Enova International, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. Enova provides online consumer and small-business financing and related services. Results include OnDeck, acquired in October 2020, while Q1 2020 does not, limiting year-over-year comparability. Pangea, a money-transfer business acquired in March 2021, was included from acquisition and was not material to the quarter.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $259.4 million | $362.3 million |
| Change in fair value of loans | $(21.1) million | $(235.7) million |
| Net revenue | $238.4 million | $126.5 million |
| Operating income | $123.5 million | $29.1 million |
| Net income attributable to Enova | $75.9 million | $5.5 million |
| Diluted EPS | $2.03 | $0.17 |
| Operating cash flow | $117.0 million | $252.5 million |
| Adjusted EBITDA (non-GAAP) | $137.1 million | $36.2 million |
- Net revenue margin was 91.9%, versus 34.9%; Adjusted EBITDA margin was 52.8%, versus 10.0%. These figures reflect the much smaller negative fair-value adjustment in Q1 2021 as well as changes in portfolio mix and credit performance.
- Revenue declined 28.4%, principally as consumer revenue fell with lower originations and smaller average balances. Small-business revenue increased 216.1%, primarily due to OnDeck; it represented 29.1% of revenue versus 6.6% a year earlier. Consumer revenue fell 45.9%.
- At March 31, cash and cash equivalents were $324.3 million and restricted cash was $49.9 million. Cash, cash equivalents and restricted cash totaled $374.2 million, up from $369.2 million at year-end 2020. Net cash increased $5.0 million during the quarter.
- Balance-sheet long-term debt was $874.5 million, down from $946.5 million at December 31, 2020. The company reported $155.3 million of funding debt and $727.8 million of corporate debt before issuance costs and discounts. The revolving facility had $102.0 million outstanding; senior notes carry 8.50% coupons and mature in 2024 and 2025.
- Stockholders’ equity was $1.006 billion. Loans and finance receivables at fair value were $1.231 billion, including $649.3 million in small-business receivables and $581.4 million in consumer receivables.
Material changes and operating trends
- The prior-year quarter included a $235.7 million negative fair-value change, amid the early COVID-19 shock and a 500-basis-point increase in the portfolio discount rate. In Q1 2021, Enova reduced its valuation discount rate by 100 basis points as market credit spreads tightened, but still used higher rates than before the pandemic and increased anticipated charge-offs relative to historical experience.
- Consumer originations and balances remained lower following pandemic-related risk controls. Consumer loans more than 30 days delinquent were 4.3% of the combined consumer balance, down from 8.4% a year earlier; consumer net charge-offs were 6.0% of average combined balance, down from 18.7%.
- Small-business loans more than 30 days delinquent were 10.2%, versus 2.5% a year earlier. Small-business net charge-offs were 2.6% of average balance, down from 6.5%. The portfolio’s scale and mix changed substantially following OnDeck.
- Operating cash flow fell 53.7% year over year, which management attributed primarily to the shift toward small-business receivables, which generally yield less revenue. Investing cash outflow was $44.5 million, including $28.4 million net cash paid for acquisitions. Financing used $67.7 million, mainly reflecting net securitization repayments.
- Total expenses rose 17.9% to $114.9 million. Marketing expense declined, while operations and technology, general and administrative, and depreciation and amortization expenses increased, principally reflecting OnDeck and acquired assets.
Liquidity, outlook, risks and unusual items
- Management reported $412 million of committed, undrawn domestic funding capacity and $36.5 million available for Australia at March 31, 2021. It said stressed-case modeling indicated sufficient liquidity for the foreseeable future and stated there were no recourse debt obligations due until June 2022. The company was in compliance with debt covenants.
- No specific financial guidance was provided. Management expects operating cash flows, cash balances, credit facilities and loan securitizations or sales to fund operations and working-capital needs; funding disruptions could require reduced lending, asset sales, spending cuts or additional borrowing.
- Management said pandemic-related delinquencies and charge-offs improved and were below pre-COVID levels in Q1 2021. It cautioned that low recent losses may have been supported by government stimulus and that future performance could differ if stimulus changes or ends. Customer deferrals and modifications had decreased from their 2020 peak.
- Key risks include COVID-19 and economic conditions; consumer-credit laws and rate caps; regulatory actions and litigation; collections and ACH access; cybersecurity and operational disruption; competition and demand; and ability to refinance or access capital. Illinois’ 36% consumer-lending rate cap and “true lender” test took effect March 23, 2021. The filing also identifies the CFPB’s January 2019 consent order and a Virginia lawsuit; the company said the litigation outcome and potential loss could not be estimated.
- Q1 unusual items included $1.4 million of transaction-related costs and a $0.4 million loss on early extinguishment of debt. Non-GAAP adjusted earnings were $82.5 million and adjusted diluted EPS was $2.20; these exclude specified items, including stock compensation and intangible amortization.
Important facts for investors to verify
- How much of the sharp improvement in net revenue, margins and earnings reflects the comparison with Q1 2020’s pandemic-related valuation shock versus sustainable portfolio performance.
- Whether delinquency, charge-off and fair-value assumptions remain appropriate, particularly for small-business receivables and as stimulus support changes.
- OnDeck’s contribution to growth, costs, integration benefits and debt funding; and the final purchase-price allocations for OnDeck and Pangea.
- Availability and borrowing-base conditions for reported undrawn funding, upcoming facility renewal or maturity dates, and compliance with covenants.
- Developments in the Illinois rate cap, CFPB matters and Virginia litigation, including any effect on products, lending partnerships or potential losses.
- Cash flow generation and share repurchases: the filing reports no purchases under the public repurchase authorization in the quarter, while treasury-share activity includes employee tax-withholding shares.