expects the consolidated gross profit margin will continue to be influenced by the mix of loans to new and returning customers, the mix of lower yielding and higher yielding loan products, and loan originations.

The following tables set forth the components of revenue and gross profit, separated by product and between domestic and international for the current nine-month period and the prior year nine-month period (in thousands):

	Nine Months Ended September 30,
	2018			2017			$ Change		% Change
Revenue by product:
Short-term loans	$	161,538		$	144,074		$	17,464		12.1	%
Line of credit accounts		256,633			187,172			69,461		37.1
Installment loans and RPAs		382,264			268,069			114,195		42.6
Total loans and finance receivables revenue		800,435			599,315			201,120		33.6
Other		1,043			730			313		42.9
Total revenue	$	801,478		$	600,045		$	201,433		33.6	%

Revenue by product (% to total):
Short-term loans		20.2	%		24.0	%
Line of credit accounts		32.0			31.2
Installment loans and RPAs		47.7			44.7
Total loans and finance receivables revenue		99.9			99.9
Other		0.1			0.1
Total revenue		100.0	%		100.0	%

	Nine Months Ended September 30,
	2018			2017			$ Change			% Change
Domestic:
Revenue	$	677,658		$	504,326		$	173,332			34.4	%
Cost of revenue		333,021			226,461			106,560			47.1
Gross profit	$	344,637		$	277,865		$	66,772			24.0
Gross profit margin		50.9	%		55.1	%		(4.2	)%		(7.6	)%
International:
Revenue	$	123,820		$	95,719		$	28,101			29.4	%
Cost of revenue		60,789			42,626			18,163			42.6
Gross profit	$	63,031		$	53,093		$	9,938			18.7
Gross profit margin		50.9	%		55.5	%		(4.6	)%		(8.3	)%
Total:
Revenue	$	801,478		$	600,045		$	201,433			33.6	%
Cost of revenue		393,810			269,087			124,723			46.4
Gross profit	$	407,668		$	330,958		$	76,710			23.2
Gross profit margin		50.9	%		55.2	%		(4.3	)%		(7.8	)%

Average Loan Origination

	Nine Months Ended
	September 30,
	2018		2017
Average loan origination amount (in ones) ^(a)
Short-term loans ^(b)	$	463	$	453
Line of credit accounts ^(c)		338		297
Installment loans ^(b)(d)		1,661		1,617
Total loans ^(b)(d)	$	573	$	522

(a)	The disclosure regarding the average loan origination amount is statistical data that is not included in our consolidated financial statements.

(b)	Includes loans guaranteed by us, which represent loans originated by third-party lenders through the CSO programs and are not included in our consolidated financial statements.

(c)	Represents the average amount of each incremental draw on line of credit accounts.

(d)	Excludes RPAs.

The average loan origination amount increased to $573 during the current nine-month period compared to $522 during the prior year nine-month period.

Loans and Finance Receivables Loss Experience

The cost of revenue in the current nine-month period was $393.8 million, which was composed of $393.8 million related to Company-owned loans and finance receivables. The cost of revenue in the prior year nine-month period was $269.0 million, which was composed of $269.0 million related to Company-owned loans and finance receivables. Total charge-offs, net of recoveries, were $363.9 million and $264.1 million in the current nine-month period and the prior year nine-month period, respectively.

Total Expenses

Total expenses increased $35.1 million, or 15.2%, to $265.1 million in the current nine-month period, compared to $230.0 million in the prior year nine-month period. On a constant currency basis, total expenses increased $34.4 million, or 15.0%, for the current nine-month period compared to the prior year nine-month period.

Marketing expense increased to $93.1 million in the current nine-month period compared to $70.0 million in the prior year nine-month period. The increase was primarily due to higher direct mail costs related to our domestic products, volume from lead providers in both our domestic and international businesses and domestic television advertising.

Operations and technology expense increased to $81.0 million in the current nine-month period compared to $72.5 million in the prior year nine-month period, primarily due to higher personnel expenses, underwriting and transaction costs.

General and administrative expense increased $2.5 million, or 3.2%, to $79.6 million in the current nine-month period compared to $77.1 million in the prior year nine-month period, primarily due to higher corporate services personnel costs primarily driven by higher incentive accruals reflecting strong financial performance in the current nine-month period.

Depreciation and amortization expense increased $1.0 million, or 9.3%, in the current nine-month period compared to the prior year nine-month period, primarily due to an increase in fixed assets driven by higher capitalized software development costs.

Interest Expense, Net

Interest expense, net increased $6.8 million, or 12.8%, to $59.3 million in the current nine-month period compared to $52.5 million in the prior year nine-month period. The increase was primarily due to an increase in the average amount of debt outstanding, which increased $126.5 million to $790.0 million during the current nine-month period from $663.5 million during the prior year nine-month period, partially offset by a decrease in the weighted average interest rate on our outstanding debt to 9.80% during the current nine-month period from 10.58% during the prior year nine-month period.

Provision for Income Taxes

Provision for income taxes decreased $9.0 million, or 78.6%, to $2.5 million in the current nine-month period compared to $11.5 million in the prior year nine-month period. The decrease was primarily due to a decrease in effective tax rate to 3.9% in the current nine-month period from 34.0% in the prior year nine-month period partially offset by an 88.7% increase in income before income taxes. The decrease in the effective tax rate is primarily related to the estimated tax effects of optimizing the timing of certain income tax deductions for prior year loan and fixed asset related deferred tax items, coupled with the overall decrease in the federal tax rate from 35% to 21% as a result of the Tax Cuts and Jobs Act.

Net Income

Net income increased $39.0 million, or 174.8%, to $61.4 million during the current nine-month period compared to $22.4 million during the prior year nine-month period. The increase was primarily due to higher revenue from all products partially offset by higher loan loss provision and higher operating expenses incurred to support the loan growth in the current nine-month period and a decrease

in the provision for income taxes related to the estimated tax effects of optimizing the timing of certain income tax deductions for prior year loan and fixed asset related deferred tax items, coupled with the overall decrease in the federal tax rate from 35% to 21% as a result of the Tax Cuts and Jobs Act.

LIQUIDITY AND CAPITAL RESOURCES

Capital Funding Strategy

Historically, we have generated significant cash flow through normal operating activities for funding both long-term and short-term needs. Our near-term liquidity is managed to ensure that adequate resources are available to fund our seasonal working capital growth, which is driven by demand for our loan and financing products, and to meet the continued growth in the demand for our near-prime installment products. On May 30, 2014, we issued and sold $500.0 million of 9.75% senior notes due 2021 (the “2021 Senior Notes”). On September 1, 2017, we issued and sold $250.0 million in aggregate principal amount of 8.50% Senior Notes due 2024 (the “2024 Senior Notes”) and used the net proceeds, in part, to retire $155.0 million in 2021 Senior Notes. On January 21, 2018 we redeemed an additional $50.0 million in principal amount of the outstanding 2021 Senior Notes. On September 19, 2018 we issued and sold $375.0 million in aggregate principal amount of 8.50% Senior Notes due 2025 (the “2025 Senior Notes”) and used the net proceeds, in part, to retire $178.5 million in 2021 Senior Notes. On October 11, 2018, we redeemed the remaining $116.5 million in principal amount of the outstanding 2021 Senior Notes at a redemption price equal to 104.875% of the principal amount, as set forth in the 2021 Senior Notes Indenture, plus accrued and unpaid interest thereon. In connection with the October 11, 2018 purchase, we recorded a loss on extinguishment of debt of approximately $7.6 million, which will be included in “Loss on early extinguishment of debt” in the consolidated statements of income. On June 30, 2017, we entered into a secured revolving credit agreement (as amended the “2017 Credit Agreement”) which replaced our previous credit agreement (the “2014 Credit Agreement”) that was terminated on June 30, 2017. On April 13, 2018, we and certain of our operating subsidiaries entered into an amendment of our 2017 Credit Agreement, and on October 5, 2018 we and certain of our operating subsidiaries entered into a second amendment of our 2017 Credit Agreement, as further described below. As of October 30, 2018, our available borrowings under the 2017 Credit Agreement were $51.4 million. On January 15, 2016 and December 1, 2016, we entered into the 2016‑1 and 2016‑2 Securitization Facilities, respectively, as further described below. On October 20, 2017, we amended and restated the 2016-1 Securitization Facility, as further described below. On July 23, 2018 and October 23, 2018, we and several of our subsidiaries entered into the 2018-1 and 2018-2 Securitization Facilities, respectively, as further described below. On October 25, 2018, we announced that an indirect subsidiary intends to offer Asset Backed Notes, as further described below. As of October 30, 2018, the outstanding balance under our securitization facilities was $202.1 million. We expect that our operating needs, including satisfying our obligations under our debt agreements and funding our working capital growth, will be satisfied by a combination of cash flows from operations, borrowings under the 2017 Credit Agreement, or any refinancing, replacement thereof or increase in borrowings thereunder, and securitization or sale of loans and finance receivables under our consumer loan securitization facilities.

As of September 30, 2018, we were in compliance with all financial ratios, covenants and other requirements set forth in our debt agreements. Unexpected changes in our financial condition or other unforeseen factors may result in our inability to obtain third-party financing or could increase our borrowing costs in the future. To the extent we experience short-term or long-term funding disruptions, we have the ability to adjust our volume of lending and financing to consumers and small businesses that would reduce cash outflow requirements while increasing cash inflows through repayments. Additional alternatives may include the securitization or sale of assets, increased borrowings under the 2017 Credit Agreement, or any refinancing or replacement thereof, and reductions in capital spending which could be expected to generate additional liquidity.

8.50% Senior Unsecured Notes Due 2025

On September 19, 2018, we issued and sold the 2025 Senior Notes. The 2025 Senior Notes were sold to qualified institutional buyers in accordance with Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”) and outside the United States pursuant to Regulation S under the Securities Act. The 2025 Senior Notes bear interest at a rate of 8.50% annually on the principal amount payable semi-annually in arrears on March 15 and September 15 of each year, beginning on March 15, 2019. The 2025 Senior Notes were sold at a price of 100%. The 2025 Senior Notes will mature on September 15, 2025. The 2025 Senior Notes are unsecured debt obligations of ours, and are unconditionally guaranteed by certain of our domestic subsidiaries.

The 2025 Senior Notes are redeemable at our option, in whole or in part, (i) at any time prior to September 15, 2021 at 100% of the aggregate principal amount of 2025 Senior Notes redeemed plus the applicable “make whole” premium specified in the indenture that governs our 2025 Notes (the “2025 Senior Notes Indenture”), plus accrued and unpaid interest, if any, to the redemption date and (ii) at any time on or after September 15, 2021 at the premium, if any, specified in the 2025 Senior Notes Indenture that will decrease over time, plus accrued and unpaid interest, if any, to the redemption date. In addition, prior to September 15, 2021, at our option, we may redeem up to 40% of the aggregate principal amount of the 2025 Senior Notes at a redemption price of 108.5% of the aggregate principal amount of 2025 Senior Notes redeemed, plus accrued and unpaid interest, if any, to the redemption date, with the proceeds of certain equity offerings as described in the 2025 Senior Notes Indenture.

We used a portion of the net proceeds of the 2025 Senior Notes offering to retire $178.5 million of the remaining outstanding 2021 Senior Notes through a cash tender offer, to pay the related accrued interest, premiums, fees and expenses associated therewith and for general corporate purposes, which may include working capital and future repurchases of our outstanding debt securities. In October 2018 we used a portion of the remaining net proceeds of the 2025 Senior Notes to redeem the remaining $116.5 million principal balance of the 2021 Senior Notes.

8.50% Senior Unsecured Notes Due 2024

On September 1, 2017, we issued and sold the 2024 Senior Notes. The 2024 Senior Notes were sold to qualified institutional buyers in accordance with the Securities Act and outside the United States pursuant to Regulation S under the Securities Act. The 2024 Senior Notes bear interest at a rate of 8.50% annually on the principal amount payable semi-annually in arrears on March 1 and September 1 of each year, beginning on March 1, 2018. The 2024 Senior Notes were sold at a price of 100%. The 2024 Senior Notes will mature on September 1, 2024. The 2024 Senior Notes are unsecured debt obligations of ours, and are unconditionally guaranteed by certain of our domestic subsidiaries.

The 2024 Senior Notes are redeemable at our option, in whole or in part, (i) at any time prior to September 1, 2020 at 100% of the aggregate principal amount of 2024 Senior Notes redeemed plus the applicable “make whole” premium specified in the 2024 Senior Notes Indenture, plus accrued and unpaid interest, if any, to the redemption date and (ii) at any time on or after September 1, 2020 at the premium, if any, specified in the 2024 Senior Notes Indenture that will decrease over time, plus accrued and unpaid interest, if any, to the redemption date. In addition, prior to September 1, 2020, at our option, we may redeem up to 40% of the aggregate principal amount of the 2024 Senior Notes at a redemption price of 108.5% of the aggregate principal amount of 2024 Senior Notes redeemed, plus accrued and unpaid interest, if any, to the redemption date, with the proceeds of certain equity offerings as described in the 2024 Senior Notes Indenture.

We used the net proceeds of the 2024 Senior Notes offering to retire a portion of our outstanding 2021 Senior Notes, to pay the related accrued interest, premiums, fees and expenses associated therewith and for general corporate purposes, which may include working capital and future repurchases of our outstanding debt securities.

Consumer Loan Securitization

2018-A Notes

On October 25, 2018, we announced that an indirect subsidiary intends to offer, subject to market and other customary conditions, $95,000,000 Class A Asset Backed Notes (the “Class A Notes”) and $30,400,000 Class B Asset Backed Notes (the “Class B Notes” and, collectively with the Class A Notes, the “2018-A Notes”), with an anticipated closing date of on or about October 31, 2018 (the “2018-A Closing Date”). The Class A Notes will bear interest at 4.20% and the Class B Notes will bear interest at 7.37%. The 2018-A Notes will be backed by a pool of Receivables and will represent obligations of the issuer only. The 2018-A Notes will not be guaranteed by us.

The net proceeds of the offering of the 2018-A Notes on the 2018-A Closing Date will be used to acquire the Receivables from us, fund a reserve account and pay fees and expenses incurred in connection with the transaction.

2018-2 Facility

On October 23, 2018, we and several of our subsidiaries entered into a receivables funding agreement (the “2018-2 Facility”) with Credit Suisse AG, New York Branch, as agent (the “Agent”). The 2018-2 Facility collateralizes Receivables that have been and will be originated or acquired under our NetCredit brand by several of our subsidiaries and that meet specified eligibility criteria in exchange for a revolving note. Under the 2018-2 Facility, Receivables are sold to a wholly-owned special purpose subsidiary of ours (the “2018-2 Debtor”) and serviced by another subsidiary of ours.

2018‑1 Facility

On July 23, 2018, we and several of our subsidiaries entered into a receivables funding agreement (the “2018‑1 Facility”) with Pacific Western Bank, as lender (the “2018‑1 Lender”). The 2018‑1 Facility collateralizes unsecured consumer installment loans (“Receivables”) that have been and will be originated or acquired under our NetCredit brand by several of our subsidiaries and that meet specified eligibility criteria in exchange for a revolving note. Under the 2018‑1 Facility, Receivables are sold to a wholly-owned special purpose subsidiary of ours (the “2018‑1 Debtor”) and serviced by another subsidiary of ours.

which rate per annum is initially 4.00%. In addition, the 2018‑1 Debtor paid certain customary upfront closing fees to the 2018‑1 Lender. Interest payments on the 2018‑1 Facility will be made monthly. The 2018‑1 Debtor shall be permitted to prepay the 2018‑1 Facility, subject to certain fees and conditions. In the event of prepayment for the purposes of securitizations, no fees shall apply. Any remaining amounts outstanding will be payable no later than July 22, 2023, the final maturity date.

2016‑1 Facility

On January 15, 2016, we and certain of our subsidiaries entered into a receivables securitization (as amended, the “2016‑1 Securitization Facility”) with certain purchasers, Jefferies Funding LLC, as administrative agent (the “Administrative Agent”) and Bankers Trust Company, as indenture trustee and securities intermediary (the “Indenture Trustee”). The 2016‑1 Securitization Facility securitizes Receivables that have been, or will be, originated or acquired under our NetCredit brand and that meet specified eligibility criteria. Under the 2016‑1 Securitization Facility, Receivables are sold to a wholly-owned special purpose subsidiary (the “Issuer”) and serviced by another subsidiary. The 2016-1 Securitization Facility was amended on July 26, 2016, August 17, 2016, September 12, 2016, October 20, 2016, November 14, 2016 and December 14, 2016. The 2016-1 Securitization Facility, as amended, provided for a maximum principal amount of $275 million, variable funding notes maximum principal amount of $30 million per month and a revolving period of the facility ending in October 2017.

On October 20, 2017 (the “Amendment Closing Date”), we and certain of our subsidiaries amended and restated the 2016-1 Securitization Facility (the “Amended Facility”). The counterparties to the Amended Facility included certain purchasers, the Administrative Agent and the Indenture Trustee. The Amended Facility relates to Receivables that have been and will be originated or acquired under our NetCredit brand by several of our subsidiaries and that meet specified eligibility criteria. The eligible Receivables that were owned by the Issuer remained in the Amended Facility and the ineligible Receivables were removed. Under the Amended Facility, additional eligible Receivables may be sold to the Issuer and serviced by another subsidiary of ours.

In connection with the amendment and restatement, all of the outstanding notes issued by the Issuer prior to the Amendment Closing Date were redeemed and the Issuer issued an initial term note with an initial principal amount of $181.1 million (the “2017 Initial Term Note”) and variable funding notes (the “2017 Variable Funding Notes”) with an aggregate committed availability of $75 million per quarter with an option to increase the commitment to $90 million with the consent of the holders of the 2017 Variable Funding Notes. As described below, the Issuer will subsequently issue term notes (the “2017 Term Notes” and, together with the 2017 Initial Term Note and the 2017 Variable Funding Notes, the “2017 Securitization Notes”) at the end of each calendar quarter. The maximum principal amount of the 2017 Securitization Notes that may be outstanding at any time under the Amended Facility is $275 million.

On each of January 2, 2018, April 2, 2018, July 2, 2018, October 1, 2018, December 31, 2018 and April 1, 2019, the Receivables financed under the 2017 Variable Funding Notes were or will be allocated to a 2017 Term Note, which 2017 Term Note will be issued to the holders of the 2017 Variable Funding Notes and the 2017 Variable Funding Note on such date will be reduced to zero. The 2017 Securitization Notes are non-recourse to us and mature at various dates, the latest of which will be April 15, 2022 (the “2017 Final Maturity Date”).

2016‑2 Facility

On December 1, 2016, we and certain of our subsidiaries entered into a receivables securitization (the “2016‑2 Facility”) with Redpoint Capital Asset Funding, LLC, as lender (the “Lender”). The 2016‑2 Facility securitizes Receivables that have been and will be originated or acquired under our NetCredit brand by several of our subsidiaries and that meet specified eligibility criteria, including that the annual percentage rate for each securitized consumer loan is greater than or equal to 90%. Under the 2016‑2 Facility, Receivables are sold to a wholly-owned special purpose subsidiary of ours (the “Debtor”) and serviced by another subsidiary of ours.

The 2016‑2 Facility documents contain customary provisions for securitizations, including: representations and warranties as to the eligibility of the Receivables and other matters; indemnification for specified losses not including losses due to the inability of consumers to repay the related Receivables; and default and termination provisions which provide for the acceleration of the 2016‑2 Facility in circumstances including, but not limited to, failure to make payments when due certain insolvency events, breaches of representations, warranties or covenants, failure to maintain the security interest in the receivables and defaults under other material indebtedness of the Debtor.

2017 Credit Agreement

On June 30, 2017, we and certain of our operating subsidiaries entered into a secured revolving credit agreement with a syndicate of banks including TBK Bank, SSB (“TBK”), as administrative agent and collateral agent, Jefferies Finance LLC and TBK as joint lead arrangers and joint lead bookrunners, and Green Bank, N.A., as lender. On April 13, 2018, the 2017 Credit Agreement was amended to include Pacific Western Bank, as lender, in the syndicate of lenders from the 2017 Credit Agreement. On October 5, 2018 the 2017 Credit Agreement was amended to include Axos Bank, as lender, in the syndicate of lenders from the 2017 Credit Agreement.

The 2017 Credit Agreement is secured by domestic receivables. The borrowing limit in the 2017 Credit Agreement, as amended on October 5, 2018, is $125 million (an increase from $75 million as provided by the first amendment) and its maturity date is May 1, 2020. We had no outstanding borrowings under the 2017 Credit Agreement as of September 30, 2018.

The 2017 Credit Agreement provides for a revolving credit line with interest on borrowings under the facility at prime rate plus 1.00%. In addition, the 2017 Credit Agreement provides for payment of a commitment fee calculated with respect to the unused portion of the line, and ranges from 0.30% per annum to 0.50% per annum depending on usage. A portion of the revolving credit facility, up to a maximum of $20 million, is available for the issuance of letters of credit. We had outstanding letters of credit under the 2017 Credit Agreement of $3.6 million as of September 30, 2018. The 2017 Credit Agreement provides for certain prepayment penalties if it is terminated on or before its first and second anniversary date, subject to certain exceptions.

The 2017 Credit Agreement contains certain limitations on the incurrence of additional indebtedness, investments, the attachment of liens to our property, the amount of dividends and other distributions, fundamental changes to us or our business and certain other of our activities. The 2017 Credit Agreement contains standard financial covenants for a facility of this type based on a leverage ratio and a fixed charge coverage ratio. The 2017 Credit Agreement also provides for customary affirmative covenants, including financial reporting requirements, and certain events of default, including payment defaults, covenant defaults and other customary defaults.

Cash Flows

Our cash flows and other key indicators of liquidity are summarized as follows (dollars in thousands):

	Nine Months Ended September 30,
	2018			2017
Cash flows provided by operating activities	$	468,160		$	311,297
Cash flows used in investing activities
Loans and finance receivables	$	(505,938	)	$	(325,859	)
Purchases of property and equipment		(11,303	)		(10,804	)
Other investing activities		93			1,798
Total cash flows used in investing activities	$	(517,148	)	$	(334,865	)
Cash flows provided by financing activities	$	141,234		$	93,101

Cash Flows from Operating Activities

Net cash provided by operating activities increased $156.9 million, or 50.4%, to $468.2 million for the current nine-month period from $311.3 million for the prior year nine-month period. The increase was primarily driven by a $124.7 million increase in cost of revenue, a non-cash expense, during the current nine-month period, and a $39.0 million increase in net income.

Other significant changes in net cash provided by operating activities for the current nine-month period compared to the prior year nine-month period included cash flows from the following activities:

•

changes in current income taxes resulted in a $31.9 million decrease in net cash provided by operating activities, primarily due to the ability to recover prior year taxes through net operating loss carrybacks;

•

changes in deferred income taxes, net resulted in a $31.1 million increase in net cash provided by operating activities, primarily due to the estimated tax effects of optimizing the timing of certain income tax deductions for prior year loan and fixed asset related deferred tax items;

•

changes in finance and service charges on loans and finance receivables resulted in a $14.2 million decrease in net cash provided by operating activities as a result of higher rate of loans and finance receivables originated or purchased compared to loans and finance receivables repaid.

•

changes in accounts payable and accrued expenses resulted in a $4.0 million increase in net cash provided by operating activities, primarily due to a decrease in accrued expense liabilities in the prior year nine-month period; and

•

changes in the loss on early extinguishment of debt resulted in a $2.3 million increase in net cash provided by operating activities.

Management believes cash flows from operations and available cash balances and borrowings under our consumer loan securitization facilities and 2017 Credit Agreement, which may include increased borrowings under our 2017 Credit Agreement, any refinancing or replacement thereof, and additional securitization of consumer loans, will be sufficient to fund our future operating liquidity needs, including to fund our working capital growth.

Cash Flows from Investing Activities

Net cash used in investing activities increased $182.3 million, or 54.4%, for the current nine-month period compared to the prior year nine-month period. This increase was primarily due to a $180.1 million increase in net cash invested in loans and finance receivables, reflecting a $279.6 million increase in the amount of loans and finance receivables originated or acquired partially offset by a $99.5 million increase payments received from customers. Additionally, purchases of property and equipment increased $0.5 million for the current nine-month period compared to the prior year nine-month period.

Cash Flows from Financing Activities

Cash flows provided by financing activities for the current nine-month period primarily reflects borrowings of $375.0 million related to the issuance of our 2025 Senior Notes, $228.5 million in payments under our 2021 Senior Notes, $14.8 million in net borrowings under our securitization facilities, $13.1 million in penalties paid in connection with the early payments of our 2021 Senior Notes, $9.2 million in debt issuance costs primarily related to the issuance our 2025 Senior Notes, $6.7 million of proceeds from the exercise of

stock options, and the $3.0 million payment of our promissory note related to a previous acquisition. Cash flows provided by financing activities for the prior year nine-month period primarily reflects borrowings of $250.0 million related to the issuance of our 2024 Senior Notes, $155.0 million in payments under our 2021 Senior Notes, $21.1 million in net borrowings under our securitization facilities, an $11.3 million penalty paid in connection with the early payment of our 2021 Senior Notes and $9.6 million of debt issuance costs paid in connection with the 2024 Senior Notes and 2017 Credit Agreement. Additionally, on September 15, 2017, we announced the Board of Directors had authorized a share repurchase program for the repurchase of up to $25.0 million of our common stock through December 31, 2019 (the “September 2017 Authorization”). During the prior year nine-month period, we paid $1.1 million to repurchase common stock under the September 2017 Authorization.

OFF-BALANCE SHEET ARRANGEMENTS

In certain markets, we arrange for consumers to obtain consumer loan products from independent third-party lenders through our CSO programs. For consumer loan products originated by third-party lenders under the CSO programs, each lender is responsible for providing the criteria by which the customer’s application is underwritten and, if approved, determining the amount of the consumer loan. We are responsible for assessing whether or not we will guarantee such loan. When a customer executes an agreement with us under our CSO programs, we agree, for a fee payable to us by the customer, to provide certain services to the customer, one of which is to guarantee the customer’s obligation to repay the loan received by the customer from the third-party lender if the customer fails to do so. The guarantee represents an obligation to purchase specific loans if they go into default, which generally occurs after one payment is missed. As of September 30, 2018 and 2017, the outstanding amount of active consumer loans originated by third-party lenders under the CSO programs was $30.1 million and $28.9 million, respectively, which were guaranteed by us. The estimated fair value of the liability for estimated losses on consumer loans guaranteed by us of $2.2 million and $2.0 million, as of September 30, 2018 and 2017, respectively, is included in “Accounts payable and accrued expenses” in the consolidated balance sheets. Our CSO programs are further described under the caption “Products and Services” above.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risks relating to our operations result primarily from changes in foreign currency exchange rates. We do not engage in speculative or leveraged transactions, nor do we hold or issue financial instruments for trading purposes. There have been no material changes to our exposure to market risks since December 31, 2017.

ITEM 4.

CONTROLS AND PROCEDURES

Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, our management has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, or the “Exchange Act”) as of September 30, 2018 (the “Evaluation Date”). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective and provide reasonable assurance (i) to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms; and (ii) to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.

There was no change in our internal control over financial reporting during the quarter ended September 30, 2018 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or internal controls will prevent or detect all possible misstatements due to error or fraud. Our disclosure controls and procedures and internal controls are, however, designed to provide reasonable assurance of achieving their objectives, and our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective at that reasonable assurance level.

PART II. OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

See the “Litigation” section of Note 10 of the notes to our unaudited consolidated financial statements of Part I, “Item 1 Financial Statements.”

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, 2017, except as follows:

We are subject to cyber security risks and security breaches and may incur increasing costs in an effort to minimize those risks and to respond to cyber incidents.

Our business involves the storage and transmission of consumers’ and businesses’ proprietary information, and security breaches could expose us to a risk of loss or misuse of this information, litigation, and potential liability. We are entirely dependent on the secure operation of our websites and systems as well as the operation of the internet generally. While we have incurred no material cyber-attacks or security breaches to date, a number of other companies have disclosed cyber-attacks and security breaches, some of which have involved intentional attacks. Attacks may be targeted at us, our customers, or both. Although we devote significant resources to maintain and regularly upgrade our systems and processes that are designed to protect the security of our computer systems, software, networks and other technology assets and the confidentiality, integrity and availability of information belonging to us and our customers, our security measures may not provide absolute security. Despite our efforts to ensure the integrity of our systems, it is possible that we may not be able to anticipate or to implement effective preventive measures against all security breaches of these types, especially because the techniques used change frequently or are not recognized until launched, and because cyber-attacks can originate from a wide variety of sources, including third parties outside the company such as persons who are involved with organized crime or associated with external service providers or who may be linked to terrorist organizations or hostile foreign governments. These risks may increase in the future as we continue to increase our mobile and other internet-based product offerings and expand our internal usage of web-based products and applications or expand into new countries. If an actual or perceived breach of security occurs, customer and/or supplier perception of the effectiveness of our security measures could be harmed and could result in the loss of customers, suppliers or both. Actual or anticipated attacks and risks may cause us to incur increasing costs, including costs to deploy additional personnel and protection technologies, train employees, and engage third party experts and consultants.

A successful penetration or circumvention of the security of our systems could cause serious negative consequences, including significant disruption of our operations, misappropriation of our confidential information or that of our customers, or damage to our computers or systems or those of our customers and counterparties, and could result in violations of applicable privacy and other laws, financial loss to us or to our customers, loss of confidence in our security measures, customer dissatisfaction, significant litigation exposure, and harm to our reputation, all of which could have a material adverse effect on us. In addition, our applicants provide sensitive information, including bank account information when applying for loans or financing. We rely on encryption and authentication technology licensed from third parties to provide the security and authentication to effectively secure transmission of confidential information, including customer bank account and other personal information. Advances in computer capabilities, new discoveries in the field of cryptography or other developments may result in the technology used by us to protect transaction data being breached or compromised. Data breaches can also occur as a result of non-technical issues. In addition, federal and some state regulators are considering rules and standards to address cybersecurity risks and many US states and the UK have already enacted laws requiring companies to notify individuals of data security breaches involving their personal data. These mandatory disclosures regarding a security breach are costly to implement and may lead to widespread negative publicity, which may cause customers to lose confidence in the effectiveness of our data security measures.

Our servers are also vulnerable to computer viruses, physical or electronic break-ins, and similar disruptions, including denial-of-service attacks. We may need to expend significant resources to protect against security breaches or to address problems caused by breaches. Security breaches, including any breach of our systems or by persons with whom we have commercial relationships that result in the unauthorized release of consumers’ personal information or businesses’ proprietary information, could damage our reputation and expose us to a risk of loss or litigation and possible liability. In addition, many of the third parties who provide products, services or support to us could also experience any of the above cyber risks or security breaches, which could impact our customers and our business and could result in a loss of customers, suppliers or revenue.

Any of these events could result in a loss of revenue and could have a material adverse effect on our business, prospects, results of operations, financial condition and cash flows.

Our ability to collect payment on loans and maintain the accuracy of accounts may be adversely affected by computer viruses, electronic break-ins, technical errors and similar disruptions.

The accessibility and automated nature of our platform may make for an attractive target for hacking, computer viruses, physical or electronic break-ins and similar disruptions. Despite efforts to ensure the integrity of our platform, it is possible that we may not be able to anticipate or to implement effective preventive measures against all security breaches of these types, in which case there would be an increased risk of fraud or identity theft, and we may experience losses on, or delays in the collection of amounts owed on, a fraudulently induced loan. In addition, the software that we have developed is highly complex and may contain undetected technical errors that could cause our computer systems to fail. Because each loan and financing provided involves our proprietary underwriting and fraud scoring models, and the applications are highly automated, any failure of our computer systems involving our proprietary credit and fraud scoring models and any technical or other errors contained in the software pertaining to our proprietary underwriting and fraud scoring models could compromise the ability to accurately evaluate potential customers, which would negatively impact our results of operations. Furthermore, any failure of our computer systems could cause an interruption in operations that may result in disruptions or reductions in the amount of collections from the loans and financings we provide to customers. If any of these risks were to materialize, it could have a material adverse effect on our business, prospects, results of operations, financial condition or cash flows.

Customer complaints to the Financial Ombudsman Service (“FOS”) could increase, which could have a negative effect on our operations in the United Kingdom.

We continue to experience an increased volume of complaints about loans issued prior to changes we implemented in 2014, and the FOS has taken a very consumer friendly approach to its complaint handling process and dispute resolutions. We have been required to make significant payments to customers to resolve these complaints. We have also incurred significant costs in the form of FOS administrative fees associated with each individual complaint submitted to FOS, as well as operational costs necessary to manage the large volume of complaints. The FOS has evidenced signs of expanding its consumer focused approach through changes in the FOS’s interpretation of its complaint handling rights and obligations. We also observed the FOS interpreting FCA rules and guidance in a manner that is stricter than, and sometimes in direct conflict with, the FCA’s own interpretation of its rules and guidance. If the FOS continues to issue findings in this manner, and we are required to continue making significant payments to resolve complaints, such findings could again have a material adverse effect on our business, prospects, results of operations, financial condition and cash flows.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table provides the information with respect to purchases made by us of shares of our common stock.

Period	Total Number of Shares Purchased^(a)		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plan^(b)		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plan^(b) (in thousands)
July 1 – July 31, 2018		644		36.55		—		21,454
August 1 – August 31, 2018		—		—		—		21,454
September 1 – September 30, 2018		546		30.95		—		21,454
Total		1,190	$	33.98		—	$	21,454

(a)	Shares withheld from employees as tax payments for shares issued under the Company’s stock-based compensation plans.

(b)

On September 15, 2017, the Company announced the Board of Directors had authorized a share repurchase program for the repurchase of up to $25.0 million of the Company’s common stock through December 31, 2019 (the “September 2017 Authorization”). All share repurchases made under the September 2017 Authorization have been through open market transactions.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.

MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.

OTHER INFORMATION

None.

ITEM 6.

EXHIBITS

Exhibit No.		Exhibit Description


4.1		Indenture, dated as of September 19, 2018, by and among Enova International, Inc., each of the guarantors party thereto and Computershare Trust Company, N.A., as trustee and the Form of 8.500% Senior Note due 2025

10.1		Loan and Security Agreement, dated July 23, 2018, by and between Pacific Western Bank and EFR 2018-1, LLC

10.2		Receivables Purchase Agreement, dated July 23, 2018 by and between EFR 2018-1, LLC, as purchaser, and NetCredit Funding, LLC, as seller

10.3		Purchase Agreement by and among Enova International, Inc., the Guarantors party thereto and Credit Suisse Securities (USA) LLC, as Representative of the Initial Purchasers listed therein, dated September 14, 2018

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: October 31, 2018	ENOVA INTERNATIONAL, INC.

	By:	/s/ Steven E. Cunningham
		Steven E. Cunningham
		Chief Financial Officer
		(On behalf of the Registrant and as Principal Financial Officer)