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, 2023

OR

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

For the transition period from to

Commission File Number 1-35503

 

Enova International, Inc.

(Exact name of registrant as specified in its charter)

Delaware		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 ☒

29,868,766 of the Registrant’s common shares, $0.00001 par value, were outstanding as of October 20, 2023.

 

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CAUTIONARY NOTE CONCERNING FACTORS THAT MAY AFFECT FUTURE RESULTS

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

 

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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 the Company’s filings with the SEC, including the risks described under “Risk Factors” contained in the Company’s Form 10-K and any updates to those risk factors contained in subsequent Forms 10-Q, 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.

 

 

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ENOVA INTERNATIONAL, INC.

INDEX TO FORM 10-Q

				Page
PART I. FINANCIAL INFORMATION
Item 1.		Financial Statements (Unaudited)
		Consolidated Balance Sheets – September 30, 2023 and 2022 and December 31, 2022		1
		Consolidated Statements of Income – Three and Nine Months Ended September 30, 2023 and 2022		3
		Consolidated Statements of Comprehensive Income – Three and Nine Months Ended September 30, 2023 and 2022		4
		Consolidated Statements of Stockholders’ Equity – Three and Nine Months Ended September 30, 2023 and 2022		5
		Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2023 and 2022		6
		Notes to Consolidated Financial Statements		7
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		21
Item 3.		Quantitative and Qualitative Disclosures About Market Risk		39
Item 4.		Controls and Procedures		39
PART II. OTHER INFORMATION
Item 1.		Legal Proceedings		40
Item 1A.		Risk Factors		40
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		40
Item 3.		Defaults upon Senior Securities		40
Item 4.		Mine Safety Disclosures		40
Item 5.		Other Information		40
Item 6.		Exhibits		41
SIGNATURES				42

 

 

 

 

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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,
		2023				2022				2022
Assets
Cash and cash equivalents(1)		$	62,908			$	87,727			$	100,165
Restricted cash(1)			133,413				84,412				78,235
Loans and finance receivables at fair value(1)			3,321,062				2,765,123				3,018,528
Income taxes receivable			65,664				40,609				43,741
Other receivables and prepaid expenses(1)			58,624				59,470				66,267
Property and equipment, net			103,911				89,375				93,228
Operating lease right-of-use assets			15,984				20,273				19,347
Goodwill			279,275				279,275				279,275
Intangible assets, net			21,019				29,403				27,390
Other assets(1)			41,193				53,747				54,713
Total assets		$	4,103,053			$	3,509,414			$	3,780,889
Liabilities and Stockholders’ Equity
Accounts payable and accrued expenses(1)		$	275,160			$	168,978			$	198,320
Operating lease liabilities			27,136				35,320				33,595
Deferred tax liabilities, net			96,942				99,312				104,169
Long-term debt(1)			2,442,784				2,059,577				2,258,660
Total liabilities			2,842,022				2,363,187				2,594,744
Commitments and contingencies (Note 8)
Stockholders’ equity:
Common stock, $0.00001 par value, 250,000,000 shares authorized, 45,140,504, 44,200,180 and 44,326,999 shares issued and 30,244,289, 31,628,122 and 31,220,928 outstanding as of September 30, 2023 and 2022 and December 31, 2022, respectively			—				—				—
Preferred stock, $0.00001 par value, 25,000,000 shares authorized, no shares issued and outstanding			—				—				—
Additional paid in capital			274,053				245,092				251,878
Retained earnings			1,453,538				1,262,313				1,313,185
Accumulated other comprehensive loss			(7,203	)			(7,255	)			(5,990	)
Treasury stock, at cost (14,896,215, 12,572,058 and 13,106,071 shares as of September 30, 2023 and 2022 and December 31, 2022, respectively)			(459,357	)			(353,923	)			(372,928	)
Total stockholders’ equity			1,261,031				1,146,227				1,186,145
Total liabilities and stockholders’ equity		$	4,103,053			$	3,509,414			$	3,780,889

 

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

 

1

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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,
		2023				2022				2022
Assets of consolidated VIEs, included in total assets above
Cash and cash equivalents		$	316			$	420			$	420
Restricted cash			114,633				66,169				65,546
Loans and finance receivables at fair value			2,174,602				1,444,229				1,699,698
Other receivables and prepaid expenses			1,331				16,058				17,413
Other assets			6,454				5,145				5,597
Total assets		$	2,297,336			$	1,532,021			$	1,788,674
Liabilities of consolidated VIEs, included in total liabilities above
Accounts payable and accrued expenses		$	9,314			$	6,085			$	7,528
Long-term debt			1,556,367				1,130,431				1,329,009
Total liabilities		$	1,565,681			$	1,136,516			$	1,336,537

 

 

See notes to consolidated financial statements.

2

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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,
		2023				2022				2023				2022
Revenue		$	551,360			$	456,200			$	1,534,047			$	1,249,921
Change in Fair Value			(231,749	)			(162,005	)			(629,161	)			(422,465	)
Net Revenue			319,611				294,195				904,886				827,456
Operating Expenses
Marketing			116,508				101,278				292,234				286,000
Operations and technology			51,686				45,953				147,816				128,945
General and administrative			37,731				37,182				111,117				105,400
Depreciation and amortization			9,954				11,270				29,123				28,368
Total Operating Expenses			215,879				195,683				580,290				548,713
Income from Operations			103,732				98,512				324,596				278,743
Interest expense, net			(48,666	)			(30,924	)			(137,571	)			(78,357	)
Foreign currency transaction gain			179				363				8				70
Equity method investment (loss) income			(10	)			(129	)			(1,135	)			6,522
Other nonoperating expenses			(25	)			(230	)			(279	)			(1,321	)
Income before Income Taxes			55,210				67,592				185,619				205,657
Provision for income taxes			13,925				15,884				45,266				49,105
Net income		$	41,285			$	51,708			$	140,353			$	156,552
Earnings Per Share
Earnings per common share:
Basic		$	1.35			$	1.62			$	4.53			$	4.80
Diluted		$	1.29			$	1.57			$	4.35			$	4.64
Weighted average common shares outstanding:
Basic			30,600				31,912				31,006				32,589
Diluted			31,902				32,966				32,269				33,772

 

 

See notes to consolidated financial statements.

3

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ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(Unaudited)

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2023				2022				2023				2022
Net income		$	41,285			$	51,708			$	140,353			$	156,552
Other comprehensive gain (loss), net of tax:
Foreign currency translation gain (loss)(1)			(1,269	)			(1,222	)			1,040				(325	)
Unrealized gain (loss) on investments, net of tax			54				1,448				(2,253	)			1,610
Total other comprehensive gain (loss), net of tax			(1,215	)			226				(1,213	)			1,285
Comprehensive Income		$	40,070			$	51,934			$	139,140			$	157,837

(1) Net of tax (provision) benefit of $400 and $345 for the three months ended September 30, 2023 and 2022, respectively, and $(331) and $65 for the nine months ended September 30, 2023 and 2022, respectively.

 

 

See notes to consolidated financial statements.

4

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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, 2022			44,165			$	—			$	239,187			$	1,210,605			$	(7,481	)			(11,982	)		$	(334,230	)		$	1,108,081
Stock-based compensation expense			—				—				5,457				—				—				—				—				5,457
Shares issued for vested RSUs			11				—				—				—				—				—				—				—
Shares issued for stock option exercises			24				—				448				—				—				—				—				448
Net income			—				—				—				51,708				—				—				—				51,708
Unrealized gain on investments, net of tax			—				—				—				—				1,448				—				—				1,448
Foreign currency translation loss, net of tax			—				—				—				—				(1,222	)			—				—				(1,222	)
Purchases of treasury shares, at cost			—				—				—				—				—				(590	)			(19,693	)			(19,693	)
Balance at September 30, 2022			44,200			$	—			$	245,092			$	1,262,313			$	(7,255	)			(12,572	)		$	(353,923	)		$	1,146,227
Balance at June 30, 2023			45,071			$	—			$	266,058			$	1,412,253			$	(5,988	)			(14,201	)		$	(422,993	)		$	1,249,330
Stock-based compensation expense			—				—				7,075				—				—				—				—				7,075
Shares issued for vested RSUs			9				—				—				—				—				—				—				—
Shares issued for stock option exercises			61				—				920				—				—				—				—				920
Net income			—				—				—				41,285				—				—				—				41,285
Unrealized gain on investments, net of tax			—				—				—				—				54				—				—				54
Foreign currency translation loss, net of tax			—				—				—				—				(1,269	)			—				—				(1,269	)
Purchases of treasury shares, at cost			—				—				—				—				—				(695	)			(36,364	)			(36,364	)
Balance at September 30, 2023			45,141			$	—			$	274,053			$	1,453,538			$	(7,203	)			(14,896	)		$	(459,357	)		$	1,261,031

 

 

																		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, 2021			43,424			$	—			$	225,689			$	1,105,761			$	(8,540	)			(9,280	)		$	(229,858	)		$	1,093,052
Stock-based compensation expense			—				—				15,957				—				—				—				—				15,957
Shares issued for vested RSUs			615				—				—				—				—				—				—				—
Shares issued for stock option exercises			161				—				3,446				—				—				—				—				3,446
Net income			—				—				—				156,552				—				—				—				156,552
Unrealized gain on investments, net of tax			—				—				—				—				1,610				—				—				1,610
Foreign currency translation loss, net of tax			—				—				—				—				(325	)			—				—				(325	)
Purchases of treasury shares, at cost			—				—				—				—				—				(3,292	)			(124,065	)			(124,065	)
Balance at September 30, 2022			44,200			$	—			$	245,092			$	1,262,313			$	(7,255	)			(12,572	)		$	(353,923	)		$	1,146,227
Balance at December 31, 2022			44,327			$	—			$	251,878			$	1,313,185			$	(5,990	)			(13,106	)		$	(372,928	)		$	1,186,145
Stock-based compensation expense			—				—				19,280				—				—				—				—				19,280
Shares issued for vested RSUs			604				—				—				—				—				—				—				—
Shares issued for stock option exercises			210				—				2,895				—				—				—				—				2,895
Net income			—				—				—				140,353				—				—				—				140,353
Unrealized loss on investments, net of tax			—				—				—				—				(2,253	)			—				—				(2,253	)
Foreign currency translation gain, net of tax			—				—				—				—				1,040				—				—				1,040
Purchases of treasury shares, at cost			—				—				—				—				—				(1,790	)			(86,429	)			(86,429	)
Balance at September 30, 2023			45,141			$	—			$	274,053			$	1,453,538			$	(7,203	)			(14,896	)		$	(459,357	)		$	1,261,031

 

See notes to consolidated financial statements.

5

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ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

		Nine Months Ended
		September 30,
		2023				2022
Cash Flows from Operating Activities
Net income		$	140,353			$	156,552
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			29,123				28,368
Amortization of deferred loan costs and debt discount			6,736				3,999
Change in fair value of loans and finance receivables			622,939				417,779
Stock-based compensation expense			19,280				15,957
Loss on sale of subsidiary			—				4,388
Incomplete transaction costs			—				710
Loss on early extinguishment of debt			279				—
Operating leases, net			(3,096	)			(2,839	)
Deferred income taxes, net			(7,558	)			12,442
Changes in operating assets and liabilities:
Finance and service charges on loans and finance receivables			(34,682	)			(12,240	)
Other receivables and prepaid expenses and other assets			20,879				(19,086	)
Accounts payable and accrued expenses			3,785				(20,556	)
Current income taxes			54,543				39,386
Net cash provided by operating activities			852,581				624,860
Cash Flows from Investing Activities
Loans and finance receivables originated or acquired			(3,016,211	)			(3,036,547	)
Loans and finance receivables repaid			2,121,201				1,836,157
Capitalization of software development costs and purchases of fixed assets			(33,429	)			(33,290	)
Sale of a subsidiary			—				8,713
Net cash used in investing activities			(928,439	)			(1,224,967	)
Cash Flows from Financing Activities
Borrowings under revolving line of credit			267,000				139,000
Repayments under revolving line of credit			(232,000	)			(30,000	)
Borrowings under securitization facilities			859,424				592,137
Repayments under securitization facilities			(629,437	)			(28,280	)
Repayments of senior notes			(79,891	)			—
Debt issuance costs paid			(7,993	)			(6,392	)
Proceeds from exercise of stock options			2,895				3,446
Treasury shares purchased			(86,429	)			(124,065	)
Net cash provided by financing activities			93,569				545,846
Effect of exchange rates on cash, cash equivalents and restricted cash			210				517
Net increase (decrease) in cash, cash equivalents and restricted cash			17,921				(53,744	)
Cash, cash equivalents and restricted cash at beginning of year			178,400				225,883
Cash, cash equivalents and restricted cash at end of period		$	196,321			$	172,139
Supplemental Disclosures
Non-cash renewal of loans and finance receivables		$	378,768			$	239,987

 

 

See notes to consolidated financial statements.

6

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ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17

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ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

 

 

20

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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, 2022. 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 2022, we extended approximately $4.5 billion in credit or financing to borrowers and for the nine months ended September 30, 2023, we extended approximately $3.4 billion in credit or financing to borrowers. As of September 30, 2023, we offered or arranged loans or draws on lines of credit to consumers in 37 states in the United States and Brazil. We also offered financing to small businesses in 47 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, 2023, we have completed approximately 60.2 million customer transactions and collected more than 60 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 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 more than 19 years of experience. These systems employ advanced risk analytics, including machine learning and artificial intelligence, 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 machine learning-enabled analytical models and statistical measures used in making our credit, purchase, marketing and collection decisions. Approximately 90% of models used in our analytical environment are machine learning-enabled.

Our flexible and scalable technology platforms allow us to process and complete customers’ transactions quickly and efficiently. In 2022, we processed approximately 2.5 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 platforms allow us to efficiently develop and deploy new products to adapt to evolving regulatory requirements and consumer preference, and to enter new markets quickly. In 2012, we launched a new product in the United States designed to serve near-prime customers. In 2014, we launched our business in Brazil, where we arrange financing for borrowers through a third-party lender, and we introduced a new line of credit product in the United States to serve the needs of small businesses. In 2015, we further expanded our product offering by acquiring certain assets of a company that provided financing and installment loans to small businesses by offering receivables purchase agreements (“RPAs”). In October 2020, we acquired, through a merger, On Deck Capital Inc. (“OnDeck”), a small business lending company offering lending and funding solutions to small businesses in the U.S., Australia and Canada, to expand our small business offerings. In March 2021, we acquired Pangea Universal Holdings (“Pangea”), which provides mobile international money transfer services to customers in the U.S with a focus on Latin America and Asia. 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.

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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 partner 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 allow us to complete a high volume of customer transactions while actively managing risk and the related credit quality of our loan and finance receivable portfolios. We believe our successful application of these technological innovations differentiates our capabilities relative to competing platforms as evidenced by our history of strong growth and stable credit quality.

PRODUCTS AND SERVICES

Our online financing products and services provide customers with a deposit of funds to their bank account in exchange for a commitment to repay the amount deposited plus fees and/or interest. We originate, arrange, guarantee or purchase installment loans and line of credit accounts to consumers and small businesses. We have one reportable segment that includes all of our online financial services. Our loans and finance receivables generally have regular payments that amortize principal. Interest income is generally recognized on an effective, non-accelerated yield basis over the contractual term of the installment loan or estimated outstanding period of the draw on line of credit accounts.

Certain subsidiaries offer, or arrange through our Bank Programs, small business installment loans in 47 states and in Washington D.C. Terms for these products range between three and 24 months with regular payments that amortize principal. Loan sizes for these products range between $5,000 and $250,000. There is generally a fee paid upon origination, and total interest is typically calculated at a fixed rate for the life of the loan. A portion of the interest is forgivable if prepaid early, although we also offer a full prepayment forgiveness option at a higher interest rate. The average annualized yield for these products was 46% for the year ended December 31, 2022.

Certain subsidiaries offer, or arrange through our Bank Programs, small business line of credit accounts in 47 states and in Washington D.C. in the United States. Terms for these products range between 12 and 24 months with regular payments that amortize principal. Loan sizes for these products range between $5,000 and $100,000. Interest is calculated at a fixed rate based on the outstanding balance. There is generally no fee paid upon origination with the exception of one of our small business line of credit products, which has an origination fee when allowed by state law. Certain small business line of credit accounts also charge a monthly maintenance fee. The average annualized yield for these products was 48% for the year ended December 31, 2022.

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OUR MARKETS

We currently provide our services in the following countries:

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

On May 24, 2021, we received a Civil Investigative Demand (“CID”) from the Consumer Financial Protection Bureau (“CFPB”) concerning certain loan processing issues. We cooperated fully with the CFPB and provided all requested data and information in response to the CID. We anticipate being able to expeditiously complete the investigation as several of the issues were self‐disclosed and we have provided restitution to customers who may have been negatively impacted. We received a second CID in April 2022 requesting additional information. We have provided all requested information in response to the CID.

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 consumer 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.

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The payment provisions of the Small Dollar Rule remain in place. In April 2018, an action was filed against the CFPB making a constitutional challenge to the Small Dollar Rule. On October 19, 2022, a three-judge panel of the Fifth Circuit U.S. Circuit Court of Appeals ruled that the funding structure of the CFPB is unconstitutional and vacated the Small Dollar Rule. On November 14, 2022, the CFPB filed a Petition for Writ of Certiorari with the U.S. Supreme Court to review the Fifth Circuit ruling. The Supreme Court granted the Petition on February 27, 2023 but declined to expedite the proceeding. The Supreme Court heard oral arguments on October 3, 2023. 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.

On March 30, 2023, the CFPB issued its final rule to implement Section 1071 of the Dodd-Frank Act. Section 1071 amended the Equal Credit Opportunity Act to require financial institutions to collect and report certain data in connection with credit applications made by small businesses, including women- or minority-owned small businesses, and applies to small business loans that we offer. For loans covered by the small business lending rule, a “covered lender” will be required to collect and report on certain information pursuant to an application for credit. Section 1071 requires covered lenders to collect and report information the financial institution generates and information obtained from the applicant, including the applicant’s minority-owned business status, women-owned business status and LGBTQI+-owned status and the applicant’s principal owners’ ethnicity, race and sex, and expressly prohibits a financial institution from discouraging an applicant from responding to requests for applicant-provided data. We anticipate that we will be required to begin collecting data on October 1, 2024 and report 2024 data by June 1, 2025.

Minnesota Commerce Omnibus Bill

In May 2023, the Governor of Minnesota signed into law a bill that caps the APR on consumer small loans and consumer short-term loans at a 50% all-in APR and expressly provides for predominant economic interest and totality of the circumstance tests for true lender purposes. The bill defines "consumer small loan" as a consumer-purpose unsecured loan equal to or less than $350 that must be repaid in a single installment. The bill defines a "consumer short-term loan" as a loan to a borrower which has a principal amount, or an advance on a credit limit, of $1,300 or less and requires a minimum payment of more than 25% of the principal balance or credit advance within 60 days. The bill requires the lender to perform an ability to pay analysis if the all-in APR on a consumer small loan or consumer short-term loan exceeds 36%. The bill also codifies a predominant economic interest test for bank service arrangements whereby a broker or servicer with a predominant economic interest in a loan is considered to be the “true lender” for purposes of applying the rate cap. The law will take effect on January 1, 2024 and applies to loans or advances originated on or after that date. We do not expect the changes brought about by this law to have a material impact on our consolidated financial statements.

New Mexico HB 132

In March 2022, the Governor of New Mexico signed into law HB 132, a bill that imposes a 36% rate cap on loans up to $10,000. Additionally, HB 132 provides for the application of a predominant economic interest test for bank service arrangements whereby a broker or servicer with a predominant economic interest in a loan is considered to be the “true lender” for purposes of applying the 36% rate cap. The law took effect on January 1, 2023. The changes brought about by this law do not have a material impact on our consolidated financial statements.

RESULTS OF OPERATIONS

Highlights

Our financial results for the three-month period ended September 30, 2023, or the current quarter, are summarized below.

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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,
		2023				2022				2023				2022
Revenue
Loans and finance receivables revenue		$	543,124			$	449,817			$	1,511,314			$	1,233,910
Other			8,236				6,383				22,733				16,011
Total Revenue			551,360				456,200				1,534,047				1,249,921
Change in Fair Value			(231,749	)			(162,005	)			(629,161	)			(422,465	)
Net Revenue			319,611				294,195				904,886				827,456
Operating Expenses
Marketing			116,508				101,278				292,234				286,000
Operations and technology			51,686				45,953				147,816				128,945
General and administrative			37,731				37,182				111,117				105,400
Depreciation and amortization			9,954				11,270				29,123				28,368
Total Operating Expenses			215,879				195,683				580,290				548,713
Income from Operations			103,732				98,512				324,596				278,743
Interest expense, net			(48,666	)			(30,924	)			(137,571	)			(78,357	)
Foreign currency transaction gain			179				363				8				70
Equity method investment (loss) income			(10	)			(129	)			(1,135	)			6,522
Other nonoperating expenses			(25	)			(230	)			(279	)			(1,321	)
Income before Income Taxes			55,210				67,592				185,619				205,657
Provision for income taxes			13,925				15,884				45,266				49,105
Net income		$	41,285			$	51,708			$	140,353			$	156,552
Earnings per common share - diluted		$	1.29			$	1.57			$	4.35			$	4.64
Revenue
Loans and finance receivables revenue			98.5	%			98.6	%			98.5	%			98.7	%
Other			1.5				1.4				1.5				1.3
Total Revenue			100.0				100.0				100.0				100.0
Change in Fair Value			(42.0	)			(35.5	)			(41.0	)			(33.8	)
Net Revenue			58.0				64.5				59.0				66.2
Operating Expenses
Marketing			21.1				22.2				19.1				22.9
Operations and technology			9.4				10.1				9.6				10.3
General and administrative			6.9				8.1				7.2				8.4
Depreciation and amortization			1.8				2.5				1.9				2.3
Total Operating Expenses			39.2				42.9				37.8				43.9
Income from Operations			18.8				21.6				21.2				22.3
Interest expense, net			(8.8	)			(6.8	)			(9.0	)			(6.3	)
Foreign currency transaction gain			—				0.1				—				—
Equity method investment (loss) income			—				—				(0.1	)			0.5
Other nonoperating expenses			—				(0.1	)			—				(0.1	)
Income before Income Taxes			10.0				14.8				12.1				16.4
Provision for income taxes			2.5				3.5				3.0				3.9
Net income			7.5	%			11.3	%			9.1	%			12.5	%

Valuation of Loans and Finance Receivables

We carry our loans and finance receivables at fair value with changes in fair value recognized directly in earnings. We estimate the fair value of our loans and finance receivables primarily using internally-developed, discounted cash flow analyses 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 portfolio, as defined under GAAP. The models are updated 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.

Since the onset of the COVID-19 pandemic in early 2020, there has been substantial volatility in the financial markets, which has impacted the valuation of our loans and finance receivables. In 2022 and thus far in 2023, views in the marketplace on the economy and its near-term prospects remain mixed with concerns on employment, inflation, and other macroeconomic trends.

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In certain situations, management concluded that the probability of future charge-offs or prepayments was different than what we had experienced in the past and, therefore, altered those assumptions in our fair value models. We continue to utilize this approach and have adjusted these assumptions where appropriate. From a discount rate perspective, over the course of 2022, we deemed it appropriate to increase the discount rates used in our valuation models, thereby lowering loan fair values, to be responsive to changes in the market and representative of what a market participant would use. The rates used in our models have been stable thus far in 2023. As of September 30, 2023, we deemed the resulting fair value of our loans and finance receivables to be an appropriate market-based exit price that considers current market conditions.

NON-GAAP FINANCIAL MEASURES

In addition to the financial information prepared in conformity with 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. 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 income or 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 (in thousands, except per share data):

 

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2023				2022				2023				2022
Net income		$	41,285			$	51,708			$	140,353			$	156,552
Adjustments:
Lease termination and cease-use costs(a)			—				—				1,698				—
Equity method investment loss (income)(b)			10				129				1,135				(6,194	)
Other nonoperating expenses(c)			25				230				279				1,321
Intangible asset amortization			2,014				2,014				6,371				6,041
Stock-based compensation expense			7,075				5,457				19,280				15,957
Foreign currency transaction gain			(179	)			(363	)			(8	)			(70	)
Cumulative tax effect of adjustments			(2,228	)			(1,871	)			(7,163	)			(3,174	)
Adjusted earnings		$	48,002			$	57,304			$	161,945			$	170,433
Diluted earnings per share		$	1.29			$	1.57			$	4.35			$	4.64
Adjustments:
Lease termination and cease-use costs			—				—				0.05				—
Equity method investment loss (income)			—				—				0.03				(0.18	)
Other nonoperating expenses			—				0.01				0.01				0.04
Intangible asset amortization			0.06				0.06				0.20				0.18
Stock-based compensation expense			0.22				0.17				0.60				0.47
Foreign currency transaction gain			—				(0.01	)			—				—
Cumulative tax effect of adjustments			(0.07	)			(0.06	)			(0.22	)			(0.10	)
Adjusted earnings per share		$	1.50			$	1.74			$	5.02			$	5.05

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(a) In the first quarter of 2023, we incurred expenses totaling $1.7 million ($1.3 million net of tax) related to the exit of leased office space.

(b) In the second quarter of 2022, we recorded equity method investment income of $6.3 million ($3.6 million net of tax) that was comprised primarily of an $11.0 million gain generated on Linear's sale of its operating company, partially offset by a $4.4 million loss on the sale of OnDeck Canada.

(c) In the first and second quarters of 2023, we recorded other nonoperating expenses of $0.1 million ($0.1 million net of tax) in each quarter related to early extinguishment of debt. In the second and third quarters of 2022, we recorded other nonoperating expenses of $1.1 million ($0.8 million net of tax) and $0.2 million ($0.2 million net of tax) related to incomplete transactions, respectively.

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 equity method investment income and other nonoperating expenses 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 income or 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,
		2023				2022				2023				2022
Net income		$	41,285			$	51,708			$	140,353			$	156,552
Depreciation and amortization expenses			9,954				11,270				29,123				28,368
Interest expense, net			48,666				30,924				137,571				78,357
Foreign currency transaction gain			(179	)			(363	)			(8	)			(70	)
Provision for income taxes			13,925				15,884				45,266				49,105
Stock-based compensation expense			7,075				5,457				19,280				15,957
Adjustments:
Equity method investment loss (income)(a)			10				129				1,135				(6,522	)
Other nonoperating expenses(b)			25				230				279				1,321
Adjusted EBITDA		$	120,761			$	115,239			$	372,999			$	323,068
Adjusted EBITDA margin calculated as follows:
Total Revenue		$	551,360			$	456,200			$	1,534,047			$	1,249,921
Adjusted EBITDA			120,761				115,239				372,999				323,068
Adjusted EBITDA as a percentage of total revenue			21.9	%			25.3	%			24.3	%			25.8	%

(a) In the second quarter of 2022, we recorded equity method investment income of $6.3 million ($3.6 million net of tax) that was comprised primarily of an $11.0 million gain generated on Linear's sale of its operating company, partially offset by a $4.4 million loss on the sale of OnDeck Canada.

(b) In the first and second quarters of 2023, we recorded other nonoperating expenses of $0.1 million ($0.1 million net of tax) in each quarter related to early extinguishment of debt. In the second and third quarters of 2022, we recorded other nonoperating expenses of $1.1 million ($0.8 million net of tax) and $0.2 million ($0.2 million net of tax) related to incomplete transactions, respectively.

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, change in fair value 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.

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THREE MONTHS ENDED SEPTEMBER 30, 2023 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2022

Revenue and Net Revenue

Revenue increased $95.2 million, or 20.9%, to $551.4 million for the current quarter as compared to $456.2 million for the prior year quarter. The increase was driven by a 25.6% increase in revenue from our consumer portfolio and a 13.0% increase in revenue from our small business portfolio as higher levels of originations have led to higher loan balances for both portfolios.

Net revenue for the current quarter was $319.6 million compared to $294.2 million for the prior year quarter. Our consolidated net revenue margin was 58.0% for the current quarter compared to 64.5% for the prior year quarter. The decrease in consolidated net revenue margin was driven primarily by normalization in our small business portfolio, which had an atypically high net revenue margin in the prior year quarter. Refer to “—Consumer Loans and Finance Receivables” and “—Small Business Loans and Finance Receivables” below for additional discussion of net revenue for the current quarter.

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

		Three Months Ended September 30,
		2023				2022				$ Change				% Change
Revenue by product:
Consumer loans and finance receivables revenue		$	347,898			$	277,096			$	70,802				25.6	%
Small business loans and finance receivables revenue			195,226				172,721				22,505				13.0
Total loans and finance receivables revenue			543,124				449,817				93,307				20.7
Other			8,236				6,383				1,853				29.0
Total revenue			551,360				456,200				95,160				20.9
Change in fair value			(231,749	)			(162,005	)			(69,744	)			43.1
Net revenue		$	319,611			$	294,195			$	25,416				8.6	%
Revenue by product (% to total):
Consumer loans and finance receivables revenue			63.1	%			60.7	%
Small business loans and finance receivables revenue			35.4				37.9
Total loans and finance receivables revenue			98.5				98.6
Other			1.5				1.4
Total revenue			100.0				100.0
Change in fair value			(42.0	)			(35.5	)
Net revenue			58.0	%			64.5	%

Revenue generated from the Company’s operations for the current quarter and the prior year quarter was as follows (in thousands):

 

		Three Months Ended September 30,
		2023				2022
Loan interest		$	358,957			$	337,535
Statement and draw fees on line of credit accounts			150,382				71,191
Other			42,021				47,474
Total Revenue		$	551,360			$	456,200

Loan and Finance Receivable Balances

The fair value of our loan and finance receivable portfolio in our consolidated financial statements was $3,321.1 million and $2,765.1 million as of September 30, 2023 and 2022, respectively. The outstanding principal balance of our loan and finance receivables portfolio was $2,904.7 million and $2,552.6 million as of September 30, 2023 and 2022, respectively. The fair value of the combined loan and finance receivables portfolio includes $18.7 million and $16.1 million with an outstanding principal balance of $13.7 million and $11.8 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, 2023 and 2022, respectively.

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The consumer portfolio balance was 39.1% of our combined loan and finance receivable portfolio balance at fair value as of September 30, 2023, which is fairly stable compared to 38.6% as of September 30, 2022. Our small business portfolio of loans and finance receivables was 60.9% of our combined loan and finance receivable portfolio at fair value as of September 30, 2023, compared to 61.4% as of September 30, 2022. See “—Non-GAAP Disclosure—Combined Loans and Finance Receivables Measures” 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, 2023 and 2022 (in thousands):

 

		As of September 30, 2023												As of September 30, 2022
						Guaranteed												Guaranteed
		Company				by the								Company				by the
		Owned(a)				Company(a)				Combined				Owned(a)				Company(a)				Combined(b)
Consumer loans and finance receivables
Principal		$	1,078,228			$	13,684			$	1,091,912			$	972,320			$	11,843			$	984,163
Fair value			1,286,330				18,661				1,304,991				1,056,205				16,144				1,072,349
Fair value as a % of principal			119.3	%			136.4	%			119.5	%			108.6	%			136.3	%			109.0	%
Small business loans and finance receivables
Principal		$	1,826,458			$	—			$	1,826,458			$	1,580,289			$	—			$	1,580,289
Fair value			2,034,732				—				2,034,732				1,708,918				—				1,708,918
Fair value as a % of principal			111.4	%			—	%			111.4	%			108.1	%			—	%			108.1	%
Total loans and finance receivables
Principal		$	2,904,686			$	13,684			$	2,918,370			$	2,552,609			$	11,843			$	2,564,452
Fair value			3,321,062				18,661				3,339,723				2,765,123				16,144				2,781,267
Fair value as a % of principal			114.3	%			136.4	%			114.4	%			108.3	%			136.3	%			108.5	%

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

At September 30, 2023 and 2022, the ratio of fair value as a percentage of principal was 114.3% and 108.3%, respectively, on company owned loans and finance receivables and 114.4% and 108.5%, respectively, on combined loans and finance receivables. These ratios increased compared to the prior year due primarily to an improvement in credit outlook on a substantial portion of our consumer and small business portfolios.

Average Amount Outstanding per Loan and Finance Receivable

The average amount outstanding per loan and finance receivable is calculated as the total combined loans and finance receivables, gross balance at the end of the period divided by the total number of combined loans and finance receivables outstanding at the end of the period. The following table shows the average amount outstanding per loan and finance receivable by product at September 30, 2023 and 2022:

		As of September 30,
		2023				2022
Average amount outstanding per loan and finance receivable(a)
Consumer loans and finance receivables(b)		$	1,807			$	2,156
Small business loans and finance receivables			37,414				37,670
Total loans and finance receivables(b)			4,282				4,980

(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 a third-party lender through the CSO program that we have not yet purchased and, therefore, are not included in our consolidated financial statements.

The average amount outstanding per loan and finance receivable decreased to $4,282 from $4,980 during the current quarter compared to the prior year quarter, due primarily to a mix shift in our consumer portfolio to line of credit accounts, which generally have lower average outstanding balances compared to installment loans.

Average Loan and Finance Receivable Origination

The average loan and finance receivable origination amount is calculated as the total amount of combined loans and finance receivables originated, renewed and purchased for the period divided by the total number of combined loans and finance receivables originated, renewed and purchased for the period.

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The following table shows the average loan and finance receivable origination amount by product for the current quarter compared to the prior year quarter:

 

		Three Months Ended
		September 30,
		2023				2022
Average loan and finance receivable origination amount(a)
Consumer loans and finance receivables(b)(c)		$	606			$	717
Small business loans and finance receivables(c)			16,422				17,849
Total loans and finance receivables(b)			1,506				2,014

(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 a third-party lender through the CSO program that we have not yet purchased and, therefore, are not included in our consolidated financial statements.

(c) For line of credit accounts, the average represents the average amount of each incremental draw.

The average loan and finance receivable origination amount is smaller than the average amount outstanding per loan and finance receivable in the previous section as the former measure includes incremental draws on our line of credit accounts whereas the latter measure includes the entire outstanding receivable on our line of credit accounts.

The average loan and finance receivable origination amount decreased to $1,506 from $2,014 during the current quarter compared to the prior year quarter, due primarily to a higher percentage of line of credit draws in comparison to installment loan originations, as the former are typically lower in average dollar amount.

Credit Performance of Loans and Finance Receivables

We monitor the performance of our loans and finance receivables. 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 the 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):

		2022								2023
		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		$	2,630,537			$	2,837,799			$	2,785,235			$	2,857,557			$	3,037,904
Guaranteed by the Company(a)			14,330				15,644				12,841				16,972				16,533
Ending combined loan and finance receivables balance(b)		$	2,644,867			$	2,853,443			$	2,798,076			$	2,874,529			$	3,054,437
> 30 days delinquent			147,688				190,119				198,011				221,540				242,126
> 30 days delinquency rate			5.6	%			6.7	%			7.1	%			7.7	%			7.9	%

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

(b) Non-GAAP measure. See “—Non-GAAP Disclosure—Combined Loans and Finance Receivables Measures” above.

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Consumer Loans and Finance Receivables

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

		2022								2023
		Third				Fourth				First				Second				Third
		Quarter				Quarter				Quarter				Quarter				Quarter
Consumer loans and finance receivables:
Consumer combined loan and finance receivable principal balance:
Company owned		$	972,320			$	965,753			$	908,087			$	983,388			$	1,078,228
Guaranteed by the Company(a)			11,843				12,937				10,549				14,199				13,684
Total combined loan and finance receivable principal balance(b)		$	984,163			$	978,690			$	918,636			$	997,587			$	1,091,912
Consumer combined loan and finance receivable fair value balance:
Company owned		$	1,056,205			$	1,083,062			$	1,062,867			$	1,168,044			$	1,286,330
Guaranteed by the Company(a)			16,144				16,257				13,901				19,115				18,661
Ending combined loan and finance receivable fair value balance(b)		$	1,072,349			$	1,099,319			$	1,076,768			$	1,187,159			$	1,304,991
Fair value as a % of principal(b)(c)			109.0	%			112.3	%			117.2	%			119.0	%			119.5	%
Consumer combined loan and finance receivable balance, including principal and accrued fees/interest outstanding:
Company owned		$	1,039,792			$	1,040,517			$	978,730			$	1,068,742			$	1,182,769
Guaranteed by the Company(a)			14,330				15,644				12,841				16,972				16,533
Ending combined loan and finance receivable balance(b)		$	1,054,122			$	1,056,161			$	991,571			$	1,085,714			$	1,199,302
Average consumer combined loan and finance receivable balance, including principal and accrued fees/interest outstanding:
Company owned(d)		$	1,027,100			$	1,038,389			$	1,015,849			$	1,017,061			$	1,133,499
Guaranteed by the Company(a)(d)			14,421				15,050				14,206				14,627				17,681
Average combined loan and finance receivable balance(b)(d)		$	1,041,521			$	1,053,439			$	1,030,055			$	1,031,688			$	1,151,180
Installment loans as percentage of average combined loan and finance receivable balance			68.4	%			64.1	%			58.9	%			53.5	%			46.4	%
Line of credit accounts as percentage of average combined loan and finance receivable balance			31.6	%			35.9	%			41.1	%			46.5	%			53.6	%
Revenue		$	277,096			$	286,347			$	281,011			$	302,264			$	347,898
Change in fair value			(135,646	)			(145,276	)			(114,651	)			(115,946	)			(174,766	)
Net revenue			141,450				141,071				166,360				186,318				173,132
Net revenue margin			51.0	%			49.3	%			59.2	%			61.6	%			49.8	%
Combined loan and finance receivable originations and purchases		$	395,527			$	336,370			$	291,203			$	401,468			$	478,501
Delinquencies:
> 30 days delinquent		$	77,258			$	86,884			$	72,092			$	73,829			$	93,542
> 30 days delinquent as a % of combined loan and finance receivable balance(b)(c)			7.3	%			8.2	%			7.3	%			6.8	%			7.8	%
Charge-offs:
Charge-offs (net of recoveries)		$	167,762			$	171,421			$	156,272			$	131,198			$	178,902
Charge-offs (net of recoveries) as a % of average combined loan and finance receivable balance(b)(d)			16.1	%			16.3	%			15.2	%			12.7	%			15.5	%

(a) Represents loans originated by a third-party lender through the CSO program 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 combined loan and finance receivable balance is the average of the month-end balances during the period.

The ending balance, including principal and accrued fees/interest outstanding, of combined consumer loans and finance receivables at September 30, 2023 increased 13.8% to $1,199.3 million compared to $1,054.1 million at September 30, 2022, due primarily to originations outpacing repayments.

The percentage of loans greater than 30 days delinquent increased to 7.8% at September 30, 2023 from 7.3% at September 30, 2022 due primarily to a mix shift to line of credit accounts, which generally have higher yields and credit risk compared to our installment products. Charge-offs (net of recoveries) as a percentage of average combined loan balance decreased to 15.5% for the current quarter, compared to 16.1% for the prior year quarter due to stronger credit performance of the portfolio. Demand for our consumer loan products and services in the United States has historically been highest in the third and fourth quarters of each year, corresponding to the holiday season, and lowest in the first quarter of each year, corresponding to our customers’ receipt of income tax refunds. Lower originations, particularly to new customers, which typically default at a higher percentage than returning customers, generally result in lower delinquencies and charge-offs as the book is more seasoned.

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Revenue related to our consumer loans and finance receivables was $347.9 million for the current quarter, compared to $277.1 million for the prior year quarter. The increase in revenue was driven primarily by growth in the overall portfolio. The net revenue margin related to our consumer loans and finance receivables was 49.8% for the current quarter, which is fairly stable compared to 51.0% for the prior year quarter.

The ratio of fair value as a percentage of principal on consumer loans and finance receivables was 119.5% at September 30, 2023, compared to 109.0% at September 30, 2022 and 119.0% at June 30, 2023. The increase from the prior year quarter was due primarily to a mix shift towards line of credit products, which generally have a higher fair value as a percentage of principal compared to installment loans, as well as improvements in credit outlook on the majority of the portfolio. Refer also to “Results of Operations—Valuation of Loans and Finance Receivables” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional discussion on loan valuation.

Small Business Loans and Finance Receivables

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

		2022								2023
		Third				Fourth				First				Second				Third
		Quarter				Quarter				Quarter				Quarter				Quarter
Small business loans and finance receivables:
Total loan and finance receivable principal balance		$	1,580,289			$	1,773,411			$	1,791,973			$	1,773,554			$	1,826,458
Ending loan and finance receivable fair value balance			1,708,918				1,935,466				1,940,499				1,924,401				2,034,732
Fair value as a % of principal(a)			108.1	%			109.1	%			108.3	%			108.5	%			111.4	%
Ending loan and finance receivable balance, including principal and accrued fees/interest outstanding		$	1,590,745			$	1,797,282			$	1,806,505			$	1,788,815			$	1,855,135
Average loan and finance receivable balance(b)		$	1,488,029			$	1,684,617			$	1,809,800			$	1,800,700			$	1,813,995
Installment loans as percentage of average combined loan and finance receivable balance			65.7	%			64.6	%			62.3	%			59.1	%			57.2	%
Line of credit accounts as percentage of average combined loan and finance receivable balance			34.3	%			35.4	%			37.7	%			40.9	%			42.8	%
Revenue		$	172,721			$	192,598			$	194,456			$	190,459			$	195,226
Change in fair value			(24,662	)			(49,099	)			(80,404	)			(82,180	)			(54,992	)
Net revenue			148,059				143,499				114,052				108,279				140,234
Net revenue margin			85.7	%			74.5	%			58.7	%			56.9	%			71.8	%
Combined loan and finance receivable originations and purchases		$	806,739			$	825,563			$	770,164			$	711,659			$	782,685
Delinquencies:
> 30 days delinquent		$	70,430			$	103,235			$	125,919			$	147,711			$	148,584
> 30 days delinquent as a % of loan balance(a)			4.4	%			5.7	%			7.0	%			8.3	%			8.0	%
Charge-offs:
Charge-offs (net of recoveries)		$	43,778			$	69,110			$	76,215			$	83,772			$	99,001
Charge-offs (net of recoveries) as a % of average loan and finance receivable balance(b)			2.9	%			4.1	%			4.2	%			4.7	%			5.5	%

(a) Determined using period-end balances.

(b) The average loan and finance receivable balance is the average of the month-end balances during the period.

The ending balance, including principal and accrued fees/interest outstanding, of small business loans and finance receivables at September 30, 2023 increased 16.6% to $1,855.1 million compared to $1,590.7 million at September 30, 2022, due primarily to originations outpacing repayments.

The percentage of loans greater than 30 days delinquent was 8.0% at September 30, 2023, compared to 4.4% at September 30, 2022. Charge-offs (net of recoveries) as a percentage of average loan balance increased to 5.5% for the current quarter, compared to 2.9% in the prior year quarter. When compared to the pre-COVID-19 period, the credit performance of our small business portfolio was stronger in 2021 and into 2022 as the portfolio was more seasoned due to reductions in originations in response to the pandemic. Delinquency and charge-offs have since increased to more normal levels due to the acceleration in originations and macroeconomic pressures on our customers and their businesses.

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Revenue related to our small business loans and finance receivables was $195.2 million for the current quarter, compared to $172.7 million for the prior year quarter. The increase in revenue was driven primarily by growth in the overall portfolio. The net revenue margin related to our small business loans and finance receivables was 71.8% for the current quarter, compared to 85.7% for the prior year quarter. The net revenue margin in the prior year quarter was elevated due to lower delinquency rates and lower than expected charge-offs as a result of portfolio seasoning and lower originations. The net revenue margin in the current quarter was more consistent with historical levels as credit performance has returned to more normalized levels. The net revenue margin in the current quarter is higher than the prior two sequential quarters due to improved performance of more recent vintages.

The ratio of fair value as a percentage of principal on small business loans and finance receivables was 111.4% at September 30, 2023, compared to 108.1% at September 30, 2022 and 108.5% at June 30, 2023. The increase from June 30, 2023 was due primarily to recent vintages, which have exhibited improved performance, being a higher percentage of the portfolio.

Total Operating Expenses

Total operating expenses increased $20.2 million, or 10.3%, to $215.9 million in the current quarter, compared to $195.7 million in the prior year quarter.

Marketing expense increased to $116.5 million in the current quarter compared to $101.3 million in the prior year quarter due primarily to growth in the overall business as well as higher online advertising costs intended to capture increasing market demand for both our consumer and small business loan products, partially offset by lower commissionable originations in our small business portfolio.

Operations and technology expense increased to $51.7 million in the current quarter compared to $45.9 million in the prior year quarter, due primarily to higher variable costs, particularly personnel and collection costs, due to the increase in originations and the size of the loan portfolio. As a percentage of revenue, operations and technology expense decreased to 9.4% in the current year quarter from 10.1% in the prior year quarter, as increased originations and revenues outpaced fixed costs.

General and administrative expense increased slightly to $37.7 million in the current quarter compared to $37.2 million in the prior year quarter, due largely to higher personnel costs, partially offset by lower occupancy and recruiting costs. As a percentage of revenue, general and administrative expense decreased to 6.9% in the current year quarter from 8.1% in the prior year quarter, as increased originations and revenues outpaced fixed costs.

Depreciation and amortization expense increased $1.3 million or 11.7% compared to the prior year quarter driven primarily by additional internally-developed software.

Nonoperating Items

Interest expense, net increased $17.8 million, or 57.4%, to $48.7 million in the current quarter compared to $30.9 million in the prior year quarter. The increase was due primarily to an increase in the average amount of debt outstanding, which increased $424.2 million to $2,357.2 million during the current quarter from $1,933.0 million during the prior year quarter, and an increase in the weighted average interest rate on our outstanding debt to 8.28% during the current quarter from 6.46% during the prior year quarter resulting from year-over-year increases in benchmark rates.

Provision for Income Taxes

The effective tax rate of 25.2% in the current quarter was higher than the 23.5% rate recorded in the prior year quarter due primarily to a beneficial rate change on the measurement of the net deferred tax liability in the prior year quarter, coupled with additional interest expense on uncertain tax positions booked in the current quarter, which was partially offset by larger excess tax benefits on stock compensation due to stock price appreciation.

As of September 30, 2023, the balance of unrecognized tax benefits, inclusive of interest and penalties, was $164.1 million, which is included in “Accounts payable and accrued expenses” in the consolidated balance sheet. This balance consists of a temporary component of $149.1 million, for which there is an equal and offsetting deferred tax asset, and a permanent component of $15.0 million, which, if recognized, would favorably affect the effective tax rate in the period of recognition. We had $73.0 million and $87.7 million of unrecognized tax benefits as of September 30, 2022 and December 31, 2022, respectively. Based on the expiration of the statute of limitations for certain jurisdictions, the Company believes it is reasonably possible that, within the next twelve months, unrecognized tax benefits could decrease by approximately $6.1 million. We believe that we have adequately accounted for any material tax uncertainties in our existing reserves for all open tax years.

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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 2018. However, the 2014 tax year is still open to the extent of the net operating loss that was carried 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.

Net Income

Net income decreased $10.4 million, or 20.2%, to $41.3 million during the current quarter compared to $51.7 million during the prior year quarter. The decrease was due primarily to higher interest expense as a result of an increase in the average amount of debt outstanding and an increase in the weighted average interest rate on our outstanding debt. The increase in interest expense was partially offset by an increase in income from operations due primarily to increased net revenue and lower operating expenses as a percentage of revenue.

NINE MONTHS ENDED SEPTEMBER 30, 2023 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2022

Revenue and Net Revenue

Revenue increased $284.2 million, or 22.7%, to $1,534.1 million for the nine-month period ended September 30, 2023, or current nine-month period, as compared to $1,249.9 million for the nine-month period ended September 30, 2022, or prior year nine-month period. The increase was driven by a 27.4% increase in revenue from our small business portfolio and a 19.6% increase in revenue from our consumer portfolio as higher levels of originations have led to higher loan balances for both portfolios.

Net revenue for the current nine-month period was $904.9 million compared to $827.4 million for the prior year nine-month period. Our consolidated net revenue margin was 59.0% for the current nine-month period compared to 66.2% for the prior year nine-month period. The decrease in net revenue margin was driven primarily by normalization in our small business portfolio, which had an atypically high net revenue margin in the prior year nine-month period.

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

		Nine Months Ended September 30,
		2023				2022				$ Change				% Change
Revenue by product:
Consumer loans and finance receivables revenue		$	931,173			$	778,686			$	152,487				19.6	%
Small business loans and finance receivables revenue			580,141				455,224				124,917				27.4
Total loans and finance receivables revenue			1,511,314				1,233,910				277,404				22.5
Other			22,733				16,011				6,722				42.0
Total revenue			1,534,047				1,249,921				284,126				22.7
Change in fair value			(629,161	)			(422,465	)			(206,696	)			48.9
Net revenue		$	904,886			$	827,456			$	77,430				9.4	%
Revenue by product (% to total):
Consumer loans and finance receivables revenue			60.7	%			62.3	%
Small business loans and finance receivables revenue			37.8				36.4
Total loans and finance receivables revenue			98.5				98.7
Other			1.5				1.3
Total revenue			100.0				100.0
Change in fair value			(41.0	)			(33.8	)
Net revenue			59.0	%			66.2	%

 

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Revenue generated from the Company’s operations for the current nine-month period and the prior year nine-month period was as follows (in thousands):

 

		Nine Months Ended September 30,
		2023				2022
Loan interest		$	1,052,445			$	928,328
Statement and draw fees on line of credit accounts			361,439				192,539
Other			120,163				129,054
Total Revenue		$	1,534,047			$	1,249,921

Average Loan and Finance Receivable Origination

The average loan and finance receivable origination amount is calculated as the total amount of combined loans and finance receivables originated, renewed and purchased for the period divided by the total number of combined loans and finance receivables originated, renewed and purchased for the period. The following table shows the average loan and finance receivable origination amount by product for the current nine-month period compared to the prior year nine-month period:

		Nine Months Ended
		September 30,
		2023				2022
Average loan and finance receivable origination amount(a)
Consumer loans and finance receivables(b)(c)		$	597			$	677
Small business loans and finance receivables(c)			16,349				16,983
Total loans and finance receivables(b)			1,636				1,773

(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 program 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.

The average loan and finance receivable origination amount decreased to $1,636 from $1,773 during the current nine-month period compared to the prior year nine-month period, due primarily to a mix shift to line of credit accounts, which generally have lower average outstanding balances compared to installment loans.

Total Operating Expenses

Total operating expenses increased $31.6 million, or 5.8%, to $580.3 million in the current nine-month period, compared to $548.7 million in the prior year nine-month period.

Marketing expense increased to $292.2 million in the current nine-month period compared to $286.0 million in the prior year nine-month period. The increase was due primarily to growth in the overall business as well as higher online advertising costs intended to capture increasing market demand for both our consumer and small business loan products, partially offset by lower commissionable originations in our small business portfolio and lower direct mail spend.

Operations and technology expense increased to $147.9 million in the current nine-month period compared to $128.9 million in the prior year nine-month period, due primarily to higher variable costs, particularly personnel, underwriting and collection costs, due to the increase in originations and the size of the loan portfolio. As a percentage of revenue, operations and technology expense decreased to 9.6% in the current nine-month period from 10.3% in the prior year nine-month period, as increased originations and revenues outpaced fixed costs.

General and administrative expense increased $5.7 million, or 5.4%, to $111.1 million in the current nine-month period compared to $105.4 million in the prior year nine-month period, due primarily to higher personnel costs. As a percentage of revenue, general and administrative expense decreased to 7.2% in the current nine-month period from 8.4% in the prior year nine-month period, as increased originations and revenues outpaced fixed costs.

Depreciation and amortization expense increased $0.7 million or 2.7% compared to the prior year nine-month period driven primarily by $1.7 million in impairment charges on leasehold improvement assets related to surrendered office space that have no future utility, partially offset by lower impairment charges on internal-use software that was retired.

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Nonoperating Items

Interest expense, net increased $59.3 million, or 75.6%, to $137.6 million in the current nine-month period compared to $78.3 million in the prior year nine-month period. The increase was due primarily to an increase of $546.3 million in the average amount of debt outstanding to $2,301.8 million during the current nine-month period from $1,755.5 million during the prior year nine-month period, and an increase in the weighted average interest rate on our outstanding debt to 8.10% during the current nine-month period from 6.07% during the prior year nine-month period.

Equity method investment loss was $1.1 million in the current nine-month period compared to equity method investment income of $6.5 million in the prior year nine-month period. In the prior year nine-month period, Linear sold its operating company, resulting in a gain of $11.0 million, which was partially offset by a $4.4 million loss on the sale of OnDeck Canada.

Provision for Income Taxes

The effective tax rate of 24.4% in the current nine-month period was higher compared to the effective tax rate of 23.9% in the prior year nine-month period. The increase is primarily attributable to additional interest expense on unrecognized tax benefits, partially offset by excess tax benefits on stock compensation due to stock price appreciation.

Net Income

Net income decreased $16.2 million, or 10.3%, to $140.4 million during the current nine-month period compared to $156.6 million during the prior year nine-month period. The decrease was due primarily to higher interest expense as a result of an increase in the average amount of debt outstanding and an increase in the weighted average interest rate on our outstanding debt. The increase in interest expense was partially offset by an increase in income from operations due primarily to overall growth in the business driving an increase in net revenue and lower operating expenses as a percentage of revenue.

LIQUIDITY AND CAPITAL RESOURCES

Capital Funding Strategy

We seek to maintain a stable and flexible balance sheet to ensure that liquidity and funding are available to meet our business obligations. As of September 30, 2023, we had cash, cash equivalents, and restricted cash of $196.3 million, of which $133.4 million was restricted, compared to $178.4 million, of which $78.2 million was restricted, as of December 31, 2022. During the nine months ended September 30, 2023, we issued $170.0 million of asset-backed notes to fund our growth in our near-prime consumer loan business, entered into a new $287.2 million small business loan securitization facility and issued $227.1 million of asset-backed notes to fund our growth in our small business loan business. As of September 30, 2023, we had funding capacity of $748.3 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 September 2024. As part of our capital and liquidity management, we may from time to time acquire our outstanding debt securities, including through redemptions, tender offers, open market purchases, negotiated transactions or otherwise, in accordance with applicable securities laws and in compliance with the indentures governing our outstanding debt securities, upon such terms and at such prices as we may determine.

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. 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 existing indebtedness. 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 existing indebtedness.

On June 30, 2017, we entered into a secured revolving credit agreement (as amended, the “Credit Agreement”). On June 23, 2022, we entered into an amendment and restatement of our Credit Agreement that, among other things, increased the borrowing capacity to $440.0 million, with a $20.0 million letter of credit sublimit and $10.0 million swingline loan sublimit. On October 19, 2023, we amended the Credit Agreement to, among other changes, increase the total commitment amount from $440.0 million to $515.0 million. The Credit Agreement bears interest, at our option, at the base rate plus 0.75% or the Secured Overnight Financing Rate plus 3.50%. In addition to customary fees for a credit facility of this size and type, the Credit Agreement provides for payment of a commitment fee calculated with respect to the unused portion of the commitment, and ranges from 0.15% per annum to 0.50% per annum depending on usage. The Credit Agreement contains certain prepayment penalties if it is terminated on or before the first and second anniversary dates, subject to certain exceptions. The Credit Agreement matures on June 30, 2026. As of October 20, 2023, our available borrowings under the Credit Agreement were $132.3 million. Since 2016, we have entered into several loan securitization facilities and offered asset-backed notes to fund our growth, primarily in our near-prime consumer installment loan and small business loan businesses. As of October 20, 2023, we had funding capacity of $620.3 million.

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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, 2023, 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.

Capital

Total stockholders’ equity increased by $74.9 million to $1,261.0 million at September 30, 2023 from $1,186.1 million at December 31, 2022. The increase of stockholders’ equity was driven primarily by net income for the nine months ended September 30, 2023 and, to a lesser extent, stock-based compensation expense, partially offset by repurchases of our outstanding common stock. Our book value per share outstanding increased to $41.69 at September 30, 2023 from $37.99 at December 31, 2022, which was primarily driven by net income during the current year, partially offset by the increase in treasury stock as a result of share repurchases, which is discussed in more detail below.

On February 9, 2022, we announced the Board of Directors authorized a share repurchase program totaling $100.0 million through June 30, 2023 (the “February 2022 Authorization”). On November 7, 2022, we announced the Board of Directors authorized an increase to our share repurchase program of up to $150.0 million through December 31, 2023 (the “November 2022 Authorization”). The November 2022 Authorization went into effect in March 2023 upon exhaustion of the February 2022 Authorization. On October 24, 2023, we announced the Board of Directors authorized a new share repurchase program totaling $300.0 million through December 31, 2024. The new program replaces the November 2022 Authorization. The Company repurchased $91.5 million of common stock under the November 2022 Authorization before it was terminated. Repurchases under our repurchase program will be made in accordance with applicable securities laws from time to time in the open market, through privately negotiated transactions or otherwise. The share repurchase program does not obligate us to purchase any shares of our common stock. The authorization for the share repurchase program may be terminated, increased or decreased by the Board of Directors in its discretion at any time. During the nine months ended September 30, 2023, we had $80.4 million in repurchases of common stock under our share repurchase program.

Cash

Our cash and cash equivalents are held primarily for working capital purposes and are used to fund a portion of our lending activities. From time to time, we use excess cash and cash equivalents to fund our lending activities. We do not enter into investments for trading or speculative purposes. Our policy is to invest cash in excess of our immediate working capital requirements in short-term investments, deposit accounts or other arrangements designed to preserve the principal balance and maintain adequate liquidity. Our excess cash may be invested primarily in overnight sweep accounts, money market instruments or similar arrangements that provide competitive returns consistent with our polices and market conditions.

Our restricted cash primarily consists of funds held in accounts as reserves on certain debt facilities and as collateral for issuing bank partner transactions. We have no ability to draw on such funds as long as they remain restricted under the applicable arrangements but have the ability to use these funds to finance loan originations, subject to meeting borrowing base requirements. Our policy is to invest restricted cash held in debt facility related accounts, to the extent permitted by such debt facility, in investments designed to preserve the principal balance and provide liquidity. Accordingly, such cash is invested primarily in money market instruments that offer daily purchase and redemption and provide competitive returns consistent with our policies and market conditions.

Current Debt Facilities

The following table summarizes our debt facilities as of September 30, 2023 (dollars in thousands).

 

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		Maturity date		Weighted average interest rate(a)		Borrowing capacity				Principal outstanding
Funding Debt:
2018-1 Securitization Facility		March 2027	(b)	9.57%			200,000				47,148
2018-2 Securitization Facility		July 2025	(c)	9.67%			94,643				94,643
NCR 2022 Securitization Facility		October 2026	(d)	10.07%			125,000				37,246
ODR 2021-1 Securitization Facility		November 2024	(e)	8.27%			233,333				86,331
ODR 2022-1 Securitization Facility		June 2025	(f)	8.20%			420,000				277,699
RAOD Securitization Facility		November 2025	(g)	8.13%			230,263				107,110
HWCR 2023 Securitization Facility		May 2026	(h)	9.76%			287,214				287,214
ODAST III Securitization Notes		May 2027	(i)	2.07%			300,000				300,000
2023-A Securitization Notes		December 2027		7.78%			98,349				98,349
ODAS IV Securitization Notes		August 2030		7.66%			227,051				227,051
Total funding debt				7.38%		$	2,215,853			$	1,562,791
Corporate Debt:
8.50% senior notes due 2024		September 2024		8.50%			169,936				169,936
8.50% senior notes due 2025		September 2025		8.50%			375,000				375,000
Revolving line of credit		June 2026		8.82%			440,000		(j)		344,000
Total corporate debt				8.62%		$	984,936			$	888,936

(a) The weighted average interest rate is determined based on the rates and principal balances on September 30, 2023. It does not include the impact of the amortization of deferred loan origination costs or debt discounts.

(b) The period during which new borrowings may be made under this facility expires in March 2025.

(c) The period during which new borrowings could be made under this facility expired in July 2023.

(d) The period during which new borrowings may be made under this facility expires in October 2024.

(e) The period during which new borrowings may be made under this facility expires in November 2023.

(f) The period during which new borrowings may be made under this facility expires in June 2024.

(g) The period during which new borrowings may be made under this facility expires in November 2024.

(h) The period during which new borrowings may be made under this facility expires in May 2025.

(i) The period during which new borrowings may be made under this facility expires in April 2024.

(j) We had an outstanding letter of credit under the Revolving line of credit of $0.8 million as of September 30, 2023.

Our ability to fully utilize the available capacity of our debt facilities may also be impacted by provisions that limit concentration risk and eligibility.

Cash Flows

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

 

		Nine Months Ended September 30,
		2023				2022
Total cash flows provided by operating activities		$	852,581			$	624,860
Cash flows used in investing activities
Loans and finance receivables			(895,010	)			(1,200,390	)
Capitalization of software development costs and purchases of fixed assets			(33,429	)			(33,290	)
Sale of a subsidiary			—				8,713
Total cash flows used in investing activities			(928,439	)			(1,224,967	)
Cash flows provided by financing activities		$	93,569			$	545,846

Cash Flows from Operating Activities

Net cash provided by operating activities increased $227.7 million, or 36.4%, to $852.6 million in the current nine-month period from $624.9 million for the prior year nine-month period. The increase was driven primarily by additional interest and fee income from growth in the loan portfolio.

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

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Cash Flows from Investing Activities

Net cash used in investing activities was $928.4 million for the current nine-month period compared to $1,225.0 million for the prior year nine-month period. This change was due primarily to loan originations outpacing repayments by a wider margin in the prior year nine-month period compared to the current nine-month period.

Cash Flows from Financing Activities

Cash flows provided by financing activities for the current nine-month period were driven primarily by $230.0 million in net borrowings under our securitization facilities and $35.0 million in net borrowings under our revolving line of credit, partially offset by $86.4 million in share repurchases and $79.9 million in repayments of our 2024 Senior Notes. Cash flows provided by financing activities for the prior year nine-month period were driven primarily by $563.9 million and $109.0 million in net borrowings under our securitization and revolving line of credit facilities, respectively, partially offset by $124.1 million in share repurchases.

CRITICAL ACCOUNTING ESTIMATES

There have been no material changes to the information on critical accounting estimates described in our Annual Report on Form 10‑K for the year ended December 31, 2022.

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 that may be significant to Enova.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in our exposure to market risk since the most recent fiscal year end. Refer to our market risk disclosures in our Annual Report on Form 10‑K for the year ended December 31, 2022.

 

 

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure 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, 2023 (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.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting during the quarter ended September 30, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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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

There have been no material changes from the Risk Factors described in Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

 

 

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(b)				Total Number of Shares Purchased as Part of Publicly Announced Plan(c)				Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plan(b)(c) (in thousands)
July 1 – July 31, 2023			97,200			$	54.65				97,200			$	108,427
August 1 – August 31, 2023			403,167				52.20				401,200				87,488
September 1 – September 30, 2023			194,805				49.71				194,805				77,804
Total			695,172			$	51.85				693,205			$	77,804

(a) Includes shares withheld from employees as tax payments for shares issued under the Company’s stock-based compensation plans of 1,967 for the month of August. These shares were not acquired pursuant to a publicly announced repurchase plan.

(b) The Inflation Reduction Act of 2022, which was enacted into law on August 16, 2022, imposed a nondeductible 1% excise tax on the net value of certain stock repurchases made after December 31, 2022. During the three months ended September 30, 2023, the Company reflected the applicable excise tax in treasury stock as part of the cost basis of the stock repurchased and recorded a corresponding liability for the excise taxes payable in accounts payable and accrued expenses on the consolidated balance sheet. All dollar amounts presented exclude such excise taxes.

(c) On November 7, 2022, the Company announced the Board of Directors authorized an increase to its share repurchase program of up to $150.0 million through December 31, 2023 (the “November 2022 Authorization”). The November 2022 Authorization went into effect in March 2023 upon exhaustion of the previous authorization. On October 24, 2023, the Company announced the Board of Directors authorized a new share repurchase program totaling $300.0 million through December 31, 2024. The new program replaces the November 2022 Authorization. The Company repurchased $91.5 million of common stock under the November 2022 Authorization before it was terminated. All share repurchases made under the November 2022 Authorization were made through open market transactions. Our share repurchase program is subject to market conditions, does not obligate us to purchase any shares of our common stock, and may be terminated, increased or decreased by the Board of Directors in its discretion at any time.

We do not plan to declare cash dividends in the foreseeable future. Any declaration of dividends is at the discretion of our Board of Directors. Our agreements governing our existing debt contain restrictions which limit our ability to pay dividends.

 

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

 

 

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

 

 

ITEM 5. OTHER INFORMATION

During the quarter ended September 30, 2023, none of our directors or Section 16 officers adopted, modified or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as those terms are defined in Regulation S-K, Item 408.

 

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ITEM 6. EXHIBITS

Exhibit No.		Exhibit Description
3.1		Enova International, Inc. Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Form 10-Q filed on July 28, 2023)
3.1
3.2		Enova International, Inc. Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed on November 17, 2017)
4.1*		Base Indenture, dated as of July 27, 2023, by and between OnDeck Asset Securitization IV, LLC, as Issuer and Deutsche Bank Trust Company Americas, as Indenture Trustee of Asset Backed Notes (Issuable in Series of Notes)
4.2*		Series 2023-1 Indenture Supplement dated as of July 27, 2023 to Base Indenture dated as of July 27, 2023, by and between OnDeck Asset Securitization IV, LLC, as Issuer and Deutsche Bank Trust Company Americas, as Indenture Trustee of up to $378,417,000 of Asset Backed Notes
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)

* Filed herewith.

 

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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 25, 2023			ENOVA INTERNATIONAL, INC.
			By:		/s/ Steven E. Cunningham
					Steven E. Cunningham
					Chief Financial Officer
					(On behalf of the Registrant and as Principal Financial Officer)

 

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