ENVA US Equity☆

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

RECENT REGULATORY DEVELOPMENTS

Consumer Financial Protection Bureau (“CFPB”)

We received a Civil Investigative Demand (“CID”) from the CFPB concerning certain loan processing issues. We have been cooperating fully with the CFPB by providing 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, and will continue to provide, restitution to customers who may have been negatively impacted.

On October 6, 2017, the CFPB issued its final rule entitled “Payday, Vehicle Title, and Certain High-Cost Installment Loans” (the “Small Dollar Rule”), which covers certain loans that we offer. The Small Dollar Rule requires that lenders who make short-term loans and longer-term loans with balloon payments reasonably determine consumers’ ability to repay the loans according to their terms before issuing the loans. The Small Dollar Rule also introduces new limitations on repayment processes for those lenders as well as lenders of other longer-term loans with an annual percentage rate greater than 36 percent that include an ACH authorization or similar payment provision. If a consumer has two consecutive failed payment attempts, the lender must obtain the consumer’s new and specific authorization to make further withdrawals from the consumer’s bank account. For loans covered by the Small Dollar Rule, lenders must provide certain notices to consumers before attempting a first payment withdrawal or an unusual withdrawal and after two consecutive failed withdrawal attempts. On June 7, 2019, the CFPB issued a final rule to set the compliance date for the mandatory underwriting provisions of the Small Dollar Rule to November 19, 2020. On July 7, 2020, the CFPB issued a final rule rescinding the ability to repay (“ATR”) provisions of the Small Dollar Rule along with related provisions, such as the establishment of registered information systems for checking ATR and reporting loan activity. The payment provisions of the Small Dollar Rule remain in place, but remain stayed indefinitely by the United States Court of Appeals for the Fifth Circuit, which is hearing an appeal from the plaintiff on a constitutional challenge to the Small Dollar Rule. On October 14, 2021, the Fifth Circuit ruled that the Small Dollar Rule will not take effect until 286 days after the Fifth Circuit rules on the appeal. 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.

Virginia SB 421

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

Illinois SB 1792

On March 23, 2021, the Economic Equity Act (“EEA”) became effective in Illinois. The EEA implements a 36% rate cap on all consumer lending, with the APR calculated consistent with the Military Lending Act’s Military Annual Percentage Rate. The EEA applies to consumer loans originated on or after the effective date. In addition, the EEA provides for the application of a predominant economic interest test for bank service arrangements. Pursuant to the predominant economic interest test, a broker or service with a predominant economic interest in a loan is considered to be the “true lender” for purposes of applying the EEA and the 36% rate cap.

New Mexico HB 132

On February 15, 2022, the New Mexico Legislature passed HB 132. The bill 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 New Mexico Governor has until March 9, 2022 to sign the bill or else it will be vetoed. If signed, the bill will take effect on January 1, 2023.

Brazil General Data Privacy Law

On August 14, 2018, Brazil adopted the General Data Privacy Law (Lei Geral de Proteção de Dados Pessoais or “LGPD”). The key provisions of LGPD are quite similar to the European Union’s General Data Protection Regulation (“GDPR”) in that it grants certain rights to data subjects, imposes obligations on companies with regard to the processing of data, and allows authorities to impose substantial fines on companies that violate the law. LGPD was originally anticipated to go into effect on February 15, 2020; however, several amendments to LGPD delayed the effective date. LGPD took effect on September 18, 2020, and enforcement of the penalties and sanctions for non-compliance began August 1, 2021. Compliance with LGPD may increase the cost of conducting business in Brazil, and we could see regulatory compliance costs and enforcement activity now that the law is in effect.

45

RESULTS OF OPERATIONS

Election of Fair Value Option

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

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

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

COVID-19

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

•

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

•

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

•

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

•

We adjusted loan and draw sizes as well as shortened duration in an effort to reduce risk in this volatile environment. Certain of these measures have eased since the height of the pandemic, with improvement of economic conditions and our outlook.

From a loan valuation perspective, the COVID-19 pandemic significantly increased the potential variability of our expected cash flows. We deemed it appropriate to increase the discount rate to capture the increase in potential volatility in expected cash flows due to the unprecedented nature of this pandemic and governmental response. After adjusting the discount rate for the decrease in underlying interest rates, we increased the rate by 500 basis points based on what we deemed a market participant would require to assume the additional risk. Consequently, the associated fair values of these loans were adjusted lower as part of the standard process in our internally-developed valuation models described in the Notes to the Consolidated Financial Statements as well as the “Critical Accounting Estimates” section of this Form 10-K. These rates remained consistent for the remainder of 2020. Over the course of 2021, we noted a tightening of credit spreads in observable pricing in the market; as such, we reduced the discount rate used in our valuations. As of December 31, 2021, our discount rates have generally returned to the levels utilized immediately prior to the pandemic, which we believe is representative of what a market participant would use.

The number of loans with payment deferrals or other modifications increased meaningfully toward the end of the first quarter and into the second quarter of 2020. These requests for deferrals and modifications decreased meaningfully over the remainder of 2020 and into 2021. Since the beginning of the pandemic, we have assessed performance of borrowers that had elected to defer or modify loan payments during the pandemic. As of December 31, 2021, our collection data does not appear to indicate increased risk with these borrowers. As modifications and deferrals do not appear to be a strong indicator of future activity, we did not make an adjustment to the fair value of these loans at December 31, 2021 based on current or past modification or deferral.

46

After seeing increases in delinquency and charge-offs early in the pandemic, we experienced significant improvements to these metrics over the remainder of 2020 and carrying into 2021. The U.S. government provided multiple rounds of stimulus assistance to taxpayers and businesses. Positive COVID-19 test counts in the U.S. generally decreased across the first half of 2021 although rose again in the second half of 2021 with the spread of the Delta and Omicron variants. With deceleration in vaccination rates, the emergence of new and more transmissible COVID strains, and questions on the efficacy of the vaccines in use against new variants, there remains significant concern among public health officials and governmental bodies on the forward trajectory of the pandemic and its impacts on the economy. In evaluating inputs to our valuation models as of December 31, 2021, we noted that, although rising in our consumer loan portfolios, delinquencies and charge-off experience were still lower than pre-pandemic levels, both of which were likely to have been favorably impacted by governmental stimulus efforts. Future stimulus is uncertain and, if not provided at the same levels or at all, could cause future behavior to deviate from past performance. Similar to our loan valuations at December 31, 2020, March 31, 2021, June 30, 2021 and September 30, 2021, management concluded that the probability of future charge-offs was higher than what we had experienced in the past and, therefore, increased anticipated charge-offs in our fair value models, which reduced the fair value of our portfolio at December 31, 2021. We deemed the resulting fair value to be an appropriate market-based exit price that considers current market conditions at December 31, 2021.

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

HIGHLIGHTS

Our financial results for the year ended December 31, 2021 (“2021”) are summarized below.

•

Revenue increased $124.2 million, or 11.5%, to $1,207.9 million in 2021 compared to $1,083.7 million in the year ended December 31, 2020 (“2020”).

•

Net revenue was $1,024.3 million in 2021 compared to $684.2 million in 2020.

•

Income from Operations increased $55.3 million, or 15.4%, to $413.1 million in 2021, compared to $357.8 million in 2020.

•

Net income was $256.3 million in 2021, compared to $377.8 million in 2020. Diluted earnings per share were $6.79 in 2021 compared to $11.70 in 2020.

47

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):

Year Ended December 31,

Revenue

Operating Expenses

Foreign currency transaction (loss) gain, net (382 ) 514 (216 )

Gain on bargain purchase — 163,999 —

Equity method investment income 2,953 628 —

Less: Net income attributable to noncontrolling interest 773 85 —

Net loss from discontinued operations — (300 ) (91,404 )

Diluted earnings per share – continuing operations $ 6.79 $ 11.71 $ 3.72

Diluted loss per share – discontinued operations — (0.01 ) (2.66 )

Revenue

Loans and finance receivables revenue 98.7 % 99.3 % 99.8 %

Change in Fair Value (15.2 ) (36.9 ) —

Cost of Revenue — — (51.3 )

Operating Expenses

Operations and technology 12.2 8.9 7.2

Depreciation and amortization 2.9 1.8 1.3

Interest expense, net (6.3 ) (8.0 ) (6.4 )

Foreign currency transaction (loss) gain, net — 0.1 —

Gain on bargain purchase — 15.1 —

Equity method investment income 0.2 0.1 —

Other nonoperating expenses (0.2 ) (0.1 ) (0.2 )

Provision for income taxes 6.6 5.3 3.6

Less: Net income attributable to noncontrolling interest 0.1 — —

Net income from continuing operations 21.2 34.9 10.9

Net loss from discontinued operations — — (7.8 )

Net income attributable to Enova International, Inc. 21.2 % 34.9 % 3.1 %

48

NON-GAAP FINANCIAL MEASURES

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

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

Adjusted Earnings Measures

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

Year Ended December 31,

Adjustments:

Gain on bargain purchase — (163,999 ) —

Lease termination and cease use loss(b) 7,535 — 726

Foreign currency transaction loss (gain), net(d) 372 (499 ) 216

Cumulative tax effect of adjustments (9,855 ) (8,038 ) (3,907 )

Discrete tax adjustments(e) — (11,604 ) (141 )

Diluted earnings per share from continuing operations $ 6.79 $ 11.71 $ 3.72

Adjustments:

Gain on bargain purchase — (5.08 ) —

Transaction-related costs(a) 0.04 0.62 —

Lease termination and cease use loss(b) 0.20 — 0.02

Stock-based compensation expense 0.56 0.56 0.35

Foreign currency transaction loss (gain), net(d) 0.01 (0.02 ) —

Cumulative tax effect of adjustments (0.26 ) (0.25 ) (0.11 )

Discrete tax adjustments(e) — (0.36 ) —

Adjusted earnings per share $ 7.57 $ 7.26 $ 4.08

(a)

For the years ended December 31, 2021 and 2020, we recorded expenses of $1.4 million ($1.1 million net of tax) and $20.0 million ($19.5 million net of tax), respectively, related to acquisitions and a divestiture of a subsidiary.

49

(b)

For the years ended December 31, 2021 and 2019, we recorded losses of $7.5 million ($5.6 million net of tax), including a net write-off of leasehold improvements of $4.2 million), and $0.7 million ($0.6 million net of tax), respectively, related to exits of leased office spaces.

(c)

For the year ended December 31, 2021, we recorded a loss of $0.8 million ($0.6 million net of tax) related to the partial divestiture of a subsidiary and a nonoperating expense of $0.8 million ($0.6 million net of tax) related to an incomplete capital markets transaction. For the years ended December 31, 2021, 2020 and 2019, we recorded losses on early extinguishment of debt of $0.4 million ($0.3 million net of tax), $0.8 million ($0.6 million net of tax) and $2.3 million ($1.8 million net of tax), respectively.

(d)

Excludes amounts attributable to noncontrolling interests.

(e)

For the years ended December 31, 2020 and 2019, we recorded income tax benefits of $11.6 million resulting from the remeasurement of our liability for certain previously unrecognized tax benefits and $0.1 million from the U.S. Tax Cuts and Jobs Act, 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 transaction-related costs, lease termination and cease use (gain) loss, gain on bargain purchase, 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 (dollars in thousands):

Year Ended December 31,

Foreign currency transaction loss (gain), net(d) 372 (499 ) 216

Adjustments:

Lease termination and cease use loss(b) 3,336 — 370

Gain on bargain purchase — (163,999 ) —

Equity method investment income (2,953 ) (628 ) —

Adjusted EBITDA margin calculated as follows:

Adjusted EBITDA as a percentage of total revenue 39.2 % 38.3 % 23.5 %

Refer to footnotes in previous table for explanation of (a), (b), (c) and (d).

Combined Loans and Finance Receivables

Combined loans and finance receivables is a non-GAAP measure that includes both loans and RPAs we own and loans we guarantee, which are either GAAP items or disclosures required by GAAP. We believe this non-GAAP measure provides investors with important information needed to evaluate the magnitude of potential receivable losses and the opportunity for revenue performance of the loans and finance receivables 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 sheets 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.

50

YEAR ENDED 2021 COMPARED TO YEAR ENDED 2020

Revenue and Net Revenue

Revenue increased $124.2 million, or 11.5%, to $1,207.9 million for 2021 as compared to $1,083.7 million for 2020. The change in revenue was driven primarily by the inclusion of OnDeck for a full twelve months in 2021, partially offset by a reduction in originations in the prior year as a result of our efforts to mitigate the risk of the COVID‐19 pandemic.

Our net revenue was $1,024.3 million for 2021 compared to $684.2 million for 2020. Our net revenue as a percentage of revenue (“net revenue margin”) was 84.8% in 2021 compared to 63.1% in 2020. The increase in net revenue margin was driven by lower delinquency rates and lower than expected charge-offs, particularly in the small business portfolio.

The following table sets forth the components of revenue and net revenue, separated by product for 2021 and 2020 (dollars in thousands):

Year Ended December 31,

Revenue by product:

Revenue by product (% to total):

Consumer loans and finance receivables revenue 67.5 % 88.8 %

Small business loans and finance receivables revenue 31.2 10.5

Total loan and finance receivable revenue 98.7 99.3

Change in fair value (15.2 ) (36.9 )

Loan and Finance Receivable Balances

The fair value of our loan and finance receivable portfolio in our consolidated financial statements at December 31, 2021 and 2020 was $1,964.7 million and $1,241.5 million, respectively, with an outstanding principal balance of $1,878.4 million and $1,263.1 million, respectively. The fair value of the combined loan and finance receivables portfolio includes $18.8 million with an outstanding principal balance of $11.8 million and $10.3 million with an outstanding principal balance of $8.8 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 December 31, 2021 and 2020, respectively. See “—Non-GAAP Financial Measures—Combined Loans and Finance Receivables” above for additional information related to combined loans and finance receivables.

The following table summarizes loan and finance receivable balances outstanding as of December 31, 2021 and 2020 (in thousands):

As of December 31,

Guaranteed Guaranteed

Company by the Company by the

Owned(a) Company(a) Combined(b) Owned(a) Company(a) Combined(b)

Consumer loans and finance receivables

Small business loans and finance receivables

Total loans and finance receivables

51

(a)

GAAP measure. The loan and finance receivable balances guaranteed by us relate to loans originated by third-party lenders through the CSO programs and are not included in our consolidated balance sheets.

(b)

Amounts represent non-GAAP measures.

At December 31, 2021, the ratio of fair value as a percentage of principal was 104.6% on company owned loans and finance receivables and 104.9% on combined loans and finance receivables compared to 98.3% on company owned loans and finance receivables and 98.4% on combined loans and finance receivables at December 31, 2020. These ratios increased during the year due primarily to lower delinquency rates and lower than expected charge-offs in the small business portfolio, partially offset by the impact of the acceleration of originations on the consumer portfolio, particularly to new customers, which carry a higher risk of charge-off.

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 December 31, 2021 and 2020:

As of December 31,

Average amount outstanding per loan and finance receivable (in ones)(a)

Consumer loans and finance receivables(b) $ 1,953 $ 3,040

Small business loans and finance receivables 38,125 29,093

(a)

The disclosure regarding the average amount per loan is statistical data that is not included in our consolidated financial statements.

(b)

Includes loans guaranteed by us, which represent loans originated by third-party lenders through the CSO programs and are not included in our consolidated balance sheets.

The average amount outstanding per loan decreased to $3,849 as of December 31, 2021 compared to $5,721 from prior year, mainly due to a mix shift in our consumer loan products, partially offset by higher average amount outstanding per loan in the small business portfolio as lending has expanded with economic recovery in 2021.

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 2021 compared to 2020:

Year Ended

December 31,

Average loan and finance receivable origination amount (in ones)(a)

Consumer loans and finance receivables(b)(c) $ 648 $ 426

Small business loans and finance receivables(c) 15,703 13,584

(a)

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

(b)

Includes loans guaranteed by us, which represent loans originated by third-party lenders through the CSO programs and are not included in our consolidated balance sheets.

(c)

For line of credit accounts the average represents the average amount of each incremental draw.

The average loan origination amount increased to $1,419 from $600 during 2021 compared to 2020, due primarily to an increase in the mix of loans and finance receivables held by small businesses in our portfolio as a result of our acquisition of OnDeck in October 2020 and, to a lesser extent, a strategic reduction in loan size in response to the COVID-19 pandemic in the prior year.

52

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 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 eight quarters (dollars in thousands):

First Second Third Fourth

Quarter Quarter Quarter Quarter

First Second Third Fourth

Quarter Quarter Quarter Quarter

(a)

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

(b)

Non-GAAP measure.

53

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 (dollars in thousands):

First Second Third Fourth

Quarter Quarter Quarter Quarter

Consumer loans and finance receivables:

Consumer combined loan and finance receivable principal balance:

Consumer combined loan and finance receivable fair value balance:

Delinquencies:

Charge-offs:

54

First Second Third Fourth

Quarter Quarter Quarter Quarter

Consumer loans and finance receivables:

Consumer combined loan and finance receivable principal balance:

Consumer combined loan and finance receivable fair value balance:

Delinquencies:

Charge-offs:

(a)

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

(b)

Non-GAAP measure.

(c)

Determined using period-end balances.

(d)

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

The combined ending loan balance, including principal and accrued fees/interest outstanding, of consumer loans and finance receivables at December 31, 2021 increased 49.6% to $941.4 million compared to $629.3 million at December 31, 2020, due primarily to increased originations in the current year following the strategic reduction in originations in the prior year to mitigate risks associated with the COVID-19 pandemic.

The percentage of loans greater than 30 days delinquent increased to 6.3% at December 31, 2021, compared to 3.9% at December 31, 2020. The increase was driven primarily by growth in originations in the current year, particularly to new customers, which typically default at a higher percentage than returning customers. At December 31, 2020, this delinquency rate was lower due to our having a

55

more seasoned and lower risk portfolio due to reduced originations as well as our belief that credit was favorably impacted by governmental stimulus efforts.

Charge-offs (net of recoveries) as a percentage of average combined loan balance increased to 13.3% for the three months ended December 31, 2021 (the “2021 fourth quarter”), compared to 5.5% for the three months ended December 31, 2020 (the “2020 fourth quarter”), driven primarily by growth in originations, particularly to new customers, which typically default at a higher percentage than returning customers. In the 2020 fourth quarter, this charge-off rate was lower due primarily to our having a more seasoned and lower risk portfolio remaining as originations since the onset of the COVID-19 pandemic had been significantly lower and the majority of higher risk loans to new customers originated in prior quarters had been charged off.

The ratio of fair value as a percentage of principal on consumer loans and finance receivables was 103.3% at December 31, 2021, compared to 108.6% at December 31, 2020 and 102.7% at September 30, 2021. The increase from September 30, 2021 was primarily driven by the reduction in discount rate during the fourth quarter. Refer to “Results of Operations—COVID-19” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional discussion on loan valuation, including the discount rate assumption.

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 (dollars in thousands):

First Second Third Fourth

Quarter Quarter Quarter Quarter

Small business loans and finance receivables:

Delinquencies:

> 30 days delinquent as a % of loan balance(a) 10.2 % 7.1 % 5.1 % 4.3 %

Charge-offs:

56

First Second Third Fourth

Quarter Quarter Quarter Quarter

Small business loans and finance receivables:

Fair value as a % of principal(a) 95.7 % 89.8 % 92.3 % 89.7 %

Delinquencies:

> 30 days delinquent as a % of loan balance(a) 2.5 % 4.6 % 5.1 % 14.2 %

Charge-offs:

(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 combined ending loan balance, including principal and accrued fees/interest outstanding, of small business loans and finance receivables at December 31, 2021 increased 47.1% to $1,016.6 million compared to $691.1 million at December 31, 2020, due primarily to the acceleration of originations across 2021 as well as strong credit performance, resulting in low charge-offs.

The percentage of loans and finance receivables greater than 30 days delinquent decreased to 4.3% at December 31, 2021, compared to 14.2% at December 31, 2020. Since the acquisition of OnDeck in October 2020, delinquency has improved in all of our small business portfolios, as we have actively worked with our customers to understand their financial situations, offering a variety of repayment options to increase flexibility and reducing or deferring payments for impacted customers.

Charge-offs (net of recoveries) as a percentage of average loan balance decreased to 0.8% for the 2021 fourth quarter, compared to 3.9% in the 2020 fourth quarter, due primarily to the recovery of the broader economy, our efforts to assist customers and the impact of governmental stimulus.

The ratio of fair value as a percentage of principal on small business loans and finance receivables was 106.3% at December 31, 2021, compared to 89.7% at December 31, 2020 and 104.0% at September 30, 2021. The increase from September 30, 2021 was due primarily to strong cash collections and improvements in anticipated cash flow in our valuation models due to reduced risk. The ratio of fair value as a percentage of principal has improved for the legacy Enova portfolio since the second quarter of 2020 and the OnDeck portfolio since acquisition.

Total Operating Expenses

Total operating expenses increased $284.8 million, or 87.3%, to $611.2 million in 2021, compared to $326.4 million in 2020.

Marketing expense increased $201.3 million, or 288.6%, to $271.1 million in 2021 compared to $69.8 million in 2020, due primarily to our efforts to capture increasing market demand for loan products in the current year. The prior year was abnormally low due to our strategic actions to mitigate risks associated with the COVID-19 pandemic.

57

Operations and technology expense increased $51.4 million, or 53.4%, to $147.7 million in 2021 from $96.3 million in 2020, due primarily to the inclusion of OnDeck expenses since its acquisition in October 2020 as well as higher variable underwriting costs due to the increase in originations.

General and administrative expense increased $16.4 million, or 11.6%, to $157.0 million in 2021 compared to $140.6 million in 2020, due primarily to the inclusion of OnDeck expenses since October 2020, partially offset by various cost containment initiatives implemented to mitigate the impact of the COVID-19 pandemic.

Depreciation and amortization expense increased $15.7 million, or 79.3%, to $35.4 million in 2021 compared to $19.7 million in 2020 due primarily by fixed assets and intangible assets acquired with OnDeck and Pangea and, to a lesser extent, additional internally-developed software placed into service.

Interest Expense, Net

Interest expense, net decreased $10.2 million, or 11.7%, to $76.5 million in 2021 compared to $86.7 million in 2020, due primarily to a decrease in the weighted average interest rate on our outstanding debt to 7.34% in 2021 from 8.76% in 2020, partially offset by an increase in the average amount of debt outstanding to $1,036.2 million during 2021 from $991.7 million during 2020. See “—Liquidity and Capital Resources—Current Debt Facilities” below for further information.

Provision for Income Taxes

The effective tax rate from continuing operations of 23.8% in 2021 was higher than the 13.1% rate recorded in 2020 due primarily to re-measurement of unrecognized tax benefits and non-taxable bargain purchase gain in the prior year and, to a lesser extent, additional interest on unrecognized tax benefits and state income tax liability adjustments in the current year.

As of December 31, 2021, the balance of unrecognized tax benefits was $44.1 million which is included in “Accounts payable and accrued expenses” on the consolidated balance sheet, $10.5 million of which, if recognized, would favorably affect the effective tax rate in the period of recognition. We had $39.0 million of unrecognized tax benefits as of December 31, 2020. We believe that we have adequately accounted for any material tax uncertainties in our existing reserves for all open tax years.

Our U.S. tax returns are subject to examination by federal and state taxing authorities. The statute of limitations related to our consolidated Federal income tax returns is closed for all tax years up to and including 2017. However, the 2014 tax year is still open to the extent of the net operating loss which we 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.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act was enacted and signed into U.S. law to provide economic relief to individuals and businesses facing economic hardship as a result of the COVID-19 pandemic. We deferred the timing of federal tax estimates and payroll taxes as permitted by the CARES Act and have availed ourselves of net operating loss carryback provisions.

LIQUIDITY AND CAPITAL RESOURCES

Capital Funding Strategy

Given the unprecedented economic circumstances resulting from the COVID-19 pandemic and high degree of uncertainty, we have taken several actions to create a stable and flexible balance sheet that ensures liquidity and funding available to meet our business obligations. We elected to access our committed funding lines prior to March 31, 2020 to preserve optionality in the face of uncertainty, and, prior to June 30, 2020, we repaid the outstanding balance of our revolving credit agreement. Despite our higher than normal cash balances, we have drawn and repaid funds from our revolving credit agreement in 2021 to meet the minimum utilization requirements. As of December 31, 2021, we had cash, cash equivalents, and restricted cash of $225.9 million, of which $60.4 million was restricted, compared to $369.2 million, of which $71.9 million was restricted, as of December 31, 2020. As of December 31, 2021, we had committed and undrawn funding capacity of $488.2 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.

58

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 May 30, 2014, we issued and sold $500.0 million in aggregate principal amount of 9.75% senior notes due 2021 (the “2021 Senior Notes”). On September 1, 2017, we issued and sold $250.0 million in aggregate principal amount of 8.50% Senior Notes due 2024 (the “2024 Senior Notes”) and used the net proceeds, in part, to retire $155.0 million in 2021 Senior Notes. On January 21, 2018, we redeemed an additional $50.0 million in principal amount of the outstanding 2021 Senior Notes. On September 19, 2018, we issued and sold $375.0 million in aggregate principal amount of 8.50% Senior Notes due 2025 (the “2025 Senior Notes”) and used the net proceeds, in part, to retire the remaining $295.0 million in principal amount of the outstanding 2021 Senior Notes.

On June 30, 2017, we entered into a secured revolving credit agreement (as amended, the “Credit Agreement”). On April 13, 2018, October 5, 2018, July 1, 2019 and May 10, 2021, we and certain of our operating subsidiaries entered into amendments to our Credit Agreement. As of February 24, 2022, our available borrowings under the Credit Agreement were $109.3 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 business. As a result of our acquisition of OnDeck in 2020, we added several additional securitization facilities and asset-backed notes supported by OnDeck’s small business loans, as summarized below under “Current Debt Facilities.” As of February 24, 2022, we had $151.0 million of total committed and undrawn borrowing capacity under our loan securitization facilities. 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 loan securitization facilities.

As of December 31, 2021, 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

Our Total stockholders' equity increased by $174.3 million to $1,093.1 million at December 31, 2021 from $918.8 million at December 31, 2020. The increase of stockholders' equity was driven primarily by net income for the year ended December 31, 2021, partially offset by $116.7 million in repurchases of our common stock. Our book value per share outstanding increased to $32.01 at December 31, 2021 from $25.69 at December 31, 2020, which was primarily driven by net income and, to a lesser extent, share repurchases in 2021.

On January 31, 2019, we announced the Board of Directors had authorized a share repurchase program for the repurchase of up to $50.0 million of our common stock through December 31, 2020 (the “January 2019 Authorization”). On October 24, 2019, we announced the Board of Directors had authorized a new share repurchase program totaling $75.0 million that expired December 31, 2020 (the “October 2019 Authorization”). The October 2019 Authorization replaced the January 2019 Authorization of $50.0 million. On November 5, 2020, we announced the Board of Directors had authorized a share repurchase program for up to $50.0 million of our outstanding common stock through December 31, 2021 (the “2020 Authorization”). The 2020 Authorization was an expansion of the October 2019 Authorization. On November 4, 2021, we announced the Board of Directors authorized a new share repurchase program totaling $150.0 million through December 31, 2022 (the “2021 Authorization”). The 2021 Authorization replaced the 2020 Authorization. On February 9, 2022, we announced the Board of Directors authorized a new share repurchase program totaling $100.0 million through June 30, 2023 (the "2022 Authorization"). The 2022 Authorization replaced the 2021 Authorization. Repurchases under our repurchase programs 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 programs may be terminated, increased or decreased by the Board of Directors in its discretion at any time. During 2021, we paid $111.9 million to repurchase common stock under the share repurchase programs.

Cash

At December 31, 2021, we had $165.5 million of available unrestricted cash to fund our future operations compared to approximately $297.3 million at December 31, 2020.

Our cash and cash equivalents at December 31, 2021 were held primarily for working capital purposes and were 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

59

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 December 31, 2021.

Funding Debt:

Corporate Debt:

(a)

The weighted average interest rate is determined based on the rates and principal balances on December 31, 2021. 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 September 2024.

(c)

The period during which new borrowings may be made under this facility expires in July 2023.

(d)

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

(e)

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

(f)

The period during which new borrowings may be made under this facility expires in December 2022.

(g)

We had outstanding letters of credit under the Revolving line of credit of $0.8 million as of December 31, 2021.

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

60

Cash Flows

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

Year Ended December 31,

Cash flows provided by (used in) operating activities

Cash flows from operating activities - discontinued operations — (300 ) 44,031

Cash flows (used in) provided by investing activities

Disposal of a subsidiary 1,928 — —

Other investing activities 25 168 27

Cash flows from investing activities - discontinued operations — — (70,306 )

Total debt to Adjusted EBITDA (a) 2.9 x 2.3 x 3.6 x

(a)

Total debt to Adjusted EBITDA, a non-GAAP measure, is calculated using Adjusted EBITDA for the twelve months ended for the respective period indicated. See “—Non-GAAP Financial Measures—Adjusted EBITDA.”

Cash Flows from Operating Activities

Net cash provided by operating activities decreased $269.3 million, or 36.3%, to $471.9 million for 2021 from $741.2 million for 2020. The decrease was driven primarily by reduced originations in the prior year as a result of our efforts to mitigate the risk of the COVID‐19 pandemic and the mix shift from consumer to small business loans and finance receivables, which generally yield less revenue.

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

Cash Flows from Investing Activities

Net cash flows used in investing activities increased $1,064.0 million, or 1,272.9%, for 2021 compared to 2020, due primarily to a $926.5 million increase in net cash used in loans and finance receivables, due to a 172.1% increase in loans and finance receivables originated or purchased and an 82.1% increase in loans and finance receivables repaid. Additionally, acquisitions, net of cash acquired used $29.2 million of cash from investing activities in 2021 compared to cash provided by acquisitions of $109.9 in 2020.

Cash Flows from Financing Activities

Net cash provided by financing activities in 2021 was $365.1 million compared to $536.0 million used in financing activities in 2020. Cash flows provided by financing activities for 2021 primarily reflects net borrowings of $200.0 million under the Credit Agreement and $272.6 million under our securitization facilities, partially offset by $116.7 million of cash used in treasury shares purchased, primarily under the share repurchase programs discussed above under “Capital”. Cash flows used in financing activities for 2020 primarily reflects $124.5 million of net repayments under our Credit Agreement, $354.0 million of net repayments under our securitization facilities and $56.4 million of cash used in treasury shares purchased, primarily under the share repurchase programs.

CRITICAL ACCOUNTING ESTIMATES

Loans and Finance Receivables

Beginning January 1, 2020, we have elected the fair value option for our loans and finance receivables. We estimate the fair value of our loans and finance receivables primarily using discounted cash flow analyses at an individual loan level to more accurately predict future payments. We adjust contractual cash flows for estimated losses, prepayments and servicing costs over the estimated duration of the underlying assets and discount the future cash flows using a rate of return that we believe a market participant would require. Model

61

results may be adjusted by management if we do not believe the output reflects the fair value of the portfolio, as defined under U.S. 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.

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

•

Net losses – Net losses are estimates of the principal payments that will not be repaid over the life of our portfolio, net of the expected principal recoveries on charged-off receivables. We have developed proprietary underwriting systems based on data we have collected since the Company’s inception. These systems employ advanced risk analytics to decide whether to approve financing transactions, to structure the amount and terms of the financings we offer pursuant to jurisdiction-specific regulations, and to provide customers with funds quickly and efficiently. Our systems closely monitor collection and portfolio performance data that we use to continually refine the analytical models and statistical measures used in making our credit, purchase, marketing, and collection decisions. Leveraging the data at the core of our business, we utilize our models to estimate lifetime credit losses for loans and finance receivables. Inputs to the models include contractual cash flows, customer application information, historical and current performance, and behavioral information. Management may also incorporate discretionary adjustments based on our expectations of future credit performance.

•

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

•

Utilization – Utilization is the rate that a line of credit is utilized in proportion to the borrowing limit. Utilization rates in our discounted cash flow model for the OnDeck line of credit product are developed using historical results as the basis and are used to estimate future draws on the line. Model inputs are similar to those utilized to estimate net losses and may also incorporate discretionary adjustments based on our expectations of future activity.

•

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

•

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

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

Goodwill

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

We have historically performed our annual goodwill impairment test as of June 30 each year. During the year ended December 31, 2021, we voluntarily changed our annual impairment assessment date from June 30 to October 1 to better align with our budgeting process and year end as well as to include nearly a full year of results after our acquisition of OnDeck, which was a material change to our financial position and results of operations. We believe the change in goodwill impairment testing date does not represent a material change to our method of applying an accounting principle in light of our internal controls and requirements to assess goodwill impairment upon certain triggering events.

We first assess qualitative factors to determine whether it is necessary to perform the quantitative goodwill impairment test. In assessing the qualitative factors, we consider relevant events and circumstances including but not limited to macroeconomic conditions, industry and market environment, our overall financial performance, cash flow from operating activities, market capitalization and stock price. If we determine that the quantitative impairment test is required, we use the income approach to complete our annual goodwill

62

assessment. The income approach uses future cash flows and estimated terminal values that are discounted using a market participant perspective to determine the fair value, which is then compared to the carrying value to determine if there is impairment. The income approach includes assumptions about revenue growth rates, operating margins and terminal growth rates discounted by an estimated weighted-average cost of capital derived from other publicly-traded companies that are similar from an operational and economic standpoint.

Income Taxes

We account for income taxes under ASC 740, Income Taxes. As part of the process of preparing our consolidated financial statements, we are required to estimate income taxes in each of the jurisdictions in which we operate. This process involves estimating the actual current tax expense together with assessing temporary differences in recognition of income for tax and accounting purposes. These differences result in deferred tax assets and liabilities and are included within the consolidated balance sheets. We must then assess the likelihood that the deferred tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not more likely than not, we must establish a valuation allowance. An expense or benefit is included within the tax provision in the consolidated statement of income for any increase or decrease in the valuation allowance for a given period.

We report our loans and finance receivables in the Company’s tax returns at fair market value, as determined for U.S. federal income tax purposes, which differs from how we report them in the consolidated financial statements due in part to statutory tax and judicial principles that may lead to different interpretations of expected credit losses and discount rate assumptions. Changes in the fair market value of our loans and finance receivables as determined for tax purposes may have a significant impact on the timing and amount of how income taxes are recognized in the consolidated financial statements. The estimates of fair market value are dependent on multiple assumptions, including expected credit losses and discount rates.

We perform an evaluation of the recoverability of our deferred tax assets on a quarterly basis. We establish a valuation allowance if it is more-likely-than-not (greater than 50 percent) that all or some portion of the deferred tax asset will not be realized. We analyze several factors, including the nature and frequency of operating losses, our carryforward period for any losses, the reversal of future taxable temporary differences, the expected occurrence of future income or loss and the feasibility of available tax planning strategies to protect against the loss of deferred tax assets.

We account for uncertainty in income taxes in accordance with ASC 740, which requires that a more-likely-than-not threshold be met before the benefit of a tax position may be recognized in the consolidated financial statements and prescribes how such benefit should be measured. We must evaluate tax positions taken on our tax returns for all periods that are open to examination by taxing authorities and make a judgment as to whether and to what extent such positions are more likely than not to be sustained based on the technical merits. We record interest and penalties related to tax matters as income tax expense in the consolidated statement of income.

Our judgment is required in determining the provision for income taxes, the deferred tax assets and liabilities and any valuation allowance recorded against deferred tax assets. Our judgment is also required in evaluating whether tax benefits meet the more-likely-than-not threshold for recognition under ASC 740.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

Refer to Note 1 in the Notes to the Consolidated Financial Statements in Part II, Item 8 “Financial Statements and Supplementary Data” in this report for a discussion of recently issued accounting pronouncements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Prior to January 1, 2020, market risks relating to our operations resulted primarily from changes in foreign currency exchange rates and interest rates related to our long-term debt. As disclosed in Note 1 to the Consolidated Financial Statements, we elected the fair value option as of January 1, 2020 and, as a result going forward, carry our loans and finance receivables at fair value with changes in fair value recognized directly in earnings. The valuation of our loan portfolio may be impacted by macroeconomic and other factors that may positively or negatively impact the repayment capacity of our customers or the discounted value of expected future cash flows from our loan portfolio.

Changes to market interest rates can impact the fair value of our loans and finance receivables. The fair value of our loans and receivables are estimated using a discounted cash flow methodology, where the discount rate represents an estimate of the required rate of return by market participants. Required returns may increase or decrease depending upon the level of market interest rates and additional risk

63

premiums required to generate acceptable returns on specific assets. An increase of 100 basis points to the discount rates used in our valuations would decrease the balance of loans and finance receivables at fair value by approximately 0.7% at December 31, 2021. A decrease of 100 basis points to the discount rates used in our valuations would increase the balance of Loans and finance receivables at fair value by approximately 0.7% at December 31, 2021.

Expectations of future credit losses are a significant input to the valuation of our loans and finance receivables. A variety of macroeconomic and other factors can impact the expected repayment capacity of our customers and our expectation of future credit losses, both positively and negatively. Increasing our estimates for future credit losses used in our valuations to 110% of current expectations would decrease the balance of loans and finance receivables at fair value by approximately 4.2% at December 31, 2021. Conversely, credit losses may decrease as the economy strengthens or with increased government assistance. Decreasing our estimates for future credit losses used in our valuations to 90% of current expectations would increase the balance of loans and finance receivables at fair value by approximately 4.1% at December 31, 2021.

The expected rate of future customer prepayments can also impact the fair value of our loans and finance receivables. Prepayment speeds can vary with economic activity, competition and other factors that may increase or decrease the liquidity available to our customers to prepay obligations. Increasing our estimates for future prepayments used in our valuations to 110% of current expectations would decrease the balance of Loans and finance receivables at fair value by 1.2% at December 31, 2021. Conversely, prepayment speeds may decrease as the economy weakens or with decreased governmental assistance. Decreasing our estimates for future prepayments used in our valuations to 90% of current expectations would increase the balance of Loans and finance receivables at fair value by 1.2% at December 31, 2021.

64

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements

Notes to Consolidated Financial Statements 76

65

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and the Board of Directors of Enova International, Inc.

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Enova International, Inc. and subsidiaries (the “Company”) as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the related consolidated financial statements as of and for the year ended December 31, 2021, of the Company and our report dated February 28, 2022, expressed an unqualified opinion on those financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Deloitte & Touche LLP

Chicago, IL

February 28, 2022

66

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and the Board of Directors of Enova International, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Enova International, Inc. and subsidiaries (the "Company") as of December 31, 2021, the related consolidated statements of income, comprehensive income, stockholders' equity, and cash flows, for the year ended December 31, 2021, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for the year ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 28, 2022, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Loans and finance receivables at fair value – Refer to Notes 1 and 18 to the consolidated financial statements

Critical Audit Matter Description

The estimation of the fair value of loans and finance receivables portfolio uses discounted cash flow models that have been internally developed. The models use inputs that are unobservable and inherently judgmental and reflect management’s best estimates of the assumptions a market participant would use to calculate fair value. The valuation inputs for the projections of future cash flows include estimated losses, prepayment rates, utilization rates, servicing costs and discount rates.

We identified loans and finance receivables at fair value as a critical audit matter because of the subjective process in determining significant inputs and judgments used to estimate the fair value. Given management’s use of unobservable inputs to estimate the fair value of the loans and finance receivables, performing audit procedures to evaluate these inputs requires a high degree of auditor judgment and an increased extent of effort, including the need to involve our internal fair value specialists.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to loans and finance receivables at fair value included the following, among others:

•

We tested the effectiveness of internal controls related to the determination of loans and finance receivables at fair value, including those controls related to the significant inputs used to estimate the fair value.

67

•

We tested the underlying data, including historical loan data and other assumptions, that served as the basis for the valuation.

•

We assessed the consistency by which management has applied significant unobservable valuation assumptions.

•

With the assistance of our internal fair value specialists, we developed a range of independent estimates of fair value and compared our estimates to the recorded valuation.

/s/ Deloitte & Touche LLP

Chicago, IL

February 28, 2022

We have served as the Company's auditor since 2021.

68

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Enova International, Inc.

Opinion on the Financial Statements

We have audited the consolidated balance sheet of Enova International, Inc. and its subsidiaries (the “Company”) as of December 31, 2020, and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2020, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for loans and finance receivables in 2020.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

Chicago, Illinois

February 26, 2021

We served as the Company’s auditor from 2011 to 2021.

69

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share data)

December 31,

Assets

Income taxes receivable 51,104 —

Liabilities and Stockholders' Equity

Income taxes currently payable — 2,624

Commitments and contingencies (Note 11)

Stockholders' equity:

Accumulated other comprehensive loss (8,540 ) (6,898 )

Total Enova International, Inc. stockholders' equity 1,093,052 917,348

Noncontrolling interest — 1,486

(1)

Includes amounts in consolidated variable interest entities (“VIEs”) presented separately in the table below.

70

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share data)

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 15 for additional information.

December 31,

Assets of consolidated VIEs, included in total assets above

Cash and cash equivalents $ 420 $ 420

Other receivables and prepaid expenses 6,378 4,827

Liabilities of consolidated VIEs, included in total liabilities above

Accounts payable and accrued expenses $ 2,061 $ 3,056

Affiliate note payable — 4,065

See Notes to Consolidated Financial Statements

71

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

Year Ended December 31,

Operating Expenses

Foreign currency transaction (loss) gain, net (382 ) 514 (216 )

Gain on bargain purchase — 163,999 —

Equity method investment income 2,953 628 —

Less: Net income attributable to noncontrolling interest 773 85 —

Net loss from discontinued operations — (300 ) (91,404 )

Earnings (Loss) Per Share attributable to Enova International, Inc.:

Earnings (loss) per common share – basic:

Discontinued operations — (0.01 ) (2.71 )

Earnings (loss) per common share – basic $ 7.05 $ 11.85 $ 1.09

Earnings (loss) per common share – diluted:

Discontinued operations — (0.01 ) (2.66 )

Earnings (loss) per common share – diluted $ 6.79 $ 11.70 $ 1.06

Weighted average common shares outstanding:

See Notes to Consolidated Financial Statements

72

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

Year Ended December 31,

Other comprehensive (loss) gain, net of tax:

Ownership change in noncontrolling interest (270 ) — —

OnDeck Australia deconsolidation 106 — —

Total other comprehensive (loss) gain, net of tax (1,642 ) (3,832 ) 10,739

Net income attributable to noncontrolling interest (773 ) (85 ) —

Ownership change in noncontrolling interest 802 — —

(1)

Net of tax benefit (provision) of $513, $1,830 and $(3,329) for the years ended December 31, 2021, 2020 and 2019, respectively.

See Notes to Consolidated Financial Statements

73

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

Total Enova

Accumulated International,

Additional Other Inc. Total

Shares Amount Capital Earnings Loss Shares Amount Equity Interest Equity

Accelerated vesting on RSUs for discontinued operations 5 — 94 — — — — 94 — 94

Shares issued for vested RSUs 540 — — — — — — — — —

Foreign currency translation gain, net of tax — — — — 10,739 — — 10,739 — 10,739

Shares issued for vested RSUs 589 — — — — — — — — —

Shares issued for stock option exercises 17 — 189 — — — — 189 — 189

Net income attributable to noncontrolling interest — — — — — — — — 85 85

Shares issued for vested RSUs 793 — — — — — — — — —

Net income attributable to noncontrolling interest — — — — — — — — 773 773

Ownership change in noncontrolling interest — — 1,072 — (270 ) — — 802 (802 ) —

See Notes to Consolidated Financial Statements

74

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Year Ended December 31,

Cash Flows from Operating Activities

Less: Net loss from discontinued operations — 300 91,404

Amortization of deferred loan costs and debt discount 6,224 12,699 6,000

Gain on bargain purchase — (163,999 ) —

Loss on partial divestiture of subsidiary 842 — —

Lease termination and cease-use costs (6,311 ) — 370

Changes in operating assets and liabilities:

Other receivables, prepaid expenses and other assets (7,222 ) (5,601 ) (12,801 )

Cash flows from operating activities - discontinued operations — (300 ) 44,031

Cash Flows from Investing Activities

Sale of subsidiary 1,928 — —

Other investing activities 25 168 27

Cash flows from investing activities - discontinued operations — — (70,306 )

Cash Flows from Financing Activities

Debt prepayment penalty paid — (827 ) (1,392 )

Effect of exchange rates on cash 34 (244 ) 979

See Notes to Consolidated Financial Statements

75

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Significant Accounting Policies

Nature of the Company

Enova International, Inc. (“Enova”), formed on September 7, 2011, is an independent, publicly traded company, and the Company’s shares of common stock are listed on the New York Stock Exchange under the symbol “ENVA.” Enova and its subsidiaries (individually and collectively referred to herein as the “Company”) operate an internet-based lending platform to serve customers in need of cash to fulfill their financial responsibilities. Through a network of direct and indirect marketing channels, the Company offers funds to its customers through a variety of loan and finance receivable products that are primarily unsecured. The business is operated primarily through the internet to provide convenient, fully-automated financial solutions to its customers. As of December 31, 2021, the Company offered or arranged loans to consumers under the names “CashNetUSA” and “NetCredit” in 38 states in the United States and under the name “Simplic” in Brazil. The Company also offered financing to small businesses in all 50 states and Washington D.C. in the United States under the names “Headway Capital” and “The Business Backer.” With its acquisition of On Deck Capital, Inc. (“OnDeck”), the Company now also offers financing to small businesses in the United States, through consolidated subsidiaries, and Australia and Canada, through unconsolidated subsidiaries, under the “OnDeck” name.

The Company originates, guarantees or purchases consumer loans. Consumer loans provide customers with cash in their bank account, typically in exchange for an obligation to repay the amount advanced plus fees and/or interest. Consumer loans includes installment loans and line of credit accounts. The Company provides financing to small businesses through either installment loans, a receivables purchase agreement product (“RPAs”) or a line of credit account. RPAs represent a right to receive future receivables from a small business. Small businesses receive funds in exchange for a portion of the business’ future receivables at an agreed upon discount. In contrast, lending is a commitment to repay principal and interest. “Loans and finance receivables” include consumer loans, small business loans and RPAs.

Installment loans are loans written by the Company, by a third-party lender through the Company’s credit services organization and credit access business programs (“CSO programs” as further described below) that the Company guarantees or by a bank partner. Installment loans includes longer-term loans that require the outstanding principal balance to be paid down in multiple installments and shorter-term single payment loans. Line of credit accounts include draws made through the Company’s line of credit product.

Through the Company’s CSO programs, the Company provides services related to a third-party lender’s consumer loan products in some markets by acting as a credit services organization or credit access business on behalf of consumers in accordance with applicable state laws. Services offered under the CSO programs include credit-related services such as arranging loans with independent third-party lenders and assisting in the preparation of loan applications and loan documents (“CSO loans”). Under the CSO programs, the Company guarantees consumer loan payment obligations to the third-party lender in the event that the customer defaults on the loan, at which point, the loan is purchased by the Company. Prior to any potential purchase, CSO loans are not included in the Company’s consolidated balance sheets.

The Company operates a program with a bank to provide marketing services and loan servicing for near-prime unsecured consumer installment loans and, beginning in January 2021, line of credit accounts. Under the program, the Company receives marketing and servicing fees while the bank receives an origination fee. The bank has the ability to sell and the Company has the option, but not the requirement, to purchase the loans the bank originates and, in the case of line of credit accounts, a participation interest in those accounts. The Company does not guarantee the performance of the loans and line of credit accounts originated by the bank. As part of the OnDeck business both prior and subsequent to Enova’s acquisition, OnDeck operates a program with a separate bank to provide marketing services and loan servicing for small business installment loans and line of credit accounts. Under the OnDeck program, the Company receives marketing fees while the bank receives origination fees and certain program fees. The bank has the ability to sell and the Company has the option, but not the requirement, to purchase the installment loans that the bank originates and, in the case of line of credit accounts, extensions under those line of credit accounts. The Company does not guarantee the performance of the loans originated by the bank.

Basis of Presentation

The consolidated financial statements of the Company included herein have been prepared on the basis of accounting principles generally accepted in the United States (“GAAP”) and reflect the historical results of operations and cash flows of the Company during each respective period. The consolidated financial statements include goodwill and intangible assets arising from businesses previously acquired. The financial information included herein may not be indicative of the consolidated financial position, operating results, changes in stockholders’ equity and cash flows of the Company in the future. Intercompany transactions are eliminated. Certain prior year amounts have been reclassified to conform to current year presentation.

The Company consolidates any variable interest entity (“VIE”) where it has determined the Company is the primary beneficiary. The primary beneficiary is the entity which has both the power to direct the activities of the VIE that most significantly impact the VIE’s

76

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

economic performance as well as the obligation to absorb losses or receive benefits of the entity that could potentially be significant to the VIE.

With the acquisition of OnDeck, the Company owned a 55% controlling interest in On Deck Capital Australia PTY LTD (“OnDeck Australia”). The remaining interests were owned by an unrelated third party. Prior to December 2021, we consolidated the financial position and results of operations of this entity under the voting interest model. The noncontrolling interest, which is presented as a separate component of consolidated equity, represented the minority owners' proportionate share of the equity of the entity and was adjusted for the minority owners' share of the earnings, losses, investments and distributions. Refer to "Investments in Unconsolidated Investees" later in this note for discussion of the partial divestiture in December 2021 that triggered the deconsolidation of OnDeck Australia.

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

Use of Estimates

The preparation of these consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the dates of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. On an on-going basis, management evaluates its estimates and judgments, including those related to revenue recognition, fair value of loans and finance receivables, goodwill, long-lived and intangible assets, income taxes, contingencies and litigation. Management bases its estimates on historical experience, empirical data and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates.

Foreign Currency Translations

The functional currencies for the Company’s subsidiaries that serve or have served residents of the United Kingdom, Australia and Brazil are the British pound, the Australian dollar and the Brazilian real, respectively. The assets and liabilities of these subsidiaries are translated into U.S. dollars at the exchange rates in effect at each balance sheet date, and the resulting adjustments are recorded in “Accumulated other comprehensive income (loss)” (“AOCI”) as a separate component of stockholders’ equity. Revenue and expenses are translated at the monthly average exchange rates occurring during each period.

In December 2021, the Company sold a portion of its interest in OnDeck Australia and, as a result, deconsolidated it from the Company's consolidated financial statements. In conjunction with the deconsolidation, the AOCI balances related to OnDeck Australia were reversed out and included in the calculation of loss on divestiture. Refer to "Investments in Unconsolidated Investees" section later in this note for additional discussion of the divestiture.

As a result of the Company’s exit from the United Kingdom in 2019, the AOCI balances related to the British pound were reclassified from AOCI to Net Income.

Discontinued Operations

Beginning in 2007, the Company provided services in the United Kingdom under various brands, including QuickQuid, Pounds to Pocket and On Stride. Due in part to the level of claim and legal settlement costs incurred in conducting our U.K. business and unsuccessful discussions with U.K regulators, on October 24, 2019, the Company announced its intent to exit the U.K. market. On October 25, 2019, Grant Thornton LLP, a licensed U.K. insolvency practitioner, was appointed as administrators (“Administrators”) to take control of management of the U.K. businesses. The effect of the U.K. businesses’ entry into administration was to place their management, affairs, business and property under the direct control of the Administrators. Accordingly, the Company deconsolidated its U.K. businesses as of October 25, 2019 and is presenting them as discontinued operations for all periods presented in these consolidated financial statements. The Company recorded a one-time after-tax charge of $74.5 million, including one-time cash charges of $52.2 million, as a result of placing the UK businesses into administration. During the year ended December 31, 2020, the Company recorded an impairment charge of $0.4 million ($0.3 million net of taxes) to write down a receivable on certain expenses incurred by the Company prior to administration that were deemed non-reimbursable by the Administrators.

77

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Company entered into a service agreement with the Administrators under which the Company provides certain administrative, technical and other services in exchange for compensation by the Administrators. The agreement is scheduled to expire April 8, 2022 but with options to extend the term for three-month periods. During the years ended December 31, 2021, 2020 and 2019, the Company recorded $2.8 million, $5.0 million and $1.9 million, respectively, in revenue related to these services. As of December 31, 2021 and 2020, the Administrators owed the Company $0.5 million and $0.9 million, respectively, related to services provided.

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

Year Ended December 31,

Operating Expenses

Operations and technology — 43,338

General and administrative — 3,011

Depreciation and amortization — 889

Total Operating Expenses — 60,477

Loss from Operations — (22,212 )

Interest income, net — 6

Foreign currency transaction loss, net — (1 )

Impairment charges upon placement into administration (393 ) (97,513 )

Benefit from income taxes (93 ) (28,316 )

Net loss from discontinued operations $ (300 ) $ (91,404 )

(1)

Includes results of the U.K. businesses from January 1, 2019 to October 25, 2019

Cash and Cash Equivalents

The Company considers deposits in banks and short-term investments with original maturities of 90 days or less as cash and cash equivalents.

Restricted Cash

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

Cash, Cash Equivalents and Restricted Cash

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

December 31,

Revenue Recognition

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

78

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

recognized on an effective yield basis over the contractual term of the loan on installment loans, the estimated outstanding period of the draw on line of credit accounts, or the projected delivery term on RPAs. CSO fees are recognized over the term of the loan. Late and nonsufficient funds fees are recognized when assessed to the customer.

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

Loans and Finance Receivables

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

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

Current and Delinquent Loans and Finance Receivables

The Company classifies its loans and finance receivables as either current or delinquent. Excluding OnDeck loans and finance receivables, when a customer does not make a scheduled payment as of the due date, that payment is considered delinquent, and the remainder of the receivable balance is considered current. If the customer does not make two consecutive payments, the entire account or loan is classified as delinquent and placed on a non-accrual status. For the OnDeck portfolio, a loan is considered to be delinquent when the daily or weekly payments are one day past due. Loans are placed in nonaccrual status and the accrual of interest income is stopped on loans that are delinquent and non-paying. Loans are returned to accrual status if they are brought to non-delinquent status or have performed in accordance with the contractual terms for a reasonable period of time and, in the Company’s judgment, will continue to make periodic principal and interest payments as scheduled. The Company allows for normal payment processing time before considering a loan delinquent but does not provide for any additional grace period.

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

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

The Company generally charges off loans and finance receivables between 60 and 65 days delinquent. If a loan or finance receivable is deemed uncollectible prior to this, it is charged off at that point. For the OnDeck portfolio, the Company generally charges off a loan

79

ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

when it is probable that that it will be unable to collect all of the remaining principal payments, which is generally after 90 days of delinquency and 30 days of non-activity. Loans and finance receivables classified as delinquent generally have an age of one to 64 days from the date any portion of the receivable became delinquent, as defined above. Recoveries on loans and finance receivables that were previously charged off are generally recognized when collected or sold.

Property and Equipment

Property and equipment is recorded at cost. The cost of property retired or sold and the related accumulated depreciation are removed from the accounts, and any resulting gain or loss is recognized in the consolidated statements of income. Costs associated with repair and maintenance activities are expensed as incurred. Depreciation expense is generally provided on a straight-line basis, using the following estimated useful lives:

Computer hardware and software 3 to 5 years

Furniture, fixtures and equipment 3 to 7 years

Leasehold improvements (1) 3 to 10 years

(1)

Leasehold improvements are depreciated over the lesser of the estimated useful life, remaining lease term, or 10 years.

Software Development Costs

The Company applies Accounting Standards Codification (“ASC”) 350-40, Internal Use Software (“ASC 350-40”), to its software purchase and development activities. Under ASC 350-40, eligible internal and external costs incurred for the development of computer software applications, as well as for upgrades and enhancements that result in additional functionality of the applications, are capitalized to “Property and equipment” on the consolidated balance sheets. Internal and external training and maintenance costs are charged to expense as incurred or over the related service period. When a software application is placed in service, the Company begins amortizing the related capitalized software costs using the straight-line method based on its estimated useful life, which generally ranges from one to five years.

Goodwill