Enova International, Inc. - Quarter Report: 2019 June (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 June 30, 2019

☐	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)

Securities Registered Pursuant to Section 12(b) of the Act:

Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock, $.00001 par value per share	ENVA	New York Stock Exchange

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

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See 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 ☒

33,999,696 of the Registrant’s common shares, $.00001 par value, were outstanding as of July 29, 2019.

CAUTIONARY NOTE CONCERNING FACTORS THAT MAY AFFECT FUTURE RESULTS

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

•

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

•

the effect of and compliance with domestic and international consumer credit, tax and other laws and government rules and regulations applicable to our business, including changes in such laws, rules and regulations, or changes in the interpretation or enforcement thereof, and the regulatory and examination authority of the Consumer Financial Protection Bureau with respect to providers of consumer financial products and services in the United States and the Financial Conduct Authority in the United Kingdom;

•

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

•

the effect on our U.K. business of elevated complaints related to historical funding;

•

the effect of and compliance with enforcement actions, orders and agreements issued by applicable regulators, such as the January 2019 Consent Order issued by the Consumer Financial Protection Bureau;

•

our ability to process or collect loans and finance receivables 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, small business financing 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 that is adequate to absorb credit losses;

•

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

•

our ability to attract and retain qualified officers;

•

cyber-attacks or security breaches;

•

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

•

the ability to successfully integrate newly acquired businesses into our operations;

•

interest rate and foreign currency exchange rate fluctuations;

•

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

•

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

•

other risks and uncertainties described herein.

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

ENOVA INTERNATIONAL, INC.

INDEX TO FORM 10-Q


		Page
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)
	Consolidated Balance Sheets – June 30, 2019 and 2018 and December 31, 2018	1
	Consolidated Statements of Income – Three and Six Months Ended June 30, 2019 and 2018	3
	Consolidated Statements of Comprehensive Income – Three and Six Months Ended June 30, 2019 and 2018	4
	Consolidated Statements of Stockholders’ Equity – Three and Six Months Ended June 30, 2019 and 2018	5
	Consolidated Statements of Cash Flows – Six Months Ended June 30, 2019 and 2018	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	50
Item 4.	Controls and Procedures	50

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	51
Item 1A.	Risk Factors	51
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	51
Item 3.	Defaults upon Senior Securities	51
Item 4.	Mine Safety Disclosures	51
Item 5.	Other Information	51
Item 6.	Exhibits	52

SIGNATURES		53

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share data)

(Unaudited)

	June 30,						December 31,
	2019			2018			2018
Assets
Cash and cash equivalents⁽¹⁾	$	65,503		$	47,414		$	52,917
Restricted cash⁽¹⁾		22,962			28,863			24,342
Loans and finance receivables, net⁽¹⁾		892,582			750,131			859,946
Income taxes receivable		12,693			3,006			28,914
Other receivables and prepaid expenses⁽¹⁾		34,459			25,373			29,983
Property and equipment, net		52,878			47,752			49,553
Operating lease right-of-use assets		20,813			—			—
Goodwill		267,013			267,013			267,013
Intangible assets, net		2,720			3,790			3,255
Other assets⁽¹⁾		11,844			9,862			12,262
Total assets	$	1,383,467		$	1,183,204		$	1,328,185
Liabilities and Stockholders' Equity
Accounts payable and accrued expenses⁽¹⁾	$	118,195		$	72,406		$	89,317
Operating lease liabilities		37,696			—			—
Deferred tax liabilities, net		35,619			14,322			33,171
Long-term debt⁽¹⁾		785,504			762,831			857,929
Total liabilities		977,014			849,559			980,417
Commitments and contingencies (Note 9)
Stockholders' equity:
Common stock, $0.00001 par value, 250,000,000 shares authorized, 35,671,114, 34,633,819 and 34,856,553 shares issued and 33,989,158, 34,145,146 and 33,584,606 outstanding as of June 30, 2019 and 2018 and December 31, 2018, respectively		—			—			—
Preferred stock, $0.00001 par value, 25,000,000 shares authorized, no shares issued and outstanding		—			—			—
Additional paid in capital		56,910			39,335			48,175
Retained earnings		396,149			312,440			336,415
Accumulated other comprehensive loss		(14,774	)		(10,905	)		(13,805	)
Treasury stock, at cost (1,681,956, 488,673 and 1,271,947 shares as of June 30, 2019 and 2018 and December 31, 2018, respectively)		(31,832	)		(7,225	)		(23,017	)
Total stockholders' equity		406,453			333,645			347,768
Total liabilities and stockholders' equity	$	1,383,467		$	1,183,204		$	1,328,185

(1)	Includes amounts in wholly owned, bankruptcy-remote special purpose subsidiaries (“VIEs”) presented separately in the table below.

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share data)

(Unaudited)

The following table presents the aggregated assets and liabilities of consolidated VIEs, which are included in the Consolidated Balance Sheets above. The assets in the table below may only be used to settle obligations of consolidated VIEs and are in excess of those obligations. See Note 12 for additional information.

	June 30,				December 31,
	2019		2018		2018
Assets of consolidated VIEs, included in total assets above
Cash and cash equivalents	$	420	$	—	$	210
Restricted cash		20,796		21,744		22,168
Loans and finance receivables, net (includes allowance for losses of $31,522, $21,019 and $27,255 as of June 30, 2019 and 2018 and December 31, 2018, respectively)		306,322		236,953		318,961
Other receivables and prepaid expenses		6,671		8		2,712
Other assets		2,530		132		2,544
Total assets	$	336,739	$	258,837	$	346,595
Liabilities of consolidated VIEs, included in total liabilities above
Accounts payable and accrued expenses	$	2,410	$	1,489	$	3,087
Long-term debt		171,931		176,928		223,368
Total liabilities	$	174,341	$	178,417	$	226,455

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						Six Months Ended
	June 30,						June 30,
	2019			2018			2019			2018
Revenue	$	285,700		$	253,301		$	578,883		$	507,599
Cost of Revenue		138,297			121,494			277,342			230,047
Gross Profit		147,403			131,807			301,541			277,552
Expenses
Marketing		31,904			29,386			55,566			57,122
Operations and technology		32,411			27,195			62,011			52,733
General and administrative		28,876			28,295			58,449			55,216
Depreciation and amortization		3,942			3,837			8,126			7,675
Total Expenses		97,133			88,713			184,152			172,746
Income from Operations		50,270			43,094			117,389			104,806
Interest expense, net		(18,115	)		(19,355	)		(37,615	)		(39,028	)
Foreign currency transaction loss		(38	)		(204	)		(181	)		(2,292	)
Loss on early extinguishment of debt		—			—			(2,321	)		(4,710	)
Income before Income Taxes		32,117			23,535			77,272			58,776
Provision for income taxes		7,054			5,310			17,192			12,653
Net Income	$	25,063		$	18,225		$	60,080		$	46,123
Earnings Per Share:
Earnings per common share:
Basic	$	0.74		$	0.54		$	1.78		$	1.36
Diluted	$	0.73		$	0.52		$	1.74		$	1.32
Weighted average common shares outstanding:
Basic		33,826			33,984			33,660			33,821
Diluted		34,469			35,371			34,451			34,966

See notes to consolidated financial statements.

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(Unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2019			2018			2019			2018
Net Income	$	25,063		$	18,225		$	60,080		$	46,123
Other comprehensive loss, net of tax:
Foreign currency translation loss⁽¹⁾		(2,523	)		(6,583	)		(969	)		(2,197	)
Reclassification of certain deferred tax effects		—			—			—			(1,622	)
Total other comprehensive loss, net of tax		(2,523	)		(6,583	)		(969	)		(3,819	)
Comprehensive Income	$	22,540		$	11,642		$	59,111		$	42,304

(1)	Net of tax benefit (provision) of $467 and $1,911 for the three months ended June 30, 2019 and 2018, respectively and $(33) and $310 for the six months ended June 30, 2019 and 2018, 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 March 31, 2018		34,340	$	—	$	32,671	$	294,215	$	(4,322	)		(478	)	$	(6,831	)	$	315,733
Stock-based compensation expense		—		—		2,834		—		—			—			—			2,834
Shares issued for vested RSUs		128		—		—		—		—			—			—			—
Shares issued for stock option exercises		166		—		3,830		—		—			—			—			3,830
Net income		—		—		—		18,225		—			—			—			18,225
Foreign currency translation loss, net of tax		—		—		—		—		(6,583	)		—			—			(6,583	)
Purchases of treasury shares, at cost		—		—		—		—		—			(11	)		(394	)		(394	)
Balance at June 30, 2018		34,634	$	—	$	39,335	$	312,440	$	(10,905	)		(489	)	$	(7,225	)	$	333,645

Balance at March 31, 2019		35,340	$	—	$	51,638	$	371,086	$	(12,251	)		(1,656	)	$	(31,259	)	$	379,214
Stock-based compensation expense		—		—		3,323		—		—			—			—			3,323
Shares issued for vested RSUs		97		—		—		—		—			—			—			—
Shares issued for stock option exercises		234		—		1,949		—		—			—			—			1,949
Net income		—		—		—		25,063		—			—			—			25,063
Foreign currency translation loss, net of tax		—		—		—		—		(2,523	)		—			—			(2,523	)
Purchases of treasury shares, at cost		—		—		—		—		—			(26	)		(573	)		(573	)
Balance at June 30, 2019		35,671	$	—	$	56,910	$	396,149	$	(14,774	)		(1,682	)	$	(31,832	)	$	406,453

										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, 2017		33,933	$	—	$	29,781	$	264,695		$	(7,086	)		(428	)	$	(5,703	)	$	281,687
Stock-based compensation expense		—		—		5,267		—			—			—			—			5,267
Shares issued for vested RSUs		504		—		—		—			—			—			—			—
Shares issued for stock option exercises		197		—		4,287		—			—			—			—			4,287
Net income		—		—		—		46,123			—			—			—			46,123
Foreign currency translation loss, net of tax		—		—		—		—			(2,197	)		—			—			(2,197	)
Purchases of treasury shares, at cost		—		—		—		—			—			(61	)		(1,522	)		(1,522	)
Reclassification of certain deferred tax effects		—		—		—		1,622			(1,622	)		—			—			—
Balance at June 30, 2018		34,634	$	—	$	39,335	$	312,440		$	(10,905	)		(489	)	$	(7,225	)	$	333,645

Balance at December 31, 2018		34,857	$	—	$	48,175	$	336,415		$	(13,805	)		(1,272	)	$	(23,017	)	$	347,768
Stock-based compensation expense		—		—		6,397		—			—			—			—			6,397
Shares issued for vested RSUs		524		—		—		—			—			—			—			—
Shares issued for stock option exercises		290		—		2,338		—			—			—			—			2,338
Net income		—		—		—		60,080			—			—			—			60,080
Foreign currency translation loss, net of tax		—		—		—		—			(969	)		—			—			(969	)
Purchases of treasury shares, at cost		—		—		—		—			—			(410	)		(8,815	)		(8,815	)
Cumulative effect of accounting change (Note 1)		—		—		—		(346	)		—			—			—			(346	)
Balance at June 30, 2019		35,671	$	—	$	56,910	$	396,149		$	(14,774	)		(1,682	)	$	(31,832	)	$	406,453

See notes to consolidated financial statements.

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

	Six Months Ended
	June 30,
	2019			2018
Cash Flows from Operating Activities
Net Income	$	60,080		$	46,123
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		8,126			7,675
Amortization of deferred loan costs and debt discount		3,135			3,038
Cost of revenue		277,342			230,047
Stock-based compensation expense		6,397			5,267
Loss on early extinguishment of debt		2,321			4,710
Operating leases, net		(760	)		—
Lease termination and cease-use costs		370			—
Deferred income taxes, net		1,587			2,458
Other		—			55
Changes in operating assets and liabilities:
Finance and service charges on loans and finance receivables		(4,071	)		(2,911	)
Other receivables and prepaid expenses		(3,876	)		(1,681	)
Accounts payable and accrued expenses		2,648			(151	)
Current income taxes		61,460			1,086
Net cash provided by operating activities		414,759			295,716
Cash Flows from Investing Activities
Loans and finance receivables originated or acquired		(854,206	)		(786,788	)
Loans and finance receivables repaid		545,975			510,238
Purchases of property and equipment		(10,907	)		(7,065	)
Other investing activities		2			42
Net cash used in investing activities		(319,136	)		(283,573	)
Cash Flows from Financing Activities
Borrowings under revolving line of credit		150,049			77,000
Repayments under revolving line of credit		(172,049	)		(24,001	)
Borrowings under securitization facilities		47,800			80,300
Repayments under securitization facilities		(101,418	)		(112,647	)
Repayments of senior notes		—			(50,000	)
Debt issuance costs paid		(339	)		(360	)
Debt prepayment penalty paid		(1,392	)		(3,656	)
Payment of promissory note		—			(3,000	)
Proceeds from exercise of stock options		2,338			4,287
Treasury shares purchased		(8,815	)		(1,522	)
Net cash used in financing activities		(83,826	)		(33,599	)
Effect of exchange rates on cash, cash equivalents and restricted cash		(591	)		(411	)
Net increase (decrease) in cash, cash equivalents and restricted cash		11,206			(21,867	)
Cash, cash equivalents and restricted cash at beginning of year		77,259			98,144
Cash, cash equivalents and restricted cash at end of period	$	88,465		$	76,277

Supplemental Disclosures
Loans and finance receivables renewed	$	137,552		$	184,383

See notes to consolidated financial statements.

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1.	Significant Accounting Policies

Nature of the Company

The Company operates an internet-based lending platform to serve customers in need of cash to fulfill their financial responsibilities. Through a network of direct and indirect marketing channels, the Company offers funds to its customers through a variety of unsecured loan and finance receivable products. The business is operated primarily through the internet to provide convenient, fully-automated financial solutions to its customers. 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.

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.

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 June 30, 2019 and 2018 and for the three and six-month periods ended June 30, 2019 and 2018 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 six-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, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016 and related notes, which are included on Form 10-K filed with the SEC on February 27, 2019.

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 sheets (in thousands):

	June 30,
	2019		2018
Cash and cash equivalents	$	65,503	$	47,414
Restricted cash		22,962		28,863
Total cash, cash equivalents and restricted cash	$	88,465	$	76,277

Reclassification of Accumulated Other Comprehensive Income to Net Income

In May 2009 and October 2009, the Company began providing services in Australia and Canada under the brand name DollarsDirect. Due to the small size of the Australian and Canadian markets and our limited operations there, we decided to exit those markets in 2016 and reallocate our resources to our other existing businesses. As a result, we stopped originating loans in those countries and have wound down our loan portfolios. During the quarter ended March 31, 2018, the Company continued the liquidation process of the legal entities related to Australia and Canada and recorded a $2.3 million loss to “Foreign currency transaction loss” 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.

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Adopted Accounting Standards

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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. It also 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 non-lease components. In March 2019, the FASB issued ASU 2019‑01, Leases (Topic 842): Codification Improvements (“ASU 2019‑01”), which clarifies transition disclosures related to ASC 250, Accounting Changes and Error Corrections. ASU 2016‑02 and ASU 2019‑01 became effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2018.

The Company adopted ASU 2016‑02 and ASU 2019‑01 on January 1, 2019 and elected the optional transition method permitted by ASU 2018‑11. The Company elected the package of transition practical expedients, which allows it to not reassess whether any expired or existing contracts are or contain leases and to not reassess the lease classification for existing or expired leases. The Company also elected the practical expedient to not separate lease and associated non-lease components and the short-term lease exception. The following table sets forth the impact of adoption as of January 1, 2019 (in thousands):

	Increase
	(decrease)
Assets
Other receivables and prepaid expenses	$	(35	)
Operating lease right-of-use assets		22,332
Total assets	$	22,297
Liabilities and Stockholders' Equity
Accounts payable and accrued expenses	$	(16,860	)
Operating lease liabilities		39,605
Deferred tax liabilities, net		(102	)
Total liabilities		22,643
Stockholders' equity:
Retained earnings		(346	)
Total stockholders' equity		(346	)
Total liabilities and stockholders' equity	$	22,297

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. In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, which provides subsequent amendments to the initial guidance in ASU 2016‑13. In May 2019, the FASB issued ASU 2019-05, Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief, which provides entities that have certain instruments within the scope of ASC 326-20, Financial Instruments—Credit Losses—Measured at Amortized Cost, with an option to irrevocably elect the fair value option in ASC 825-10, Financial Instruments—Overall, applied on an instrument-by-instrument basis for eligible instruments, upon adoption of ASU 2016-13. ASU 2016‑13 is effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods. The Company is evaluating its alternatives with respect to the available accounting methods under ASU 2016‑13, including the fair value option. If the fair value option is not utilized, adoption of ASU 2016-13 will increase the allowance for credit losses with a resulting negative adjustment to retained earnings on the date of adoption.

2.	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 six months ended June 30, 2019 and 2018 was as follows (dollars in thousands):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
Short-term loans	$	36,722	$	50,312	$	83,047	$	103,687
Line of credit accounts		110,670		79,658		215,153		157,967
Installment loans and RPAs		138,064		123,049		280,126		245,157
Total loans and finance receivables revenue		285,456		253,019		578,326		506,811
Other		244		282		557		788
Total revenue	$	285,700	$	253,301	$	578,883	$	507,599

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. Through its CSO programs, the Company provides 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. 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.

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The allowance or liability for short-term loans classified as current is based on historical loss rates adjusted for recent default trends for current loans. For delinquent short-term loans, the allowance or liability is based on a six-month rolling average of loss rates by stage of collection. For line of credit account, installment loan and RPA portfolios, the Company generally uses either a migration analysis or roll-rate based methodology to estimate losses inherent in the portfolio. The allowance or liability calculation under the migration analysis and roll-rate methodology is based on historical charge-off experience and the loss emergence period, which represents the average amount of time between the first occurrence of a loss event and the charge-off of a loan or RPA. The factors the Company considers to assess the adequacy of the allowance or liability include past due performance, historical behavior of monthly vintages, underwriting changes and recent trends in delinquency in the migration analysis. The roll-rate methodology is based on delinquency status, payment history and recency factors to estimate future charge-offs.

The Company fully reserves for loans and finance receivables once the receivable or a portion of the receivable has been classified as delinquent for 60 consecutive days and generally charges off loans and finance receivables between 60 and 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 June 30, 2019 and 2018 and December 31, 2018 were as follows (dollars in thousands):

	As of June 30, 2019
	Short-term			Line of Credit			Installment Loans and
	Loans			Accounts			RPAs			Total
Current receivables	$	30,639		$	250,360		$	679,383		$	960,382
Delinquent receivables:
Delinquent payment amounts⁽¹⁾		—			11,176			3,301			14,477
Receivables on non-accrual status		19,624			2,289			50,990			72,903
Total delinquent receivables		19,624			13,465			54,291			87,380
Total loans and finance receivables, gross		50,263			263,825			733,674			1,047,762
Less: Allowance for losses		(13,729	)		(51,419	)		(90,032	)		(155,180	)
Loans and finance receivables, net	$	36,534		$	212,406		$	643,642		$	892,582

	As of June 30, 2018
	Short-term			Line of Credit			Installment Loans and
	Loans			Accounts			RPAs			Total
Current receivables	$	40,443		$	172,755		$	575,750		$	788,948
Delinquent receivables:
Delinquent payment amounts⁽¹⁾		—			6,917			2,108			9,025
Receivables on non-accrual status		26,812			1,462			45,668			73,942
Total delinquent receivables		26,812			8,379			47,776			82,967
Total loans and finance receivables, gross		67,255			181,134			623,526			871,915
Less: Allowance for losses		(18,861	)		(31,050	)		(71,873	)		(121,784	)
Loans and finance receivables, net	$	48,394		$	150,084		$	551,653		$	750,131

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

	As of December 31, 2018
	Short-term			Line of Credit			Installment Loans and
	Loans			Accounts			RPAs			Total
Current receivables	$	37,558		$	213,896		$	672,538		$	923,992
Delinquent receivables:
Delinquent payment amounts⁽¹⁾		—			10,783			2,696			13,479
Receivables on non-accrual status		30,167			2,884			52,732			85,783
Total delinquent receivables		30,167			13,667			55,428			99,262
Total loans and finance receivables, gross		67,725			227,563			727,966			1,023,254
Less: Allowance for losses		(21,420	)		(51,008	)		(90,880	)		(163,308	)
Loans and finance receivables, net	$	46,305		$	176,555		$	637,086		$	859,946

(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.

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 six months ended June 30, 2019 and 2018 were as follows (dollars in thousands):

	Three Months Ended June 30, 2019
	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	$	15,418		$	41,362		$	84,621		$	141,401
Cost of revenue		12,004			48,326			77,505			137,835
Charge-offs		(19,085	)		(42,021	)		(92,337	)		(153,443	)
Recoveries		5,494			3,752			20,513			29,759
Effect of foreign currency translation		(102	)		—			(270	)		(372	)
Balance at end of period	$	13,729		$	51,419		$	90,032		$	155,180
Liability for third-party lender-owned loans:
Balance at beginning of period	$	1,106		$	—		$	158		$	1,264
Increase in liability		195			—			267			462
Balance at end of period	$	1,301		$	—		$	425		$	1,726

	Three Months Ended June 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	$	19,136		$	27,120		$	68,027		$	114,283
Cost of revenue		19,764			31,211			69,837			120,812
Charge-offs		(25,615	)		(30,554	)		(79,744	)		(135,913	)
Recoveries		5,989			3,273			14,866			24,128
Effect of foreign currency translation		(413	)		—			(1,113	)		(1,526	)
Balance at end of period	$	18,861		$	31,050		$	71,873		$	121,784
Liability for third-party lender-owned loans:
Balance at beginning of period	$	1,261		$	—		$	149		$	1,410
Increase in liability		622			—			60			682
Balance at end of period	$	1,883		$	—		$	209		$	2,092

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

	Six Months Ended June 30, 2019
	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	$	21,420		$	51,008		$	90,880		$	163,308
Cost of revenue		29,952			86,065			161,765			277,782
Charge-offs		(48,561	)		(93,243	)		(204,177	)		(345,981	)
Recoveries		10,869			7,589			41,589			60,047
Effect of foreign currency translation		49			—			(25	)		24
Balance at end of period	$	13,729		$	51,419		$	90,032		$	155,180
Liability for third-party lender-owned loans:
Balance at beginning of period	$	1,964		$	—		$	202		$	2,166
(Decrease) increase in liability		(663	)		—			223			(440	)
Balance at end of period	$	1,301		$	—		$	425		$	1,726

	Six Months Ended June 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		40,931			56,594			132,688			230,213
Charge-offs		(54,100	)		(63,361	)		(160,950	)		(278,411	)
Recoveries		12,261			6,669			28,991			47,921
Effect of foreign currency translation		(148	)		—			(835	)		(983	)
Balance at end of period	$	18,861		$	31,050		$	71,873		$	121,784
Liability for third-party lender-owned loans:
Balance at beginning of period	$	2,105		$	—		$	153		$	2,258
(Decrease) increase in liability		(222	)		—			56			(166	)
Balance at end of period	$	1,883		$	—		$	209		$	2,092

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 June 30, 2019 and 2018 and December 31, 2018, the amount of consumer loans guaranteed by the Company was $21.5 million, $28.7 million and $29.7 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 $1.7 million, $2.1 million and $2.2 million, as of June 30, 2019 and 2018 and December 31, 2018, 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 received marketing and servicing fees while the bank received an origination fee. The bank had the ability to sell the loans it originated to the Company. In May 2018, as a result of a change in the law in Ohio, our bank partner suspended lending and the Company suspended purchasing loans through this program. The Company plans to continue and grow this program in the future by adding new partners and expanding into additional states.

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Leases

The Company has operating leases primarily for its corporate headquarters, other offices located in the U.S. and the U.K. and certain equipment. The Company’s leases have remaining lease terms of less than one year to nine years. Certain leases include options to extend the leases for up to five years, while others include options to terminate the leases within one year. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The Company determines if an arrangement is an operating lease at inception. Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheet. All other operating leases are recorded on the consolidated balance sheet with right-of-use assets representing the right to use the underlying asset for the lease term and lease liabilities representing the obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term and include options to extend or terminate the lease when they are reasonably certain to be exercised. The right-of-use assets represent the lease liability, plus any lease payments made at or before the commencement date, less any lease incentives received. If a lease does not provide an implicit rate, the Company uses its incremental secured borrowing rate, adjusted for the maturity date, based on information available at the commencement date in determining the present value of lease payments. Lease agreements with lease and non-lease components are accounted for as a single lease component. The Company’s operating lease expense is recognized on a straight-line basis over the lease term and is recorded in general and administrative expense.

Lease expenses for the three and six months ended June 30, 2019 were as follows (in thousands):

	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2019		2019
Operating lease cost	$	1,543	$	3,117
Operating lease impairment charge		—		370
Variable lease cost		103		161
Short-term lease cost		76		91
Total lease cost	$	1,722	$	3,739

Future minimum lease payments as of June 30, 2019 are as follows (in thousands):

Year	Amount
2019	$	3,792
2020		7,388
2021		7,328
2022		7,018
2023		7,115
Thereafter		23,464
Total lease payments	$	56,105
Less: interest		18,409
Present value of lease liabilities	$	37,696

The weighted average remaining lease term and discount rate as of June 30, 2019 were as follows:

	June 30,
	2019

Weighted average remaining lease term (years)
Operating leases		7.6
Weighted average discount rate
Operating leases		10.79	%

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Supplemental cash flow disclosures related to leases for the six months ended June 30, 2019 were as follows (in thousands):

	Six Months Ended
	June 30,
	2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	3,877
Right-of-use assets obtained in exchange for lease obligations
Operating leases		25

4.	Long-term debt

The Company’s long-term debt instruments and balances outstanding as of June 30, 2019 and 2018 and December 31, 2018 were as follows (dollars in thousands):

	June 30,						December 31,
	2019			2018			2018

Securitization notes	$	173,675		$	179,059		$	227,288
Revolving line of credit		—			52,999			22,000
9.75% senior notes due 2021		—			293,178			—
8.50% senior notes due 2024		250,000			250,000			250,000
8.50% senior notes due 2025		375,000			—			375,000
Subtotal		798,675			775,236			874,288
Less: Long-term debt issuance costs		(13,171	)		(12,405	)		(16,359	)
Total long-term debt	$	785,504		$	762,831		$	857,929

Weighted average interest rates on long-term debt were 8.85% and 10.06% during the six months ended June 30, 2019 and 2018, respectively. As of June 30, 2019 and 2018 and December 31, 2018, the Company was in compliance with all covenants and other requirements set forth in the prevailing long-term debt agreements.

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.

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The Company used a portion of the net proceeds of the 2025 Senior Notes offering to retire $295.0 million of the remaining outstanding 9.75% senior notes due 2021 (the “2021 Senior Notes) and pay the related accrued interest, premiums, fees and expenses associated therewith. The remaining amount was used for general corporate purposes.

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 September 1, 2024. The 2024 Senior Notes are unsecured debt obligations of the Company, and are unconditionally guaranteed by certain of its 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 the 2021 Senior Notes, to pay the related accrued interest, premiums, fees and expenses associated therewith and for general corporate purposes.

Consumer Loan Securitizations

2019‑1 Facility

On February 25, 2019 (the “2019‑1 Closing Date”), the Company and several of its subsidiaries entered into a receivables securitization (the “2019‑1 Facility”) with PCAM Credit II, LLC, as lender (the “2019‑1 Lender”). The 2019‑1 Lender is an affiliate of Park Cities Asset Management, LLC. The 2019‑1 Facility finances Securitization Receivables that have been and will be originated or acquired under the Company’s NetCredit and CashNetUSA brands by several of the Company’s subsidiaries and that meet specified eligibility criteria. Under the 2019‑1 Facility, eligible Securitization Receivables are sold to a wholly-owned subsidiary of the Company (the “2019‑1 Debtor”) and serviced by another subsidiary of the Company.

The 2019‑1 Debtor has issued a delayed draw term note with an initial maximum principal balance of $30.0 million and a revolving note with an initial maximum principal balance of $20.0 million for an aggregate initial maximum principal balance of $50.0 million, which is required to be secured by eligible Securitization Receivables. The 2019‑1 Facility has an accordion feature that, with the consent of the 2019‑1 Lender, allows for the maximum principal balance of the delayed draw term note to increase to $50.0 million and the maximum principal balance of the revolving note to increase to $25.0 million, for an aggregate maximum principal balance of $75.0 million. The 2019‑1 Facility is non-recourse to the Company and matures three years after the 2019‑1 Closing Date. As of June 30, 2019, the total outstanding amount of the 2019‑1 Facility was $12.8 million.

The 2019‑1 Facility is governed by a loan and security agreement, dated as of the 2019‑1 Closing Date, between the 2019‑1 Lender and the 2019‑1 Debtor. The 2019‑1 Facility bears interest at a rate per annum equal to LIBOR (subject to a floor) plus an applicable margin, which applicable margin is initially 9.75%. In addition, the 2019‑1 Debtor is required to pay certain customary upfront closing fees to the 2019‑1 Lender. Interest payments on the 2019‑1 Facility will be made monthly. Subject to certain exceptions, the 2019‑1 Debtor is not permitted to prepay the delayed draw term note prior to two years after the 2019‑1 Closing Date. Following such date, the 2019‑1 Debtor is permitted to voluntarily prepay the 2019‑1 Facility without penalty. The revolving note may be paid in whole or in part at any time after the delayed draw term note has been fully drawn.

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

All amounts due under the 2019‑1 Facility are secured by all of the 2019‑1 Debtor’s assets, which include the eligible Securitization Receivables transferred to the 2019‑1 Debtor, related rights under the eligible Securitization Receivables, a bank account and certain other related collateral. The Company has issued a limited indemnity to the 2019‑1 Lender for certain “bad acts,” and the Company has agreed for the benefit of the 2019‑1 Lender to meet certain ongoing financial performance covenants.

The 2019‑1 Facility documents contain customary provisions for securitizations, including representations and warranties as to the eligibility of the eligible Securitization 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 2019‑1 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 eligible Securitization Receivables, defaults under other material indebtedness of the 2019‑1 Debtor and a default by the Company under its financial performance covenants.

2018‑A Notes

On October 31, 2018 (the “2018‑A Closing Date”), the Company issued $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”), through an indirect subsidiary. The Class A Notes bear interest at 4.20% and the Class B Notes bear interest at 7.37%. The 2018‑A Notes are backed by a pool of unsecured consumer installment loans (“Securitization Receivables”) and represent obligations of the issuer only. The 2018‑A Notes are not guaranteed by the Company. Under the 2018‑A Notes, Securitization Receivables are sold to a wholly-owned subsidiary of the Company and serviced by another subsidiary of the Company. As of June 30, 2019 and December 31, 2018, the total outstanding amount of the 2018‑A Notes was $63.1 million and $111.4 million, respectively.

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

The 2018‑A Notes were 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.

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 “2018‑2 Agent”). The 2018‑2 Facility collateralizes Securitization Receivables that have been and will be originated or acquired under the Company’s NetCredit brand by several of its subsidiaries and that meet specified eligibility criteria in exchange for a revolving note. Under the 2018‑2 Facility, Securitization Receivables are sold to a wholly-owned 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 Securitization Receivables. The 2018‑2 Facility is non-recourse to the Company and matures on October 23, 2022. As of June 30, 2019 and December 31, 2018, the total outstanding amount of the 2018‑2 Facility was $50.0 million and $25.0 million, respectively.

The 2018‑2 Facility is governed by a loan and security agreement, dated as of October 23, 2018, between the 2018‑2 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 2018‑2 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 Securitization Receivables transferred to the 2018‑2 Debtor, related rights under the Securitization Receivables, a bank account and certain other related collateral.

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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 Securitization Receivables and defaults under other material indebtedness of the 2018‑2 Debtor.

2018‑1 Facility

On July 23, 2018, the Company and several of its 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 Securitization Receivables that have been and will be originated or acquired under the Company’s NetCredit brand by several of its subsidiaries and that meet specified eligibility criteria in exchange for a revolving note. Under the 2018‑1 Facility, Securitization Receivables are sold to a wholly-owned 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 Securitization Receivables. The 2018‑1 Facility is non-recourse to the Company and matures on July 22, 2023. As of June 30, 2019 and December 31, 2018, the total outstanding amount of the 2018‑1 Facility was $46.0 million and $36.0 million, respectively.

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 Securitization Receivables transferred to the 2018‑1 Debtor, related rights under the Securitization 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 Securitization 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.

2016‑1 Facility

On January 15, 2016, the Company and certain of its subsidiaries entered into a receivables securitization (as amended, the “2016‑1 Facility”) with certain purchasers, Jefferies Funding LLC, as administrative agent (the “2016‑1 Agent”) and Bankers Trust Company, as indenture trustee and securities intermediary (the “Indenture Trustee”). The 2016‑1 Facility securitized Securitization Receivables that were originated or acquired under the Company’s NetCredit brand and that met specified eligibility criteria. Under the 2016‑1 Facility, Securitization Receivables were sold to a wholly-owned special purpose subsidiary (the “2016‑1 Issuer”) and serviced by another subsidiary. The 2016‑1 Facility, as amended on October 20, 2017, provided for a maximum principal amount of $275 million, an initial term note with an initial principal amount of $181.1 million and the ability to subsequently issue term notes thereafter, variable funding notes with an aggregate committed availability of $75 million per quarter with an option to increase the commitment to $90 million and a revolving period of the facility ending in April 2019.

Subject to certain exceptions, the 2016‑1 Issuer was not permitted to prepay or redeem the 2016-1 Facility prior to April 15, 2019, but the 2016-1 Agent, the Indenture Trustee, and the holders of the notes agreed to permit an early repayment. On March 29, 2019, the 2016-1 Facility was repaid in full.

As of June 30, 2018 and December 31, 2018, the carrying amount of the 2016-1 Facility was $161.8 million and $54.9 million, 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 2016‑2 Facility securitized Securitization Receivables that were originated or acquired under the Company’s NetCredit brand by several of the Company’s subsidiaries and that met specified eligibility criteria,

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

including that the annual percentage rate for each securitized consumer loan was greater than or equal to 90%. Under the 2016‑2 Facility, Securitization Receivables are sold to a wholly-owned subsidiary of the Company and serviced by another subsidiary of the Company. In October 2018, the 2016‑2 Facility was repaid in full and there is no remaining amount available to be borrowed. As of June 30, 2018, the carrying amount of the 2016‑2 Facility was $15.1 million.

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 Veritex Community Bank (as successor in interest to Green Bank, N.A.), as lender (as amended the “Credit Agreement”). On April 13, 2018 and October 5, 2018, the Credit Agreement was amended to include Pacific Western Bank and Axos Bank, respectively, as lenders in the syndicate of lenders. Additionally, on July 1, 2019 the Credit Agreement was amended to, amongst other changes, extend the maturity date to June 30, 2022 from May 1, 2020 and increase the advance rate to 65% from 53%.

The Credit Agreement is secured by domestic receivables. The borrowing limit in the Credit Agreement, as amended, is $125 million and its maturity date is June 30, 2022. There were no outstanding borrowings under the Credit Agreement as of June 30, 2019. The Company had outstanding borrowings under the Credit Agreement of $53.0 million and $22.0 million as of June 30, 2018 and December 31, 2018, respectively.

The Credit Agreement provides for a revolving credit line with interest on borrowings under the facility at prime rate plus 1.00%. In addition, the 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 Credit Agreement of $1.2 million, $7.6 million and $1.6 million as of June 30, 2019 and 2018 and December 31, 2018, respectively. The 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 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 Credit Agreement contains standard financial covenants for a facility of this type based on a leverage ratio and a fixed charge coverage ratio. The 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.

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 bore 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 would have matured on June 1, 2021.

During the year ended December 31, 2018 the Company repurchased the remaining $345.0 million of principal amount of the 2021 Senior Notes, which included $50.0 million principal amount of the 2021 Senior Notes for aggregate cash consideration of $53.7 million plus accrued interest during the six months ended June 30, 2018. During the six months ended June 30, 2018 the Company recorded a loss on extinguishment of debt of approximately $4.7 million ($3.7 million net of tax), which is included in “Loss on early extinguishment of debt” in the consolidated statements of income.

5.	Income Taxes

The Company’s effective tax rate for the six months ended June 30, 2019, increased to 22.2% from 21.5% for the six months ended June 30, 2018. The increase was primarily attributable to additional interest expense accrued on unrecognized tax benefits.

As of June 30, 2019, the balance of unrecognized tax benefits was $45.2 million ($44.5 million net of the federal benefit of state matters), which is included in “Accounts payable and accrued expenses” on the consolidated balance sheet, $14.6 million of which, if recognized, would favorably affect the effective tax rate in the period of recognition. The Company had $0.9 million of unrecognized tax benefits as of June 30, 2018. The Company believes it is reasonably possible that, within the next twelve months, unrecognized

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

domestic tax benefits could change by a significant amount. The principal uncertainties are related to the timing of recognition of income and losses related to the Company’s loan portfolio. Subsequent to quarter end, the Company was notified of an IRS examination in connection with its 2017 tax return and related carryback claim. During the first quarter of 2019, the Company received an expected refund from the Internal Revenue Service of $45.7 million. Depending upon the outcome of the review and any related agreements or settlements with the relevant taxing authorities, the amount of the uncertainty, including amounts that would be recognized as a component of the effective tax rate, could change significantly. While the total amount of uncertainty to be resolved is not clear, it is reasonably possible that the uncertainties pertaining to this matter will be resolved in the next twelve months. The Company believes that it has adequately accounted for any material tax uncertainties in its existing reserves for all open tax years.

The Company’s U.S. tax returns are subject to examination by federal and state taxing authorities. The statute of limitations related to the Company’s consolidated Federal income tax returns is closed for all tax years up to and including 2013. 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. For jurisdictions that have generated net operating losses, carryovers may be subject to the statute of limitations applicable for the year those carryovers are utilized. In these cases, the period for which the losses may be adjusted will extend to conform with the statute of limitations for the year in which the losses are utilized. In most circumstances, this is expected to increase the length of time that the applicable taxing authority may examine the carryovers by one year or longer, in limited cases.

6.	Accumulated Other Comprehensive Loss

The following tables set forth the components of accumulated other comprehensive loss, net of tax for the three and six months ended June 30, 2019 and 2018 (in thousands):

	Foreign
	currency
	translation
	gain (loss)			Total
Balance at March 31, 2018	$	(4,322	)	$	(4,322	)
Other comprehensive income, before reclassifications and tax		(8,494	)		(8,494	)
Tax impact		1,911			1,911
Balance at June 30, 2018	$	(10,905	)	$	(10,905	)

Balance at March 31, 2019	$	(12,251	)	$	(12,251	)
Other comprehensive loss, before reclassifications and tax		(2,990	)		(2,990	)
Tax impact		467			467
Balance at June 30, 2019	$	(14,774	)	$	(14,774	)

	Foreign
	currency
	translation
	gain (loss)			Total
Balance at December 31, 2017	$	(7,086	)	$	(7,086	)
Other comprehensive income, before reclassifications and tax		(4,850	)		(4,850	)
Tax impact		1,091			1,091
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 June 30, 2018	$	(10,905	)	$	(10,905	)

Balance at December 31, 2018	$	(13,805	)	$	(13,805	)
Other comprehensive loss, before reclassifications and tax		(936	)		(936	)
Tax impact		(33	)		(33	)
Balance at June 30, 2019	$	(14,774	)	$	(14,774	)

(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 six months ended June 30, 2018. These amounts were

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

recorded in “Foreign currency transaction 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.

7.	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 six months ended June 30, 2019 and 2018 (in thousands, except per share amounts):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
Numerator:
Net income	$	25,063	$	18,225	$	60,080	$	46,123
Denominator:
Total weighted average basic shares		33,826		33,984		33,660		33,821
Shares applicable to stock-based compensation		643		1,387		791		1,145
Total weighted average diluted shares		34,469		35,371		34,451		34,966
Earnings per share:
Net income per share – basic	$	0.74	$	0.54	$	1.78	$	1.36
Net income per share – diluted	$	0.73	$	0.52	$	1.74	$	1.32

For the three months ended June 30, 2019 and 2018, 884,640 and no shares of common stock underlying stock options, respectively, and 28,072 and 2,479 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. For the six months ended June 30, 2019 and 2018, 802,535 and 595,872 shares of common stock underlying stock options, respectively, and 17,130 and 149,268 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.

8.	Operating Segment Information

The Company provides online financial services to non-prime credit consumers and small businesses in the United States, United Kingdom, and Brazil and has one reportable segment, which is composed of the Company’s domestic and international operations and corporate services. The Company has aggregated all components of its business into a single operating segment based on the similarities of the economic characteristics, the nature of the products and services, the nature of the production and distribution methods, the shared technology platforms, the type of customer and the nature of the regulatory environment.

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The following tables present information on the Company’s domestic, international operations and corporate services as of and for the three and six months ended June 30, 2019 and 2018 (dollars in thousands):

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2019			2018			2019			2018
Revenue
Domestic	$	254,205		$	213,638		$	512,193		$	426,604
International		31,495			39,663			66,690			80,995
Total revenue	$	285,700		$	253,301		$	578,883		$	507,599

Income (loss) from operations
Domestic	$	87,975		$	72,183		$	193,081		$	159,942
International		(7,403	)		1,070			(14,558	)		2,788
Corporate services		(30,302	)		(30,159	)		(61,134	)		(57,924	)
Total income from operations	$	50,270		$	43,094		$	117,389		$	104,806

Depreciation and amortization
Domestic	$	1,946		$	1,897		$	4,154		$	3,755
International		410			371			808			743
Corporate services		1,586			1,569			3,164			3,177
Total depreciation and amortization	$	3,942		$	3,837		$	8,126		$	7,675

Expenditures for property and equipment
Domestic	$	2,876		$	2,214		$	5,261		$	4,204
International		1,401			886			2,313			1,954
Corporate services		1,746			616			3,333			907
Total expenditures for property and equipment	$	6,023		$	3,716		$	10,907		$	7,065

	June 30,
	2019		2018
Property and equipment, net
Domestic	$	25,662	$	17,783
International		6,415		8,357
Corporate services		20,801		21,612
Total property and equipment, net	$	52,878	$	47,752

Assets
Domestic	$	1,166,927	$	996,105
International		126,754		127,613
Corporate services		89,786		59,486
Total assets	$	1,383,467	$	1,183,204

Geographic Information

The following table presents the Company’s revenue by geographic region for the three and six months ended June 30, 2019 and 2018 (dollars in thousands):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
Revenue
United States	$	254,205	$	213,638	$	512,193	$	426,604
United Kingdom		26,256		34,010		55,001		68,999
Other international countries		5,239		5,653		11,689		11,996
Total revenue	$	285,700	$	253,301	$	578,883	$	507,599

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The Company’s long-lived assets, which consist of the Company’s property and equipment, were $52.9 million and $47.8 million at June 30, 2019 and 2018, 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.

9.	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.

10.	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 loss” in the Company’s consolidated statements of income. As of June 30, 2019, 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 June 30, 2019 and 2018 and December 31, 2018.

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 six months ended June 30, 2019 and 2018 (dollars in thousands):

	Gains (Losses)								Gains (Losses)
	Recognized in				Gains (Losses)				Reclassified From
	Income				Recognized in AOCI				AOCI into Income
	Six Months Ended				Six Months Ended				Six Months Ended
	June 30,				June 30,				June 30,
	2019		2018		2019		2018		2019		2018
Non-designated derivatives:
Forward currency exchange contracts⁽¹⁾	$	—	$	243	$	—	$	—	$	—	$	—
Total	$	—	$	243	$	—	$	—	$	—	$	—

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

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

11.	Related Party Transactions

The Company has 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 six months ended June 30, 2019 and 2018, the Company incurred $5.9 million and $5.1 million, respectively, in expenses related to these services. As of June 30, 2019 and 2018 and December 31, 2018, the Company owed the agency $2.8 million, $1.1 million and $2.5 million, respectively, related to services provided.

The Company believes that the transaction described above has been provided on terms no less favorable to the Company than could have been negotiated with non-affiliated third parties.

12.	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 several securitization facilities. The Company transferred certain consumer loan receivables to VIEs which issue notes backed by the underlying consumer loan receivables and are serviced by another wholly owned subsidiary of the Company. The cash flows from the loans held by the VIEs are used to repay obligations under the notes.

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.

13.	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 three and six months ended June 30, 2019 and 2018, 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.

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The Company’s financial assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2019 and 2018 and December 31, 2018 are as follows (dollars in thousands):

	June 30,		Fair Value Measurements Using
	2019		Level 1		Level 2		Level 3
Financial assets:
Non-qualified savings plan assets⁽¹⁾	$	2,804	$	2,804	$	—	$	—
Total	$	2,804	$	2,804	$	—	$	—

	June 30,		Fair Value Measurements Using
	2018		Level 1		Level 2		Level 3
Financial assets:
Non-qualified savings plan assets⁽¹⁾	$	2,093	$	2,093	$	—	$	—
Total	$	2,093	$	2,093	$	—	$	—

	December 31,		Fair Value Measurements Using
	2018		Level 1		Level 2		Level 3
Financial assets:
Non-qualified savings plan assets⁽¹⁾		2,052		2,052		—		—
Total	$	2,052	$	2,052	$	—	$	—

(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.

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 June 30, 2019 and 2018 and December 31, 2018, 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 June 30, 2019 and 2018 and December 31, 2018 that are not measured at fair value in the consolidated balance sheets are as follows (dollars in thousands):

	Balance at
	June 30,		Fair Value Measurements Using
	2019		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	65,503	$	65,503	$	—	$	—
Short-term loans and line of credit accounts, net ⁽¹⁾		248,940		—		—		248,940
Installment loans and RPAs, net ⁽¹⁾⁽³⁾		643,642		—		—		679,586
Restricted cash ⁽⁴⁾		22,962		22,962		—		—
Investment in unconsolidated investee⁽²⁾		6,703		—		—		6,703
Total	$	987,750	$	88,465	$	—	$	935,229
Financial liabilities:
Liability for estimated losses on consumer loans guaranteed by the Company	$	1,726	$	—	$	—	$	1,726
Securitization notes		173,675		—		174,293		—
8.50% senior notes due 2024		250,000		—		239,308		—
8.50% senior notes due 2025		375,000		—		354,814		—
Total	$	800,401	$	—	$	768,415	$	1,726

	Balance at
	June 30,		Fair Value Measurements Using
	2018		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	47,414	$	47,414	$	—	$	—
Short-term loans and line of credit accounts, net ⁽¹⁾		198,478		—		—		198,478
Installment loans and RPAs, net ⁽¹⁾⁽³⁾		551,653		—		—		578,489
Restricted cash ⁽⁴⁾		28,863		28,863		—		—
Investment in unconsolidated investee⁽²⁾		6,703		—		—		6,703
Total	$	833,111	$	76,277	$	—	$	783,670
Financial liabilities:
Liability for estimated losses on consumer loans guaranteed by the Company	$	2,092	$	—	$	—	$	2,092
Revolving line of credit		52,999		—		—		52,999
Securitization notes		179,059		—		181,853		—
9.75% senior notes due 2021		293,178		—		310,488		—
8.50% senior notes due 2024		250,000		—		259,178		—
Total	$	777,328	$	—	$	751,519	$	55,091

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

	Balance at
	December 31,		Fair Value Measurements Using
	2018		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	52,917	$	52,917	$	—	$	—
Short-term loans and line of credit accounts, net ⁽¹⁾		222,860		—		—		222,860
Installment loans and RPAs, net ⁽¹⁾⁽³⁾		637,086		—		—		670,888
Restricted cash ⁽⁴⁾		24,342		24,342		—		—
Investment in unconsolidated investee⁽²⁾		6,703		—		—		6,703
Total	$	943,908	$	77,259	$	—	$	900,451
Financial liabilities:
Liability for estimated losses on consumer loans guaranteed by the Company	$	2,166	$	—	$	—	$	2,166
Revolving line of credit		22,000		—		—		22,000
Securitization notes		227,288		—		225,474		—
8.50% senior notes due 2024		250,000		—		212,500		—
8.50% senior notes due 2025		375,000		—		306,563		—
Total	$	876,454	$	—	$	744,537	$	24,166

(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)	Installment loan and RPAs, net include $306.3 million, $237.0 million and $319.0 million in net assets of consolidated VIEs as of June 30, 2019 and 2018 and December 31, 2018, respectively.

(4)	Restricted cash includes $20.8 million, $21.7 million and $22.2 million in assets of consolidated VIEs as of June 30, 2019 and 2018 and December 31, 2018, respectively.

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

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. 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.

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 Company measures the fair value of its liability for third-party lender-owned consumer loans under Level 3 inputs. The fair value of these liabilities is calculated by applying historical loss rates combined with recent default trends to the gross consumer loan balance. The unobservable inputs used to calculate the fair value of these loans include historical loss rates, recent default trends and estimated remaining loan terms; therefore, the carrying value of these liabilities approximates the fair value.

The Company measures the fair value of its revolving line of credit using Level 3 inputs. The Company considered the fair value of its other long-term debt and the timing of expected payment(s).

The fair values of the Company’s Securitization Notes and senior notes are estimated based on quoted prices in markets that are not active, which are deemed Level 2 inputs.

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

14.	Subsequent Events

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

Amendment to the Revolving Credit Facility

On July 1, 2019, the Company and certain of its operating subsidiaries entered into an amendment of the Credit Agreement (the “Amended Credit Agreement”). The Amended Credit Agreement is secured by domestic receivables and amends the Credit Agreement.

The Amended Credit Agreement, amongst other changes, extends the maturity date to June 30, 2022 from May 1, 2020 and increases the advance rate to 65% from 53%. The interest rate on borrowings of prime rate plus 1.00% and the facility size of $125 million, however, remain the same as the Credit Agreement.

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, 2018. 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. In 2018, we extended approximately $2.5 billion in credit or financing to borrowers. As of June 30, 2019, 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 June 30, 2019, we have completed over 49.4 million customer transactions and collected more than 32 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 15 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 2018, we processed approximately 4.3 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. In April 2014, we launched On Stride Financial, an installment loan product, in the United Kingdom. In June 2014, we launched our business in Brazil, where we arrange financing for borrowers through a third-party lender. In addition, in July 2014, we introduced a new line of credit product in the United States to serve the needs of small businesses. In June 2015, we further expanded our product offering by acquiring certain assets of a company that provides financing to small businesses by offering RPAs. 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 six-month period ended June 30, 2019, we derived 88.5% of our total revenue from the United States and 11.5% of our total revenue internationally, with 82.5% of international revenue (representing 9.5% 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 on the receivables purchased. We originate, arrange, guarantee or purchase short-term consumer loans, line of credit accounts, installment loans and RPAs. We have one reportable segment that includes all of our online financial services.

•

Short-term consumer loans. Short-term consumer loans are unsecured loans written by us or by a third-party lender through our credit services organization and credit access business programs, which we refer to as our CSO programs, that we arrange and guarantee. As of June 30, 2019, we offered or arranged short-term consumer loans in 16 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 14.3% of our total revenue for the six months ended June 30, 2019 and 20.4% for the six months ended June 30, 2018.

•

Line of credit accounts. As of June 30, 2019, we offered new consumer line of credit accounts in nine 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 37.2% of our total revenue for the six months ended June 30, 2019 and 31.1% for the six months ended June 30, 2018.

•

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, 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 46.9% of our total revenue for the six months ended June 30, 2019 and 47.1% for the six months ended June 30, 2018.

We have been investing and will continue to invest in the growth of our near-prime installment lending portfolio.

•

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 1.5% of our total revenue for the six months ended June 30, 2019 and 1.2% for the six months ended June 30, 2018.

•

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 June 30, 2019 and 2018, the outstanding amount of active short-term consumer loans originated by third-party lenders under the CSO programs was $13.3 million and $24.8 million, respectively, which were guaranteed by us.

As of June 30, 2019 and 2018, the outstanding amount of active installment loans originated by third-party lenders under the CSO programs was $8.2 million and $3.9 million, respectively, which were guaranteed by us.

•

Bank program. In March 2016, we launched a program with a state-chartered bank where we provided 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. We plan to continue and grow this program in the future by adding new partners and expanding into additional states. Revenue generated from this program for the six months ended June 30, 2019 and 2018 was 1.0% and 2.0% of our total revenue, respectively.

•

Decision Management Platform-as-a-Service (“dmPaaS”) and Analytics-as-a-Service (“AaaS”). Launched under our Enova Decisions brand in 2016, we help businesses make better decisions faster by providing our decision management platform and analytics expertise as a service. Our solutions are designed to automate or augment customer decisions including, but not limited to, credit risk, fraud risk, identity verification, customer profitability, payments, and collection. Services offered under our dmPaaS include machine learning model deployment, business rules management, data source connectivity, decision flow authoring, decision simulation, experiments, and real-time decision flow execution via API. Through our AaaS offerings, we provide tailored predictive/prescriptive analytic model development, explainable machine learning, and mathematical optimization. Industries served include financial services, communications, telecommunications, healthcare, and higher education in North America and Asia. Although still less than 1% of total revenue, we plan to continue to grow this program through increasing the size of our sales team, adding new partners, and continued enhancement of our technology.

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 June 30, 2019, 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 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 installment loan business in April 2014. In February 2019, we ceased writing new business under the Pounds to Pocket business, at which point all new installment business will be written under the On Stride brand. We are evaluating potential courses of action with our regulator, including, but not limited to, a scheme of arrangement, to reduce exposure to complaints about historical lending. We are not pursuing any specific alternative at this time and are continuing to evaluate our options.

•

Brazil. In June 2014, we launched our business in Brazil under the name Simplic at www.simplic.com.br, where we arrange installment loans for a third-party lender. We plan to continue to invest in and expand our financial services program 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 August 14, 2018, Brazil adopted the General Data Privacy Law (Lei Geral de Proteção de Dados Pessoais or “LGPD”). The key provisions of LGPD are quite similar to the European Union’s General Data Protection Regulation (“GDPR”) in that it grants certain rights to data subjects, imposes obligations on companies with regard to the processing of data, and allows authorities to impose substantial fines on companies that violate the law. LGPD was originally anticipated to go into effect on February 15, 2020; however, several amendments to LGPD have been proposed, one of which could delay the effective date of the legislation to August 2020. Compliance with LGPD may increase the cost of conducting business in Brazil, and we could see regulatory compliance costs and enforcement activity once the law goes into effect.

RESULTS OF OPERATIONS

HIGHLIGHTS

Our financial results for the three-month period ended June 30, 2019, or the current quarter, are summarized below.

•

Consolidated total revenue increased $32.4 million, or 12.8%, to $285.7 million in the current quarter compared to $253.3 million for the three months ended June 30, 2018, or the prior year quarter. Domestic revenue increased $40.6 million, or 19.0%, to $254.2 million in the current quarter from $213.6 million for the prior year quarter and international revenue decreased $8.2 million, or 20.6%, to $31.5 million from $39.7 million.

•

Consolidated gross profit increased $15.6 million, or 11.8%, to $147.4 million in the current quarter compared to $131.8 million in the prior year quarter.

•

Consolidated income from operations increased $7.2 million, or 16.7%, to $50.3 million in the current quarter, compared to $43.1 million in the prior year quarter.

•

Consolidated net income was $25.1 million in the current quarter compared to $18.2 million in the prior year quarter. Consolidated diluted income per share was $0.73 in the current quarter compared to $0.52 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 June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Revenue
Loans and finance receivables revenue	$	285,456		$	253,019		$	578,326		$	506,811
Other		244			282			557			788
Total Revenue		285,700			253,301			578,883			507,599
Cost of Revenue		138,297			121,494			277,342			230,047
Gross Profit		147,403			131,807			301,541			277,552
Expenses
Marketing		31,904			29,386			55,566			57,122
Operations and technology		32,411			27,195			62,011			52,733
General and administrative		28,876			28,295			58,449			55,216
Depreciation and amortization		3,942			3,837			8,126			7,675
Total Expenses		97,133			88,713			184,152			172,746
Income from Operations		50,270			43,094			117,389			104,806
Interest expense, net		(18,115	)		(19,355	)		(37,615	)		(39,028	)
Foreign currency transaction loss		(38	)		(204	)		(181	)		(2,292	)
Loss on early extinguishment of debt		—			—			(2,321	)		(4,710	)
Income before Income Taxes		32,117			23,535			77,272			58,776
Provision for income taxes		7,054			5,310			17,192			12,653
Net Income	$	25,063		$	18,225		$	60,080		$	46,123
Diluted net income per share	$	0.73		$	0.52		$	1.74		$	1.32

Revenue
Loans and finance receivables revenue		99.9	%		99.9	%		99.9	%		99.8	%
Other		0.1			0.1			0.1			0.2
Total Revenue		100.0			100.0			100.0			100.0
Cost of Revenue		48.4			48.0			47.9			45.3
Gross Profit		51.6			52.0			52.1			54.7
Expenses
Marketing		11.2			11.6			9.6			11.3
Operations and technology		11.3			10.7			10.7			10.4
General and administrative		10.1			11.2			10.1			10.9
Depreciation and amortization		1.4			1.5			1.4			1.5
Total Expenses		34.0			35.0			31.8			34.1
Income from Operations		17.6			17.0			20.3			20.6
Interest expense, net		(6.4	)		(7.6	)		(6.5	)		(7.7	)
Foreign currency transaction loss		—			(0.1	)		—			(0.4	)
Loss on early extinguishment of debt		—			—			(0.5	)		(0.9	)
Income before Income Taxes		11.2			9.3			13.3			11.6
Provision for income taxes		2.4			2.1			2.9			2.5
Net Income		8.8	%		7.2	%		10.4	%		9.1	%

NON-GAAP FINANCIAL MEASURES

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

We provide non-GAAP financial information for informational purposes and to enhance understanding of our GAAP consolidated financial statements. Readers should consider the information in addition to, but not instead of or superior to, our 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. We believe that the presentation of these measures provides investors with greater transparency and facilitates comparison of operating results across a broad spectrum of companies with varying capital structures, compensation strategies, derivative instruments and amortization methods, which provides a more complete understanding of our financial performance, competitive position and prospects for the future. We also believe that investors regularly rely on non-GAAP financial measures, such as the Adjusted Earnings Measures, to assess operating performance and that such measures may highlight trends in our business that may not otherwise be apparent when relying on financial measures calculated in accordance with GAAP. In addition, we believe that the adjustments shown below are useful to investors in order to allow them to compare our financial results during the periods shown without the effect of each of these 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						Six Months Ended
	June 30,						June 30,
	2019			2018			2019			2018
Net Income	$	25,063		$	18,225		$	60,080		$	46,123
Adjustments:
Lease termination and cease-use costs		—			—			726			—
Loss on early extinguishment of debt		—			—			2,321			4,710
Intangible asset amortization		267			268			535			535
Stock-based compensation expense		3,323			2,834			6,397			5,267
Foreign currency transaction loss		38			204			181			2,292
Cumulative tax effect of adjustments		(843	)		(777	)		(2,362	)		(2,756	)
Discrete tax adjustments		—			—			(141	)		—
Adjusted earnings	$	27,848		$	20,754		$	67,737		$	56,171

Diluted earnings per share	$	0.73		$	0.52		$	1.74		$	1.32
Adjustments:
Lease termination and cease-use costs		—			—			0.02			—
Loss on early extinguishment of debt		—			—			0.07			0.13
Intangible asset amortization		0.01			0.01			0.02			0.02
Stock-based compensation expense		0.10			0.08			0.19			0.15
Foreign currency transaction loss		—			—			—			0.07
Cumulative tax effect of adjustments		(0.03	)		(0.02	)		(0.07	)		(0.08	)
Discrete tax adjustments		—			—			—			—
Adjusted earnings per share	$	0.81		$	0.59		$	1.97		$	1.61

Adjusted EBITDA

The table below shows Adjusted EBITDA, which is a non-GAAP measure that we define as earnings excluding depreciation, amortization, interest, foreign currency transaction gains or losses, taxes, and stock-based compensation expense. We believe Adjusted EBITDA is used by investors to analyze operating performance and evaluate our ability to incur and service debt and our capacity for making capital expenditures. Adjusted EBITDA is also useful to investors to help assess our estimated enterprise value. In addition, we believe that the adjustments for loss on early extinguishment of debt and lease termination and cease-use costs shown below are useful to investors in order to allow them to compare our financial results during the periods shown without the effect of the expense items. 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						Six Months Ended
	June 30,						June 30,
	2019			2018			2019			2018
Net Income	$	25,063		$	18,225		$	60,080		$	46,123
Depreciation and amortization expenses		3,942			3,837			8,126			7,675
Interest expense, net		18,115			19,355			37,615			39,028
Foreign currency transaction loss		38			204			181			2,292
Provision for income taxes		7,054			5,310			17,192			12,653
Stock-based compensation expense		3,323			2,834			6,397			5,267
Adjustment:
Lease termination and cease-use costs		—			—			370			—
Loss on early extinguishment of debt		—			—			2,321			4,710
Adjusted EBITDA	$	57,535		$	49,765		$	132,282		$	117,748

Adjusted EBITDA margin calculated as follows:
Total Revenue	$	285,700		$	253,301		$	578,883		$	507,599
Adjusted EBITDA		57,535			49,765			132,282			117,748
Adjusted EBITDA as a percentage of total revenue		20.1	%		19.6	%		22.9	%		23.2	%

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 11.0% 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
	June 30,
	2019		2018		% Change
British Pound		1.2848		1.3604		(5.6	)%
Brazilian Real		0.2553		0.2776		(8.0	)%

	Six Months Ended
	June 30,
	2019		2018		% Change
British Pound		1.2938		1.3761		(6.0	)%
Brazilian real		0.2603		0.2930		(11.2	)%

We believe 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 2 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.

We believe 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. We also believe that the comparison of the aggregate amounts from period to period is more meaningful than comparing only the amounts reflected on our 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 JUNE 30, 2019 COMPARED TO THREE MONTHS ENDED JUNE 30, 2018

Revenue and Gross Profit

Revenue increased $32.4 million, or 12.8%, to $285.7 million for the current quarter as compared to $253.3 million for the prior year quarter. On a constant currency basis, revenue increased by $34.4 million, or 13.6%, for the current quarter compared to the prior year quarter. Our domestic operations contributed an increase of $40.6 million, primarily resulting from a 38.9% increase in line of credit account revenue and a 13.0% increase in installment loan and RPA revenue in the current quarter compared to the prior year quarter driven by strong customer demand for these products. Our international operations decreased $8.2 million (a decrease of $6.2 million on a constant currency basis), primarily resulting from a 51.2% decrease in short-term loan revenue, partially offset by an 8.2% increase in installment loan and RPA revenue as we shift our focus to installment loan offerings that better meet the needs of our customers in the United Kingdom.

Our gross profit increased by $15.6 million to $147.4 million for the current quarter from $131.8 million for the prior year quarter. On a constant currency basis, gross profit increased by $16.6 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 51.6% for the current quarter, from 52.0% 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 June 30,
	2019			2018			$ Change			% Change
Revenue by product:
Short-term loans	$	36,722		$	50,312		$	(13,590	)		(27.0	)%
Line of credit accounts		110,670			79,658			31,012			38.9
Installment loans and RPAs		138,064			123,049			15,015			12.2
Total loans and finance receivables revenue		285,456			253,019			32,437			12.8
Other		244			282			(38	)		(13.5	)
Total revenue	$	285,700		$	253,301		$	32,399			12.8	%

Revenue by product (% to total):
Short-term loans		12.9	%		19.9	%
Line of credit accounts		38.7			31.4
Installment loans and RPAs		48.3			48.6
Total loans and finance receivables revenue		99.9			99.9
Other		0.1			0.1
Total revenue		100.0	%		100.0	%

	Three Months Ended June 30,
	2019			2018			$ Change			% Change
Domestic:
Revenue	$	254,205		$	213,638		$	40,567			19.0	%
Cost of revenue		121,369			102,206			19,163			18.7
Gross profit	$	132,836		$	111,432		$	21,404			19.2
Gross profit margin		52.3	%		52.2	%		0.1	%		0.2	%
International:
Revenue	$	31,495		$	39,663		$	(8,168	)		(20.6	)%
Cost of revenue		16,928			19,288			(2,360	)		(12.2	)
Gross profit	$	14,567		$	20,375		$	(5,808	)		(28.5	)
Gross profit margin		46.3	%		51.4	%		(5.1	)%		(9.9	)%
Total:
Revenue	$	285,700		$	253,301		$	32,399			12.8	%
Cost of revenue		138,297			121,494			16,803			13.8
Gross profit	$	147,403		$	131,807		$	15,596			11.8
Gross profit margin		51.6	%		52.0	%		(0.4	)%		(0.8	)%

Loan and Finance Receivable Balances

Our loan and finance receivable balance in our consolidated financial statements for June 30, 2019 and 2018 was $1,047.8 million and $871.9 million, respectively, before the allowance for losses of $155.2 million and $121.8 million, respectively. The combined loan and finance receivable balance includes $21.5 million and $28.7 million as of June 30, 2019 and 2018, 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 June 30, 2019 and 2018, respectively, before the liability for estimated losses of $1.7 million and $2.1 million provided in “Accounts payable and accrued expenses” in our consolidated financial statements for June 30, 2019 and 2018, respectively.

The ending portfolio balance of company owned loans and finance receivables, net of allowance for losses, increased $142.5 million, or 19.0%, to $892.6 million as of June 30, 2019 from $750.1 million as of June 30, 2018, and the outstanding combined portfolio balance of loans and finance receivables, net of allowance and liability for estimated losses, increased $135.6 million, or 17.5%, to $912.3 million as of June 30, 2019 from $776.7 million as of June 30, 2018, due primarily to increased demand for our installment products and, to a lesser extent, our line of credit products. The outstanding loan balance for our domestic near-prime installment product increased 20.9% in the current quarter compared to the prior year quarter resulting in a domestic near-prime installment portfolio balance that comprises 46.3% of our total loan and finance receivable portfolio balance while short-term loans comprised approximately 5.9% of our total loan and finance receivable portfolio balance in the current quarter, compared to 10.2% in the prior year quarter. We expect the loan balances for our domestic near-prime installment loan product will continue to comprise a larger percentage of the total loan and finance receivable portfolio, due to customer demand for these products and their longer loan term. Our portfolio of loans and finance receivables serving the needs of small businesses increased to 12.1% in the current quarter from 8.5% in the prior year quarter due to a 69.0% increase in the small business loan and finance receivables balance resulting from improvements in underwriting. 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 June 30, 2019 and 2018 (in thousands):

	As of June 30,
	2019									2018
				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	$	50,263		$	13,304		$	63,567		$	67,255		$	24,764		$	92,019
Line of credit accounts		263,825			—			263,825			181,134			—			181,134
Installment loans and RPAs		733,674			8,159			741,833			623,526			3,917			627,443
Total ending loans and finance receivables, gross		1,047,762			21,463			1,069,225			871,915			28,681			900,596
Less: Allowance and liabilities for losses^(a)		(155,180	)		(1,726	)		(156,906	)		(121,784	)		(2,092	)		(123,876	)
Total ending loans and finance receivables, net	$	892,582		$	19,737		$	912,319		$	750,131		$	26,589		$	776,720
Allowance and liability for losses as a % of loans and finance receivables, gross		14.8	%		8.0	%		14.7	%		14.0	%		7.3	%		13.8	%

	As of June 30,
	2019						2018
			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	$	951,289	$	21,463	$	972,752	$	763,742	$	28,681	$	792,423
Total international, gross		96,473		—		96,473		108,173		—		108,173
Total ending loans and finance receivables, gross	$	1,047,762	$	21,463	$	1,069,225	$	871,915	$	28,681	$	900,596

(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 June 30, 2019 and 2018:

	As of June 30,
	2019		2018
Average amount outstanding per loan (in ones)^(a)
Short-term loans^(b)	$	420	$	473
Line of credit accounts		1,729		1,397
Installment loans^(b)(c)		2,123		2,055
Total loans^(b)(c)	$	1,614	$	1,413

(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 $1,614 from $1,413 during the current quarter compared to the prior year quarter, due primarily 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
	June 30,
	2019		2018
Average loan origination amount (in ones) ^(a)
Short-term loans ^(b)	$	414	$	464
Line of credit accounts ^(c)		402		339
Installment loans ^(b)(d)		1,861		1,710
Total loans ^(b)(d)	$	592	$	579

(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 $592 from $579 during the current quarter compared to the prior year quarter, due primarily to a greater mix of installment loans, which have higher principal amounts than other products, and line of credit account draws, which have increased as larger small business draws make up a larger portion of the line of credit account portfolio.

Loans and Finance Receivables Loss Experience

The allowance and liability for estimated losses as a percentage of combined loans and RPAs increased to 14.7% as of June 30, 2019 from 13.8% as of June 30, 2018.

The cost of revenue in the current quarter was $138.3 million, which was composed of $137.8 million related to Company-owned loans and finance receivables and a $0.5 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 $121.5 million, which was composed of $120.8 million related to Company-owned loans and finance receivables and a $0.7 million increase in the liability for estimated losses related to loans we guaranteed through the CSO programs. Total charge-offs, net of recoveries, were $123.7 million and $111.8 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):

	2018									2019
	Second			Third			Fourth			First			Second
	Quarter			Quarter			Quarter			Quarter			Quarter
Loans and finance receivables:
Gross - Company owned	$	871,915		$	990,368		$	1,023,254		$	957,257		$	1,047,762
Gross - Guaranteed by the Company^(a)		28,681			30,106			29,704			22,296			21,463
Combined loans and finance receivables, gross^(b)		900,596			1,020,474			1,052,958			979,553			1,069,225
Allowance and liability for losses on loans and finance receivables		123,876			153,829			165,474			142,665			156,906
Combined loans and finance receivables, net^(b)	$	776,720		$	866,645		$	887,484		$	836,888		$	912,319
Allowance and liability for losses as a % of loans and finance receivables, gross^(b)		13.8	%		15.1	%		15.7	%		14.6	%		14.7	%

(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

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

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.

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. Both the gross profit margin and the cost of revenue as a percentage of the average combined loan balance improved in the current quarter, compared to the prior year quarter.

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):

	2018									2019
	Second			Third			Fourth			First			Second
	Quarter			Quarter			Quarter			Quarter			Quarter
Short-term loans:
Cost of revenue	$	20,386		$	26,174		$	25,386		$	17,090		$	12,199
Charge-offs (net of recoveries)		19,626			21,835			26,822			24,101			13,591
Average short-term combined loan balance, gross:
Company owned^(a)		66,171			73,476			72,952			59,848			49,689
Guaranteed by the Company^(a)(b)		23,638			25,913			25,286			22,628			15,484
Average short-term combined loan balance, gross^(a)(c)	$	89,809		$	99,389		$	98,238		$	82,476		$	65,173
Ending short-term combined loan balance, gross:
Company owned	$	67,255		$	78,508		$	67,725		$	49,148		$	50,263
Guaranteed by the Company^(b)		24,764			25,533			25,388			18,339			13,304
Ending short-term combined loan balance, gross^(c)	$	92,019		$	104,041		$	93,113		$	67,487		$	63,567
Ending allowance and liability for losses	$	20,744		$	24,981		$	23,384		$	16,524		$	15,030

Short-term loan ratios:
Cost of revenue as a % of average short-term combined loan balance, gross^(a)(c)		22.7	%		26.3	%		25.8	%		20.7	%		18.7	%
Charge-offs (net of recoveries) as a % of average short-term combined loan balance, gross^(a)(c)		21.9	%		22.0	%		27.3	%		29.2	%		20.9	%
Gross profit margin		59.5	%		54.8	%		56.0	%		63.1	%		66.8	%
Allowance and liability for losses as a % of combined loan balance, gross^(c)(d)		22.5	%		24.0	%		25.1	%		24.5	%		23.6	%

(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 during a growth stage 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.

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):

	2018									2019
	Second			Third			Fourth			First			Second
	Quarter			Quarter			Quarter			Quarter			Quarter
Line of credit accounts:
Cost of revenue	$	31,211		$	46,749		$	59,632		$	37,739		$	48,326
Charge-offs (net of recoveries)		27,281			36,321			50,102			47,385			38,269
Average loan balance^(a)		168,881			200,710			221,721			224,416			237,571
Ending loan balance		181,134			216,624			227,563			218,979			263,825
Ending allowance for losses balance	$	31,050		$	41,478		$	51,008		$	41,362		$	51,419

Line of credit account ratios:
Cost of revenue as a % of average loan balance^(a)		18.5	%		23.3	%		26.9	%		16.8	%		20.3	%
Charge-offs (net of recoveries) as a % of average loan balance^(a)		16.2	%		18.1	%		22.6	%		21.1	%		16.1	%
Gross profit margin		60.8	%		52.6	%		44.2	%		63.9	%		56.3	%
Allowance for losses as a % of loan balance^(b)		17.1	%		19.1	%		22.4	%		18.9	%		19.5	%

(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 June 30, 2019 increased 17.1% 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):

	2018									2019
	Second			Third			Fourth			First			Second
	Quarter			Quarter			Quarter			Quarter			Quarter
Installment loans and RPAs:
Cost of revenue	$	69,897		$	90,840		$	92,172		$	84,216		$	77,772
Charge-offs (net of recoveries)		64,878			75,261			88,429			90,764			71,824
Average installment and RPA combined loan and finance receivable balance, gross:
Company owned^(a)		605,025			663,387			713,821			714,398			707,627
Guaranteed by the Company^(a)(b)		4,500			4,325			4,279			4,227			6,002
Average installment and RPA combined loan and finance receivable balance, gross^(a)(c)	$	609,525		$	667,712		$	718,100		$	718,625		$	713,629
Ending installment and RPA combined loan and finance receivable balance, gross:
Company owned	$	623,526		$	695,236		$	727,966		$	689,130		$	733,674
Guaranteed by the Company^(b)		3,917			4,573			4,316			3,957			8,159
Ending installment and RPA combined loan and finance receivable balance, gross ^(c)	$	627,443		$	699,809		$	732,282		$	693,087		$	741,833
Ending allowance and liability for losses	$	72,082		$	87,370		$	91,082		$	84,779		$	90,457

Installment and RPA loan ratios:
Cost of revenue as a % of average installment and RPA combined loan and finance receivable balance, gross^(a)(c)		11.5	%		13.6	%		12.8	%		11.7	%		10.9	%
Charge-offs (net of recoveries) as a % of average installment and RPA combined loan and finance receivable balance, gross^(a)(c)		10.6	%		11.3	%		12.3	%		12.6	%		10.1	%
Gross profit margin		43.2	%		33.7	%		37.6	%		40.7	%		43.7	%
Allowance and liability for losses as a % of combined loan and finance receivable balance, gross^(c)(d)		11.5	%		12.5	%		12.4	%		12.2	%		12.2	%

(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 $8.4 million, or 9.5%, to $97.1 million in the current quarter, compared to $88.7 million in the prior year quarter. On a constant currency basis, total expenses increased $9.5 million, or 10.7%, in the current quarter as compared to the prior year quarter.

Marketing expense increased to $31.9 million in the current quarter compared to $29.4 million in the prior year quarter. The increase was due primarily to higher domestic marketing spend, driven by higher television advertising, direct mail costs and digital marketing expenses.

Operations and technology expense increased to $32.4 million in the current quarter compared to $27.2 million in the prior year quarter, due primarily to higher underwriting costs primarily related to growth in loan balances and higher selling expense, which includes ongoing expenses associated with customer complaints in the United Kingdom.

General and administrative expense increased $0.6 million, or 2.1%, to $28.9 million in the current quarter compared to $28.3 million in the prior year quarter, due primarily to higher domestic legal and compliance expenses.

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

Interest Expense, Net

Interest expense, net decreased $1.3 million, or 6.4%, to $18.1 million in the current quarter compared to $19.4 million in the prior year quarter. The decrease was due primarily to a decrease in the weighted average interest rate on our outstanding debt to 8.67% during the current quarter from 10.02% during the prior year quarter, partially offset by an increase in the average amount of debt outstanding, which increased $105.4 million to $872.1 million during the current quarter from $766.7 million during the prior year quarter.

Provision for Income Taxes

The effective tax rate of 22.0% in the current quarter was lower than the effective tax rate of 22.6% in the prior year quarter due primarily to share-based compensation activity.

As of June 30, 2019, the balance of unrecognized tax benefits was $45.2 million ($44.5 million net of the federal benefit of state matters), $14.6 million of which, if recognized, would favorably affect the effective tax rate in the period of recognition. We had $0.9 million of unrecognized tax benefits as of June 30, 2018. We believe it is reasonably possible that, within the next twelve months, unrecognized domestic tax benefits could change by a significant amount. The principal uncertainties are related to the timing of recognition of income and losses related to our loan portfolio. Subsequent to quarter end, we were notified of an IRS examination in connection with our 2017 tax return and related carryback claim. During the first quarter of 2019, we received an expected refund from the Internal Revenue Service of $45.7 million. Depending upon the outcome of the review and any related agreements or settlements with the relevant taxing authorities, the amount of the uncertainty, including amounts that would be recognized as a component of the effective tax rate, could change significantly. While the total amount of uncertainty to be resolved is not clear, it is reasonably possible that the uncertainties pertaining to this matter will be resolved in the next twelve months. We believe that we have adequately accounted for any material tax uncertainties in our existing reserves for all open tax years.

Net Income

Net income increased $6.9 million, or 37.5%, to $25.1 million during the current quarter compared to $18.2 million during the prior year quarter. The increase was due primarily to profitable growth in the business, increased operating leverage through expense management and lower interest expense.

SIX MONTHS ENDED JUNE 30, 2019 COMPARED TO SIX MONTHS ENDED JUNE 30, 2018

Revenue and Gross Profit

Revenue increased $71.3 million, or 14.0%, to $578.9 million for the six-month period ended June 30, 2019, or current six-month period, as compared to $507.6 million for the six-month period ended June 30, 2018, or prior year six-month period. On a constant currency basis, revenue increased by $76.3 million, or 15.0%, for the current six-month period compared to the prior year six-month period. Our domestic operations contributed an increase of $85.6 million, resulting from a 36.2% increase in line of credit revenue and a 14.9% increase in domestic installment loan and RPA revenue in the current six-month period compared to the prior year six-month period driven primarily by growth in our line of credit account and installment products.

Our gross profit increased by $23.9 million to $301.5 million for the current six-month period from $277.6 million for the prior year six-month period. On a constant currency basis, gross profit increased by $25.8 million for the current six-month period compared to the prior year six-month period. Our consolidated gross profit margin decreased to 52.1% for the current six-month period, from 54.7% for the prior year six-month period. The decrease in gross profit margin was driven primarily 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 six-month period and the prior year six-month period (in thousands):

	Six Months Ended June 30,
	2019			2018			$ Change			% Change
Revenue by product:
Short-term loans	$	83,047		$	103,687		$	(20,640	)		(19.9	)%
Line of credit accounts		215,153			157,967			57,186			36.2
Installment loans and RPAs		280,126			245,157			34,969			14.3
Total loans and finance receivables revenue		578,326			506,811			71,515			14.1
Other		557			788			(231	)		(29.3	)
Total revenue	$	578,883		$	507,599		$	71,284			14.0	%

Revenue by product (% to total):
Short-term loans		14.3	%		20.4	%
Line of credit accounts		37.2			31.1
Installment loans and RPAs		48.4			48.3
Total loans and finance receivables revenue		99.9			99.8
Other		0.1			0.2
Total revenue		100.0	%		100.0	%

	Six Months Ended June 30,
	2019			2018			$ Change			% Change
Domestic:
Revenue	$	512,193		$	426,604		$	85,589			20.1	%
Cost of revenue		235,240			190,319			44,921			23.6
Gross profit	$	276,953		$	236,285		$	40,668			17.2
Gross profit margin		54.1	%		55.4	%		(1.3	)%		(2.3	)%
International:
Revenue	$	66,690		$	80,995		$	(14,305	)		(17.7	)%
Cost of revenue		42,102			39,728			2,374			6.0
Gross profit	$	24,588		$	41,267		$	(16,679	)		(40.4	)
Gross profit margin		36.9	%		51.0	%		(14.1	)%		(27.6	)%
Total:
Revenue	$	578,883		$	507,599		$	71,284			14.0	%
Cost of revenue		277,342			230,047			47,295			20.6
Gross profit	$	301,541		$	277,552		$	23,989			8.6
Gross profit margin		52.1	%		54.7	%		(2.6	)%		(4.8	)%

Average Loan Origination

	Six Months Ended
	June 30,
	2019		2018
Average loan origination amount (in ones) ^(a)
Short-term loans ^(b)	$	434	$	469
Line of credit accounts ^(c)		382		329
Installment loans ^(b)(d)		1,785		1,680
Total loans ^(b)(d)	$	575	$	574

(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 was fairly flat at $575 during the current six-month period compared to $574 during the prior year six-month period.

Loans and Finance Receivables Loss Experience

The cost of revenue in the current six-month period was $277.4 million, which was composed of $277.8 million related to Company-owned loans and finance receivables offset by a $0.4 million decrease in the liability for estimated losses related to loans we guarantee through the CSO programs. The cost of revenue in the prior year six-month period was $230.0 million, which was composed of $230.2 million related to Company-owned loans and finance receivables offset by a $0.2 million decrease in the liability for estimated losses related to loans we guarantee through the CSO programs. Total charge-offs, net of recoveries, were $285.9 million and $230.5 million in the current six-month period and the prior year six-month period, respectively.

Total Expenses

Total expenses increased $11.5 million, or 6.6%, to $184.2 million in the current six-month period, compared to $172.7 million in the prior year six-month period. On a constant currency basis, total expenses increased $13.7 million, or 7.9%, for the current six-month period compared to the prior year six-month period.

Marketing expense decreased to $55.6 million in the current six-month period compared to $57.1 million in the prior year six-month period. The decrease was due primarily to lower international spend, driven primarily by lower volume from lead providers and lower television and radio advertising. Lower marketing spend in our international business was partially offset by higher spend for our domestic business, driven by higher television advertising and digital marketing expenses.

Operations and technology expense increased to $62.0 million in the current six-month period compared to $52.7 million in the prior year six-month period, due primarily to higher underwriting costs primarily related to growth in loan balances and higher selling expense, which includes ongoing expenses associated with complaints in the United Kingdom.

General and administrative expense increased $3.3 million, or 5.9%, to $58.5 million in the current six-month period compared to $55.2 million in the prior year six-month period, due primarily to higher corporate services personnel costs driven primarily by an increase in headcount in the current six-month period.

Depreciation and amortization expense increased $0.4 million, or 5.9%, in the current six-month period compared to the prior year six-month period, due primarily to increased amortization on higher capitalized software development costs.

Interest Expense, Net

Interest expense, net decreased $1.4 million, or 3.6%, to $37.6 million in the current six-month period compared to $39.0 million in the prior year six-month period. The decrease was due primarily to a decrease in the weighted average interest rate on our outstanding debt to 8.85% during the current six-month period from 10.06% during the prior year six-month period, partially offset by an increase in the average amount of debt outstanding, which increased $106.9 million to $874.5 million during the current six-month period from $767.6 million during the prior year six-month period.

Provision for Income Taxes

The effective tax rate of 22.2% in the current six-month period was higher than the effective tax rate of 21.5% in the prior year six-month period due primarily to additional interest expense accrued on unrecognized tax benefits.

Net Income

Net income increased $14.0 million, or 30.3%, to $60.1 million during the current six-month period compared to $46.1 million during the prior year six-month period. The increase was due primarily to profitable growth in the business, increased operating leverage through expense management, lower interest expense and lower loss on early extinguishment of debt.

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 the remaining $295.0 million in principal amount of the outstanding 2021 Senior Notes.

On June 30, 2017, we entered into a secured revolving credit agreement (as amended the “Credit Agreement”). On April 13, 2018, October 5, 2018 and July 1, 2019, we and certain of our operating subsidiaries entered into amendments to our Credit Agreement, as further described below. As of July 29, 2019, our available borrowings under the Credit Agreement were $123.8 million. Since 2016, we have entered into several consumer loan securitization facilities and offered asset-backed notes to fund our growth, primarily in our near-prime consumer installment loan business, as further described below under “Consumer Loan Securitization.” As of July 29, 2019, the outstanding balance under our securitization facilities was $224.4 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 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 June 30, 2019, 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 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 Senior 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 the remaining outstanding 2021 Senior Notes balance of $295.0 million, to pay the related accrued interest, premiums, fees and expenses associated therewith. The remaining amount was used for general corporate purposes.

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 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 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 indenture that governs our 2024 Senior 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 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.

Consumer Loan Securitization

We securitize consumer loan receivables originated by certain of our subsidiaries, which are sold to bankruptcy remote special purpose subsidiaries. Each of these securitizations provides that (i) the lenders to a securitization subsidiaries have no recourse to seek repayment or recovery from our operating entities for credit losses on the receivables; (ii) except for certain limited indemnities, such lenders have recourse only to assets of the applicable securitization subsidiary to which they have lent; (iii) such lenders maintain a security interest in all assets of the applicable securitization subsidiary; (iv) cash flows from the assets transferred to such securitization subsidiaries represent the sole source of payment to such securitization subsidiaries. The collections on assets sold to securitization subsidiaries are not available to satisfy the debts or other obligations of the Company unless such amounts have been released from the lien of the lenders.

2019‑1 Facility

On February 25, 2019 (the “2019-1 Closing Date”), we and several of our subsidiaries entered into a receivables securitization (the “2019-1 Facility”) with PCAM Credit II, LLC, as lender (the “2019-1 Lender”). The 2019-1 Lender is an affiliate of Park Cities Asset Management, LLC. The 2019-1 Facility finances unsecured consumer installment loans (“Securitization Receivables”) that have been and will be originated or acquired under our NetCredit and CashNetUSA brands by several of our subsidiaries and that meet specified eligibility criteria. Under the 2019-1 Facility, eligible Securitization Receivables are sold to a wholly-owned subsidiary of our (the “2019-1 Debtor”) and serviced by another subsidiary of us.

The 2019-1 Debtor has issued a delayed draw term note with an initial maximum principal balance of $30.0 million and a revolving note with an initial maximum principal balance of $20.0 million for an aggregate initial maximum principal balance of $50.0 million, which is required to be secured by eligible Securitization Receivables. The 2019-1 Facility has an accordion feature that, with the consent of the 2019-1 Lender, allows for the maximum principal balance of the delayed draw term note to increase to $50.0 million and the maximum principal balance of the revolving note to increase to $25.0 million, for an aggregate maximum principal balance of $75.0 million. The 2019-1 Facility is non-recourse to us and matures three years after the 2019-1 Closing Date.

The 2019-1 Facility is governed by a loan and security agreement, dated as of the 2019-1 Closing Date, between the 2019-1 Lender and the 2019-1 Debtor. The 2019-1 Facility bears interest at a rate per annum equal to LIBOR (subject to a floor) plus an applicable margin, which applicable margin is initially 9.75%. In addition, the 2019-1 Debtor is required to pay certain customary upfront closing fees to the 2019-1 Lender. Interest payments on the 2019-1 Facility will be made monthly. Subject to certain exceptions, the 2019-1 Debtor is not permitted to prepay the delayed draw term note prior to two years after the 2019-1 Closing Date. Following such date, the 2019-1 Debtor is permitted to voluntarily prepay the 2019-1 Facility without penalty. The revolving note may be paid in whole or in part at any time after the delayed draw term note has been fully drawn.

All amounts due under the 2019-1 Facility are secured by all of the 2019-1 Debtor’s assets, which include the eligible Securitization Receivables transferred to the 2019-1 Debtor, related rights under the eligible Securitization Receivables, a bank account and certain other related collateral. We have issued a limited indemnity to the 2019-1 Lender for certain “bad acts,” and we have agreed for the benefit of the 2019-1 Lender to meet certain ongoing financial performance covenants.

The 2019-1 Facility documents contain customary provisions for securitizations, including representations and warranties as to the eligibility of the eligible Securitization 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 2019-1 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 eligible Securitization Receivables, defaults under other material indebtedness of the 2019-1 Debtor and a default by us under our financial performance covenants.

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 “2018‑2 Agent”). The 2018‑2 Facility collateralizes Securitization 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, Securitization Receivables are sold to a wholly-owned subsidiary of ours (the “2018‑2 Debtor”) and serviced by another subsidiary of ours.

The 2018‑2 Facility documents contain customary provisions for securitizations, including: representations and warranties as to the eligibility of the Securitization 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 Securitization Receivables and defaults under other material indebtedness of the 2018‑2 Debtor.

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 Securitization 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, Securitization Receivables are sold to a wholly-owned subsidiary of ours (the “2018‑1 Debtor”) and serviced by another subsidiary of ours.

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 are made monthly. The 2018‑1 Debtor is 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 “2016‑1 Agent”) and Bankers Trust Company, as indenture trustee and securities intermediary (the “Indenture Trustee”). The 2016‑1 Securitization Facility securitized Securitization Receivables that were originated or acquired under our NetCredit brand and that met specified eligibility criteria. Under the 2016‑1 Securitization Facility, Securitization Receivables were sold to a wholly-owned special purpose subsidiary of ours (the “2016‑1 Issuer”) and serviced by another subsidiary of ours. The 2016‑1 Securitization Facility, as amended on October 20, 2017, provided for a maximum principal amount of $275 million, an initial term note with an with an initial principal amount of $181.1 million and the ability to subsequently issue term notes thereafter, variable funding notes with an aggregate committed availability of $75 million per quarter with an option to increase the commitment to $90 million and a revolving period of the facility ending in April 2019.

On October 31, 2018, the 2016‑1 Issuer resold a substantial portion of the Securitization Receivables it owned to Enova International, Inc., and used the proceeds to redeem all of the outstanding 2017 Quarterly Term Notes and to repay all amounts owed on the 2017 Variable Funding Notes.

Subject to certain exceptions, the 2016‑1 Issuer was not permitted to prepay or redeem any of the 2016-1 Facility prior to April 15, 2019, but the 2016-1 Agent, the Indenture Trustee, and the holders of the notes agreed to permit an early repayment. On March 29, 2019, the 2016-1 Facility was repaid in full.

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 securitized Securitization Receivables that were 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 was greater than or equal to 90%. Under the 2016‑2 Facility, Securitization Receivables were sold to a wholly-owned subsidiary of ours and serviced by another subsidiary of ours. In October 2018, the 2016‑2 Facility was repaid in full and there is no remaining amount available to be borrowed.

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 Veritex Community Bank (as successor in interest to Green Bank, N.A.), as lender. On April 13, 2018 and October 5, 2018, the Credit Agreement was amended to include Pacific Western Bank and Axos Bank, respectively, as lenders, in the syndicate of lenders. Additionally, on July 1, 2019, the Credit Agreement was amended to, amongst other changes, extend the maturity date to June 30, 2022 from May 1, 2020 and increase the advance rate to 65% from 53%.

The Credit Agreement is secured by domestic receivables. The borrowing limit in the Credit Agreement, as amended, is $125 million and its maturity date is June 30, 2022. We had no outstanding borrowings under the Credit Agreement as of June 30, 2019.

The Credit Agreement provides for a revolving credit line with interest on borrowings under the facility at prime rate plus 1.00%. In addition, the Credit Agreement provides for payment of a commitment fee calculated with respect to the unused portion of the line, and ranges from 0.30% 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 Credit Agreement of $1.2 million as of June 30, 2019. The 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 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 Credit Agreement contains standard financial covenants for a facility of this type based on a leverage ratio and a fixed charge coverage ratio. The 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):

	Six Months Ended June 30,
	2019			2018
Cash flows provided by operating activities	$	414,759		$	295,716
Cash flows used in investing activities
Loans and finance receivables	$	(308,231	)	$	(276,550	)
Purchases of property and equipment		(10,907	)		(7,065	)
Other investing activities		2			42
Total cash flows used in investing activities	$	(319,136	)	$	(283,573	)
Cash flows used in financing activities	$	(83,826	)	$	(33,599	)

Cash Flows from Operating Activities

Net cash provided by operating activities increased $119.1 million, or 40.3%, to $414.8 million for the current six-month period from $295.7 million for the prior year six-month period. The increase was driven primarily by overall growth in the business with interest and fees paid by customers outpacing operating cash outflows.

We believe cash flows from operations and available cash balances and borrowings under our consumer loan securitization facilities and Credit Agreement, which may include increased borrowings under our 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 $35.6 million, or 12.5%, for the current six-month period compared to the prior year six-month period. This increase was due primarily to a $31.7 million increase in net cash invested in loans and finance receivables, reflecting a $67.4 million increase in the amount of loans and finance receivables originated or acquired in addition to a $35.7 million increase in payments received from customers. Additionally, purchases of property and equipment increased $3.8 million for the current six-month period compared to the prior year six-month period.

Cash Flows from Financing Activities

Cash flows used in financing activities for the current six-month period were driven primarily by $53.6 million in net repayments under our securitization facilities, $22.0 million in net repayments under the Credit Agreement, and $8.8 million in treasury shares purchased. Cash flows used in financing activities for the prior year six-month period were driven primarily by $50.0 million in payments under our senior notes facilities, $32.3 million in net repayments under our securitization facilities and a $3.7 million penalty paid in connection with the early payment of our 2021 Senior Notes, partially offset by $53.0 million in net borrowings under the Credit Agreement.

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 $25.0 million limit was reached in January 2019, with all share repurchases having been through open market transactions. On January 31, 2019, we announced the Board of Directors had authorized a share repurchase program for the repurchase of up to $50.0 million of our common stock through December 31, 2020. During the current six-month period, we paid $7.0 million to repurchase common stock under the share repurchase program.

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 June 30, 2019 and 2018, the outstanding amount of active consumer loans originated by third-party lenders under the CSO programs was $21.5 million and $28.7 million, respectively, which were guaranteed by us. The estimated fair value of

the liability for estimated losses on consumer loans guaranteed by us of $1.7 million and $2.1 million, as of June 30, 2019 and 2018, 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.

CRITICAL ACCOUNTING ESTIMATES

There have been no material changes to the information on critical accounting estimates described in our Annual Report on Form 10‑K for the year ended December 31, 2018.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

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

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, 2018.

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 June 30, 2019 (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 June 30, 2019 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 9 of the notes to our consolidated financial statements (unaudited) 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, 2018.

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)
April 1 – April 30, 2019		—		—		—		49,844
May 1 – May 31, 2019		7,710		21.76		7,710		49,676
June 1 – June 30, 2019		18,331		22.09		13,000		49,394
Total		26,041	$	21.99		20,710	$	49,394

(a)	Includes shares withheld from employees as tax payments for shares issued under the Company’s stock-based compensation plans of 5,331for the month of June.

(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 $25.0 million limit was reached in January 2019, with all share repurchases having been through open market transactions. On January 31, 2019, the Company announced the Board of Directors had authorized a share repurchase program for the repurchase of up to $50.0 million of the Company’s common stock through December 31, 2020 (the “January 2019 Authorization”). All share repurchases made under the January 2019 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

10.1		Enova International, Inc. Amended and Restated Senior Executive Bonus Plan

10.2		Enova International, Inc. Amended and Restated Annual Short Term Incentive Plan

10.3		Third Amendment to Credit Agreement among Enova International, Inc., as a Borrower and the Parent, certain restricted subsidiaries of the Parent from time to time party hereto, as Borrowers, certain restricted subsidiaries of the Parent from time to time party hereto, as Guarantors, the lenders party hereto, and TBK Bank, SSB, as Administrative Agent and Collateral Agent dated as of July 1, 2019

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 - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL 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: July 31, 2019	ENOVA INTERNATIONAL, INC.

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