Enova International, Inc. - Quarter Report: 2020 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2020

☐	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 ☒

35,666,115 of the Registrant’s common shares, $.00001 par value, were outstanding as of October 26, 2020.

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”) and the Company’s acquisition of On Deck Capital, Inc. (“OnDeck”). 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 the COVID-19 pandemic on our operations;

•

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;

•

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;

•

compliance with laws and regulations applicable to our international operations, including anti-corruption laws such as the Foreign Corrupt Practices Act 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;

•

the risk that the Company will not successfully integrate OnDeck or that costs associated with the integration of the Company and OnDeck are higher than anticipated;

•

the risk that the cost savings, synergies, growth and cash flows from the OnDeck transaction will not be fully realized or will take longer to realize than expected;

•

litigation risk related to the transaction; and

•

other risks and uncertainties described herein.

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

ENOVA INTERNATIONAL, INC.

INDEX TO FORM 10-Q


		Page
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)
	Consolidated Balance Sheets – September 30, 2020 and 2019 and December 31, 2019	1
	Consolidated Statements of Income – Three and Nine Months Ended September 30, 2020 and 2019	3
	Consolidated Statements of Comprehensive Income – Three and Nine Months Ended September 30, 2020 and 2019	4
	Consolidated Statements of Stockholders’ Equity – Three and Nine Months Ended September 30, 2020 and 2019	5
	Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2020 and 2019	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	53
Item 4.	Controls and Procedures	53

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	54
Item 1A.	Risk Factors	54
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	56
Item 3.	Defaults upon Senior Securities	56
Item 4.	Mine Safety Disclosures	56
Item 5.	Other Information	56
Item 6.	Exhibits	57

SIGNATURES		58

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share data)

(Unaudited)

	September 30,						December 31,
	2020			2019			2019
Assets
Cash and cash equivalents⁽¹⁾	$	490,033		$	28,864		$	35,895
Restricted cash⁽¹⁾		45,017			18,619			45,069
Loans and finance receivables at fair value⁽¹⁾		693,370			—			—
Loans and finance receivables at amortized cost, net⁽¹⁾		—			950,188			1,062,650
Income taxes receivable		—			6,501			32,859
Other receivables and prepaid expenses⁽¹⁾		25,117			38,232			31,643
Property and equipment, net		63,403			50,563			54,540
Operating lease right-of-use assets		20,370			19,983			19,586
Goodwill		267,868			267,013			267,013
Intangible assets, net		1,623			2,452			2,185
Other assets⁽¹⁾		27,363			11,826			22,912
Assets from discontinued operations		—			112,720			—
Total assets	$	1,634,164		$	1,506,961		$	1,574,352
Liabilities and Stockholders' Equity
Accounts payable and accrued expenses⁽¹⁾	$	76,526		$	111,901		$	122,163
Operating lease liabilities		35,258			36,490			35,712
Income taxes currently payable		15,339			—			—
Deferred tax liabilities, net		69,874			40,264			48,683
Long-term debt⁽¹⁾		863,472			873,744			991,181
Liabilities from discontinued operations		—			10,591			—
Total liabilities		1,060,469			1,072,990			1,197,739
Commitments and contingencies (Note 8)
Stockholders' equity:
Common stock, $0.00001 par value, 250,000,000 shares authorized, 36,190,857, 35,751,763 and 35,764,943 shares issued and 30,111,727, 33,988,030 and 32,974,714 outstanding as of September 30, 2020 and 2019 and December 31, 2019, respectively		—			—			—
Preferred stock, $0.00001 par value, 25,000,000 shares authorized, no shares issued and outstanding		—			—			—
Additional paid in capital		74,868			61,477			63,791
Retained earnings		618,775			423,234			372,681
Accumulated other comprehensive loss		(8,547	)		(17,158	)		(3,066	)
Treasury stock, at cost (6,079,130, 1,763,733 and 2,790,229 shares as of September 30, 2020 and 2019 and December 31, 2019, respectively)		(111,401	)		(33,582	)		(56,793	)
Total stockholders' equity		573,695			433,971			376,613
Total liabilities and stockholders' equity	$	1,634,164		$	1,506,961		$	1,574,352

(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 1 for additional information.

	September 30,				December 31,
	2020		2019		2019
Assets of consolidated VIEs, included in total assets above
Cash and cash equivalents	$	525	$	420	$	420
Restricted cash		42,656		18,618		42,354
Loans and finance receivables at fair value		339,445		—		—
Loans and finance receivables at amortized cost, net (includes allowance for losses of $34,509 and $38,540 as of September 30, 2019 and December 31, 2019, respectively)		—		340,034		420,690
Other receivables and prepaid expenses		4,449		9,236		9
Other assets		1,870		2,346		2,161
Total assets	$	388,945	$	370,654	$	465,634
Liabilities of consolidated VIEs, included in total liabilities above
Accounts payable and accrued expenses	$	1,953	$	3,300	$	3,171
Long-term debt		247,372		234,666		304,598
Total liabilities	$	249,325	$	237,966	$	307,769

See notes to consolidated financial statements.

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2020			2019			2020			2019
Revenue	$	204,545		$	305,612		$	819,858		$	829,495
Change in Fair Value		(22,777	)		—			(379,168	)		—
Cost of Revenue		—			(162,186	)		—			(404,477	)
Net Revenue/Gross Profit		181,768			143,426			440,690			425,018
Expenses
Marketing		4,629			34,505			42,175			79,427
Operations and technology		17,702			20,717			65,472			61,353
General and administrative		33,656			27,267			83,943			84,562
Depreciation and amortization		3,770			3,433			11,444			11,048
Total Expenses		59,757			85,922			203,034			236,390
Income from Operations		122,011			57,504			237,656			188,628
Interest expense, net		(18,634	)		(18,235	)		(59,387	)		(55,853	)
Foreign currency transaction loss		(30	)		(12	)		(7	)		(190	)
Loss on early extinguishment of debt		—			—			—			(2,321	)
Income before Income Taxes		103,347			39,257			178,262			130,264
Provision for income taxes		9,671			10,374			30,812			31,776
Net income from continuing operations		93,676			28,883			147,450			98,488
Net loss from discontinued operations		(9	)		(1,798	)		(297	)		(11,323	)
Net Income	$	93,667		$	27,085		$	147,153		$	87,165
Earnings Per Share:
Earnings per common share – basic:
Continuing operations	$	3.11		$	0.85		$	4.78		$	2.92
Discontinued operations		—			(0.05	)		(0.01	)		(0.34	)
Earnings per common share – basic	$	3.11		$	0.80		$	4.77		$	2.58
Earnings per common share – diluted:
Continuing operations	$	3.09		$	0.83		$	4.73		$	2.86
Discontinued operations		—			(0.05	)		(0.01	)		(0.33	)
Earnings per common share – diluted	$	3.09		$	0.78		$	4.72		$	2.53
Weighted average common shares outstanding:
Basic		30,108			33,997			30,880			33,770
Diluted		30,363			34,577			31,180			34,492

See notes to consolidated financial statements.

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(Unaudited)

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2020		2019			2020			2019
Net Income	$	93,667	$	27,085		$	147,153		$	87,165
Other comprehensive gain (loss), net of tax:
Foreign currency translation gain (loss)⁽¹⁾		52		(2,384	)		(5,481	)		(3,353	)
Total other comprehensive gain (loss), net of tax		52		(2,384	)		(5,481	)		(3,353	)
Comprehensive Income	$	93,719	$	24,701		$	141,672		$	83,812

(1)	Net of tax benefit of $621 and $966 for the three months ended September 30, 2020 and 2019, respectively, and $2,326 and $933 for the nine months ended September 30, 2020 and 2019, 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 June 30, 2019		35,671	$	—	$	56,910	$	396,149		$	(14,774	)		(1,682	)	$	(31,832	)	$	406,453
Stock-based compensation expense		—		—		3,387		—			—			—			—			3,387
Shares issued for vested RSUs		10		—		—		—			—			—			—			—
Shares issued for stock option exercises		71		—		1,180		—			—			—			—			1,180
Net income from continuing operations		—		—		—		28,883			—			—			—			28,883
Net loss from discontinued operations		—		—		—		(1,798	)		—			—			—			(1,798	)
Foreign currency translation loss, net of tax		—		—		—		—			(2,384	)		—			—			(2,384	)
Purchases of treasury shares, at cost		—		—		—		—			—			(82	)		(1,750	)		(1,750	)
Balance at September 30, 2019		35,752	$	—	$	61,477	$	423,234		$	(17,158	)		(1,764	)	$	(33,582	)	$	433,971

Balance at June 30, 2020		36,180	$	—	$	71,100	$	525,108		$	(8,599	)		(6,078	)	$	(111,389	)	$	476,220
Stock-based compensation expense		—		—		3,768		—			—			—			—			3,768
Shares issued for vested RSUs		11		—		—		—			—			—			—			—
Net income from continuing operations		—		—		—		93,676			—			—			—			93,676
Net loss from discontinued operations		—		—		—		(9	)		—			—			—			(9	)
Foreign currency translation loss, net of tax		—		—		—		—			52			—			—			52
Purchases of treasury shares, at cost		—		—		—		—			—			(1	)		(12	)		(12	)
Balance at September 30, 2020		36,191	$	—	$	74,868	$	618,775		$	(8,547	)		(6,079	)	$	(111,401	)	$	573,695

										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, 2018		34,857	$	—	$	48,175	$	336,415		$	(13,805	)		(1,272	)	$	(23,017	)	$	347,768
Stock-based compensation expense		—		—		9,784		—			—			—			—			9,784
Shares issued for vested RSUs		534		—		—		—			—			—			—			—
Shares issued for stock option exercises		361		—		3,518		—			—			—			—			3,518
Net income from continuing operations		—		—		—		98,488			—			—			—			98,488
Net loss from discontinued operations		—		—		—		(11,323	)		—			—			—			(11,323	)
Foreign currency translation loss, net of tax		—		—		—		—			(3,353	)		—			—			(3,353	)
Purchases of treasury shares, at cost		—		—		—		—			—			(492	)		(10,565	)		(10,565	)
Cumulative effect of accounting change		—		—		—		(346	)		—			—			—			(346	)
Balance at September 30, 2019		35,752	$	—	$	61,477	$	423,234		$	(17,158	)		(1,764	)	$	(33,582	)	$	433,971

Balance at December 31, 2019		35,765	$	—	$	63,791	$	372,681		$	(3,066	)		(2,790	)	$	(56,793	)	$	376,613
Stock-based compensation expense		—		—		10,888		—			—			—			—			10,888
Shares issued for vested RSUs		410		—		—		—			—			—			—			—
Shares issued for stock option exercises		16		—		189		—			—			—			—			189
Net income from continuing operations		—		—		—		147,450			—			—			—			147,450
Net loss from discontinued operations		—		—		—		(297	)		—			—			—			(297	)
Foreign currency translation loss, net of tax		—		—		—		—			(5,481	)		—			—			(5,481	)
Purchases of treasury shares, at cost		—		—		—		—			—			(3,289	)		(54,608	)		(54,608	)
Cumulative effect of accounting change (Note 1)		—		—		—		98,941			—			—			—			98,941
Balance at September 30, 2020		36,191	$	—	$	74,868	$	618,775		$	(8,547	)		(6,079	)	$	(111,401	)	$	573,695

See notes to consolidated financial statements.

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

	Nine Months Ended
	September 30,
	2020			2019
Cash Flows from Operating Activities
Net Income	$	147,153		$	87,165
Add: net loss from discontinued operations		297			11,323
Net income from continuing operations		147,450			98,488
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		11,444			11,048
Amortization of deferred loan costs and debt discount		4,607			4,302
Change in fair value		379,168			—
Cost of revenue		—			404,477
Stock-based compensation expense		10,888			9,784
Loss on early extinguishment of debt		—			2,321
Operating leases, net		(1,255	)		(1,167	)
Lease termination and cease-use costs		—			370
Deferred income taxes, net		(4,174	)		1,290
Changes in operating assets and liabilities:
Finance and service charges on loans and finance receivables		67,323			(24,649	)
Other receivables and prepaid expenses and other assets		(1,747	)		(8,023	)
Accounts payable and accrued expenses		(25,094	)		(3,312	)
Current income taxes		34,920			73,677
Cash flows from operating activities - continuing operations		623,530			568,606
Cash flows from operating activities - discontinued operations		(297	)		37,299
Net cash provided by operating activities		623,233			605,905
Cash Flows from Investing Activities
Loans and finance receivables originated or acquired		(584,515	)		(1,256,214	)
Loans and finance receivables repaid		625,020			704,147
Acquisitions, net of cash acquired		(3,597	)		—
Purchases of property and equipment		(19,835	)		(14,766	)
Other investing activities		57			7
Cash flows from investing activities - continuing operations		17,130			(566,826	)
Cash flows from investing activities - discontinued operations		—			(20,161	)
Net cash provided by (used in) investing activities		17,130			(586,987	)
Cash Flows from Financing Activities
Borrowings under revolving line of credit		100,250			235,049
Repayments under revolving line of credit		(172,250	)		(232,049	)
Borrowings under securitization facilities		119,200			122,800
Repayments under securitization facilities		(178,496	)		(114,043	)
Debt issuance costs paid		(388	)		(702	)
Debt prepayment penalty paid		—			(1,392	)
Proceeds from exercise of stock options		189			3,518
Treasury shares purchased		(54,608	)		(10,565	)
Net cash (used in) provided by financing activities		(186,103	)		2,616
Effect of exchange rates on cash, cash equivalents and restricted cash		(174	)		(8,129	)
Net increase in cash, cash equivalents and restricted cash		454,086			13,405
Less: increase in cash, cash equivalents and restricted cash from discontinued operations		—			(16,205	)
Change in cash, cash equivalents and restricted cash from continuing operations		454,086			(2,800	)
Cash, cash equivalents and restricted cash at beginning of year		80,964			50,283
Cash, cash equivalents and restricted cash at end of period	$	535,050		$	47,483

Supplemental Disclosures
Loans and finance receivables renewed	$	34,554		$	104,466

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 installment loans and line of credit accounts. RPAs represent a right to receive future receivables from a small business. The Company also provides services related to third-party lenders’ consumer loan products by acting as a credit services organization or credit access business on behalf of consumers in accordance with applicable state laws (“CSO program”).

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.

On October 25, 2019, the Company’s U.K. businesses were placed into administration, which resulted in treatment of the businesses as discontinued operations for all periods presented. Throughout these consolidated financial statements, unless otherwise noted, current and prior year financial information is presented as if the U.K. businesses were excluded from continuing operations as required. For further information about the placement of the segment into administration, refer to “Discontinued Operations” below.

The consolidated financial statements presented as of September 30, 2020 and 2019 and for the three and nine-month periods ended September 30, 2020 and 2019 are unaudited but, in management’s opinion, include all adjustments necessary for a fair presentation of the results for such interim periods. Operating results for the three and nine-month periods are not necessarily indicative of the results that may be expected for the full fiscal year. Certain reclassifications have been made to prior periods to conform to the current presentation, including the incorporation of short-term loans into “Installment loans and RPAs” in disclosures that include product groupings.

These consolidated financial statements and related notes should be read in conjunction with the Company’s audited consolidated financial statements as of December 31, 2019 and 2018 and for the years ended December 31, 2019, 2018 and 2017 and related notes, which are included on Form 10-K filed with the SEC on February 27, 2020.

Discontinued Operations

Beginning in 2007, the Company provided services in the United Kingdom under various brands, including QuickQuid, Pounds to Pocket and On Stride. Due in part to the level of claim and legal settlement costs incurred in conducting our U.K. business and unsuccessful discussions with U.K regulators, on October 24, 2019, the Company announced its intent to exit the U.K. market. On October 25, 2019, Grant Thornton LLP, a licensed U.K. insolvency practitioner, was appointed as administrators (“Administrators”) to take control of management of the U.K. businesses. The effect of the U.K. businesses’ entry into administration was to place their management, affairs, business and property under the direct control of the Administrators. Accordingly, the Company deconsolidated its U.K. businesses as of October 25, 2019 and is presenting them as discontinued operations for all periods presented in these consolidated financial statements. The Company recorded a one-time after-tax charge of $74.5 million, including one-time cash charges of $52.2 million, in the fourth quarter of 2019 as a result of placing the U.K. businesses into administration. During the nine months ended September 30, 2020, the Company recorded an impairment charge of $0.4 million ($0.3 million net of taxes) to write down a receivable on certain expenses incurred by the Company prior to administration that were deemed non-reimbursable by the Administrators.

The Company entered into a service agreement with the Administrators under which the Company provides certain administrative, technical and other services in exchange for compensation by the Administrators. The initial term of the agreement is 12 months with options to extend the term for three-month periods. During the three and nine months ended September 30, 2020, the Company

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

recorded $1.0 million and $4.1 million, respectively, in revenue related to these services. As of September 30, 2020, the Administrators owed the Company $1.0 million related to services provided.

The following table provides the aggregate carrying amounts of the assets and liabilities of the U.K. businesses included in the Company’s consolidated balance sheets (in thousands):

	September 30,
	2019
Assets
Cash and cash equivalents	$	41,081
Restricted cash		2,100
Loans and finance receivables at amortized cost, net		50,966
Income taxes receivable		6,226
Other receivables and prepaid expenses		1,317
Deferred tax assets, net		6,284
Property and equipment, net		4,388
Operating lease right-of-use assets		277
Other assets		81
Total assets	$	112,720
Liabilities and Stockholders' Equity
Accounts payable and accrued expenses	$	10,311
Operating lease liabilities		280
Total liabilities	$	10,591

The following table provides the financial results of the U.K. businesses, which meet the criteria of discontinued operations and, therefore, are excluded from the Company's results of continuing operations (in thousands):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2020			2019			2020			2019
Revenue	$	—		$	23,901		$	—		$	78,901
Cost of Revenue		—			(9,080	)		—			(44,131	)
Gross Profit		—			14,821			—			34,770
Expenses
Marketing		—			2,488			—			13,132
Operations and technology		—			13,593			—			34,968
General and administrative		—			1,520			—			2,674
Depreciation and amortization		—			283			—			794
Total Expenses		—			17,884			—			51,568
Loss from Operations		—			(3,063	)		—			(16,798	)
Interest income, net		—			3			—			6
Foreign currency transaction loss		—			—			—			(3	)
Impairment charges upon placement into administration		—			—			(392	)		—
Loss before Income Taxes		—			(3,060	)		(392	)		(16,795	)
Provision for (benefit from) income taxes		9			(1,262	)		(95	)		(5,472	)
Net loss from discontinued operations	$	(9	)	$	(1,798	)	$	(297	)	$	(11,323	)

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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):

	September 30,
	2020		2019
Cash and cash equivalents	$	490,033	$	28,864
Restricted cash		45,017		18,619
Total cash, cash equivalents and restricted cash	$	535,050	$	47,483

Loans and Finance Receivables

Prior to January 1, 2020, the Company carried its loans and finance receivables at amortized cost, less an allowance for estimated losses and unamortized net deferred origination costs. In determining the allowance, the Company applied a documented systematic methodology generally at a product level with charge-offs and recoveries, recorded as “Cost of revenue” in the consolidated statements of income. The allowance for single-pay installment loans classified as current was based on historical loss rates adjusted for recent default trends for current loans. For delinquent single-pay loans, the allowance was based on a six-month rolling average of loss rates by stage of collection. For other installment loans, RPAs and line of credit accounts, the Company generally used either a migration analysis or roll-rate based methodology to estimate losses inherent in the portfolio. The allowance under the migration analysis and roll-rate methodology was based on historical charge-off experience and the loss emergence period, which represented 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 considered to assess the adequacy of the allowance included past due performance, historical behavior of monthly vintages, underwriting changes, delinquency status, payment history and recency factors.

Beginning January 1, 2020, the Company utilizes the fair value option on its entire loan and finance receivable portfolio. As such, loans and finance receivables are carried at fair value in the consolidated balance sheet with changes in fair value recorded in the consolidated income statement. To derive the fair value, the Company generally utilizes discounted cash flow analyses that factor in estimated losses and prepayments over the estimated duration of the underlying assets. Loss and prepayment assumptions are determined using historical loss data and include appropriate consideration of recent trends and anticipated future performance. Future cash flows are discounted using a rate of return that the Company believes a market participant would require. Accrued and unpaid interest and fees are included in “Loans and finance receivables” in the consolidated balance sheets.

Current and Delinquent Loans and Finance Receivables

The Company classifies its loans and finance receivables as either current or delinquent. When a customer does not make a scheduled payment as of the due date, that payment is considered delinquent, and the remainder of the receivable balance is considered current. If the customer does not make two consecutive payments, the entire account or loan is classified as delinquent and placed on a non-accrual status. The Company allows for normal payment processing time before considering a loan delinquent but does not provide for any additional grace period.

Where permitted by law and as long as a loan is not considered delinquent, a customer may choose to renew or extend the due date on certain installment loans. In order to renew or extend a single-pay loan, a customer must agree to pay the current finance charge for the right to make a later payment of the outstanding principal balance plus an additional finance charge. In order to renew an installment loan, the customer enters into a new installment loan contract and agrees to pay the principal balance and finance charge in accordance with the terms of the new loan contract. If a single-pay loan is renewed, but the customer fails to pay that loan’s current finance charge as of the due date, the unpaid finance charge is classified as delinquent.

In response to the COVID-19 pandemic, the Company enhanced the forbearance options on its loan products, offering additional relief to impacted customers with features such as payment deferrals without the incurrence of additional finance charge or late fees. If a loan is deemed to be current and the customer makes a deferral or payment modification, the loan is still deemed to be current until the next scheduled payment is missed.

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

delinquent. Generally, all payments received are first applied against accrued but unpaid interest and fees and then against the principal balance of the loan.

The Company generally charges off loans and finance receivables between 60 and 65 days delinquent. If a loan or finance receivable is deemed uncollectible prior to this, 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 that were previously charged off are generally recognized when collected.

Revenue Recognition

The Company recognizes revenue based on the financing products and services it offers and on loans it acquires. “Revenue” in the consolidated statements of income includes: interest income, finance charges, fees for services provided through the Company’s CSO programs (“CSO fees”), revenue on RPAs, service charges, draw fees, minimum billing fees, purchase fees, origination fees, late fees and non-sufficient funds fees as permitted by applicable laws and pursuant to the agreement with the customer. Interest is generally recognized on an effective yield basis over the contractual term of the loan on installment loans, the estimated outstanding period of the draw on line of credit accounts, or the projected delivery term on RPAs. CSO fees are recognized over the term of the loan. Late and nonsufficient funds fees are recognized when assessed to the customer.

Prior to the adoption of the fair value option effective January 1, 2020, origination fees as well as certain direct costs associated with originating loans were deferred and amortized into or against revenue on an effective yield basis over the term of the loan or the projected delivery term of the finance receivable. Subsequent to the election of the fair value option, these fees and costs are no longer eligible for deferral. As such, origination fees on installment loans, purchase fees on RPAs, and draw fees on line of credit accounts are recognized when assessed to the customer.

Marketing Expenses

Marketing expenses consist of digital costs, lead purchase costs and offline marketing costs such as television and direct mail advertising. With the adoption of the fair value option on January 1, 2020, all marketing expenses are expensed as incurred. Prior to January 1, 2020, marketing costs directly related to loan and RPA originations were deferred and amortized against revenue, whereas marketing costs not directly resulting in loan and RPA originations were expensed as incurred.

Variable Interest Entities

As part of the Company’s overall funding strategy and as part of its efforts to support its liquidity from varying 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.

Adopted Accounting Standards

In June 2016, the FASB issued Accounting Standards Update (“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 and November 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, and ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, respectively, which provide 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. In November 2019, the FASB issued ASU 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates, which sets the mandatory

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

effective date of ASU 2016‑13 for public business entities that meet the definition of an SEC filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for annual periods beginning after December 15, 2019, and interim periods within those annual periods.

The Company adopted ASU 2016-13 and the related aforementioned ASUs under the modified-retrospective method effective January 1, 2020 and elected the fair value option to account for all loans and finance receivables. The Company believes that the fair value option better reflects the value of its portfolio and its future economic performance as well as more closely aligning with the Company’s marginal decision-making processes that rely on risk-based pricing and discounted cash flow methodologies. In accordance with the transition guidance, the Company (i) released the allowance for estimated losses on loans and finance receivables at that date; (ii) released the unamortized net deferred origination costs at that date; and (iii) measured the loans and finance receivables at fair value. As a result of the adoption of this ASU, the Company’s loans and finance receivables are carried at fair value with changes in fair value recognized directly in earnings and origination fees and costs are no longer eligible for deferral.

The following table summarizes the impact of adoption on the consolidated balance sheet as of January 1, 2020 (in thousands):

	Increase
	(decrease)
Assets
Loans and finance receivables at fair value	$	124,933
Total assets	$	124,933
Liabilities and Stockholders' Equity
Accounts payable and accrued expenses	$	(4,486	)
Deferred tax liabilities, net		30,478
Total liabilities		25,992
Stockholders' equity:
Retained earnings		98,941
Total stockholders' equity		98,941
Total liabilities and stockholders' equity	$	124,933

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 noncancelable 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 adoption of ASU 2018-15 did not have a material effect on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which modifies the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. As permitted in the transition guidance, the Company adopted ASU 2018-13 in the first quarter of 2020, which did not have a material effect on the Company’s 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 and will not have an impact on the Company’s consolidated financial statements unless goodwill is deemed to be impaired.

Accounting Standards to be Adopted in Future Periods

In November 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 is intended to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and also clarifying and amending existing guidance to improve consistent application. ASU 2019-12 is effective in fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the impact ASU 2019-12 will have on its consolidated financial statements.

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

2.	Acquisitions

On July 28, 2020, the Company and OnDeck Capital, Inc. (“OnDeck”) entered into an Agreement and Plan of Merger (the “Merger Agreement”) among the Company, OnDeck and Energy Merger Sub, Inc., a wholly owned subsidiary of the Company (“Merger Sub”), pursuant to which, subject to the satisfaction or waiver of the conditions set forth therein, Merger Sub would merge with and into OnDeck, with OnDeck surviving as an indirect wholly owned subsidiary of the Company. On October 13, 2020, the Company and OnDeck completed the transaction following the approval of OnDeck’s stockholders and the satisfaction of all other closing conditions.

OnDeck offers a range of term loans and lines of credit customized for the needs of small business owners. OnDeck also offers bank clients a comprehensive technology and services platform that facilitates online lending to small business customers through ODX, a wholly owned subsidiary.

Under the terms of the Merger Agreement, each holder of OnDeck common stock received $0.12 per share in cash and a fixed exchange ratio of 0.092 shares of the Company’s common stock for each OnDeck share they owned as of the transaction date. As a result, the Company issued 5.6 million shares of common stock to OnDeck stockholders. Based on the closing share price of the Company as of October 12, 2020 of $18.74, the value of Company common stock and cash provided in exchange for OnDeck common stock was approximately $111.5 million. In addition to the exchange of common stock, the consideration transferred also included the cancellation or replacement of certain equity awards of OnDeck employees in effect prior to the transaction valued at approximately $4.2 million.

The Company is considered to be the accounting acquirer and as such, the closing date purchase consideration will be allocated to the fair value of OnDeck assets and liabilities. The major classes of assets acquired through the transaction include cash and cash equivalents, restricted cash, loans and finance receivables, income taxes receivable, other receivables and prepaid expenses, property and equipment, operating lease right-of-use assets, intangible assets, deferred tax assets and other assets. The major classes of liabilities assumed include accounts payable and accrued liabilities, operating lease liabilities and long-term debt. Transaction costs associated with the transaction are expensed as incurred and are included in “General and administrative expenses” in the consolidated statements of income. The Company recognized transaction-related costs of $6.6 million for the three months ended September 30, 2020. These expenses include investment banking, legal, accounting, and related third party costs associated with the transaction, including preparation for regulatory filings and stockholder approvals.

Due to the limited time since the acquisition date and the size and complexity of the transaction, the accounting for the business combination is not yet complete. The Company was not able to provide the allocation of consideration paid to the assets acquired or liabilities assumed. Supplemental pro forma revenue and earnings of the combined company are predicated on the completion of the business combination accounting and allocation of consideration.

3.	Loans and Finance Receivables

Revenue generated from the Company’s loans and finance receivables for the three and nine months ended September 30, 2020 and 2019 was as follows (dollars in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
Installment loans and RPAs	$	103,674	$	159,025	$	403,932	$	467,198
Line of credit accounts		99,723		146,362		410,973		361,515
Total loans and finance receivables revenue		203,397		305,387		814,905		828,713
Other		1,148		225		4,953		782
Total revenue	$	204,545	$	305,612	$	819,858	$	829,495

Loans and Finance Receivables at Fair Value

The components of Company-owned loans and finance receivables at September 30, 2020 were as follows (dollars in thousands):

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

	As of September 30, 2020
	Installment Loans and		Line of Credit
	RPAs		Accounts		Total
Principal balance - accrual	$	456,576	$	167,629	$	624,205
Principal balance - non-accrual		25,045		2,039		27,084
Total principal balance		481,621		169,668		651,289

Loans and finance receivables at fair value - accrual		497,343		186,566		683,909
Loans and finance receivables at fair value - non-accrual		8,592		869		9,461
Loans and finance receivables at fair value		505,935		187,435		693,370
Difference between principal balance and fair value	$	24,314	$	17,767	$	42,081

As of September 30, 2020, the aggregate fair value of loans and finance receivables that are 90 days or more past due was $0.5 million and $0.3 million was in non-accrual status. The aggregate unpaid principal balance for loans and finance receivables that are 90 days or more past due was $1.9 million.

Changes in the fair value of Company-owned loans and finance receivables during the three and nine months ended September 30, 2020 were as follows (dollars in thousands):

	Three Months Ended September 30, 2020
	Installment Loans and			Line of Credit
	RPAs			Accounts			Total
Balance at beginning of period	$	587,540		$	212,122		$	799,662
Originations or acquisitions		54,289			69,049			123,338
Interest and fees⁽¹⁾		103,674			99,723			203,397
Repayments		(233,471	)		(176,726	)		(410,197	)
Charge-offs, net⁽²⁾		(15,247	)		(19,919	)		(35,166	)
Net change in fair value⁽²⁾		9,203			3,186			12,389
Effect of foreign currency translation		(53	)		—			(53	)
Balance at end of period	$	505,935		$	187,435		$	693,370

	Nine Months Ended September 30, 2020
	Installment Loans and			Line of Credit
	RPAs			Accounts			Total
Balance at beginning of period	$	848,818		$	338,765		$	1,187,583
Originations or acquisitions		338,856			280,213			619,069
Interest and fees⁽¹⁾		403,932			410,973			814,905
Repayments		(874,225	)		(671,079	)		(1,545,304	)
Charge-offs, net⁽²⁾		(182,881	)		(211,484	)		(394,365	)
Net change in fair value⁽²⁾		(24,850	)		40,047			15,197
Effect of foreign currency translation		(3,715	)		—			(3,715	)
Balance at end of period	$	505,935		$	187,435		$	693,370

(1)	Included in “Revenue” in the consolidated statements of income.

(2)	Included in “Change in Fair Value” in the consolidated statements of income.

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Loans and Finance Receivables at Amortized Cost, net

Prior to January 1, 2020, the Company carried its loans and finance receivables at amortized cost, including unamortized net deferred origination costs, less an allowance for estimated losses. The components of Company-owned loans and finance receivables at September 30, 2019 and December 31, 2019 were as follows (dollars in thousands):

	As of September 30, 2019
	Installment Loans and			Line of Credit
	RPAs			Accounts			Total
Current receivables	$	708,452		$	312,860		$	1,021,312
Delinquent receivables:
Delinquent payment amounts⁽¹⁾		2,206			18,670			20,876
Receivables on non-accrual status		62,419			5,317			67,736
Total delinquent receivables		64,625			23,987			88,612
Total loans and finance receivables, gross		773,077			336,847			1,109,924
Less: Allowance for losses		(84,323	)		(75,413	)		(159,736	)
Loans and finance receivables, net	$	688,754		$	261,434		$	950,188

	As of December 31, 2019
	Installment Loans and			Line of Credit
	RPAs			Accounts			Total
Current receivables	$	775,390		$	365,820		$	1,141,210
Delinquent receivables:
Delinquent payment amounts⁽¹⁾		1,924			22,441			24,365
Receivables on non-accrual status		69,438			4,576			74,014
Total delinquent receivables		71,362			27,017			98,379
Total loans and finance receivables, gross		846,752			392,837			1,239,589
Less: Allowance for losses		(85,937	)		(91,002	)		(176,939	)
Loans and finance receivables, net	$	760,815		$	301,835		$	1,062,650

(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 nine months ended September 30, 2019 were as follows (dollars in thousands):

	Three Months Ended September 30, 2019
	Installment Loans and			Line of Credit
	RPAs			Accounts			Total
Allowance for losses for Company-owned loans and finance receivables:
Balance at beginning of period	$	85,846		$	51,419		$	137,265
Cost of revenue		78,286			83,922			162,208
Charge-offs		(101,108	)		(66,243	)		(167,351	)
Recoveries		21,531			6,315			27,846
Effect of foreign currency translation		(232	)		—			(232	)
Balance at end of period	$	84,323		$	75,413		$	159,736
Liability for third-party lender-owned loans:
Balance at beginning of period	$	1,726		$	—		$	1,726
Decrease in liability		(22	)		—			(22	)
Balance at end of period	$	1,704		$	—		$	1,704

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

	Nine Months Ended September 30, 2019
	Installment Loans and			Line of Credit
	RPAs			Accounts			Total
Allowance for losses for Company-owned loans and finance receivables:
Balance at beginning of period	$	93,205		$	51,009		$	144,214
Cost of revenue		234,568			170,371			404,939
Charge-offs		(303,971	)		(159,538	)		(463,509	)
Recoveries		60,720			13,571			74,291
Effect of foreign currency translation		(199	)		—			(199	)
Balance at end of period	$	84,323		$	75,413		$	159,736
Liability for third-party lender-owned loans:
Balance at beginning of period	$	2,166		$	—		$	2,166
Decrease in liability		(462	)		—			(462	)
Balance at end of period	$	1,704		$	—		$	1,704

Guarantees of Consumer Loans

In connection with its CSO programs, the Company guarantees consumer loan payment obligations to unrelated third-party lenders for installment loans and is required to purchase any defaulted loans it has guaranteed. The guarantee represents an obligation to purchase specific loans that go into default. As of September 30, 2020 the consumer loans guaranteed by the Company had an estimated fair value of $7.4 million and an outstanding principal balance of $6.9 million. As of September 30, 2020, September 30, 2019 and December 31, 2019, the amount of consumer loans, including principal, fees and interest, guaranteed by the Company were $8.1 million, $23.6 million and $27.6 million, respectively. These loans are not included in the consolidated balance sheets as the Company does not own the loans prior to default.

4.	Long-term debt

The Company’s long-term debt instruments and balances outstanding as of September 30, 2020 and 2019 and December 31, 2019 were as follows (dollars in thousands):

	September 30,						December 31,
	2020			2019			2019

Securitization notes	$	248,598		$	236,052		$	307,885
Revolving line of credit		—			25,000			72,000
8.50% senior notes due 2024		250,000			250,000			250,000
8.50% senior notes due 2025		375,000			375,000			375,000
Subtotal		873,598			886,052			1,004,885
Less: Long-term debt issuance costs		(10,126	)		(12,308	)		(13,704	)
Total long-term debt	$	863,472		$	873,744		$	991,181

Weighted average interest rates on long-term debt were 8.15% and 8.74% during the nine months ended September 30, 2020 and 2019, respectively. As of September 30, 2020 and 2019 and December 31, 2019, 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.

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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

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

The Company used a portion of the net proceeds of the 2025 Senior Notes offering to retire $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-A Notes

On October 17, 2019 (the “2019-A Closing Date”), the Company issued $138,888,000 Class A Asset Backed Notes (the “2019-A Class A Notes”), $44,445,000 Class B Asset Backed Notes (the “2019-A Class B Notes”), and $16,667,000 Class C Asset Backed Notes (the “2019-A Class C Notes” and, collectively with the 2019-A Class A Notes and the 2019-A Class B Notes, the “2019-A Notes”), through an indirect subsidiary. The 2019-A Class A Notes bear interest at 3.96%, the 2019-A Class B Notes bear interest at 6.17%, and the 2019-A Class C Notes bear interest at 7.62%. The 2019-A Notes are backed by a pool of unsecured consumer installment loans (“Securitization Receivables”) and represent obligations of the issuer only. The 2019-A Notes are not guaranteed by the Company. Under the 2019‑A Notes, Securitization Receivables are sold to a wholly-owned subsidiary of the Company and serviced by another subsidiary of the Company. As of September 30, 2020, and December 31, 2019 the total outstanding amount of the 2019-A Notes was $83.3 million and $173.3 million, respectively.

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The net proceeds of the offering of the 2019-A Notes on the 2019-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 amount of Securitization Receivables sold to the issuer on the 2019-A Closing Date was approximately $200.0 million. Additional Securitization Receivables totaling approximately $22.2 million were sold to the issuer prior to December 31, 2019.

The 2019-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 2019-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.

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 September 30, 2020 and 2019 and December 31, 2019, the total outstanding amount of the 2019‑1 Facility was $30.0 million, $12.8 million and $12.8 million, respectively.

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. 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 “2018-A Class A Notes”) and $30,400,000 Class B Asset Backed Notes (the “2018-A Class B Notes” and, collectively with the 2018-A Class A Notes, the “2018‑A Notes”), through an indirect subsidiary. The 2018-A Class A Notes bear interest at 4.20% and the 2018-A 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

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Company. As of September 30, 2020 and 2019 and December 31, 2019, the total outstanding amount of the 2018‑A Notes was $23.3 million, $50.9 million and $41.8 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 September 30, 2020 and 2019 and December 31, 2019, the total outstanding amount of the 2018‑2 Facility was $70.9 million, $80.0 million and $80.0 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.

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, 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 September 30, 2020 and 2019, the total outstanding amount of the 2018‑1 Facility was $41.2 million, $91.0 million, respectively. There was no balance outstanding on the 2018-1 Facility as of December 31, 2019.

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

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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.

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. The Company had no outstanding borrowings under the Credit Agreement as of September 30, 2020 . As of September 30, 2019 and December 31, 2019 the Company had outstanding borrowings under the Credit Agreement of $25.0 million and $72.0 million, 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 $1.0 million, $1.2 million and $1.2 million as of September 30, 2020 and 2019 and December 31, 2019, 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.

5.	Income Taxes

The Company’s effective tax rate for the nine months ended September 30, 2020 was 17.3%, compared to 24.4% for the nine months ended September 30, 2019. The decrease is primarily attributable to the remeasurement of unrecognized tax benefits and, to a lesser extent, the loss of excess tax benefits on stock compensation.

As of September 30, 2020, the balance of unrecognized tax benefits was $31.5 million, which is included in “Accounts payable and accrued expenses” on the consolidated balance sheet, $4.0 million of which, if recognized, would favorably affect the effective tax rate in the period of recognition. The Company had $51.3 million and $53.6 million of unrecognized tax benefits as of September 30, 2019 and December 31, 2019, respectively. During the three months ended September 30, 2020, the Company closed a Joint Committee on Taxation review of certain tax returns that were filed during 2018 in conjunction with the refunds claimed on those returns. The closing of the Joint Committee on Taxation review resulted in the remeasurement of unrecognized tax benefits, and a

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

discrete benefit of $11.6 million was recognized as a component of the effective tax rate for the quarter. 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 2015. However, the 2014 tax year will be open to the extent of the net operating loss which the Company intends to carry back from the 2019 tax return. 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.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was enacted and signed into U.S. law to provide economic relief to individuals and businesses facing economic hardship as a result of the COVID-19 pandemic. The CARES Act did not have a material tax impact on the Company's consolidated financial condition as of and for the nine months ended September 30, 2020. The Company plans to defer the timing of federal tax estimates and payroll taxes as permitted by the CARES Act and will avail itself of net operating loss carryback provisions to the extent possible, which may include changes to the uncertain tax position reserves.

6.	Earnings Per Share

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

The following table sets forth the reconciliation of numerators and denominators of basic and diluted earnings per share computations for the three and nine months ended September 30, 2020 and 2019 (in thousands, except per share amounts):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2020			2019			2020			2019
Numerator:
Net income from continuing operations	$	93,676		$	28,883		$	147,450		$	98,488
Net loss from discontinued operations		(9	)		(1,798	)		(297	)		(11,323	)
Net income	$	93,667		$	27,085		$	147,153		$	87,165
Denominator:
Total weighted average basic shares		30,108			33,997			30,880			33,770
Shares applicable to stock-based compensation		255			580			300			722
Total weighted average diluted shares		30,363			34,577			31,180			34,492
Earnings per common share – basic:
Continuing operations	$	3.11		$	0.85		$	4.78		$	2.92
Discontinued operations		—			(0.05	)		(0.01	)		(0.34	)
Earnings per common share – basic	$	3.11		$	0.80		$	4.77		$	2.58
Earnings per common share – diluted:
Continuing operations	$	3.09		$	0.83		$	4.73		$	2.86
Discontinued operations		—			(0.05	)		(0.01	)		(0.33	)
Earnings per common share – diluted	$	3.09		$	0.78		$	4.72		$	2.53

For the three months ended September 30, 2020 and 2019, 2,014,449 and 834,158 shares of common stock underlying stock options, respectively, and 970,273 and 7,229 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 nine months ended September 30, 2020 and 2019, 2,064,966 and 813,076 shares of common stock underlying stock options, respectively, and 835,192

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

and 13,829 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.

7.	Operating Segment Information

The Company provides online financial services to non-prime credit consumers and small businesses in the United States and Brazil and has one reportable segment. 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.

Geographic Information

The following table presents the Company’s revenue by geographic region for the three and nine months ended September 30, 2020 and 2019 (dollars in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
Revenue
United States	$	203,122	$	300,609	$	811,321	$	812,802
Other international countries		1,423		5,003		8,537		16,693
Total revenue	$	204,545	$	305,612	$	819,858	$	829,495

The Company’s long-lived assets, which consist of the Company’s property and equipment, were $63.4 million, $50.6 million and $54.5 million at September 30, 2020 and 2019 and December 31, 2019, respectively. The operations for the Company’s businesses are primarily located within the United States, and the value of any long-lived assets located outside of the United States is immaterial.

8.	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.

9.	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 served as a member of the marketing services company’s board of directors until October 1, 2020, when the marketing services company was acquired by a non-affiliated third party. As a result, David Fisher is no longer a member of the board of directors of and has no further involvement with the marketing services company. The Company incurred $0.1 million and $4.6 during the three months ended September 30, 2020 and 2019, respectively, and $4.8 million and $10.5 during the nine months ended September 30, 2020 and 2019, respectively, in expenses related to these services. As of September 30, 2020 and 2019 and December 31, 2019, the Company owed the agency $48 thousand, $4.4

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

million and $4.6 million, respectively, related to services provided, which was included in “Accounts payable and accrued expenses” in the consolidated balance sheets.

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

10.	Fair Value Measurements

Recurring Fair Value Measurements

The Company uses a hierarchical framework that prioritizes and ranks the market observability of inputs used in its fair value measurements. Market price observability is affected by a number of factors, including the type of asset or liability and the characteristics specific to the asset or liability being measured. Assets and liabilities with readily available, active, quoted market prices or for which fair value can be measured from actively quoted prices generally are deemed to have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value. The Company classifies the inputs used to measure fair value into one of three levels as follows:

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

Level 2: Inputs other than Level 1, quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, and model-derived prices whose inputs are observable or whose significant value drivers are observable.

Level 3: Unobservable inputs for the asset or liability measured.

Observable inputs are based on market data obtained from independent sources, while unobservable inputs are based on the Company’s market assumptions. Unobservable inputs require significant management judgment or estimation. In some cases, the inputs used to measure an asset or liability may fall into different levels of the fair value hierarchy. In those cases, the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level of input that is significant to the entire measurement. Such determination requires significant management judgment.

During the three and nine months ended September 30, 2020 and 2019, 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)

Effective January 1, 2020, the Company elected the fair value option to account for all loans and finance receivables.

The Company’s financial assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2020 and 2019 and December 31, 2019 are as follows (dollars in thousands):

	September 30,		Fair Value Measurements Using
	2020		Level 1		Level 2		Level 3
Financial assets:
Installment loans and RPAs⁽¹⁾⁽²⁾	$	505,935	$	—	$	—	$	505,935
Line of credit accounts⁽¹⁾		187,435		—		—		187,435
Non-qualified savings plan assets⁽³⁾		3,544		3,544		—		—
Investment in trading security⁽⁴⁾		16,657		16,657		—		—
Total	$	713,571	$	20,201	$	—	$	693,370

	September 30,		Fair Value Measurements Using
	2019		Level 1		Level 2		Level 3
Financial assets:
Non-qualified savings plan assets⁽³⁾	$	2,873	$	2,873	$	—	$	—
Total	$	2,873	$	2,873	$	—	$	—

	December 31,		Fair Value Measurements Using
	2019		Level 1		Level 2		Level 3
Financial assets:
Non-qualified savings plan assets⁽³⁾	$	2,867	$	2,867	$	—	$	—
Investment in trading security⁽⁴⁾		11,449		11,449		—		—
Total	$	14,316	$	14,316	$	—	$	—

(1)	Installment loans and RPAs and line of credit accounts are included in “Loans and finance receivables at fair value” in the consolidated balance sheets subsequent to December 31, 2019.

(2)	Installment loans and RPAs include $339.4 million in assets of consolidated VIEs as of September 30, 2020.

(3)	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.

(4)	Investment in trading security is included in “Other assets” in the Company’s consolidated balance sheets.

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The Company primarily estimates the fair value of its loan and finance receivables portfolio using discounted cash flow models that have been internally developed. The models use inputs that are unobservable but reflect the Company’s best estimates of the assumptions a market participant would use to calculate fair value. The following table presents quantitative information about the significant unobservable inputs used for the Company’s loan and finance receivables fair value measurements as of September 30, 2020:

	September 30, 2020
							Weighted
	Minimum			Maximum			Average⁽¹⁾
Consumer near-prime⁽²⁾
Net loss rates⁽⁵⁾		31.1	%		32.5	%		31.1	%
Prepayment rates⁽⁵⁾		7.2	%		25.1	%		24.6	%
Servicing costs⁽⁵⁾		3.0	%		3.0	%		3.0	%
Discount rates		18.5	%		18.5	%		18.5	%

Consumer sub-prime⁽³⁾
Net loss rates⁽⁵⁾		13.1	%		32.5	%		28.7	%
Prepayment rates⁽⁵⁾⁽⁶⁾		7.2	%		26.5	%		11.0	%
Servicing costs⁽⁵⁾		6.5	%		28.0	%		6.9	%
Discount rates		23.5	%		23.5	%		23.5	%

Small business⁽⁴⁾
Net loss rates⁽⁵⁾		5.8	%		29.4	%		26.7	%
Prepayment rates⁽⁵⁾		14.7	%		21.2	%		19.6	%
Servicing costs⁽⁵⁾		1.7	%		1.7	%		1.7	%
Discount rates		13.5	%		13.5	%		13.5	%

(1)	Weighted by relative principal balance.

(2)	Includes installment loans and line of credit accounts from the NetCredit brand.

(3)	Includes installment loans and line of credit accounts from the CashNetUSA and Simplic brands.

(4)	Includes installment loans, RPAs and line of credit accounts from the Headway and The Business Backer brands.

(5)	Figure disclosed as a percentage of outstanding principal balance.

(6)	Not relevant for single-pay loans.

Certain unobservable inputs may, in isolation, have either a directionally consistent or opposite impact on the fair value of the financial instrument for a given change in that input. An increase to the net loss rate, prepayment rate, servicing cost, or discount rate would decrease the fair value of the Company’s loans and finance receivables. When multiple inputs are used within the valuation techniques for loans, a change in one input in a certain direction may be offset by an opposite change from another input.

The fair value of the nonqualified savings plan assets was deemed Level 1 as they are publicly traded equity securities for which market prices of identical assets are readily observable.

The fair value of the investment in trading security was deemed Level 1 as it is a publicly traded fund with active market pricing that is readily available.

The Company had no liabilities measured at fair value on a recurring basis as of September 30, 2020 and 2019 and December 31, 2019.

Fair Value Measurements on a Non-Recurring Basis

The Company measures non-financial assets and liabilities such as property and equipment and intangible assets at fair value on a non-recurring basis or when events or circumstances indicate that the carrying amount of the assets may be impaired. At September 30, 2020 and 2019 and December 31, 2019, there were no assets or liabilities recorded at fair value on a non-recurring basis.

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Financial Assets and Liabilities Not Measured at Fair Value

The Company’s financial assets and liabilities as of September 30, 2020 and 2019 and December 31, 2019 that are not measured at fair value in the consolidated balance sheets are as follows (dollars in thousands):

	Balance at
	September 30,		Fair Value Measurements Using
	2020		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	490,033	$	490,033	$	—	$	—
Restricted cash ⁽¹⁾		45,017		45,017		—		—
Investment in unconsolidated investee⁽²⁾		6,918		—		—		6,918
Total	$	541,968	$	535,050	$	—	$	6,918
Financial liabilities:
Securitization notes		248,598		—		250,510		—
8.50% senior notes due 2024		250,000		—		234,383		—
8.50% senior notes due 2025		375,000		—		355,140		—
Total	$	873,598	$	—	$	840,033	$	—

	Balance at
	September 30,		Fair Value Measurements Using
	2019		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	28,864	$	28,864	$	—	$	—
Restricted cash ⁽¹⁾		18,619		18,619		—		—
Installment loans and RPAs, net ⁽³⁾⁽⁴⁾		688,754		—		—		726,192
Line of credit accounts, net ⁽³⁾		261,434		—		—		261,434
Investment in unconsolidated investee⁽²⁾		6,703		—		—		6,703
Total	$	1,004,374	$	47,483	$	—	$	994,329
Financial liabilities:
Liability for estimated losses on consumer loans guaranteed by the Company	$	1,703	$	—	$	—	$	1,703
Revolving line of credit		25,000		—		—		25,000
Securitization notes		236,052		—		236,668		—
8.50% senior notes due 2024		250,000		—		235,065		—
8.50% senior notes due 2025		375,000		—		343,665		—
Total	$	887,755	$	—	$	815,398	$	26,703

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

	Balance at
	December 31,		Fair Value Measurements Using
	2019		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	35,895	$	35,895	$	—	$	—
Restricted cash ⁽¹⁾		45,069		45,069		—		—
Installment loans and RPAs, net ⁽³⁾⁽⁴⁾		760,815		—		—		848,818
Line of credit accounts, net ⁽³⁾		301,835		—		—		338,765
Investment in unconsolidated investee⁽²⁾		6,703		—		—		6,703
Total	$	1,150,317	$	80,964	$	—	$	1,194,286
Financial liabilities:
Liability for estimated losses on consumer loans guaranteed by the Company	$	1,511	$	—	$	—	$	1,511
Revolving line of credit		72,000		—		—		72,000
Securitization notes		307,885		—		308,513		—
8.50% senior notes due 2024		250,000		—		238,750		—
8.50% senior notes due 2025		375,000		—		355,691		—
Total	$	1,006,396	$	—	$	902,954	$	73,511

(1)	Restricted cash includes $42.7 million, $18.6 million and $42.4 million in assets of consolidated VIEs as of September 30, 2020 and 2019 and December 31, 2019, respectively.

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

(3)	Installment loans and RPAs and line of credit accounts are included in “Loans and finance receivables, net” in the consolidated balance sheets prior to January 1, 2020.

(4)	Installment loan and RPAs, net include $340.0 million and $420.7 million in net assets of consolidated VIEs as of September 30, 2019 and December 31, 2019, 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.

Prior to January 1, 2020 short-term loans, line of credit accounts, installment loans and RPAs were carried in the consolidated balance sheet net of the allowance for estimated losses, which was 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 included historical loss rates, recent default trends and estimated remaining loan term; therefore, the carrying value approximated the fair value. The fair value of installment loans and RPAs was estimated using discounted cash flow analyses, which considered 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. Prior to January 1, 2020 the Company measured the fair value of its liability for third-party lender-owned consumer loans under Level 3 inputs. The fair value of these liabilities was 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 included historical loss rates, recent default trends and estimated remaining loan terms; therefore, the carrying value of these liabilities approximated 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)

11.	Subsequent Events

Subsequent events have been reviewed through the date these financial statements were available to be issued. Refer to Note 2, Acquisitions, for discussion of the Company’s acquisition of OnDeck, which closed on October 13, 2020.

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, 2019. 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 2019, we extended approximately $2.2 billion in credit or financing to borrowers and for the nine months ended September 30, 2020, we extended approximately $0.7 billion in credit or financing to borrowers. As of September 30, 2020, we offered or arranged loans or draws on lines of credit to consumers in 40 states in the United States and Brazil. We also offered financing to small businesses in all 50 states and Washington D.C. in the United States. We use our proprietary technology, analytics and customer service capabilities to quickly evaluate, underwrite and fund loans or provide financing, allowing us to offer consumers and small businesses credit or financing when and how they want it. Our customers include the large and growing number of consumers who and small businesses which have bank accounts but use alternative financial services because of their limited access to more traditional credit from banks, credit card companies and other lenders. We were an early entrant into online lending, launching our online business in 2004, and through September 30, 2020, we have completed over 52.6 million customer transactions and collected more than 37 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 installment loans and receivables purchase agreements (“RPAs”) and line of credit accounts.

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 16 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 2019, we processed approximately 3.8 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 product in the United States designed to serve near-prime customers. 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 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 have allowed us to further diversify our product offerings and customer base.

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 installment loans and RPAs and line of credit accounts. We have one reportable segment that includes all of our online financial services.

•

Installment loans. Installment 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. Installment loans includes longer-term loans that require the outstanding principal balance to be paid down in multiple installments and shorter-term single payment loans. We offer, or arrange through our CSO programs, multi- or single-payment unsecured consumer loan products in 39 states in the United States and small business installment loans in 18 states. We also offer multi-payment unsecured consumer installment loan products in Brazil. Terms for our multi-payment installment loan products range between two and 60 months and single-pay consumer loans generally have terms of seven to 90 days. 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 nine months ended September 30, 2020 and 54.6% for the nine months ended September 30, 2019.

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

•

Line of credit accounts. As of September 30, 2020, we offered new consumer line of credit accounts in 12 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 50.1% of our total revenue for the nine months ended September 30, 2020 and 43.6% for the nine months ended September 30, 2019.

•

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 2.4% of our total revenue for the nine months ended September 30, 2020 and 1.7% for the nine months ended September 30, 2019.

•

CSO Programs. Through our CSO programs, we provide services related to third-party lenders’ multi- and single-pay 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 single-payment loans, which generally have terms of less than 90 days, and specific installment loans, which have terms of four to 12 months, if they go into default.

As of September 30, 2020 and 2019, the outstanding amount of active and current consumer loans originated by third-party lenders under the CSO programs was $8.1 million and $23.6 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. 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. In December 2019, we launched a similar Bank Program, whereby our bank partner offers unsecured consumer installment loans in multiple states in the United States. Revenue generated from this program for the nine months ended September 30, 2020 and 2019 was 2.6% and 1.0% 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 September 30, 2020, 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.

•

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

Consumer Financial Protection Bureau (“CFPB”)

On October 6, 2017, the CFPB issued its final rule entitled “Payday, Vehicle Title, and Certain High-Cost Installment Loans” (the “Small Dollar Rule”), which covers certain loans that we offer. The Small Dollar Rule requires that lenders who make short-term loans and longer-term loans with balloon payments reasonably determine consumers’ ability to repay the loans according to their terms before issuing the loans. The Small Dollar Rule also introduces new limitations on repayment processes for those lenders as well as lenders of other longer-term loans with an annual percentage rate greater than 36 percent that include an ACH authorization or similar payment provision. If a consumer has two consecutive failed payment attempts, the lender must obtain the consumer’s new and specific authorization to make further withdrawals from the consumer’s bank account. For loans covered by the Small Dollar Rule, lenders must provide certain notices to consumers before attempting a first payment withdrawal or an unusual withdrawal and after two consecutive failed withdrawal attempts. On June 7, 2019, the CFPB issued a final rule to set the compliance date for the mandatory underwriting provisions of the Small Dollar Rule to November 19, 2020. On July 7, 2020, the CFPB issued a final rule rescinding the ability to repay (“ATR”) provisions of the Small Dollar Rule along with related provisions, such as the establishment of registered information systems for checking ATR and reporting loan activity.

Virginia SB 421

On March 7, 2020, SB 421 passed through both houses of the Virginia Legislature. The bill amends laws governing open-end lines of credit to cap interest and fees at 36% annual interest plus a $50 annual participation fee. Further, the law would allow Virginia-licensed lenders to make installment loans at 36% APR plus a loan processing fee equal to the greater of $75 or 5% of the principal loan amount, but not exceeding $150. The law is scheduled to go into effect on January 1, 2021.

Brazil General Data Privacy Law

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

ELECTION OF FAIR VALUE OPTION

Prior to January 1, 2020, we carried our loans and finance receivables at amortized cost, net of an allowance for estimated losses inherent in the portfolio. Effective January 1, 2020, we elected the fair value option to account for all our loans and finance receivables in conjunction with the transition guidance specified in ASU 2019-05. We believe the fair value option better reflects the value of our portfolio and its future economic performance as well as more closely aligns with our marginal decision-making processes that rely on risk-based pricing and discounted cash flow methodologies. Refer to Note 1 for discussion of the election and its impact on our accounting policies. In comparing our current year results under the fair value option to prior periods, it may be helpful to consider the following:

Prior to 2020, origination fees as well as certain direct costs associated with originating loans were deferred and amortized into or against revenue on an effective yield basis over the term of the loan or the projected delivery term of the finance receivable. Subsequent to the election of the fair value option, these fees and costs are no longer eligible for deferral. As such, we expect revenue to be slightly higher due to origination fees being immediately recognized and the lack of amortization of deferred costs into revenue. As origination costs are no longer eligible for deferral, we expect marketing and operations and technology expenses to be higher, particularly in periods of growth.

Loans and finance receivables are carried at fair value with changes in fair value recorded in the consolidated income statement. The fair value takes into consideration expected lifetime losses of the loans and finance receivables, whereas the prior method incorporated only incurred losses. As such, changes in credit quality, amongst other significant assumptions, typically have a more significant impact on the carrying value of loans and finance receivables under the fair value option.

COVID-19

The COVID-19 pandemic has, and will likely continue to, severely impact global economic conditions, resulting in substantial volatility in the financial markets, increased unemployment, and operational challenges resulting from measures that governments have imposed to control its spread. We have implemented a number of procedures in response to the pandemic to support the safety and well-being of our employees, customers and stockholders that continue through the date of this report:

•

As shelter-in-place orders and general distancing guidelines were released, we moved quickly to transition virtually all of our employees to a remote work environment, in which we continue to operate.

•

We are actively working with our customers to understand their financial situations, waive late fees, offer a variety of repayment options to increase flexibility and reduce or defer payments for impacted customers.

•

We took measures to adjust our underwriting procedures, which reduced exposure to more heavily impacted consumers and businesses.

•

We adjusted loan and draw sizes as well as shortened duration in an effort to reduce risk in this volatile environment.

From a loan valuation perspective, the COVID-19 pandemic significantly increases the potential variability of our expected cash flows. In the latter half of March 2020, we noted a slight worsening in certain credit metrics, such as delinquencies, that we attributed primarily to the impact of the COVID-19 pandemic. Consequently, the associated fair values of these loans were adjusted lower as part of the standard process in our internally-developed valuation models described in the Notes to the Consolidated Financial Statements as well as the “Critical Accounting Estimates” section of this Form 10-Q. In addition, the number of loans with payment deferrals or other modifications increased meaningfully in the latter half of March. While not considered delinquent, we expect these customers to present a higher default risk than typical non-delinquent customers that continue to pay on a timely basis; therefore, we adjusted the fair value of these loans lower to reflect the increased risk. We also deemed it appropriate to increase the discount rate to capture the increase in potential volatility in expected cash flows due to the unprecedented nature of this pandemic and governmental response. After adjusting the discount rate for the decrease in underling interest rates, we increased the rate by 500 basis points based on what we deemed a market participant would require to assume the additional risk. We deemed the resulting fair value to be an appropriate market-based exit price that considers current market conditions at March 31, 2020.

In the third quarter of 2020 requests for deferrals and modifications decreased meaningfully. Since the beginning of the pandemic, we have assessed performance of borrowers that had elected to defer or modify loan payments during the pandemic. As of September 30, 2020, our collection data does not appear to indicate increased risk with these borrowers. As modifications and deferrals do not appear to be a strong indicator of future activity, we did not make an adjustment to the fair value of these loans at September 30, 2020 based on current or past modification or deferral. Charge-offs in the quarter trended below the pre-COVID-19 rates. Further, delinquency

levels were also lower than pre-COVID historical averages. However, COVID-19 positive test results were increasing in various parts of the country, with many viewing the near- and intermediate-term outlook as negative in regards to control of the pandemic, business reopening/closing trends, unemployment, and the economy in general. Further, there are considerable unknowns related to the November election in the United States and ultimate impacts on loan performance. Similar to the June 30, 2020 valuation, management concluded that the probability of future charge-offs was higher than what we had experienced in the past and, therefore, increased anticipated charge-offs in our fair value models, which reduced the fair value of our portfolio at September 30, 2020. As the potential variability in expected cash flows is still high, we maintained the elevated discount rates utilized at March 31, 2020 and June 30, 2020 in our valuation as of September 30, 2020.

We continue to closely monitor this pandemic and expect to make future changes to respond to the situation as it continues to evolve.

HIGHLIGHTS

Our financial results for the three-month period ended September 30, 2020, or the current quarter, are summarized below.

•

Consolidated total revenue decreased $101.1 million, or 33.1%, to $204.5 million in the current quarter compared to $305.6 million for the three months ended September 30, 2019, or the prior year quarter.

•

Consolidated net revenue was $181.8 million in the current quarter. Consolidated gross profit was $143.4 million in the prior year quarter.

•

Consolidated income from operations increased $64.5 million, or 112.2%, to $122.0 million in the current quarter, compared to $57.5 million in the prior year quarter.

•

Consolidated net income was $93.7 million in the current quarter compared to $27.1 million in the prior year quarter. Consolidated diluted income per share was $3.09 in the current quarter compared to $0.78 in the prior year quarter.

OVERVIEW

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
Revenue
Loans and finance receivables revenue	$	203,397		$	305,387		$	814,905		$	828,713
Other		1,148			225			4,953			782
Total Revenue		204,545			305,612			819,858			829,495
Change in Fair Value		(22,777	)		—			(379,168	)		—
Cost of Revenue		—			(162,186	)		—			(404,477	)
Net Revenue/Gross Profit		181,768			143,426			440,690			425,018
Expenses
Marketing		4,629			34,505			42,175			79,427
Operations and technology		17,702			20,717			65,472			61,353
General and administrative		33,656			27,267			83,943			84,562
Depreciation and amortization		3,770			3,433			11,444			11,048
Total Expenses		59,757			85,922			203,034			236,390
Income from Operations		122,011			57,504			237,656			188,628
Interest expense, net		(18,634	)		(18,235	)		(59,387	)		(55,853	)
Foreign currency transaction (loss) gain		(30	)		(12	)		(7	)		(190	)
Loss on early extinguishment of debt		—			—			—			(2,321	)
Income before Income Taxes		103,347			39,257			178,262			130,264
Provision for income taxes		9,671			10,374			30,812			31,776
Net income from continuing operations		93,676			28,883			147,450			98,488
Net loss from discontinued operations		(9	)		(1,798	)		(297	)		(11,323	)
Net Income	$	93,667		$	27,085		$	147,153		$	87,165
Earnings Per Share:
Earnings per common share - diluted:
Continuing operations	$	3.09		$	0.83		$	4.73		$	2.86
Discontinued operations		—			(0.05	)		(0.01	)		(0.33	)
Total earnings common share - diluted	$	3.09		$	0.78		$	4.72		$	2.53

Revenue
Loans and finance receivables revenue		99.4	%		99.9	%		99.4	%		99.9	%
Other		0.6			0.1			0.6			0.1
Total Revenue		100.0			100.0			100.0			100.0
Change in Fair Value		(11.1	)		—			(46.2	)		—
Cost of Revenue		—			(53.1	)		—			(48.8	)
Net Revenue/Gross Profit		88.9			46.9			53.8			51.2
Expenses
Marketing		2.3			11.3			5.2			9.6
Operations and technology		8.7			6.8			8.0			7.4
General and administrative		16.5			8.9			10.2			10.2
Depreciation and amortization		1.8			1.1			1.4			1.3
Total Expenses		29.3			28.1			24.8			28.5
Income from Operations		59.6			18.8			29.0			22.7
Interest expense, net		(9.1	)		(6.0	)		(7.2	)		(6.7	)
Foreign currency transaction (loss) gain		—			—			—			—
Loss on early extinguishment of debt		—			—			—			(0.3	)
Income before Income Taxes		50.5			12.8			21.8			15.7
Provision for income taxes		4.7			3.3			3.8			3.8
Net income from continuing operations		45.8			9.5			18.0			11.9
Net loss from discontinued operations		—			(0.6	)		—			(1.4	)
Net Income		45.8	%		8.9	%		18.0	%		10.5	%

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						Nine Months Ended
	September 30,						September 30,
	2020			2019			2020			2019
Net income from continuing operations	$	93,676		$	28,883		$	147,450		$	98,488
Adjustments:
Acquisition-related costs		6,593			—			6,593			—
Lease termination and cease-use costs		—			—			—			726
Loss on early extinguishment of debt		—			—			—			2,321
Intangible asset amortization		27			268			562			803
Stock-based compensation expense		3,768			3,387			10,888			9,784
Foreign currency transaction loss (gain)		30			12			7			190
Cumulative tax effect of adjustments		(2,454	)		(852	)		(4,251	)		(3,214	)
Discrete tax adjustments		(11,604	)		—			(11,604	)		(141	)
Adjusted earnings	$	90,036		$	31,698		$	149,645		$	108,957

Diluted earnings per share from continuing operations	$	3.09		$	0.83		$	4.73		$	2.86
Adjustments:
Acquisition-related costs		0.22			—			0.21			—
Lease termination and cease-use costs		—			—			—			0.02
Loss on early extinguishment of debt		—			—			—			0.07
Intangible asset amortization		—			0.01			0.02			0.02
Stock-based compensation expense		0.12			0.10			0.35			0.28
Foreign currency transaction loss (gain)		—			—			—			—
Cumulative tax effect of adjustments		(0.08	)		(0.02	)		(0.14	)		(0.09	)
Discrete tax adjustments		(0.38	)		—			(0.37	)		—
Adjusted earnings per share	$	2.97		$	0.92		$	4.80		$	3.16

Adjusted EBITDA

The table below shows Adjusted EBITDA, which is a non-GAAP measure that we define as earnings excluding depreciation, amortization, interest, foreign currency transaction gains or losses, taxes, and stock-based compensation expense. We believe Adjusted

EBITDA is used by investors to analyze operating performance and evaluate our ability to incur and service debt and our capacity for making capital expenditures. Adjusted EBITDA is also useful to investors to help assess our estimated enterprise value. In addition, we believe that the adjustments for acquisition-related costs, 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						Nine Months Ended
	September 30,						September 30,
	2020			2019			2020			2019
Net income from continuing operations	$	93,676		$	28,883		$	147,450		$	98,488
Depreciation and amortization expenses		3,770			3,433			11,444			11,048
Interest expense, net		18,634			18,235			59,387			55,853
Foreign currency transaction loss		30			12			7			190
Provision for income taxes		9,671			10,374			30,812			31,776
Stock-based compensation expense		3,768			3,387			10,888			9,784
Adjustment:
Acquisition-related costs		6,593			—			6,593			—
Lease termination and cease-use costs		—			—			—			370
Loss on early extinguishment of debt		—			—			—			2,321
Adjusted EBITDA	$	136,142		$	64,324		$	266,581		$	209,830

Adjusted EBITDA margin calculated as follows:
Total Revenue	$	204,545		$	305,612		$	819,858		$	829,495
Adjusted EBITDA		136,142			64,324			266,581			209,830
Adjusted EBITDA as a percentage of total revenue		66.6	%		21.0	%		32.5	%		25.3	%

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. Outside the United States, we currently operate in Brazil. During the current quarter, 0.7% of our revenue originated in currencies other than the U.S. Dollar, principally the Brazilian Real. As a result, changes in our reported revenue and profits include the impacts of changes in foreign currency exchange rates. We provide constant currency assessments in the following discussion and analysis to isolate 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 the applicable foreign currency:

	Three Months Ended
	September 30,
	2020		2019		% Change
Brazilian Real		0.1858		0.2517		(26.2	)%

	Nine Months Ended
	September 30,
	2020		2019		% Change
Brazilian real		0.1989		0.2575		(22.8	)%

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” and “—Credit Performance of Loans and Finance Receivables” 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 SEPTEMBER 30, 2020 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2019

Revenue, Net Revenue and Gross Profit

Revenue decreased $101.1 million, or 33.1%, to $204.5 million for the current quarter as compared to $305.6 million for the prior year quarter. On a constant currency basis, revenue decreased by $100.5 million, or 32.9%, for the current quarter compared to the prior year quarter. The decrease was driven by a 43.1% decrease in revenue from our sub-prime, an 8.8% decrease in revenue from our near-prime and a 25.7% decrease in revenue from our small business portfolios due to lower loan originations and lower average loan balances in the current quarter compared to the prior year quarter.

Net revenue for the current quarter was $181.8 million compared to gross profit of $143.4 million for the prior year quarter. Our consolidated net revenue margin was 88.9% for the current quarter compared to gross profit of 46.9% for the prior year quarter. The increase in net revenue margin was driven by lower delinquency rates and lower than expected charge-offs as a result of portfolio seasoning and lower originations.

The following table sets forth the components of revenue and gross profit, separated by product for the current quarter and the prior year quarter (in thousands):

	Three Months Ended September 30,
	2020			2019			$ Change			% Change
Revenue by product:
Installment loans and RPAs	$	103,674		$	159,025		$	(55,351	)		(34.8	)%
Line of credit accounts		99,723			146,362			(46,639	)		(31.9	)
Total loans and finance receivables revenue		203,397			305,387			(101,990	)		(33.4	)
Other		1,148			225			923			410.2
Total revenue		204,545			305,612			(101,067	)		(33.1	)
Change in fair value		(22,777	)		—			(22,777	)		100.0
Cost of revenue		—			(162,186	)		162,186			(100.0	)
Net revenue/gross profit	$	181,768		$	143,426		$	38,342			26.7	%

Revenue by product (% to total):
Installment loans and RPAs		50.7	%		52.0	%
Line of credit accounts		48.7			47.9
Total loans and finance receivables revenue		99.4			99.9
Other		0.6			0.1
Total revenue		100.0			100.0
Change in fair value		(11.1	)		—
Cost of revenue		—			(53.1	)
Net revenue/gross profit		88.9	%		46.9	%

Loan and Finance Receivable Balances

The fair value of our loan and finance receivable portfolio in our consolidated financial statements at September 30, 2020 was $693.4 million with an outstanding principal balance of $651.3 million. Our loan and finance receivable balance in our consolidated financial statements as of September 30, 2019 was $1,109.9 million, before the allowance for losses of $159.7 million. The fair value of the combined loan and finance receivables portfolio includes $7.4 million with an outstanding principal balance of $6.9 million of consumer loan balances that are guaranteed by us but not owned by us, which are not included in our consolidated financial statements as of September 30, 2020. The combined loan and finance receivables portfolio includes $23.6 million as of September 30, 2019 of consumer loan balances that are guaranteed by us but not owned by us, which are not included in our consolidated financial statements

as of September 30, 2019 before the liability for estimated losses of $1.7 million provided in “Accounts payable and accrued expenses” in our consolidated financial statements for September 30, 2019.

The near-prime consumer installment portfolio balance increased to 58.5% of our combined loan and finance receivable portfolio balance as of September 30, 2020, compared to 49.0% as of September 30, 2019. The outstanding loan balance for our consumer line of credit product decreased to 21.7% of our combined loan and finance receivable portfolio balance as of September 30, 2020, compared to 23.4% as of September 30, 2019. Our portfolio of loans and finance receivables serving the needs of small businesses decreased to 11.9% as of September 30, 2020, compared to 13.1% as of September 30, 2019. See “—Non-GAAP Disclosure—Combined Loans and Finance Receivables” above for additional information related to combined loans and finance receivables.

The following tables summarize loan and finance receivable balances outstanding as of September 30, 2020 and 2019 (in thousands):

	As of September 30, 2020
				Guaranteed
	Company			by the
	Owned^(a)			Company^(a)			Combined^(b)
Installment loans and RPAs
Principal	$	481,621		$	6,905		$	488,526
Fair value		505,935			7,411			513,346
Fair value as a % of principal		105.0	%		107.3	%		105.1	%
Line of credit accounts
Principal	$	169,668		$	—		$	169,668
Fair value		187,435			—			187,435
Fair value as a % of principal		110.5	%		—	%		110.5	%
Total loans and finance receivables
Principal	$	651,289		$	6,905		$	658,194
Fair value		693,370			7,411			700,781
Fair value as a % of principal		106.5	%		107.3	%		106.5	%

	As of September 30, 2019
				Guaranteed
	Company			by the
	Owned^(a)			Company^(a)			Combined^(b)
Ending loans and finance receivables balances:
Installment loans and RPAs	$	773,077		$	23,648		$	796,725
Line of credit accounts		336,847			—			336,847
Total ending loans and finance receivables, gross		1,109,924			23,648			1,133,572
Less: Allowance and liabilities for losses^(a)		(159,736	)		(1,703	)		(161,439	)
Total ending loans and finance receivables, net	$	950,188		$	21,945		$	972,133
Allowance and liability for losses as a % of loans and finance receivables, gross		14.4	%		7.2	%		14.2	%

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

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

At September 30, 2020, the ratio of fair value as a percentage of principal was 106.5% on company owned loans and finance receivables and 106.5% on combined loans and finance receivables. These ratios increased during the quarter as the portfolio seasoned with the reduced level of originations, particularly to new customers, which carry a higher risk of charge-off. The increases were partially offset by higher expected future charge-offs at September 30, 2020, as discussed in “Results of Operations—COVID-19” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Average Amount Outstanding per Loan

The average amount outstanding per loan is calculated as total combined loans, including accrued interest and fees, at the end of the period divided by the total number of combined loans outstanding at the end of the period. The following table shows the average amount outstanding per loan by product at September 30, 2020 and 2019:

	As of September 30,
	2020		2019
Average amount outstanding per loan (in ones)^(a)
Installment loans^(b)(c)	$	2,334	$	1,597
Line of credit accounts		1,490		1,703
Total loans^(b)(c)	$	1,999	$	1,629

(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 that we have not yet purchased and, therefore, are not included in our consolidated financial statements.

(c)	Excludes RPAs.

The average amount outstanding per loan increased to $1,999 from $1,629 during the current quarter compared to the prior year quarter, due primarily to a mix shift toward near-prime installment loan products, which generally have higher average amounts outstanding compared to subprime installment loan and line of credit products.

Average Loan Origination

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

	Three Months Ended
	September 30,
	2020		2019
Average loan origination amount (in ones) ^(a)
Installment loans ^(b)(d)	$	436	$	883
Line of credit accounts ^(c)		265		416
Total loans ^(b)(d)	$	330	$	644

(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 that we have not yet purchased and, therefore, 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 decreased to $330 from $644 during the current quarter compared to the prior year quarter, due primarily to our deliberate reduction in origination amounts to mitigate risks associated with the COVID-19 pandemic, and a greater mix of line of credit draws from existing customer accounts which are generally smaller than initial new customer draws.

Credit Performance of Loans and Finance Receivables

We monitor the performance of our loan and finance receivable. Internal factors such as portfolio composition (e.g., interest rate, loan term, geography information, customer mix, credit quality) and performance (e.g., delinquency, loss trends, prepayment rates) are reviewed on a regular basis at various levels (e.g., product, vintage). We also weigh the impact of relevant, internal business decisions on portfolio. External factors such as macroeconomic trends, financial market liquidity expectations, competitive landscape and legal/regulatory requirements are also reviewed on a regular basis.

The payment status of a customer, including the degree of any delinquency, is a significant factor in determining estimated charge-offs in the cash flow models that we use to determine fair value. The following table shows payment status on outstanding principal, interest and fees as of the end of each of the last five quarters (in thousands):

	2019						2020
	Third			Fourth			First			Second			Third
	Quarter			Quarter			Quarter			Quarter			Quarter
Ending combined loans and finance receivables, including principal and accrued fees/interest outstanding:
Company owned	$	1,086,163		$	1,210,262		$	1,145,748		$	816,905		$	698,964
Guaranteed by the Company^(a)		23,648			27,560			11,798			6,054			8,100
Ending combined loan and finance receivables balance^(b)	$	1,109,811		$	1,237,822		$	1,157,546		$	822,959		$	707,064
> 30 days delinquent		77,772			83,315			86,294			36,797			25,841
> 30 days delinquency rate		7.0	%		6.7	%		7.5	%		4.5	%		3.7	%

(a)	Represents loans originated by third-party lenders through the CSO programs that we have not yet purchased, which are not included in our consolidated balance sheets.

(b)	Non-GAAP measure.

Installment Loans and RPAs

The following table includes financial information for our installment loans and RPAs. Delinquency metrics include principal, interest, and fees, and only amounts that are past due (in thousands):

	2019						2020
	Third			Fourth			First			Second			Third
	Quarter			Quarter			Quarter			Quarter			Quarter
Installment loans and RPAs:
Installment and RPA combined loan and finance receivable principal balance:
Company owned	$	720,721		$	792,397		$	748,422		$	570,490		$	481,621
Guaranteed by the Company^(a)		23,549			27,455			10,287			5,195			6,905
Total combined loan and finance receivable principal balance^(b)	$	744,270		$	819,852		$	758,709		$	575,685		$	488,526
Installment and RPA combined loan and finance receivable fair value balance:
Company owned	$	—		$	—		$	772,469		$	587,540		$	505,935
Guaranteed by the Company^(a)		—			—			12,445			6,614			7,411
Ending combined loan and finance receivable fair value balance^(b)	$	—		$	—		$	784,914		$	594,154		$	513,346
Fair value as a % of principal^(b)(c)		—	%		—	%		103.5	%		103.2	%		105.1	%
Installment and RPA combined loan and finance receivable balance, including principal and accrued fees/interest outstanding:
Company owned	$	749,324		$	820,430		$	776,692		$	590,576		$	500,507
Guaranteed by the Company^(a)		23,648			27,560			11,798			6,054			8,100
Ending combined loan and finance receivable balance^(b)	$	772,972		$	847,990		$	788,490		$	596,630		$	508,607
Ending allowance and liability for losses (prior to FVO adoption)	$	86,027		$	87,448		$	—		$	—		$	—
Allowance for losses as a % of combined loan and finance receivable balance^(b)(c)		11.1	%		10.3	%		—	%		—	%		—	%
Average installment and RPA combined loan and finance receivable balance, including principal and accrued fees/interest outstanding:
Company owned^(d)	$	718,307		$	783,362		$	803,018		$	680,674		$	539,708
Guaranteed by the Company^(a)(d)		23,031			24,723			17,846			7,553			6,855
Average combined loan and finance receivable balance^(b)(d)	$	741,338		$	808,085		$	820,864		$	688,227		$	546,563

Revenue	$	159,025		$	168,917		$	174,034		$	126,224		$	103,674
Cost of revenue/change in fair value		(78,264	)		(90,477	)		(131,517	)		(70,170	)		(6,044	)
Gross profit/net revenue		80,761			78,440			42,517			56,054			97,630
Gross profit margin/net revenue margin		50.8	%		46.4	%		24.4	%		44.4	%		94.2	%
Cost of revenue/change in fair value as a % of average combined loan and finance receivable balance^(b)(d)		10.6	%		11.2	%		16.0	%		10.2	%		1.1	%

Delinquencies:
> 30 days delinquent	$	44,904		$	46,783		$	47,502		$	22,256		$	18,007
> 30 days delinquent as a % of combined loan and finance receivable balance^(b)(c)		5.8	%		5.5	%		6.0	%		3.7	%		3.5	%

Charge-offs:
Charge-offs (net of recoveries)	$	79,577		$	89,114		$	96,272		$	71,362		$	15,247
Charge-offs (net of recoveries) as a % of average combined loan and finance receivable balance^(b)(d)		10.7	%		11.0	%		11.7	%		10.4	%		2.8	%

(a)	Represents loans originated by third-party lenders through the CSO programs that we have not yet purchased, which are not included in our consolidated balance sheets.

(b)	Non-GAAP measure.

(c)	Determined using period-end balances.

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

The combined ending loan balance, including principal and accrued fees/interest outstanding, of installment loans and RPAs at September 30, 2020 decreased 34.2% to $508.6 million compared to $773.0 million at September 30, 2019, due primarily to lower originations driven by our strategic efforts to mitigate risks associated with the COVID-19 pandemic since March 2020.

The percentage of loans greater than 30 days delinquent decreased to 3.5% at September 30, 2020, compared to 5.8% at September 30, 2019. The decrease was driven primarily by having a more seasoned and lower risk portfolio remaining as originations were low during the last six months and the majority of higher risk loans to new customers originated in prior quarters have been charged off.

Charge-offs (net of recoveries) as a percentage of average combined loan balance decreased to 2.8% for the current quarter, compared to 10.7% for the prior year quarter, driven primarily by having a more seasoned and lower risk portfolio remaining as originations were lower for the last six months and the majority of loans to new customers originated in prior quarters have been charged off.

The ratio of fair value as a percentage of principal on installment loans and RPAs was 105.1% at September 30, 2020, compared to 103.2% at June 30, 2020. The increase during the quarter was primarily driven by the seasoning of the portfolio with reduced level of originations, particularly to new customers, partially offset by higher expected future charge-offs at September 30, 2020, as discussed in “Results of Operations—COVID-19” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Line of Credit Accounts

The following table includes financial information for our line of credit accounts. Delinquency metrics include principal, interest, and fees, and only amounts that are past due (in thousands):

	2019						2020
	Third			Fourth			First			Second			Third
	Quarter			Quarter			Quarter			Quarter			Quarter
Line of credit accounts:
Total loan principal balance	$	282,556		$	329,011		$	312,986		$	197,114		$	169,668
Ending loan fair value balance		—			—			320,738			212,122			187,435
Fair value as a % of principal^(a)		—	%		—	%		102.5	%		107.6	%		110.5	%

Ending loan balance, including principal and accrued fees/interest outstanding	$	336,839		$	389,832		$	369,056		$	226,329		$	198,457
Ending allowance for losses (prior to FVO adoption)		75,413			91,002			—			—			—
Allowance for losses as a % of loan balance^(a)		22.4	%		23.3	%		—	%		—	%		—	%

Average loan balance^(b)	$	301,213		$	358,440		$	387,180		$	291,507		$	208,248

Revenue	$	146,362		$	174,227		$	185,772		$	125,478		$	99,723
Cost of revenue/change in fair value		(83,922	)		(107,940	)		(104,202	)		(50,502	)		(16,733	)
Gross profit/net revenue		62,440			66,287			81,570			74,976			82,990
Gross profit margin/net revenue margin		42.7	%		38.0	%		43.9	%		59.8	%		83.2	%
Cost of revenue/change in fair value as a % of average loan balance^(b)		27.9	%		30.1	%		26.9	%		17.3	%		8.0	%

Delinquencies:
> 30 days delinquent	$	32,868		$	36,532		$	38,792		$	14,541		$	7,834
> 30 days delinquent as a % of loan balance^(a)		9.8	%		9.4	%		10.5	%		6.4	%		3.9	%

Charge-offs:
Charge-offs (net of recoveries)	$	59,928		$	92,351		$	106,952		$	84,613		$	19,919
Charge-offs (net of recoveries) as a % of average loan balance^(b)		19.9	%		25.8	%		27.6	%		29.0	%		9.6	%

(a)	Determined using period-end balances.

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

The combined ending loan balance, including principal and accrued fees/interest outstanding, of line of credit accounts at September 30, 2020 decreased 41.1% to $198.5 million compared to $336.8 million at September 30, 2019, due primarily to lower consumer line of credit account balances driven primarily by our strategic efforts to mitigate the risks associated with the COVID-19 pandemic.

The percentage of loans greater than 30 days delinquent decreased to 3.9% at September 30, 2020, compared to 9.8% at September 30, 2019. The decrease was driven primarily by having a more seasoned and lower risk portfolio remaining as originations were lower during the last six months and the majority of loans to new customers originated in prior quarters have been charged off.

Charge-offs (net of recoveries) as a percentage of average loan balance decreased to 9.6% for the current quarter, compared to 19.9% in the prior year quarter, due primarily having a more seasoned and lower risk portfolio remaining as originations were low during the last six months and the majority of higher risk loans to new customers originated in prior quarters have been charged off.

The ratio of fair value as a percentage of principal on line of credit accounts was 110.5% at September 30, 2020, compared to 107.6% at June 30, 2020. The increase during the quarter was primarily driven by the seasoning of the portfolio with reduced level of originations, particularly to new customers, partially offset by higher expected future charge-offs at September 30, 2020 , as discussed in “Results of Operations—COVID-19” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Total Expenses

Total expenses decreased $26.1 million, or 30.5%, to $59.8 million in the current quarter, compared to $85.9 million in the prior year quarter. On a constant currency basis, total expenses decreased $25.6 million, or 29.8%, in the current quarter as compared to the prior year quarter.

Marketing expense decreased to $4.6 million in the current quarter compared to $34.5 million in the prior year quarter due primarily to our strategic actions to mitigate risks associated with the COVID-19 pandemic.

Operations and technology expense decreased to $17.7 million in the current quarter compared to $20.7 million in the prior year quarter, due primarily to lower variable underwriting costs and various cost containment initiatives implemented to mitigate the impact of COVID-19.

General and administrative expense increased $6.4 million, or 23.4%, to $33.7 million in the current quarter compared to $27.3 million in the prior year quarter, due primarily to additional consulting and legal expenses related to the acquisition of OnDeck.

Depreciation and amortization expense increased $0.4 million or 9.8% compared to the prior year quarter driven primarily by additional internally-developed software placed into service.

Interest Expense, Net

Interest expense, net increased $0.4 million, or 2.2%, to $18.6 million in the current quarter compared to $18.2 million in the prior year quarter. The increase was due primarily to an increase in the average amount of debt outstanding, which increased $37.0 million to $884.5 million during the current quarter from $847.5 million during the prior year quarter, partially offset by a decrease in the weighted average interest rate on our outstanding debt to 8.38% during the current quarter from 8.54% during the prior year quarter.

Provision for Income Taxes

The effective tax rate from continuing operations of 9.4% in the current quarter was lower than the 26.4% rate recorded in the prior year quarter due primarily to the remeasurement of unrecognized tax benefits and, to a lesser extent, nondeductible executive compensation and the loss of excess tax benefits related to stock based compensation.

As of September 30, 2020, the balance of unrecognized tax benefits was $31.5 million which is included in “Accounts payable and accrued expenses” on the consolidated balance sheet, $4.0 million of which, if recognized, would favorably affect the effective tax rate in the period of recognition. We had $51.3 million and $53.6 million of unrecognized tax benefits as of September 30, 2019 and December 31, 2019, respectively. During the current quarter, we closed a Joint Committee on Taxation review of certain tax returns that were filed during 2018 in conjunction with the refunds claimed on those returns. The closing of the Joint Committee on Taxation review resulted in the remeasurement of unrecognized tax benefits, and a discrete benefit of $11.6 million was recognized as a component of the effective tax rate for the quarter. We believe that we have adequately accounted for any material tax uncertainties in our existing reserves for all open tax years.

Our U.S. tax returns are subject to examination by federal and state taxing authorities. The statute of limitations related to our consolidated Federal income tax returns is closed for all tax years up to and including 2015. However, the 2014 tax year will be open to the extent of the net operating loss which we intend to carry back from the 2019 tax return. 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.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act was enacted and signed into U.S. law to provide economic relief to individuals and businesses facing economic hardship as a result of the COVID-19 pandemic. The CARES Act did not have a material tax impact on our consolidated financial condition as of and for the three months ended September 30, 2020. We plan to defer the timing of federal tax estimates and payroll taxes as permitted by the CARES Act and will avail ourselves of net operating loss carryback provisions to the extent possible, which may include changes to the uncertain tax position reserves.

Net Income

Net income increased $66.6 million, or 245.8%, to $93.7 million during the current quarter compared to $27.1 million during the prior year quarter. The increase was due primarily to favorable credit performance in the loan portfolio, reduced marketing and other variable costs associated with the decrease in loan originations, and execution of various cost containment strategies.

NINE MONTHS ENDED SEPTEMBER 30, 2020 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2019

Revenue, Net Revenue and Gross Profit

Revenue decreased $9.6 million, or 1.2%, to $819.9 million for the nine-month period ended September 30, 2020, or current nine-month period, as compared to $829.5 million for the nine-month period ended September 30, 2019, or prior year nine-month period. On a constant currency basis, revenue decreased by $7.2 million, or 0.9%, for the current nine-month period compared to the prior year nine-month period. The decrease was driven by a 44.1% decrease in revenue from our sub-prime installment portfolio due to lower loan originations, partially offset by a 12.1% increase in revenue from our consumer line of credit, a 16.9% increase in our near-prime installment and a 40.5% increase in revenue from our small business portfolios driven by higher average loan balances in the current nine-month period compared to the prior year nine-month period.

Net revenue for the current nine-month period was $440.7 million compared to gross profit of $425.0 million for the prior year nine-month period. Our consolidated net revenue margin was 53.8% for the current nine-month period compared to gross profit margin of 51.2% for the prior year nine-month period.

The following table sets forth the components of revenue and gross profit, separated by product for the current nine-month period and the prior year nine-month period (in thousands):

	Nine Months Ended September 30,
	2020			2019			$ Change			% Change
Revenue by product:
Installment loans and RPAs	$	403,932		$	467,198		$	(63,266	)		(13.5	)%
Line of credit accounts		410,973			361,515			49,458			13.7
Total loans and finance receivables revenue		814,905			828,713			(13,808	)		(1.7	)
Other		4,953			782			4,171			533.4
Total revenue		819,858			829,495			(9,637	)		(1.2	)
Change in fair value		(379,168	)		—			(379,168	)		100.0
Cost of revenue		—			(404,477	)		404,477			(100.0	)
Net revenue/gross profit	$	440,690		$	425,018		$	15,672			3.7	%

Revenue by product (% to total):
Installment loans and RPAs		49.3	%		56.3	%
Line of credit accounts		50.1			43.6
Total loans and finance receivables revenue		99.4			99.9
Other		0.6			0.1
Total revenue		100.0			100.0
Change in fair value		(46.2	)		—
Cost of revenue		—			(48.8	)
Net revenue/gross profit		53.8	%		51.2	%

Average Loan Origination

	Nine Months Ended
	September 30,
	2020		2019
Average loan origination amount (in ones) ^(a)
Installment loans ^(b)(d)	$	607	$	807
Line of credit accounts ^(c)		324		396
Total loans ^(b)(d)	$	444	$	621

(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 that we have not yet purchased and, therefore, 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 decreased to $444 from $621 during the current nine-month period compared to the prior year nine-month period, due primarily to our deliberate reduction in origination amounts to mitigate risks associated with the COVID-19 pandemic, and a greater mix of line of credit draws from existing customer accounts which are generally smaller than initial new customer draws.

Total Expenses

Total expenses decreased $33.4 million, or 14.1%, to $203.0 million in the current nine-month period, compared to $236.4 million in the prior year nine-month period. On a constant currency basis, total expenses decreased $31.8 million, or 13.4%, for the current nine-month period compared to the prior year nine-month period.

Marketing expense decreased to $42.2 million in the current nine-month period compared to $79.4 million in the prior year nine-month period. The decrease was due primarily to the strategic reduction of marketing spend beginning late first quarter to mitigate risks associated with the COVID-19 pandemic.

Operations and technology expense increased to $65.5 million in the current nine-month period compared to $61.4 million in the prior year nine-month period, due primarily to higher selling expenses related to direct costs associated with originating loans that, prior to utilization of the fair value option on our loan portfolio, were deferred and amortized against revenue over the life of the underlying loans. Subsequent to the election of the fair value option, these costs are no longer eligible for deferral.

General and administrative expense decreased $0.7 million, or 0.7%, to $83.9 million in the current nine-month period compared to $84.6 million in the prior year nine-month period, due primarily to various cost containment initiatives implemented to mitigate the impact of COVID-19. Lower personnel and travel-related costs were partially offset by higher consulting and legal expenses related to the acquisition of OnDeck.

Depreciation and amortization expense increased slightly compared to the prior year nine-month period, driven primarily by additional internally-developed software placed into service.

Interest Expense, Net

Interest expense, net increased $3.6 million, or 6.3%, to $59.4 million in the current nine-month period compared to $55.8 million in the prior year nine-month period. The increase was due primarily to an increase in the average amount of debt outstanding, which increased $111.2 million to $976.7 million during the current nine-month period from $865.5 million during the prior year nine-month period, partially offset by an decrease in the weighted average interest rate on our outstanding debt to 8.15% during the current nine-month period from 8.74% during the prior year nine-month period.

Provision for Income Taxes

The effective tax rate of 17.3% in the current nine-month period was lower than the effective tax rate of 24.4% in the prior year nine-month period due primarily to the release of unrecognized tax benefits and, to a lesser extent, the loss of excess tax benefits on stock compensation.

Net Income

Net income increased $60.0 million, or 68.8%, to $147.2 million during the current nine-month period compared to $87.2 million during the prior year nine-month period. The increase was due primarily to favorable credit performance in the loan portfolio, reduced marketing and other variable costs associated with the decrease in loan originations, and execution of various cost containment strategies.

LIQUIDITY AND CAPITAL RESOURCES

Capital Funding Strategy

Given the unprecedented economic circumstances resulting from the COVID-19 pandemic and high degree of uncertainty, we have taken several actions to create a stable and flexible balance sheet that ensures liquidity and funding available to meet our business obligations. We elected to access our committed funding lines prior to March 31, 2020 to preserve optionality in the face of uncertainty, and prior to June 30, 2020 we repaid the outstanding balance of our revolving credit agreement. As of September 30, 2020, we had cash, cash equivalents, and restricted cash of $535.1 million, of which $45.0 million was restricted, compared to $81.0 million, of which $45.1 million was restricted, as of December 31, 2019. As of September 30, 2020, we had committed and undrawn funding capacity of $332.0 million. Based on numerous stressed-case modeling scenarios, we believe we have sufficient liquidity to run our operations for the foreseeable future. Further, we have no recourse debt obligations due until June 2022 and no non-recourse secured lending facilities with maturities before February 2022.

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 in aggregate principal amount 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 October 26, 2020, our available borrowings under the Credit Agreement were $124.0 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 October 26, 2020, we had $128.8 million of total committed and undrawn borrowing capacity under our consumer loan securitization facilities. Following the completion of our acquisition of OnDeck on October 13, 2020, we have an additional $425.0 million of total committed borrowing capacity under revolving securitization facilities, backed by certain OnDeck small business loans originated in the United States. As of October 26, 2020 we had $287.1 million of undrawn borrowing capacity related to those facilities. In addition, we have available an uncommitted revolving securitization facility, which is also supported by OnDeck small business loans originated in the United States. 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 and small business loan securitization facilities.

As of September 30, 2020, 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 Securitizations

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-A Notes

On October 17, 2019 (the “2019-A Closing Date”), we issued $138,888,000 Class A Asset Backed Notes (the “2019-A Class A Notes”), $44,445,000 Class B Asset Backed Notes (the “2019-A Class B Notes”), and $16,667,000 Class C Asset Backed Notes (the “2019-A Class C Notes” and, collectively with the 2019-A Class A Notes and the 2019-A Class B Notes, the “2019-A Notes”) through an indirect subsidiary. The 2019-A Class A Notes bear interest at 3.96%, the 2019-A Class B Notes bear interest at 6.17%, and the 2019-A Class C Notes bear interest at 7.62%. The 2019-A Notes are backed by a pool of unsecured consumer installment loans (“Securitization Receivables”) and represent obligations of the issuer only. The 2019-A Notes are not be guaranteed by us.

The net proceeds of the offering of the 2019-A Notes on the 2019-A Closing Date were used to acquire the Securitization Receivables from us, fund a reserve account and pay fees and expenses incurred in connection with the transaction. The amount of Securitization Receivables sold to the issuer on the 2019-A Closing Date was approximately $200.0 million. Additional Securitization Receivables totaling approximately $22.2 million were sold to the issuer prior to December 31, 2019.

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 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-A Notes

On October 31, 2018 (the “2018-A Closing Date”), we issued $95,000,000 Class A Asset Backed Notes (the “2018-A Class A Notes”) and $30,400,000 Class B Asset Backed Notes (the “2018-A Class B Notes” and, collectively with the 2018-A Class A Notes, the “2018-A Notes”), through an indirect subsidiary. The 2018-A Class A Notes bear interest at 4.20%, and the 2018-A Class B Notes bear interest at 7.37%. The 2018-A Notes are backed by a pool of Securitization Receivables and represent obligations of the issuer only. The 2018-A Notes are not guaranteed by us. Under the 2018-A Notes, Securitization Receivables are sold to a wholly-owned subsidiary of ours and serviced by another subsidiary of ours.

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 us, 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, 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.

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.

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.

Revolving Credit Facility

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 amount under the Credit Agreement as of September 30, 2020.

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):

	Nine Months Ended September 30,
	2020			2019
Cash flows provided by operating activities
Cash flows from operating activities - continuing operations	$	623,530		$	568,606
Cash flows from operating activities - discontinued operations		(297	)		37,299
Total cash flows provided by operating activities		623,233			605,905
Cash flows provided by (used in) investing activities
Loans and finance receivables		40,505			(552,067	)
Acquisitions, net of cash acquired		(3,597	)		—
Purchases of property and equipment		(19,835	)		(14,766	)
Other investing activities		57			7
Cash flows from investing activities - continuing operations		17,130			(566,826	)
Cash flows from investing activities - discontinued operations		—			(20,161	)
Total cash flows provided by (used in) investing activities		17,130			(586,987	)
Cash flows (used in) provided by financing activities	$	(186,103	)	$	2,616

Cash Flows from Operating Activities

Net cash provided by operating activities from continuing operations increased $54.9 million, or 9.8%, to $623.5 million in the current nine-month period from $568.6 million for the prior year nine-month period. The increase was driven primarily by favorable credit performance of the loan portfolio.

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 from investing activities from continuing operations increased $584.0 million, or 103.0%, for the current nine-month period compared to the prior year nine-month period. This increase was due primarily to the strategic reduction in originations and acquisitions of loans and finance receivables to mitigate risks associated with the COVID-19 pandemic.

Cash Flows from Financing Activities

Cash flows used in financing activities for the current nine-month period were driven primarily by $72.0 million in net payments made under the Credit Agreement, $59.3 million in net payments made under our securitization facilities and $54.6 million in treasury shares purchased. Cash flows provided by financing activities for the prior year nine-month period were driven primarily by $8.8 million in net borrowings under our securitization facilities and $3.0 million in net borrowings under the Credit Agreement, partially offset by $10.7 million in treasury shares purchased.

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. On October 24, 2019, we announced the Board of Directors had authorized a new share repurchase program totaling $75.0 million that expires December 31, 2020. The new program replaced the prior authorization of $50.0 million. During the current nine-month period, we paid $53.5 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 September 30, 2020 and 2019, the outstanding amount of active consumer loans originated by third-party lenders under the CSO programs was $8.1 million and $23.6 million, respectively, which were guaranteed by us. These loans are not included in our consolidated balance sheets as we do not own the loans prior to default. Our CSO programs are further described under the caption “Products and Services” above.

CRITICAL ACCOUNTING ESTIMATES

With the exception of the following, 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, 2019.

Beginning January 1, 2020, we have elected the fair value option for our loans and finance receivables. We estimate the fair value of our loans and finance receivables primarily using discounted cash flow analyses that utilize machine-learning technology at an individual loan level to more accurately predict future payments. We adjust contractual cash flows for estimated losses, prepayments and servicing costs over the estimated duration of the underlying assets and discount the future cash flows using a rate of return that we believe a market participant would require. Model results may be adjusted by management if we do not believe the output reflects the fair value of the instrument, as defined under U.S. GAAP. The models are re-trained and re-scored at each measurement date to capture any changes in internal factors such as nature, term, volume, payment trends, remaining time to maturity, and portfolio mix, as well as changes in underwriting or observed trends expected to impact future performance. We have validated model performance by comparing past valuations with actual performance noted after each valuation.

The following describes the primary inputs to the discounted cash flow analyses that require significant judgment:

•

Net losses – Net losses are estimates of the principal payments that will not be repaid over the life of our portfolio, net of the expected principal recoveries on charged-off receivables. We have developed proprietary underwriting systems based on data we have collected since the Company’s inception. 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 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. Leveraging the data at the core of our business, we utilize numerous machine-learning models to estimate lifetime credit losses for loans and finance receivables. Inputs to the models include contractual cash flows, customer application information, historical and current performance, and behavioral information. Management may also incorporate discretionary adjustments based on our expectations of future credit performance.

•

Prepayments – Prepayments are estimates of the amount of principal payments that will occur earlier than contractually required during the life of a loan and finance receivable. Prepayments accelerate the timing of principal repayment and reduce interest payments. Prepayment rates in our discounted cash flow models are developed using machine-learning analytics techniques. Model inputs are similar to those utilized to estimate net losses and may also incorporate discretionary adjustments based on our expectations of future performance.

•

Servicing costs – Servicing costs applied to the expected cash flows of our portfolio reflect our estimate of the amount investors would incur to service the underlying assets for the remainder of their lives. Servicing costs are derived from our internal analysis of our cost structure considering the characteristics of our receivables and have been benchmarked against observable information on comparable assets in the marketplace.

•

Discount rates – Determined at a product level, the discount rates utilized in our cash flow analyses reflect our estimates of the rates of return that investors would require when investing in financial instruments with similar risk and return characteristics.

Management continuously monitors factors that may impact the fair values of its products. Internal factors such as portfolio composition (for example, interest rate, loan term, geography information, customer mix, credit quality) and performance (e.g., delinquency, loss trends, prepayment rates) are reviewed on a regular basis at various levels, including product and vintage. The Company also weighs the impact of relevant, internal business decisions on estimated fair value. External factors such as macroeconomic trends, financial market liquidity expectations, competitive landscape and legal or regulatory requirements are also reviewed on a regular basis. Management also reviews the results of its fair value model output compared to prior periods for unusual trends, potential model over- or under-reaction, outlier results and other distorting factors. Based on these analyses, management may deem it appropriate to adjust model output to derive management’s best estimate of fair value.

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 risk is a broad term related to economic losses due to adverse changes in the fair value of a financial instrument. While market risk may embody several elements, including liquidity and basis risk, the SEC’s market risk rules focus on pricing risk, which relates to changes in the level of prices due to changes in interest rates, foreign currency exchange rates, commodity prices, equity prices, and other market changes that affect market risk-sensitive instruments.

Prior to January 1, 2020, market risks relating to our operations resulted primarily from changes in foreign currency exchange rates and interest rates related to our long-term debt. As disclosed in Note 1 to the Consolidated Financial Statements, we elected the fair value option as of January 1, 2020 and, as a result going forward, carry our loans and finance receivables at fair value with changes in fair value recognized directly in earnings. As of September 30, 2020, we were exposed to interest rate risk on our loans and finance receivables, which have fixed interest rates. The fair values of loans are estimated using a discounted cash flow methodology, where the discount rate represents an estimate of the required rate of return by market participants. The pricing on many fixed income securities is highly dependent upon interest rates and credit spreads that change on a daily basis. The discount rates utilized in the valuation of our products are not as reactive to minor shifts in underlying interest rates as i.) the interest component is relatively minor in size compared with the non-interest rate component of the discount rate and ii.) a market participant’s basis for adjusting the required rate of return is less likely to be impacted by minor shifts in the underlying interest rates.

ITEM 4.

CONTROLS AND PROCEDURES

Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, our management has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, or the “Exchange Act”) as of September 30, 2020 (the “Evaluation Date”). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective and provide reasonable assurance (i) to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms; and (ii) to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.

There was no change in our internal control over financial reporting during the quarter ended September 30, 2020 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 8 of the notes to our consolidated financial statements (unaudited) of Part I, “Item 1 Financial Statements.”

ITEM 1A.

RISK FACTORS

The following include material changes to the risk factors associated with the Company’s business previously disclosed in Part I, Item 1A of the Annual Report on Form 10 K for the year ended December 31, 2019.

Our business and future results may be affected by a number of risks and uncertainties that should be considered carefully in evaluating us. In addition, this report also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in such forward-looking statements as a result of certain factors, including the risks faced by us described below and in our Annual Report on Form 10 K for the year ended December 31, 2019. The occurrence of one or more of the events listed below and in our Annual Report on Form 10 K for the year ended December 31, 2019 could also have a material adverse effect on our business, prospects, results of operations, financial condition and cash flows.

The COVID-19 pandemic has negatively impacted our operations and financial results. The ultimate extent of the impact on our business, financial position, results of operations, liquidity, and prospects is uncertain.

The COVID-19 pandemic has, and will likely continue to, severely impact global economic conditions, resulting in substantial volatility in the global financial markets, increased unemployment, and operational challenges resulting from measures that governments and other authorities have imposed to control its spread, such as travel bans, business and school limitations and closures, quarantines, and shelter-in-place orders. As our customers are located in the United States and Brazil, we began to see the initial impacts of the pandemic and governmental response on our business toward the end of the first quarter of 2020.

Various governmental bodies have reacted to the economic crisis caused by the pandemic by implementing stimulus and liquidity programs, and the Federal Reserve of the United States has reduced interest rates. The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted March 27, 2020 to provide $2.2 trillion of economy-wide financial stimulus in the form of financial aid to individuals, business, nonprofits, states, and municipalities. We believe that governmental stimulus has favorably impacted our customers, helping many to meet their loan obligations. However, it is uncertain whether these actions or future actions will continue to be successful in countering the economic disruptions and these actions could have a further negative impact on the economy in the long term. Many of our customers are experiencing layoffs, furloughs, and other changes in work and financial situations, which may negatively impact their ability to repay us. Higher delinquency or default rates would have an adverse impact on the fair value of our portfolio.

While we have seen the initial impact of the pandemic to our operations, the extent of its impact is highly dependent on variables that are difficult to predict, such as the scope and duration of the pandemic, and the success rate of measures taken by the governments to control its spread and stabilize the economy. As of September 30, 2020, COVID-19 positive test results were increasing in various parts of the United States, which may be viewed in the near- and intermediate-term as negative with regard to control of the pandemic. If the pandemic is prolonged or the actions of government are unsuccessful, the adverse impact on the global economy will deepen. We could experience further reduced demand and availability of our products, higher credit losses in our portfolio, impairments of other financial assets, and other negative impacts to our financial position. We could have issues meeting our financial performance covenants, which would require waiver/amendment or could result in default on our financing agreements. We are highly reliant on our employees for our continued operations, and to the extent our employee population is impacted by the pandemic, or the actions by governmental bodies taken in reaction to the pandemic, this could adversely affect our ability to service our customers and to offer our products. Our access to capital markets could be hampered and could lead to a higher cost of capital.

The determination of the fair values of the Company’s loan and finance receivables portfolio involves unobservable inputs that can be highly subjective and may prove to be materially different than the actual economic outcome.

As disclosed in Note 1 to the Consolidated Financial Statements, we began utilizing the fair value option for our loan and finance receivables portfolio effective January 1, 2020. The fair values of our loans and finance receivables are determined using Level 3 inputs for which changes could significantly impact our fair value measurements. Valuations are highly dependent upon the reasonableness of our assumptions and the predictability of the relationships that drive the results of our valuation methodologies. A variety of factors including, but not limited to, estimated customer default rates, the timing of expected payments, estimated costs to service the portfolio, discount rates, and valuations of comparable portfolios may ultimately affect the fair values of our loans and finance receivables. Modifications to our assumptions due to the passage of time and more information becoming available could result in material changes to our fair value calculations. These changes to fair value could adversely affect our results of operations.

Additionally, under the fair value option, these changes are generally recorded directly to the income statement, which may make our financial statements less comparable to others in the industry that do not record their loan balances under the fair value option.

The CFPB recently finalized a new rule that may affect the consumer lending industry, and this rule could have a material adverse effect on our U.S. consumer lending business.

On October 6, 2017, the CFPB issued a rule on payday and certain high-cost installment loans, also known as the “Small Dollar Rule,” which would cover some of the loans we offer. The Small Dollar Rule initially required that lenders who make short-term loans and longer-term loans with balloon payments reasonably determine consumers’ ability to repay the loans according to their terms before issuing the loans. The Small Dollar Rule also introduced new limitations on repayment processes for those lenders as well as lenders of other longer-term loans with an annual percentage rate greater than 36 percent that include an ACH authorization or similar payment provision. If a consumer has two consecutive failed payment attempts, the lender must obtain the consumer’s new and specific authorization to make further withdrawals from the consumer’s bank account. For loans covered by the Small Dollar Rule, lenders must provide certain notices to consumers before attempting a first payment withdrawal or an unusual withdrawal and after two consecutive failed payment attempts. On July 7, 2020, the CFPB issued the final Small Dollar Rule, rescinding the ability to repay (ATR) and related provisions, such as the establishment of registered information systems for checking (“ATR”) and reporting loan activity. The payment provisions of the Small Dollar Rule remain in place but remain stayed indefinitely by a Texas federal district court. The CFPB stated that it will work with the Texas federal district court and plaintiff in the Texas litigation to coordinate an effective date for the payment provisions of the Small Dollar Rule. We cannot currently assess when the payments provisions of the Small Dollar Rule will become effective. If the Small Dollar Rule does become effective in its current proposed form, we will need to make certain changes to our payment processes and customer notifications in our U.S. consumer lending business. If we are not able to execute these changes effectively because of unexpected complexities, costs or otherwise, we cannot guarantee that the Small Dollar Rule will not have a material adverse impact on our business, prospects, results of operations, financial condition and cash flows.

We may not achieve the intended benefits of its acquisition of OnDeck, and the acquisition may disrupt our current plans or operations.

We may not be able to successfully integrate the OnDeck business and assets or otherwise realize the expected benefits of the transaction, including anticipated annual operating cost and capital synergies to the extent currently anticipated or at all. Difficulties in integrating OnDeck into our operations may result in the combined company performing differently than expected, in operational challenges or in the failure to realize anticipated synergies and efficiencies in the expected time frame or at all. The integration of the two companies may result in material challenges, including the diversion of management’s attention from ongoing business concerns; retaining key management and other employees; retaining existing business and operational relationships, including customers and other counterparties, and attracting new business and operational relationships; the possibility of faulty assumptions underlying expectations regarding the integration process and associated expenses; consolidating corporate and administrative infrastructures and eliminating duplicative operations; coordinating geographically separate organizations; unanticipated issues in integrating information technology, communications and other systems; as well as unforeseen expenses or delays associated with the acquisition.

The market price of our common stock may decline as a result of the acquisition of OnDeck.

The market price of our common stock may decline as a result of the acquisition if, among other things, the combined company is unable to achieve the expected benefits of the transaction (including anticipated annual operating cost and capital synergies) in connection with the integration of our businesses, or if the transaction costs related to the acquisition are greater than expected. The market price also may decline if the combined company does not achieve the perceived benefits of the transaction as rapidly or to the extent anticipated by financial or industry analysts or if the effect of the acquisition on the combined company’s financial position, results of operations or cash flows is not consistent with the expectations of financial or industry analysts.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

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

Period	Total Number of Shares Purchased^(a)		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plan^(b)		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plan^(b) (in thousands)
July 1 – July 31, 2020		300		13.78		—		2,397
August 1 – August 31, 2020		—		—		—		2,397
September 1 – September 30, 2020		553		15.62		—		2,397
Total		853	$	14.97		—	$	2,397

(a)	Includes shares withheld from employees as tax payments for shares issued under the Company’s stock-based compensation plans of 300 and 553 for the months of July and September, respectively.

(b)

On October 22, 2019, the Board of Directors authorized a share repurchase program for the repurchase of up to $75.0 million of the Company’s common stock through December 31, 2020 (the “October 2019 Authorization”). All share repurchases made under the October 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

2.1		Agreement and Plan of Merger dated as of July 28, 2020, among Enova International, Inc., Energy Merger Sub, Inc. an and On Deck Capital, Inc. (incorporated by reference to Exhibit 2.1 to Form 8-K filed on July 30, 2020, File No. 001-35503)

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		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

SIGNATURES

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

Date: October 28, 2020	ENOVA INTERNATIONAL, INC.

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