ENOVA INTERNATIONAL, INC. The following discussion of financial condition, results of operations, liquidity and capital resources and certain factors that may affect future results, including economic and industry-wide factors, ofEnova International, Inc. and its subsidiaries should be read in conjunction with our consolidated financial statements and accompanying notes included under Part I, Item 1 of this Quarterly Report on Form 10-Q, as well as with Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year endedDecember 31, 2019 . This Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements. The matters discussed in these forward-looking statements are subject to risk, uncertainties, and other factors that could cause actual results to differ materially from those made, projected or implied in the forward-looking statements. Please see "Risk Factors" and "Cautionary Statement Concerning Forward-Looking Statements" for a discussion of the uncertainties, risks and assumptions associated with these statements.
BUSINESS OVERVIEW
We are a leading technology and analytics company focused on providing online financial services. In 2019, we extended approximately$2.2 billion in credit or financing to borrowers and for the nine months endedSeptember 30, 2020 , we extended approximately$0.7 billion in credit or financing to borrowers. As ofSeptember 30, 2020 , we offered or arranged loans or draws on lines of credit to consumers in 40 states inthe United States andBrazil . We also offered financing to small businesses in all 50 states andWashington D.C. inthe United States . We use our proprietary technology, analytics and customer service capabilities to quickly evaluate, underwrite and fund loans or provide financing, allowing us to offer consumers and small businesses credit or financing when and how they want it. Our customers include the large and growing number of consumers who and small businesses which have bank accounts but use alternative financial services because of their limited access to more traditional credit from banks, credit card companies and other lenders. We were an early entrant into online lending, launching our online business in 2004, and throughSeptember 30, 2020 , we have completed over 52.6 million customer transactions and collected more than 37 terabytes of currently accessible customer behavior data since launch, allowing us to better analyze and underwrite our specific customer base. We have significantly diversified our business over the past several years having expanded the markets we serve and the financing products we offer. These financing products include installment loans and receivables purchase agreements ("RPAs") and line of credit accounts. We believe our customers highly value our products and services as an important component of their personal or business finances because our products are convenient, quick and often less expensive than other available alternatives. We attribute the success of our business to our advanced and innovative technology systems, the proprietary analytical models we use to predict the performance of loans and finance receivables, our sophisticated customer acquisition programs, our dedication to customer service and our talented employees. We have developed proprietary underwriting systems based on data we have collected over our 16 years of experience. These systems employ advanced risk analytics to decide whether to approve financing transactions, to structure the amount and terms of the financings we offer pursuant to jurisdiction-specific regulations and to provide customers with their funds quickly and efficiently. Our systems closely monitor collection and portfolio performance data that we use to continually refine the analytical models and statistical measures used in making our credit, purchase, marketing and collection decisions. Our flexible and scalable technology platform allows us to process and complete customers' transactions quickly and efficiently. In 2019, we processed approximately 3.8 million transactions, and we continue to grow our loans and finance receivable portfolios and increase the number of customers we serve through desktop, tablet and mobile platforms. Our highly customizable technology platform allows us to efficiently develop and deploy new products to adapt to evolving regulatory requirements and consumer preference, and to enter new markets quickly. In 2012, we launched a product inthe United States designed to serve near-prime customers. InJune 2014 , we launched our business inBrazil , where we arrange financing for borrowers through a third-party lender. In addition, inJuly 2014 , we introduced a line of credit product inthe United States to serve the needs of small businesses. InJune 2015 , we further expanded our product offering by acquiring certain assets of a company that provides financing to small businesses by offering RPAs. InMay 2017 , we expanded products available to small businesses by offering installment loans. These new products have allowed us to further diversify our product offerings and customer base. We have been able to consistently acquire new customers and successfully generate repeat business from returning customers when they need financing. We believe our customers are loyal to us because they are satisfied with our products and services. We acquire new customers from a variety of sources, including visits to our own websites, mobile sites or applications, and through direct marketing, affiliate marketing, lead providers and relationships with other lenders. We believe that the online convenience of our products and our 24/7 availability to accept applications with quick approval decisions are important to our customers. 28 -------------------------------------------------------------------------------- Once a potential customer submits an application, we quickly provide a credit or purchase decision. If a loan or financing is approved, we or our lending partners typically fund the loan or financing the next business day or, in some cases, the same day. During the entire process, from application through payment, we provide access to our well-trained customer service team. All of our operations, from customer acquisition through collections, are structured to build customer satisfaction and loyalty, in the event that a customer has a need for our products in the future. We have developed a series of sophisticated proprietary scoring models to support our various products. We believe that these models are an integral component of our operations and they allow us to complete a high volume of customer transactions while actively managing risk and the related quality of our loan and finance receivable portfolios. We believe our successful application of these technology innovations differentiates our capabilities relative to competitive platforms as evidenced by our history of strong growth and stable portfolio quality.
PRODUCTS AND SERVICES
Our online financing products and services provide customers with a deposit of funds into their bank account in exchange for a commitment to repay the amount deposited plus fees, interest and/or revenue on the receivables purchased. We originate, arrange, guarantee or purchase installment loans and RPAs and line of credit accounts. We have one reportable segment that includes all of our online financial services.
• Installment loans. Installment loans are unsecured loans written by us or by a
third-party lender through our credit services organization and credit access
business programs, which we refer to as our CSO programs, that we arrange and
guarantee. Installment loans includes longer-term loans that require the
outstanding principal balance to be paid down in multiple installments and
shorter-term single payment loans. We offer, or arrange through our CSO
programs, multi- or single-payment unsecured consumer loan products in 39
states in
We also offer multi-payment unsecured consumer installment loan products in
two and 60 months and single-pay consumer loans generally have terms of seven
to 90 days. Loans may be repaid early at any time with no additional
prepayment charges. Installment loans that we originated and purchased
contributed approximately 46.9% of our total revenue for the nine months ended
We have been investing and will continue to invest in the growth of our near-prime installment lending portfolio.
• Line of credit accounts. As of
line of credit accounts in 12 states (and continue to service existing line of
credit accounts in one additional state) in
line of credit accounts in 36 states in
customers to draw on their unsecured line of credit in increments of their
choosing up to their credit limit. Customers may pay off their account balance
in full at any time or make required minimum payments in accordance with the
terms of their line of credit account. As long as the customer's account is in
good standing and has credit available, customers may continue to borrow on
their line of credit. Our line of credit accounts contributed approximately
50.1% of our total revenue for the nine months ended
43.6% for the nine months ended
• Receivables purchase agreements. Under RPAs, small businesses receive funds in
exchange for a portion of the business's future receivables at an agreed upon
discount. In contrast, lending is a commitment to repay principal and
interest. A small business customer who enters into a RPA commits to
delivering a percentage of its receivables through ACH or wire debits or by
splitting credit card receipts until all purchased receivables are delivered.
We offer RPAs in all 50 states and in
Revenue earned from RPAs contributed 2.4% of our total revenue for the nine
months ended September 30, 2020 and 1.7% for the nine months ended
September 30, 2019 .
• CSO Programs. Through our CSO programs, we provide services related to
third-party lenders' multi- and single-pay installment consumer loan products
by acting as a credit services organization or credit access business on
behalf of consumers in accordance with applicable state laws. Services offered
under our CSO programs include credit-related services such as arranging loans
with independent third-party lenders and assisting in the preparation of loan
applications and loan documents ("CSO loans"). Under our CSO programs, we
guarantee consumer loan payment obligations to the third party lender in the
event the customer defaults on the loan. When a consumer executes an agreement
with us under our CSO programs, we agree, for a fee payable to us by the
consumer, to provide certain services, one of which is to guarantee the
consumer's obligation to repay the loan received by the consumer from the
third-party lender if the consumer fails to do so. For CSO loans, each lender
is responsible for providing the criteria by which the consumer's application
is underwritten and, if approved, determining the amount of the consumer loan.
We in turn are responsible for assessing whether or not we will guarantee such
loan. The guarantee represents an obligation to purchase specific
single-payment loans, which generally have terms of less than 90 days, and
specific installment loans, which have terms of four to 12 months, if they go
into default.
As ofSeptember 30, 2020 and 2019, the outstanding amount of active and current consumer loans originated by third-party lenders under the CSO programs was$8.1 million and$23.6 million , respectively, which were guaranteed by us.
• Bank program. In
where we provided technology, loan servicing and marketing services to the
bank. Our bank partner offered unsecured consumer installment loans. We also
had the
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ability to purchase loans originated through this program. In
result of a change in the law in
we suspended purchasing loans through this program. In
launched a similar Bank Program, whereby our bank partner offers unsecured
consumer installment loans in multiple states in
generated from this program for the nine months ended
2019 was 2.6% and 1.0% of our total revenue, respectively.
• Decision Management Platform-as-a-Service ("dmPaaS") andAnalytics-as-a-Service ("AaaS"). Launched under our Enova Decisions brand in
2016, we help businesses make better decisions faster by providing our
decision management platform and analytics expertise as a service. Our
solutions are designed to automate or augment customer decisions including,
but not limited to, credit risk, fraud risk, identity verification, customer
profitability, payments, and collection. Services offered under our dmPaaS
include machine learning model deployment, business rules management, data
source connectivity, decision flow authoring, decision simulation,
experiments, and real-time decision flow execution via API. Through our AaaS
offerings, we provide tailored predictive/prescriptive analytic model
development, explainable machine learning, and mathematical optimization.
Industries served include financial services, communications,
telecommunications, healthcare, and higher education in
grow this program through increasing the size of our sales team, adding new
partners, and continued enhancement of our technology.
OUR MARKETS
We currently provide our services in the following countries:
•
As of
D.C. We market our financing products under the names CashNetUSA at
www.cashnetusa.com, NetCredit at www.netcredit.com,
www.headwaycapital.com and The Business Backer at www.businessbacker.com.
•
Simplic at www.simplic.com.br, where we arrange installment loans for a
third-party lender. We plan to continue to invest in and expand our financial
services program in
Our internet websites and the information contained therein or connected thereto are not intended to be incorporated by reference into this Quarterly Report on Form 10-Q.
RECENT REGULATORY DEVELOPMENTS
OnOctober 6, 2017 , theCFPB 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. OnJune 7, 2019 , theCFPB issued a final rule to set the compliance date for the mandatory underwriting provisions of the Small Dollar Rule toNovember 19, 2020 . OnJuly 7, 2020 , theCFPB issued a final rule rescinding the ability to repay ("ATR") provisions of the Small Dollar Rule along with related provisions, such as the establishment of registered information systems for checking ATR and reporting loan activity.
Virginia SB 421
OnMarch 7, 2020 , SB 421 passed through both houses of theVirginia 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 allowVirginia -licensed lenders to make installment loans at 36% APR plus a loan processing fee equal to the greater of$75 or 5% of the principal loan amount, but not exceeding$150 . The law is scheduled to go into effect onJanuary 1, 2021 .
Brazil General Data Privacy Law
OnAugust 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 theEuropean 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 onFebruary 15, 2020 ; however, several amendments to LGPD have been proposed, one of which could delay the effective date of the legislation toAugust 2020 . 30
-------------------------------------------------------------------------------- Compliance with LGPD may increase the cost of conducting business inBrazil , and we could see regulatory compliance costs and enforcement activity once the law goes into effect. RESULTS OF OPERATIONS ELECTION OF FAIR VALUE OPTION Prior toJanuary 1, 2020 , we carried our loans and finance receivables at amortized cost, net of an allowance for estimated losses inherent in the portfolio. EffectiveJanuary 1, 2020 , we elected the fair value option to account for all our loans and finance receivables in conjunction with the transition guidance specified in ASU 2019-05. We believe the fair value option better reflects the value of our portfolio and its future economic performance as well as more closely aligns with our marginal decision-making processes that rely on risk-based pricing and discounted cash flow methodologies. Refer to Note 1 for discussion of the election and its impact on our accounting policies. In comparing our current year results under the fair value option to prior periods, it may be helpful to consider the following: Prior to 2020, origination fees as well as certain direct costs associated with originating loans were deferred and amortized into or against revenue on an effective yield basis over the term of the loan or the projected delivery term of the finance receivable. Subsequent to the election of the fair value option, these fees and costs are no longer eligible for deferral. As such, we expect revenue to be slightly higher due to origination fees being immediately recognized and the lack of amortization of deferred costs into revenue. As origination costs are no longer eligible for deferral, we expect marketing and operations and technology expenses to be higher, particularly in periods of growth. Loans and finance receivables are carried at fair value with changes in fair value recorded in the consolidated income statement. The fair value takes into consideration expected lifetime losses of the loans and finance receivables, whereas the prior method incorporated only incurred losses. As such, changes in credit quality, amongst other significant assumptions, typically have a more significant impact on the carrying value of loans and finance receivables under the fair value option. COVID-19 The COVID-19 pandemic has, and will likely continue to, severely impact global economic conditions, resulting in substantial volatility in the financial markets, increased unemployment, and operational challenges resulting from measures that governments have imposed to control its spread. We have implemented a number of procedures in response to the pandemic to support the safety and well-being of our employees, customers and stockholders that continue through the date of this report:
• As shelter-in-place orders and general distancing guidelines were released, we
moved quickly to transition virtually all of our employees to a remote work
environment, in which we continue to operate.
• We are actively working with our customers to understand their financial
situations, waive late fees, offer a variety of repayment options to increase
flexibility and reduce or defer payments for impacted customers.
• We took measures to adjust our underwriting procedures, which reduced exposure
to more heavily impacted consumers and businesses.
• We adjusted loan and draw sizes as well as shortened duration in an effort to
reduce risk in this volatile environment.
From a loan valuation perspective, the COVID-19 pandemic significantly increases the potential variability of our expected cash flows. In the latter half ofMarch 2020 , we noted a slight worsening in certain credit metrics, such as delinquencies, that we attributed primarily to the impact of the COVID-19 pandemic. Consequently, the associated fair values of these loans were adjusted lower as part of the standard process in our internally-developed valuation models described in the Notes to the Consolidated Financial Statements as well as the "Critical Accounting Estimates" section of this Form 10-Q. In addition, the number of loans with payment deferrals or other modifications increased meaningfully in the latter half of March. While not considered delinquent, we expect these customers to present a higher default risk than typical non-delinquent customers that continue to pay on a timely basis; therefore, we adjusted the fair value of these loans lower to reflect the increased risk. We also deemed it appropriate to increase the discount rate to capture the increase in potential volatility in expected cash flows due to the unprecedented nature of this pandemic and governmental response. After adjusting the discount rate for the decrease in underling interest rates, we increased the rate by 500 basis points based on what we deemed a market participant would require to assume the additional risk. We deemed the resulting fair value to be an appropriate market-based exit price that considers current market conditions atMarch 31, 2020 . In the third quarter of 2020 requests for deferrals and modifications decreased meaningfully. Since the beginning of the pandemic, we have assessed performance of borrowers that had elected to defer or modify loan payments during the pandemic. As ofSeptember 30, 2020 , our collection data does not appear to indicate increased risk with these borrowers. As modifications and deferrals do not appear to be a strong indicator of future activity, we did not make an adjustment to the fair value of these loans atSeptember 30, 2020 based on current or past modification or deferral. Charge-offs in the quarter trended below the pre-COVID-19 rates. Further, delinquency 31 -------------------------------------------------------------------------------- levels were also lower than pre-COVID historical averages. However, COVID-19 positive test results were increasing in various parts of the country, with many viewing the near- and intermediate-term outlook as negative in regards to control of the pandemic, business reopening/closing trends, unemployment, and the economy in general. Further, there are considerable unknowns related to the November election inthe United States and ultimate impacts on loan performance. Similar to theJune 30, 2020 valuation, management concluded that the probability of future charge-offs was higher than what we had experienced in the past and, therefore, increased anticipated charge-offs in our fair value models, which reduced the fair value of our portfolio atSeptember 30, 2020 . As the potential variability in expected cash flows is still high, we maintained the elevated discount rates utilized atMarch 31, 2020 andJune 30, 2020 in our valuation as ofSeptember 30, 2020 .
We continue to closely monitor this pandemic and expect to make future changes to respond to the situation as it continues to evolve.
HIGHLIGHTS
Our financial results for the three-month period ended
• Consolidated total revenue decreased
million in the current quarter compared to
ended September 30, 2019 , or the prior year quarter.
• Consolidated net revenue was $181.8 million in the current quarter.
Consolidated gross profit was $143.4 million in the prior year quarter.
• Consolidated income from operations increased
year quarter.
• Consolidated net income was
was
32
--------------------------------------------------------------------------------OVERVIEW
The following tables reflect our results of operations for the periods indicated, both in dollars and as a percentage of total revenue (dollars in thousands, except per share data):
Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Revenue
Loans and finance receivables revenue $ 203,397 $ 305,387 $ 814,905 $ 828,713
Other 1,148 225 4,953 782
Total Revenue 204,545 305,612 819,858 829,495Change in Fair Value (22,777 ) - (379,168 ) - Cost of Revenue - (162,186 ) - (404,477 ) Net Revenue/Gross Profit 181,768 143,426 440,690 425,018
Expenses
Marketing 4,629 34,505 42,175 79,427 Operations and technology 17,702 20,717 65,472 61,353 General and administrative 33,656 27,267 83,943 84,562 Depreciation and amortization 3,770 3,433 11,444 11,048 Total Expenses 59,757 85,922 203,034 236,390 Income from Operations 122,011 57,504 237,656 188,628 Interest expense, net (18,634 ) (18,235 ) (59,387 ) (55,853 ) Foreign currency transaction (loss) gain (30 ) (12 ) (7 ) (190 ) Loss on early extinguishment of debt - - - (2,321 ) Income before Income Taxes 103,347 39,257 178,262 130,264 Provision for income taxes 9,671 10,374 30,812 31,776 Net income from continuing operations 93,676 28,883 147,450 98,488 Net loss from discontinued operations (9 ) (1,798 ) (297 ) (11,323 ) Net Income$ 93,667 $ 27,085 $ 147,153 $ 87,165 Earnings Per Share: Earnings per common share - diluted: Continuing operations $ 3.09$ 0.83 $ 4.73 $ 2.86 Discontinued operations - (0.05 ) (0.01 ) (0.33 )
Total earnings common share - diluted $ 3.09
4.72 $ 2.53
Revenue
Loans and finance receivables revenue 99.4 % 99.9 % 99.4 % 99.9 %
Other 0.6 0.1 0.6 0.1
Total Revenue 100.0 100.0 100.0 100.0
Change in Fair Value (11.1 ) - (46.2 ) -
Cost of Revenue - (53.1 ) - (48.8 )
Net Revenue/Gross Profit 88.9 46.9 53.8 51.2
Expenses
Marketing 2.3 11.3 5.2 9.6
Operations and technology 8.7 6.8 8.0 7.4
General and administrative 16.5 8.9 10.2 10.2
Depreciation and amortization 1.8 1.1 1.4 1.3
Total Expenses 29.3 28.1 24.8 28.5
Income from Operations 59.6 18.8 29.0 22.7
Interest expense, net (9.1 ) (6.0 ) (7.2 ) (6.7 )
Foreign currency transaction (loss) gain - - - -
Loss on early extinguishment of debt - - - (0.3 )
Income before Income Taxes 50.5 12.8 21.8 15.7
Provision for income taxes 4.7 3.3 3.8 3.8
Net income from continuing operations 45.8 9.5 18.0 11.9
Net loss from discontinued operations - (0.6 ) - (1.4 )
Net Income 45.8 % 8.9 % 18.0 % 10.5 %
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NON-GAAP FINANCIAL MEASURES
In addition to the financial information prepared in conformity with generally
accepted accounting principles ("GAAP"), we provide historical non-GAAP
financial information. We believe that presentation of non-GAAP financial
information is meaningful and useful in understanding the activities and
business metrics of our operations. We believe that these non-GAAP financial
measures reflect an additional way of viewing aspects of our business that, when
viewed with our GAAP results, provide a more complete understanding of factors
and trends affecting our business.
We provide non-GAAP financial information for informational purposes and to
enhance understanding of our GAAP consolidated financial statements. Readers
should consider the information in addition to, but not instead of or superior
to, our consolidated financial statements prepared in accordance with GAAP. This
non-GAAP financial information may be determined or calculated differently by
other companies, limiting the usefulness of those measures for comparative
purposes.
Adjusted Earnings Measures
In addition to reporting financial results in accordance with GAAP, we have provided adjusted earnings and adjusted earnings per share, or, collectively, the Adjusted Earnings Measures, which are non-GAAP measures. We believe that the presentation of these measures provides investors with greater transparency and facilitates comparison of operating results across a broad spectrum of companies with varying capital structures, compensation strategies, derivative instruments and amortization methods, which provides a more complete understanding of our financial performance, competitive position and prospects for the future. We also believe that investors regularly rely on non-GAAP financial measures, such as the Adjusted Earnings Measures, to assess operating performance and that such measures may highlight trends in our business that may not otherwise be apparent when relying on financial measures calculated in accordance with GAAP. In addition, we believe that the adjustments shown below are useful to investors in order to allow them to compare our financial results during the periods shown without the effect of each of these expense items.
The following table provides reconciliations between net income and diluted earnings per share calculated in accordance with GAAP to the Adjusted Earnings Measures, which are shown net of tax (in thousands, except per share data):
Three Months Ended Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
Net income from continuing operations $ 93,676 $ 28,883 $ 147,450 $ 98,488
Adjustments:
Acquisition-related costs 6,593 - 6,593 -
Lease termination and cease-use costs - - - 726
Loss on early extinguishment of debt - - - 2,321
Intangible asset amortization 27 268 562 803
Stock-based compensation expense 3,768 3,387 10,888 9,784
Foreign currency transaction loss (gain) 30 12 7 190
Cumulative tax effect of adjustments (2,454 ) (852 ) (4,251 ) (3,214 )
Discrete tax adjustments (11,604 ) - (11,604 ) (141 )
Adjusted earnings $ 90,036 $ 31,698 $ 149,645 $ 108,957
Diluted earnings per share from
continuing operations $ 3.09 $ 0.83 $ 4.73 $ 2.86
Adjustments:
Acquisition-related costs 0.22 - 0.21 -
Lease termination and cease-use costs - - - 0.02
Loss on early extinguishment of debt - - - 0.07
Intangible asset amortization - 0.01 0.02 0.02
Stock-based compensation expense 0.12 0.10 0.35 0.28
Foreign currency transaction loss (gain) - - - -
Cumulative tax effect of adjustments (0.08 ) (0.02 ) (0.14 ) (0.09 )
Discrete tax adjustments (0.38 ) - (0.37 ) -
Adjusted earnings per share $ 2.97 $ 0.92 $ 4.80 $ 3.16
Adjusted EBITDA
The table below shows Adjusted EBITDA, which is a non-GAAP measure that we define as earnings excluding depreciation, amortization, interest, foreign currency transaction gains or losses, taxes, and stock-based compensation expense. We believe Adjusted
34
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EBITDA is used by investors to analyze operating performance and evaluate our
ability to incur and service debt and our capacity for making capital
expenditures. Adjusted EBITDA is also useful to investors to help assess our
estimated enterprise value. In addition, we believe that the adjustments for
acquisition-related costs, loss on early extinguishment of debt and lease
termination and cease-use costs shown below are useful to investors in order to
allow them to compare our financial results during the periods shown without the
effect of the expense items. The computation of Adjusted EBITDA, as presented
below, may differ from the computation of similarly-titled measures provided by
other companies (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
Net income from continuing operations $ 93,676 $ 28,883 $ 147,450 $ 98,488
Depreciation and amortization expenses 3,770 3,433 11,444 11,048
Interest expense, net 18,634 18,235 59,387 55,853
Foreign currency transaction loss 30 12 7 190
Provision for income taxes 9,671 10,374 30,812 31,776
Stock-based compensation expense 3,768 3,387 10,888 9,784
Adjustment:
Acquisition-related costs 6,593 - 6,593 -
Lease termination and cease-use costs - - - 370
Loss on early extinguishment of debt - - - 2,321
Adjusted EBITDA $ 136,142 $ 64,324 $
266,581
Adjusted EBITDA margin calculated as follows: Total Revenue$ 204,545 $ 305,612 $ 819,858 $ 829,495 Adjusted EBITDA 136,142 64,324 266,581 209,830 Adjusted EBITDA as a percentage of total revenue 66.6 % 21.0 % 32.5 % 25.3 % Constant Currency Basis In addition to reporting financial results in accordance with GAAP, we have provided certain other non-GAAP financial information on a constant currency basis. Outsidethe United States , we currently operate inBrazil . During the current quarter, 0.7% of our revenue originated in currencies other than theU.S. Dollar, principally the Brazilian Real. As a result, changes in our reported revenue and profits include the impacts of changes in foreign currency exchange rates. We provide constant currency assessments in the following discussion and analysis to isolate the impact of the fluctuation in foreign exchange rates and utilize constant currency results in our analysis of performance. Our constant currency assessment assumes foreign exchange rates in the current fiscal periods remained the same as in the prior fiscal year periods. All conversion rates below are based on theU.S. Dollar equivalent to the applicable foreign currency: Three Months Ended September 30, 2020 2019 % ChangeBrazilian Real 0.1858 0.2517 (26.2 )% Nine Months Ended September 30, 2020 2019 % Change Brazilian real 0.1989 0.2575 (22.8 )%
We believe that our non-GAAP constant currency assessments are a useful measure, as they indicate the actual growth and profitability of our operations.
Combined Loans and Finance Receivables Measures
In addition to reporting loans and finance receivables balance information in
accordance with GAAP (see Note 2 in the Notes to Consolidated Financial
Statements included in this report), we have provided metrics on a combined
basis. The Combined Loans and Finance Receivables Measures are non-GAAP measures
that include both loans and RPAs we own or have purchased and loans we
guarantee, which are either GAAP items or disclosures required by GAAP. See
"-Loan and Finance Receivable Balances" and "-Credit Performance of Loans and
Finance Receivables" below for reconciliations between Company owned and
purchased loans and
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finance receivables, gross, allowance and liability for losses, cost of revenue
and charge-offs (net of recoveries) calculated in accordance with GAAP to the
Combined Loans and Finance Receivables Measures.
We believe these non-GAAP measures provide investors with important information
needed to evaluate the magnitude of potential receivable losses and the
opportunity for revenue performance of the loans and finance receivable
portfolio on an aggregate basis. We also believe that the comparison of the
aggregate amounts from period to period is more meaningful than comparing only
the amounts reflected on our consolidated balance sheet since both revenue and
cost of revenue are impacted by the aggregate amount of receivables we own and
those we guarantee as reflected in our consolidated financial statements.
THREE MONTHS ENDED
Revenue, Net Revenue and Gross Profit
Revenue decreased$101.1 million , or 33.1%, to$204.5 million for the current quarter as compared to$305.6 million for the prior year quarter. On a constant currency basis, revenue decreased by$100.5 million , or 32.9%, for the current quarter compared to the prior year quarter. The decrease was driven by a 43.1% decrease in revenue from our sub-prime, an 8.8% decrease in revenue from our near-prime and a 25.7% decrease in revenue from our small business portfolios due to lower loan originations and lower average loan balances in the current quarter compared to the prior year quarter. Net revenue for the current quarter was$181.8 million compared to gross profit of$143.4 million for the prior year quarter. Our consolidated net revenue margin was 88.9% for the current quarter compared to gross profit of 46.9% for the prior year quarter. The increase in net revenue margin was driven by lower delinquency rates and lower than expected charge-offs as a result of portfolio seasoning and lower originations. The following table sets forth the components of revenue and gross profit, separated by product for the current quarter and the prior year quarter (in thousands): Three Months Ended September 30, 2020 2019 $ Change % Change Revenue by product: Installment loans and RPAs$ 103,674 $ 159,025 $ (55,351 ) (34.8 )% Line of credit accounts 99,723 146,362 (46,639 ) (31.9 ) Total loans and finance receivables revenue 203,397 305,387 (101,990 ) (33.4 ) Other 1,148 225 923 410.2 Total revenue 204,545 305,612 (101,067 ) (33.1 ) Change in fair value (22,777 ) - (22,777 ) 100.0 Cost of revenue - (162,186 ) 162,186 (100.0 ) Net revenue/gross profit$ 181,768 $ 143,426 $ 38,342 26.7 % Revenue by product (% to total): Installment loans and RPAs 50.7 % 52.0 % Line of credit accounts 48.7
47.9
Total loans and finance receivables revenue 99.4 99.9 Other 0.6 0.1 Total revenue 100.0 100.0 Change in fair value (11.1 ) - Cost of revenue - (53.1 ) Net revenue/gross profit 88.9 % 46.9 %
Loan and Finance Receivable Balances
The fair value of our loan and finance receivable portfolio in our consolidated financial statements atSeptember 30, 2020 was$693.4 million with an outstanding principal balance of$651.3 million . Our loan and finance receivable balance in our consolidated financial statements as ofSeptember 30, 2019 was$1,109.9 million , before the allowance for losses of$159.7 million . The fair value of the combined loan and finance receivables portfolio includes$7.4 million with an outstanding principal balance of$6.9 million of consumer loan balances that are guaranteed by us but not owned by us, which are not included in our consolidated financial statements as ofSeptember 30, 2020 . The combined loan and finance receivables portfolio includes$23.6 million as ofSeptember 30, 2019 of consumer loan balances that are guaranteed by us but not owned by us, which are not included in our consolidated financial statements 36 --------------------------------------------------------------------------------
as of
The near-prime consumer installment portfolio balance increased to 58.5% of our combined loan and finance receivable portfolio balance as ofSeptember 30, 2020 , compared to 49.0% as ofSeptember 30, 2019 . The outstanding loan balance for our consumer line of credit product decreased to 21.7% of our combined loan and finance receivable portfolio balance as ofSeptember 30, 2020 , compared to 23.4% as ofSeptember 30, 2019 . Our portfolio of loans and finance receivables serving the needs of small businesses decreased to 11.9% as ofSeptember 30, 2020 , compared to 13.1% as ofSeptember 30, 2019 . See "-Non-GAAP Disclosure-Combined Loans and Finance Receivables" above for additional information related to combined loans and finance receivables.
The following tables summarize loan and finance receivable balances outstanding
as of
As of September 30, 2020
Guaranteed
Company by the
Owned(a) Company(a) Combined(b)
Installment loans and RPAs
Principal $ 481,621 $ 6,905 $ 488,526
Fair value 505,935 7,411 513,346
Fair value as a % of principal 105.0 % 107.3 % 105.1 %
Line of credit accounts
Principal $ 169,668 $ - $ 169,668
Fair value 187,435 - 187,435
Fair value as a % of principal 110.5 % - % 110.5 %
Total loans and finance receivables
Principal $ 651,289 $ 6,905 $ 658,194
Fair value 693,370 7,411
700,781
Fair value as a % of principal 106.5 % 107.3 % 106.5 %
As of September 30, 2019
Guaranteed
Company by the
Owned(a) Company(a) Combined(b)
Ending loans and finance receivables
balances:
Installment loans and RPAs $ 773,077 $ 23,648 $ 796,725
Line of credit accounts 336,847 - 336,847
Total ending loans and finance
receivables, gross 1,109,924 23,648 1,133,572
Less: Allowance and liabilities for losses(a) (159,736 ) (1,703 ) (161,439 ) Total ending loans and finance receivables, net$ 950,188 $ 21,945 $ 972,133 Allowance and liability for losses as a % of loans and finance receivables, gross 14.4 % 7.2 % 14.2 %
(a) GAAP measure. The loans and finance receivables balances guaranteed by us
relate to loans originated by third-party lenders through the CSO programs
that we have not yet purchased and, therefore, are not included in our
consolidated financial statements.
(b) Except for allowance and liability for estimated losses, amounts shown
represent non-GAAP measures.
AtSeptember 30, 2020 , the ratio of fair value as a percentage of principal was 106.5% on company owned loans and finance receivables and 106.5% on combined loans and finance receivables. These ratios increased during the quarter as the portfolio seasoned with the reduced level of originations, particularly to new customers, which carry a higher risk of charge-off. The increases were partially offset by higher expected future charge-offs atSeptember 30, 2020 , as discussed in "Results of Operations-COVID-19" in "Management's Discussion and Analysis of Financial Condition and Results of Operations." 37 --------------------------------------------------------------------------------
Average Amount Outstanding per Loan
The average amount outstanding per loan is calculated as total combined loans, including accrued interest and fees, at the end of the period divided by the total number of combined loans outstanding at the end of the period. The following table shows the average amount outstanding per loan by product atSeptember 30, 2020 and 2019: As of September 30, 2020 2019 Average amount outstanding per loan (in ones)(a) Installment loans(b)(c)$ 2,334 $ 1,597 Line of credit accounts 1,490 1,703 Total loans(b)(c)$ 1,999 $ 1,629
(a) The disclosure regarding the average amount per loan and finance receivable
is statistical data that is not included in our consolidated financial
statements.
(b) Includes loans guaranteed by us, which represent loans originated by
third-party lenders through the CSO programs that we have not yet purchased
and, therefore, are not included in our consolidated financial statements.
(c) Excludes RPAs. The average amount outstanding per loan increased to$1,999 from$1,629 during the current quarter compared to the prior year quarter, due primarily to a mix shift toward near-prime installment loan products, which generally have higher average amounts outstanding compared to subprime installment loan and line of credit products. Average Loan Origination The average loan origination amount is calculated as the total principal amount of combined loans originated and renewed for the period divided by the total number of combined loans originated and renewed for the period. The following table shows the average loan origination amount by product for the current quarter compared to the prior year quarter: Three Months Ended September 30, 2020 2019 Average loan origination amount (in ones) (a) Installment loans (b)(d)$ 436 $ 883 Line of credit accounts (c) 265 416 Total loans (b)(d)$ 330 $ 644
(a) The disclosure regarding the average loan origination amount is statistical
data that is not included in our consolidated financial statements.
(b) Includes loans guaranteed by us, which represent loans originated by
third-party lenders through the CSO programs that we have not yet purchased
and, therefore, are not included in our consolidated financial statements.
(c) Represents the average amount of each incremental draw on line of credit
accounts.
(d) Excludes RPAs.
The average loan origination amount decreased to $330 from $644 during the
current quarter compared to the prior year quarter, due primarily to our
deliberate reduction in origination amounts to mitigate risks associated with
the COVID-19 pandemic, and a greater mix of line of credit draws from existing
customer accounts which are generally smaller than initial new customer draws.
Credit Performance of Loans and Finance Receivables
We monitor the performance of our loan and finance receivable. Internal factors
such as portfolio composition (e.g., interest rate, loan term, geography
information, customer mix, credit quality) and performance (e.g., delinquency,
loss trends, prepayment rates) are reviewed on a regular basis at various levels
(e.g., product, vintage). We also weigh the impact of relevant, internal
business decisions on portfolio. External factors such as macroeconomic trends,
financial market liquidity expectations, competitive landscape and
legal/regulatory requirements are also reviewed on a regular basis.
The payment status of a customer, including the degree of any delinquency, is a
significant factor in determining estimated charge-offs in the cash flow models
that we use to determine fair value. The following table shows payment status on
outstanding principal, interest and fees as of the end of each of the last five
quarters (in thousands):
38
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2019 2020
Third Fourth First Second Third
Quarter Quarter Quarter Quarter Quarter
Ending combined loans and finance
receivables, including principal
and accrued fees/interest
outstanding:
Company owned $ 1,086,163 $ 1,210,262 $ 1,145,748 $ 816,905 $ 698,964
Guaranteed by the Company(a) 23,648 27,560 11,798 6,054 8,100
Ending combined loan and finance
receivables balance(b) $ 1,109,811 $ 1,237,822 $ 1,157,546 $ 822,959 $ 707,064
> 30 days delinquent 77,772 83,315 86,294 36,797 25,841
> 30 days delinquency rate 7.0 % 6.7 % 7.5 % 4.5 % 3.7 %
(a) Represents loans originated by third-party lenders through the CSO programs
that we have not yet purchased, which are not included in our consolidated
balance sheets.
(b) Non-GAAP measure.
39
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Installment Loans and RPAs
The following table includes financial information for our installment loans and RPAs. Delinquency metrics include principal, interest, and fees, and only amounts that are past due (in thousands):
2019 2020
Third Fourth First Second Third
Quarter Quarter Quarter Quarter Quarter
Installment loans and RPAs:
Installment and RPA combined loan
and finance receivable principal
balance:
Company owned $ 720,721 $ 792,397 $ 748,422 $ 570,490 $ 481,621
Guaranteed by the Company(a) 23,549 27,455 10,287 5,195 6,905
Total combined loan and finance
receivable principal balance(b) $ 744,270 $ 819,852 $ 758,709 $ 575,685 $ 488,526
Installment and RPA combined loan
and finance receivable fair value
balance:
Company owned $ - $ - $ 772,469 $ 587,540 $ 505,935
Guaranteed by the Company(a) - - 12,445 6,614 7,411
Ending combined loan and finance
receivable fair value balance(b) $ - $ - $ 784,914 $ 594,154 $ 513,346
Fair value as a % of
principal(b)(c) - % - % 103.5 % 103.2 % 105.1 %
Installment and RPA combined loan
and finance receivable balance,
including principal and accrued
fees/interest outstanding:
Company owned $ 749,324 $ 820,430 $ 776,692 $ 590,576 $ 500,507
Guaranteed by the Company(a) 23,648 27,560 11,798 6,054 8,100
Ending combined loan and finance
receivable balance(b) $ 772,972 $ 847,990 $ 788,490 $ 596,630 $ 508,607
Ending allowance and liability for
losses (prior to FVO adoption) $ 86,027 $ 87,448 $ - $ - $ -
Allowance for losses as a % of
combined loan and finance
receivable balance(b)(c) 11.1 % 10.3 % - % - % - %
Average installment and RPA
combined loan and finance
receivable balance, including
principal and accrued fees/interest
outstanding:
Company owned(d) $ 718,307 $ 783,362 $ 803,018 $ 680,674 $ 539,708
Guaranteed by the Company(a)(d) 23,031 24,723 17,846 7,553 6,855
Average combined loan and finance
receivable balance(b)(d) $ 741,338 $ 808,085 $
820,864
Revenue$ 159,025 $ 168,917 $ 174,034 $ 126,224 $ 103,674 Cost of revenue/change in fair value (78,264 ) (90,477 ) (131,517 ) (70,170 ) (6,044 ) Gross profit/net revenue 80,761 78,440 42,517 56,054 97,630 Gross profit margin/net revenue margin 50.8 % 46.4 % 24.4 % 44.4 % 94.2 % Cost of revenue/change in fair value as a % of average combined loan and finance receivable balance(b)(d) 10.6 % 11.2 % 16.0 % 10.2 % 1.1 % Delinquencies: > 30 days delinquent$ 44,904 $ 46,783 $ 47,502 $ 22,256 $ 18,007 > 30 days delinquent as a % of combined loan and finance receivable balance(b)(c) 5.8 % 5.5 %
6.0 % 3.7 % 3.5 %
Charge-offs:
Charge-offs (net of recoveries)$ 79,577 $ 89,114 $ 96,272 $ 71,362 $ 15,247 Charge-offs (net of recoveries) as a % of average combined loan and finance receivable balance(b)(d) 10.7 % 11.0 % 11.7 % 10.4 % 2.8 % 40
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(a) Represents loans originated by third-party lenders through the CSO programs
that we have not yet purchased, which are not included in our consolidated
balance sheets.
(b) Non-GAAP measure.
(c) Determined using period-end balances.
(d) The average installment and RPA combined loan and finance receivable balance
is the average of the month-end balances during the period.
The combined ending loan balance, including principal and accrued fees/interest outstanding, of installment loans and RPAs atSeptember 30, 2020 decreased 34.2% to$508.6 million compared to$773.0 million atSeptember 30, 2019 , due primarily to lower originations driven by our strategic efforts to mitigate risks associated with the COVID-19 pandemic sinceMarch 2020 . The percentage of loans greater than 30 days delinquent decreased to 3.5% atSeptember 30, 2020 , compared to 5.8% atSeptember 30, 2019 . The decrease was driven primarily by having a more seasoned and lower risk portfolio remaining as originations were low during the last six months and the majority of higher risk loans to new customers originated in prior quarters have been charged off. Charge-offs (net of recoveries) as a percentage of average combined loan balance decreased to 2.8% for the current quarter, compared to 10.7% for the prior year quarter, driven primarily by having a more seasoned and lower risk portfolio remaining as originations were lower for the last six months and the majority of loans to new customers originated in prior quarters have been charged off. The ratio of fair value as a percentage of principal on installment loans and RPAs was 105.1% atSeptember 30, 2020 , compared to 103.2% atJune 30, 2020 . The increase during the quarter was primarily driven by the seasoning of the portfolio with reduced level of originations, particularly to new customers, partially offset by higher expected future charge-offs atSeptember 30, 2020 , as discussed in "Results of Operations-COVID-19" in "Management's Discussion and Analysis of Financial Condition and Results of Operations." 41 --------------------------------------------------------------------------------
Line of Credit Accounts
The following table includes financial information for our line of credit accounts. Delinquency metrics include principal, interest, and fees, and only amounts that are past due (in thousands):
2019 2020
Third Fourth First Second Third
Quarter Quarter Quarter Quarter Quarter
Line of credit accounts:
Total loan principal balance $ 282,556 $ 329,011 $ 312,986 $ 197,114 $ 169,668
Ending loan fair value balance - - 320,738 212,122 187,435
Fair value as a % of principal(a) - % - % 102.5 % 107.6 % 110.5 %
Ending loan balance, including principal and accrued fees/interest outstanding$ 336,839 $ 389,832 $ 369,056 $ 226,329 $ 198,457 Ending allowance for losses (prior to FVO adoption) 75,413 91,002 - - - Allowance for losses as a % of loan balance(a) 22.4 % 23.3 % - % - % - % Average loan balance(b)$ 301,213 $ 358,440 $
387,180
Revenue$ 146,362 $ 174,227 $ 185,772 $ 125,478 $ 99,723 Cost of revenue/change in fair value (83,922 ) (107,940 ) (104,202 ) (50,502 ) (16,733 ) Gross profit/net revenue 62,440 66,287 81,570 74,976 82,990 Gross profit margin/net revenue margin 42.7 % 38.0 % 43.9 % 59.8 % 83.2 % Cost of revenue/change in fair value as a % of average loan balance(b) 27.9 % 30.1 % 26.9 % 17.3 % 8.0 % Delinquencies: > 30 days delinquent$ 32,868 $ 36,532 $ 38,792 $ 14,541 $ 7,834 > 30 days delinquent as a % of loan balance(a) 9.8 % 9.4 %
10.5 % 6.4 % 3.9 %
Charge-offs:
Charge-offs (net of recoveries)$ 59,928 $ 92,351 $ 106,952 $ 84,613 $ 19,919 Charge-offs (net of recoveries) as a % of average loan balance(b) 19.9 % 25.8 % 27.6 % 29.0 % 9.6 %
(a) Determined using period-end balances.
(b) The average loan balance for line of credit accounts is the average of the
month-end balances during the period.
The combined ending loan balance, including principal and accrued fees/interest outstanding, of line of credit accounts atSeptember 30, 2020 decreased 41.1% to$198.5 million compared to$336.8 million atSeptember 30, 2019 , due primarily to lower consumer line of credit account balances driven primarily by our strategic efforts to mitigate the risks associated with the COVID-19 pandemic. The percentage of loans greater than 30 days delinquent decreased to 3.9% atSeptember 30, 2020 , compared to 9.8% atSeptember 30, 2019 . The decrease was driven primarily by having a more seasoned and lower risk portfolio remaining as originations were lower during the last six months and the majority of loans to new customers originated in prior quarters have been charged off. Charge-offs (net of recoveries) as a percentage of average loan balance decreased to 9.6% for the current quarter, compared to 19.9% in the prior year quarter, due primarily having a more seasoned and lower risk portfolio remaining as originations were low during the last six months and the majority of higher risk loans to new customers originated in prior quarters have been charged off. The ratio of fair value as a percentage of principal on line of credit accounts was 110.5% atSeptember 30, 2020 , compared to 107.6% atJune 30, 2020 . The increase during the quarter was primarily driven by the seasoning of the portfolio with reduced level of originations, particularly to new customers, partially offset by higher expected future charge-offs atSeptember 30, 2020 , as discussed in "Results of Operations-COVID-19" in "Management's Discussion and Analysis of Financial Condition and Results of Operations." 42 --------------------------------------------------------------------------------
Total Expenses
Total expenses decreased
Marketing expense decreased to$4.6 million in the current quarter compared to$34.5 million in the prior year quarter due primarily to our strategic actions to mitigate risks associated with the COVID-19 pandemic.
Operations and technology expense decreased to
General and administrative expense increased$6.4 million , or 23.4%, to$33.7 million in the current quarter compared to$27.3 million in the prior year quarter, due primarily to additional consulting and legal expenses related to the acquisition of OnDeck.
Depreciation and amortization expense increased
Interest Expense, Net
Interest expense, net increased$0.4 million , or 2.2%, to$18.6 million in the current quarter compared to$18.2 million in the prior year quarter. The increase was due primarily to an increase in the average amount of debt outstanding, which increased$37.0 million to$884.5 million during the current quarter from$847.5 million during the prior year quarter, partially offset by a decrease in the weighted average interest rate on our outstanding debt to 8.38% during the current quarter from 8.54% during the prior year quarter.
Provision for Income Taxes
The effective tax rate from continuing operations of 9.4% in the current quarter was lower than the 26.4% rate recorded in the prior year quarter due primarily to the remeasurement of unrecognized tax benefits and, to a lesser extent, nondeductible executive compensation and the loss of excess tax benefits related to stock based compensation. As ofSeptember 30, 2020 , the balance of unrecognized tax benefits was$31.5 million which is included in "Accounts payable and accrued expenses" on the consolidated balance sheet,$4.0 million of which, if recognized, would favorably affect the effective tax rate in the period of recognition. We had$51.3 million and$53.6 million of unrecognized tax benefits as ofSeptember 30, 2019 andDecember 31, 2019 , respectively. During the current quarter, we closed aJoint Committee on Taxation review of certain tax returns that were filed during 2018 in conjunction with the refunds claimed on those returns. The closing of theJoint Committee on Taxation review resulted in the remeasurement of unrecognized tax benefits, and a discrete benefit of$11.6 million was recognized as a component of the effective tax rate for the quarter. We believe that we have adequately accounted for any material tax uncertainties in our existing reserves for all open tax years. OurU.S. tax returns are subject to examination by federal and state taxing authorities. The statute of limitations related to our consolidated Federal income tax returns is closed for all tax years up to and including 2015. However, the 2014 tax year will be open to the extent of the net operating loss which we intend to carry back from the 2019 tax return. The years open to examination by state, local and foreign government authorities vary by jurisdiction, but the statute of limitation is generally three years from the date the tax return is filed. For jurisdictions that have generated net operating losses, carryovers may be subject to the statute of limitations applicable for the year those carryovers are utilized. In these cases, the period for which the losses may be adjusted will extend to conform with the statute of limitations for the year in which the losses are utilized. In most circumstances, this is expected to increase the length of time that the applicable taxing authority may examine the carryovers by one year or longer, in limited cases. OnMarch 27, 2020 , the Coronavirus Aid, Relief and Economic Security (CARES) Act was enacted and signed intoU.S. law to provide economic relief to individuals and businesses facing economic hardship as a result of the COVID-19 pandemic. The CARES Act did not have a material tax impact on our consolidated financial condition as of and for the three months endedSeptember 30, 2020 . We plan to defer the timing of federal tax estimates and payroll taxes as permitted by the CARES Act and will avail ourselves of net operating loss carryback provisions to the extent possible, which may include changes to the uncertain tax position reserves. 43
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Net Income
Net income increased
NINE MONTHS ENDED
Revenue, Net Revenue and Gross Profit
Revenue decreased$9.6 million , or 1.2%, to$819.9 million for the nine-month period endedSeptember 30, 2020 , or current nine-month period, as compared to$829.5 million for the nine-month period endedSeptember 30, 2019 , or prior year nine-month period. On a constant currency basis, revenue decreased by$7.2 million , or 0.9%, for the current nine-month period compared to the prior year nine-month period. The decrease was driven by a 44.1% decrease in revenue from our sub-prime installment portfolio due to lower loan originations, partially offset by a 12.1% increase in revenue from our consumer line of credit, a 16.9% increase in our near-prime installment and a 40.5% increase in revenue from our small business portfolios driven by higher average loan balances in the current nine-month period compared to the prior year nine-month period.
Net revenue for the current nine-month period was
The following table sets forth the components of revenue and gross profit, separated by product for the current nine-month period and the prior year nine-month period (in thousands):
Nine Months Ended September 30,
2020 2019 $ Change % Change
Revenue by product:
Installment loans and RPAs $ 403,932 $ 467,198 $ (63,266 ) (13.5 )%
Line of credit accounts 410,973 361,515 49,458 13.7
Total loans and finance receivables revenue 814,905 828,713 (13,808 ) (1.7 )
Other 4,953 782 4,171 533.4
Total revenue 819,858 829,495 (9,637 ) (1.2 )
Change in fair value (379,168 ) - (379,168 ) 100.0
Cost of revenue - (404,477 ) 404,477 (100.0 )
Net revenue/gross profit $ 440,690 $ 425,018 $ 15,672 3.7 %
Revenue by product (% to total):
Installment loans and RPAs 49.3 % 56.3 %
Line of credit accounts 50.1 43.6
Total loans and finance receivables revenue 99.4 99.9
Other 0.6 0.1
Total revenue 100.0 100.0
Change in fair value (46.2 ) -
Cost of revenue - (48.8 )
Net revenue/gross profit 53.8 % 51.2 %
44
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Average Loan Origination
The average loan origination amount is calculated as the total principal amount
of combined loans originated and renewed for the period divided by the total
number of combined loans originated and renewed for the period. The following
table shows the average loan origination amount by product for the current
nine-month period compared to the prior year nine-month period:
Nine Months Ended
September 30,
2020 2019
Average loan origination amount (in ones) (a)
Installment loans (b)(d) $ 607 $ 807
Line of credit accounts (c) 324 396
Total loans (b)(d) $ 444 $ 621 (a) The disclosure regarding the average loan origination amount is statistical
data that is not included in our consolidated financial statements.
(b) Includes loans guaranteed by us, which represent loans originated by
third-party lenders through the CSO programs that we have not yet purchased
and, therefore, are not included in our consolidated financial statements.
(c) Represents the average amount of each incremental draw on line of credit
accounts.
(d) Excludes RPAs.
The average loan origination amount decreased to $444 from $621 during the
current nine-month period compared to the prior year nine-month period, due
primarily to our deliberate reduction in origination amounts to mitigate risks
associated with the COVID-19 pandemic, and a greater mix of line of credit draws
from existing customer accounts which are generally smaller than initial new
customer draws.
Total Expenses
Total expenses decreased $33.4 million , or 14.1%, to $203.0 million in the
current nine-month period, compared to $236.4 million in the prior year
nine-month period. On a constant currency basis, total expenses decreased $31.8
million , or 13.4%, for the current nine-month period compared to the prior year
nine-month period.
Marketing expense decreased to $42.2 million in the current nine-month period
compared to $79.4 million in the prior year nine-month period. The decrease was
due primarily to the strategic reduction of marketing spend beginning late first
quarter to mitigate risks associated with the COVID-19 pandemic.
Operations and technology expense increased to $65.5 million in the current
nine-month period compared to $61.4 million in the prior year nine-month period,
due primarily to higher selling expenses related to direct costs associated with
originating loans that, prior to utilization of the fair value option on our
loan portfolio, were deferred and amortized against revenue over the life of the
underlying loans. Subsequent to the election of the fair value option, these
costs are no longer eligible for deferral.
General and administrative expense decreased $0.7 million , or 0.7%, to $83.9
million in the current nine-month period compared to $84.6 million in the prior
year nine-month period, due primarily to various cost containment initiatives
implemented to mitigate the impact of COVID-19. Lower personnel and
travel-related costs were partially offset by higher consulting and legal
expenses related to the acquisition of OnDeck.
Depreciation and amortization expense increased slightly compared to the prior year nine-month period, driven primarily by additional internally-developed software placed into service.
Interest Expense, Net
Interest expense, net increased$3.6 million , or 6.3%, to$59.4 million in the current nine-month period compared to$55.8 million in the prior year nine-month period. The increase was due primarily to an increase in the average amount of debt outstanding, which increased$111.2 million to$976.7 million during the current nine-month period from$865.5 million during the prior year nine-month period, partially offset by an decrease in the weighted average interest rate on our outstanding debt to 8.15% during the current nine-month period from 8.74% during the prior year nine-month period. 45 --------------------------------------------------------------------------------
Provision for Income Taxes
The effective tax rate of 17.3% in the current nine-month period was lower than the effective tax rate of 24.4% in the prior year nine-month period due primarily to the release of unrecognized tax benefits and, to a lesser extent, the loss of excess tax benefits on stock compensation.
Net Income
Net income increased$60.0 million , or 68.8%, to$147.2 million during the current nine-month period compared to$87.2 million during the prior year nine-month period. The increase was due primarily to favorable credit performance in the loan portfolio, reduced marketing and other variable costs associated with the decrease in loan originations, and execution of various cost containment strategies.
LIQUIDITY AND CAPITAL RESOURCES
Capital Funding Strategy
Given the unprecedented economic circumstances resulting from the COVID-19 pandemic and high degree of uncertainty, we have taken several actions to create a stable and flexible balance sheet that ensures liquidity and funding available to meet our business obligations. We elected to access our committed funding lines prior toMarch 31, 2020 to preserve optionality in the face of uncertainty, and prior toJune 30, 2020 we repaid the outstanding balance of our revolving credit agreement. As ofSeptember 30, 2020 , we had cash, cash equivalents, and restricted cash of$535.1 million , of which$45.0 million was restricted, compared to$81.0 million , of which$45.1 million was restricted, as ofDecember 31, 2019 . As ofSeptember 30, 2020 , we had committed and undrawn funding capacity of$332.0 million . Based on numerous stressed-case modeling scenarios, we believe we have sufficient liquidity to run our operations for the foreseeable future. Further, we have no recourse debt obligations due untilJune 2022 and no non-recourse secured lending facilities with maturities beforeFebruary 2022 . Historically, we have generated significant cash flow through normal operating activities for funding both long-term and short-term needs. Our near-term liquidity is managed to ensure that adequate resources are available to fund our seasonal working capital growth, which is driven by demand for our loan and financing products, and to meet the continued growth in the demand for our near-prime installment products. OnMay 30, 2014 , we issued and sold$500.0 million in aggregate principal amount of 9.75% senior notes due 2021 (the "2021 Senior Notes"). OnSeptember 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. OnJanuary 21, 2018 , we redeemed an additional$50.0 million in principal amount of the outstanding 2021 Senior Notes. OnSeptember 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. OnJune 30, 2017 , we entered into a secured revolving credit agreement (as amended, the "Credit Agreement"). OnApril 13, 2018 ,October 5, 2018 andJuly 1, 2019 , we and certain of our operating subsidiaries entered into amendments to our Credit Agreement, as further described below. As ofOctober 26, 2020 , our available borrowings under the Credit Agreement were$124.0 million . Since 2016, we have entered into several consumer loan securitization facilities and offered asset-backed notes to fund our growth, primarily in our near-prime consumer installment loan business, as further described below under "Consumer Loan Securitization." As ofOctober 26, 2020 , we had$128.8 million of total committed and undrawn borrowing capacity under our consumer loan securitization facilities. Following the completion of our acquisition of OnDeck onOctober 13, 2020 , we have an additional$425.0 million of total committed borrowing capacity under revolving securitization facilities, backed by certain OnDeck small business loans originated inthe United States . As ofOctober 26, 2020 we had$287.1 million of undrawn borrowing capacity related to those facilities. In addition, we have available an uncommitted revolving securitization facility, which is also supported by OnDeck small business loans originated inthe United States . We expect that our operating needs, including satisfying our obligations under our debt agreements and funding our working capital growth, will be satisfied by a combination of cash flows from operations, borrowings under the Credit Agreement, or any refinancing, replacement thereof or increase in borrowings thereunder, and securitization or sale of loans and finance receivables under our consumer and small business loan securitization facilities. As ofSeptember 30, 2020 , we were in compliance with all financial ratios, covenants and other requirements set forth in our debt agreements. Unexpected changes in our financial condition or other unforeseen factors may result in our inability to obtain third-party financing or could increase our borrowing costs in the future. To the extent we experience short-term or long-term funding disruptions, we have the ability to adjust our volume of lending and financing to consumers and small businesses that would reduce cash outflow requirements while increasing cash inflows through repayments. Additional alternatives may include the securitization or sale of assets, increased borrowings under the Credit Agreement, or any refinancing or replacement thereof, and reductions in capital spending, which could be expected to generate additional liquidity. 46 --------------------------------------------------------------------------------
8.50% Senior Unsecured Notes Due 2025
OnSeptember 19, 2018 , we issued and sold the 2025 Senior Notes. The 2025 Senior Notes were sold to qualified institutional buyers in accordance with Rule 144A under the Securities Act of 1933, as amended (the "Securities Act") and outsidethe United States pursuant to Regulation S under the Securities Act. The 2025 Senior Notes bear interest at a rate of 8.50% annually on the principal amount payable semi-annually in arrears onMarch 15 andSeptember 15 of each year, beginning onMarch 15, 2019 . The 2025 Senior Notes were sold at a price of 100%. The 2025 Senior Notes will mature onSeptember 15, 2025 . The 2025 Senior Notes are unsecured debt obligations of ours, and are unconditionally guaranteed by certain of our domestic subsidiaries. The 2025 Senior Notes are redeemable at our option, in whole or in part, (i) at any time prior toSeptember 15, 2021 at 100% of the aggregate principal amount of 2025 Senior Notes redeemed plus the applicable "make whole" premium specified in the indenture that governs our 2025 Senior Notes (the "2025 Senior Notes Indenture"), plus accrued and unpaid interest, if any, to the redemption date and (ii) at any time on or afterSeptember 15, 2021 at the premium, if any, specified in the 2025 Senior Notes Indenture that will decrease over time, plus accrued and unpaid interest, if any, to the redemption date. In addition, prior toSeptember 15, 2021 , at our option, we may redeem up to 40% of the aggregate principal amount of the 2025 Senior Notes at a redemption price of 108.5% of the aggregate principal amount of 2025 Senior Notes redeemed, plus accrued and unpaid interest, if any, to the redemption date, with the proceeds of certain equity offerings as described in the 2025 Senior Notes Indenture. The 2025 Senior Notes and the related guarantees have not been and will not be registered under the Securities Act, or the securities laws of any state or other jurisdiction, and may not be offered or sold inthe United States without registration or an applicable exemption from the registration requirements of the Securities Act and applicable state securities or blue sky laws and foreign securities laws.
We used a portion of the net proceeds of the 2025 Senior Notes offering to
retire the remaining outstanding 2021 Senior Notes balance of
8.50% Senior Unsecured Notes Due 2024
OnSeptember 1, 2017 , we issued and sold the 2024 Senior Notes. The 2024 Senior Notes were sold to qualified institutional buyers in accordance with Rule 144A under the Securities Act and outsidethe United States pursuant to Regulation S under the Securities Act. The 2024 Senior Notes bear interest at a rate of 8.50% annually on the principal amount payable semi-annually in arrears onMarch 1 andSeptember 1 of each year, beginning onMarch 1, 2018 . The 2024 Senior Notes were sold at a price of 100%. The 2024 Senior Notes will mature onSeptember 1, 2024 . The 2024 Senior Notes are unsecured debt obligations of ours, and are unconditionally guaranteed by certain of our domestic subsidiaries. The 2024 Senior Notes are redeemable at our option, in whole or in part, (i) at any time prior toSeptember 1, 2020 at 100% of the aggregate principal amount of 2024 Senior Notes redeemed plus the applicable "make whole" premium specified in the indenture that governs our 2024 Senior Notes (the "2024 Senior Notes Indenture"), plus accrued and unpaid interest, if any, to the redemption date and (ii) at any time on or afterSeptember 1, 2020 at the premium, if any, specified in the 2024 Senior Notes Indenture that will decrease over time, plus accrued and unpaid interest, if any, to the redemption date. In addition, prior toSeptember 1, 2020 , at our option, we may redeem up to 40% of the aggregate principal amount of the 2024 Senior Notes at a redemption price of 108.5% of the aggregate principal amount of 2024 Senior Notes redeemed, plus accrued and unpaid interest, if any, to the redemption date, with the proceeds of certain equity offerings as described in the 2024 Senior Notes Indenture. The 2024 Senior Notes and the related guarantees have not been and will not be registered under the Securities Act, or the securities laws of any state or other jurisdiction, and may not be offered or sold inthe United States without registration or an applicable exemption from the registration requirements of the Securities Act and applicable state securities or blue sky laws and foreign securities laws.
We used the net proceeds of the 2024 Senior Notes offering to retire a portion of our outstanding 2021 Senior Notes, to pay the related accrued interest, premiums, fees and expenses associated therewith and for general corporate purposes.
Consumer Loan Securitizations
We securitize consumer loan receivables originated by certain of our
subsidiaries, which are sold to bankruptcy remote special purpose subsidiaries.
Each of these securitizations provides that (i) the lenders to a securitization
subsidiaries have no recourse to seek repayment or recovery from our operating
entities for credit losses on the receivables; (ii) except for certain limited
indemnities, such lenders have recourse only to assets of the applicable
securitization subsidiary to which they have lent; (iii) such lenders maintain a
security interest in all assets of the applicable securitization subsidiary;
(iv) cash flows from the assets transferred to such
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securitization subsidiaries represent the sole source of payment to such
securitization subsidiaries. The collections on assets sold to securitization
subsidiaries are not available to satisfy the debts or other obligations of the
Company unless such amounts have been released from the lien of the lenders.
2019-A Notes
OnOctober 17, 2019 (the "2019-A Closing Date"), we issued$138,888,000 Class A Asset Backed Notes (the "2019-A Class A Notes"),$44,445,000 ClassB Asset Backed Notes (the "2019-A ClassB Notes "), and$16,667,000 ClassC Asset Backed Notes (the "2019-A ClassC Notes " and, collectively with the 2019-A Class A Notes and the 2019-A ClassB Notes , the "2019-A Notes") through an indirect subsidiary. The 2019-A Class A Notes bear interest at 3.96%, the 2019-A ClassB Notes bear interest at 6.17%, and the 2019-A ClassC Notes bear interest at 7.62%. The 2019-A Notes are backed by a pool of unsecured consumer installment loans ("Securitization Receivables") and represent obligations of the issuer only. The 2019-A Notes are not be guaranteed by us. The net proceeds of the offering of the 2019-A Notes on the 2019-A Closing Date were used to acquire the Securitization Receivables from us, fund a reserve account and pay fees and expenses incurred in connection with the transaction. The amount of Securitization Receivables sold to the issuer on the 2019-A Closing Date was approximately$200.0 million . Additional Securitization Receivables totaling approximately$22.2 million were sold to the issuer prior toDecember 31, 2019 . The 2019-A Notes were offered only to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to certain persons outside ofthe United States in compliance with Regulation S under the Securities Act. The 2019-A Notes have not been registered under the Securities Act, or the securities laws of any state or other jurisdiction, and may not be offered or sold inthe United States without registration or an applicable exemption from the Securities Act and applicable state securities or blue sky laws and foreign securities laws.
20191 Facility
OnFebruary 25, 2019 (the "2019-1 Closing Date"), we and several of our subsidiaries entered into a receivables securitization (the "2019-1 Facility") withPCAM Credit II, LLC , as lender (the "2019-1 Lender"). The 2019-1 Lender is an affiliate ofPark Cities Asset Management, LLC . The 2019-1 Facility finances Securitization Receivables that have been and will be originated or acquired under our NetCredit and CashNetUSA brands by several of our subsidiaries and that meet specified eligibility criteria. Under the 2019-1 Facility, eligible Securitization Receivables are sold to a wholly-owned subsidiary of our (the "2019-1 Debtor") and serviced by another subsidiary of us. The 2019-1 Debtor has issued a delayed draw term note with an initial maximum principal balance of$30.0 million and a revolving note with an initial maximum principal balance of$20.0 million for an aggregate initial maximum principal balance of$50.0 million , which is required to be secured by eligible Securitization Receivables. The 2019-1 Facility has an accordion feature that, with the consent of the 2019-1 Lender, allows for the maximum principal balance of the delayed draw term note to increase to$50.0 million and the maximum principal balance of the revolving note to increase to$25.0 million , for an aggregate maximum principal balance of$75.0 million . The 2019-1 Facility is non-recourse to us and matures three years after the 2019-1 Closing Date. The 2019-1 Facility is governed by a loan and security agreement, dated as of the 2019-1 Closing Date, between the 2019-1 Lender and the 2019-1 Debtor. The 2019-1 Facility bears interest at a rate per annum equal to LIBOR (subject to a floor) plus an applicable margin, which applicable margin is initially 9.75%. In addition, the 2019-1 Debtor is required to pay certain customary upfront closing fees to the 2019-1 Lender. Interest payments on the 2019-1 Facility will be made monthly. Subject to certain exceptions, the 2019-1 Debtor is not permitted to prepay the delayed draw term note prior to two years after the 2019-1 Closing Date. Following such date, the 2019-1 Debtor is permitted to voluntarily prepay the 2019-1 Facility without penalty. The revolving note may be paid in whole or in part at any time after the delayed draw term note has been fully drawn. All amounts due under the 2019-1 Facility are secured by all of the 2019-1 Debtor's assets, which include the eligible Securitization Receivables transferred to the 2019-1 Debtor, related rights under the eligible Securitization Receivables, a bank account and certain other related collateral. We have issued a limited indemnity to the 2019-1 Lender for certain "bad acts," and we have agreed for the benefit of the 2019-1 Lender to meet certain ongoing financial performance covenants. The 2019-1 Facility documents contain customary provisions for securitizations, including representations and warranties as to the eligibility of the eligible Securitization Receivables and other matters; indemnification for specified losses not including losses due to the inability of consumers to repay their loans; covenants regarding special purpose entity matters; and default and termination provisions which provide for the acceleration of the 2019-1 Facility in circumstances including, but not limited to, failure to make payments when due, certain insolvency events, breaches of representations, warranties or covenants, failure to maintain the security interest in the eligible Securitization Receivables, defaults under other material indebtedness of the 2019-1 Debtor and a default by us under our financial performance covenants. 48 --------------------------------------------------------------------------------
2018-A Notes
OnOctober 31, 2018 (the "2018-A Closing Date"), we issued$95,000,000 Class A Asset Backed Notes (the "2018-A Class A Notes") and$30,400,000 ClassB Asset Backed Notes (the "2018-A ClassB Notes " and, collectively with the 2018-A Class A Notes, the "2018-A Notes"), through an indirect subsidiary. The 2018-A Class A Notes bear interest at 4.20%, and the 2018-A ClassB Notes bear interest at 7.37%. The 2018-A Notes are backed by a pool of Securitization Receivables and represent obligations of the issuer only. The 2018-A Notes are not guaranteed by us. Under the 2018-A Notes, Securitization Receivables are sold to a wholly-owned subsidiary of ours and serviced by another subsidiary of ours.
The net proceeds of the offering of the 2018-A Notes on the 2018-A Closing Date were used to acquire the Securitization Receivables from us, fund a reserve account and pay fees and expenses incurred in connection with the transaction.
The 2018-A Notes were offered only to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to certain persons outside ofthe United States in compliance with Regulation S under the Securities Act. The 2018-A Notes have not been registered under the Securities Act, or the securities laws of any state or other jurisdiction, and may not be offered or sold inthe United States without registration or an applicable exemption from the Securities Act and applicable state securities or blue sky laws and foreign securities laws.
20182 Facility
OnOctober 23, 2018 , we and several of our subsidiaries entered into a receivables funding agreement (the "20182 Facility") with Credit Suisse AG,New York Branch, as agent (the "20182 Agent"). The 20182 Facility collateralizes Securitization Receivables that have been and will be originated or acquired under our NetCredit brand by several of our subsidiaries and that meet specified eligibility criteria in exchange for a revolving note. Under the 20182 Facility, Securitization Receivables are sold to a wholly-owned subsidiary of ours (the "20182 Debtor") and serviced by another subsidiary of ours. The 20182 Debtor has issued a revolving note with an initial maximum principal balance of$150.0 million , which is required to be secured by 1.25 times the drawn amount in eligible Securitization Receivables. The 20182 Facility is non-recourse to us and matures onOctober 23, 2022 . The 20182 Facility is governed by a loan and security agreement, dated as ofOctober 23, 2018 , between the 20182 Agent, the 20182 Debtor and certain other lenders and agent parties thereto. The 20182 Facility bears interest at a rate per annum equal to one-month LIBOR (subject to a floor) plus an applicable margin, which rate per annum is 3.75%. In addition, the 20182 Debtor paid certain customary upfront closing fees to the 20182 Agent. Interest payments on the 20182 Facility will be made monthly. The 20182 Debtor shall be permitted to prepay the 20182 Facility, subject to certain fees and conditions. Any remaining amounts outstanding will be payable no later thanOctober 23, 2022 , the final maturity date. All amounts due under the 20182 Facility are secured by all of the 20182 Debtor's assets, which include the Securitization Receivables transferred to the 20182 Debtor, related rights under the Securitization Receivables, a bank account and certain other related collateral. The 20182 Facility documents contain customary provisions for securitizations, including: representations and warranties as to the eligibility of the Securitization Receivables and other matters; indemnification for specified losses not including losses due to the inability of consumers to repay their loans; covenants regarding special purpose entity matters; and default and termination provisions that provide for the acceleration of the 20182 Facility in circumstances including, but not limited to, failure to make payments when due, servicer defaults, certain insolvency events, breaches of representations, warranties or covenants, failure to maintain the security interest in the Securitization Receivables and defaults under other material indebtedness of the 20182 Debtor. 20181 Facility OnJuly 23, 2018 , we and several of our subsidiaries entered into a receivables funding agreement (the "20181 Facility") withPacific Western Bank , as lender (the "20181 Lender"). The 20181 Facility collateralizes Securitization Receivables that have been and will be originated or acquired under our NetCredit brand by several of our subsidiaries and that meet specified eligibility criteria in exchange for a revolving note. Under the 20181 Facility, Securitization Receivables are sold to a wholly-owned subsidiary of ours (the "20181 Debtor") and serviced by another subsidiary of ours. The 20181 Debtor has issued a revolving note with an initial maximum principal balance of$150.0 million , which is required to be secured by 1.25 times the drawn amount in eligible Securitization Receivables. The 20181 Facility is non-recourse to us and matures onJuly 22, 2023 . The 20181 Facility is governed by a loan and security agreement, dated as ofJuly 23, 2018 , between the 20181 Lender and the 20181 Debtor. The 20181 Facility bears interest at a rate per annum equal to LIBOR (subject to a floor) plus an applicable margin, 49
-------------------------------------------------------------------------------- which rate per annum is initially 4.00%. In addition, the 20181 Debtor paid certain customary upfront closing fees to the 20181 Lender. Interest payments on the 20181 Facility are made monthly. The 20181 Debtor is permitted to prepay the 20181 Facility, subject to certain fees and conditions. In the event of prepayment for the purposes of securitizations, no fees shall apply. Any remaining amounts outstanding will be payable no later thanJuly 22, 2023 , the final maturity date. All amounts due under the 20181 Facility are secured by all of the 20181 Debtor's assets, which include the Securitization Receivables transferred to the 20181 Debtor, related rights under the Securitization Receivables, a bank account and certain other related collateral. The 20181 Facility documents contain customary provisions for securitizations, including: representations and warranties as to the eligibility of the Securitization Receivables and other matters; indemnification for specified losses not including losses due to the inability of consumers to repay their loans; covenants regarding special purpose entity matters; and default and termination provisions which provide for the acceleration of the 20181 Facility in circumstances including, but not limited to, failure to make payments when due, servicer defaults, certain insolvency events, breaches of representations, warranties or covenants, failure to maintain the security interest in the receivables and defaults under other material indebtedness of the 20181 Debtor.
20161 Facility
OnJanuary 15, 2016 , we and certain of our subsidiaries entered into a receivables securitization (as amended, the "20161 Securitization Facility") with certain purchasers,Jefferies Funding LLC , as administrative agent (the "20161 Agent") andBankers Trust Company , as indenture trustee and securities intermediary (the "Indenture Trustee"). The 20161 Securitization Facility securitized Securitization Receivables that were originated or acquired under our NetCredit brand and that met specified eligibility criteria. Under the 20161 Securitization Facility, Securitization Receivables were sold to a wholly-owned special purpose subsidiary of ours (the "20161 Issuer") and serviced by another subsidiary of ours. The 20161 Securitization Facility, as amended onOctober 20, 2017 , provided for a maximum principal amount of$275 million , an initial term note with an with an initial principal amount of$181.1 million and the ability to subsequently issue term notes thereafter, variable funding notes with an aggregate committed availability of$75 million per quarter with an option to increase the commitment to$90 million and a revolving period of the facility ending inApril 2019 . OnOctober 31, 2018 , the 20161 Issuer resold a substantial portion of the Securitization Receivables it owned toEnova International, Inc. , and used the proceeds to redeem all of the outstanding 2017 Quarterly Term Notes and to repay all amounts owed on the 2017 Variable Funding Notes. Subject to certain exceptions, the 20161 Issuer was not permitted to prepay or redeem any of the 2016-1 Facility prior toApril 15, 2019 , but the 2016-1 Agent, the Indenture Trustee, and the holders of the notes agreed to permit an early repayment. OnMarch 29, 2019 , the 2016-1 Facility was repaid in full.
Revolving Credit Facility
OnJune 30, 2017 , we and certain of our operating subsidiaries entered into a secured revolving credit agreement with a syndicate of banks includingTBK Bank, SSB ("TBK"), as administrative agent and collateral agent,Jefferies Finance LLC and TBK as joint lead arrangers and joint lead bookrunners, andVeritex Community Bank (as successor in interest toGreen Bank, N.A. ), as lender. OnApril 13, 2018 andOctober 5, 2018 , the Credit Agreement was amended to includePacific Western Bank andAxos Bank , respectively, as lenders, in the syndicate of lenders. Additionally, onJuly 1, 2019 , the Credit Agreement was amended to, amongst other changes, extend the maturity date toJune 30, 2022 fromMay 1, 2020 and increase the advance rate to 65% from 53%. The Credit Agreement is secured by domestic receivables. The borrowing limit in the Credit Agreement, as amended, is$125 million and its maturity date isJune 30, 2022 . We had no outstanding amount under the Credit Agreement as ofSeptember 30, 2020 . The Credit Agreement provides for a revolving credit line with interest on borrowings under the facility at prime rate plus 1.00%. In addition, the Credit Agreement provides for payment of a commitment fee calculated with respect to the unused portion of the line, and ranges from 0.30% to 0.50% per annum depending on usage. A portion of the revolving credit facility, up to a maximum of$20 million , is available for the issuance of letters of credit. We had outstanding letters of credit under the Credit Agreement of$1.0 million as ofSeptember 30, 2020 . The Credit Agreement contains certain limitations on the incurrence of additional indebtedness, investments, the attachment of liens to our property, the amount of dividends and other distributions, fundamental changes to us or our business and certain other of our activities. The Credit Agreement contains standard financial covenants for a facility of this type based on a leverage ratio and a fixed charge coverage ratio. The Credit Agreement also provides for customary affirmative covenants, including financial reporting requirements, and certain events of default, including payment defaults, covenant defaults and other customary defaults. 50
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