# Enova International, Inc. (ENVA) FY 2021 MD&A Verbatim Item 7 Management's Discussion and Analysis from Enova International, Inc.'s 10-K for fiscal year 2021. SEC filing source: https://www.sec.gov/Archives/edgar/data/1529864/000095017022002334/enva-20211231.htm Accession: 0000950170-22-002334 Filing date: 2022-02-28 Report date: 2021-12-31 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture. Confidence: high Company profile: /company/ENVA/ All MD&A years: /company/ENVA/mda/ Next year: /company/ENVA/mda/fy2022/ (FY 2022) ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RECENT REGULATORY DEVELOPMENTS Consumer Financial Protection Bureau (“CFPB”) We received a Civil Investigative Demand (“CID”) from the CFPB concerning certain loan processing issues. We have been cooperating fully with the CFPB by providing data and information in response to the CID. We anticipate being able to expeditiously complete the investigation as several of the issues were self‐disclosed and we have provided, and will continue to provide, restitution to customers who may have been negatively impacted. On October 6, 2017, the CFPB issued its final rule entitled “Payday, Vehicle Title, and Certain High-Cost Installment Loans” (the “Small Dollar Rule”), which covers certain loans that we offer. The Small Dollar Rule requires that lenders who make short-term loans and longer-term loans with balloon payments reasonably determine consumers’ ability to repay the loans according to their terms before issuing the loans. The Small Dollar Rule also introduces new limitations on repayment processes for those lenders as well as lenders of other longer-term loans with an annual percentage rate greater than 36 percent that include an ACH authorization or similar payment provision. If a consumer has two consecutive failed payment attempts, the lender must obtain the consumer’s new and specific authorization to make further withdrawals from the consumer’s bank account. For loans covered by the Small Dollar Rule, lenders must provide certain notices to consumers before attempting a first payment withdrawal or an unusual withdrawal and after two consecutive failed withdrawal attempts. On June 7, 2019, the CFPB issued a final rule to set the compliance date for the mandatory underwriting provisions of the Small Dollar Rule to November 19, 2020. On July 7, 2020, the CFPB issued a final rule rescinding the ability to repay (“ATR”) provisions of the Small Dollar Rule along with related provisions, such as the establishment of registered information systems for checking ATR and reporting loan activity. The payment provisions of the Small Dollar Rule remain in place, but remain stayed indefinitely by the United States Court of Appeals for the Fifth Circuit, which is hearing an appeal from the plaintiff on a constitutional challenge to the Small Dollar Rule. On October 14, 2021, the Fifth Circuit ruled that the Small Dollar Rule will not take effect until 286 days after the Fifth Circuit rules on the appeal. If the Small Dollar Rule does become effective in its current proposed form, we will need to make certain changes to our payment processes and customer notifications in our U.S. consumer lending business. Virginia SB 421 On March 7, 2020, SB 421 passed through both houses of the Virginia Legislature. The bill amends laws governing open-end lines of credit to cap interest and fees at 36% annual interest plus a $50 annual participation fee. Further, the law would allow Virginia-licensed lenders to make installment loans at 36% APR plus a loan processing fee equal to the greater of $75 or 5% of the principal loan amount, but not exceeding $150. The law went into effect on January 1, 2021. Illinois SB 1792 On March 23, 2021, the Economic Equity Act (“EEA”) became effective in Illinois. The EEA implements a 36% rate cap on all consumer lending, with the APR calculated consistent with the Military Lending Act’s Military Annual Percentage Rate. The EEA applies to consumer loans originated on or after the effective date. In addition, the EEA provides for the application of a predominant economic interest test for bank service arrangements. Pursuant to the predominant economic interest test, a broker or service with a predominant economic interest in a loan is considered to be the “true lender” for purposes of applying the EEA and the 36% rate cap. New Mexico HB 132 On February 15, 2022, the New Mexico Legislature passed HB 132. The bill imposes a 36% rate cap on loans up to $10,000. Additionally, HB 132 provides for the application of a predominant economic interest test for bank service arrangements whereby a broker or servicer with a predominant economic interest in a loan is considered to be the “true lender” for purposes of applying the 36% rate cap. The New Mexico Governor has until March 9, 2022 to sign the bill or else it will be vetoed. If signed, the bill will take effect on January 1, 2023. Brazil General Data Privacy Law On August 14, 2018, Brazil adopted the General Data Privacy Law (Lei Geral de Proteção de Dados Pessoais or “LGPD”). The key provisions of LGPD are quite similar to the European Union’s General Data Protection Regulation (“GDPR”) in that it grants certain rights to data subjects, imposes obligations on companies with regard to the processing of data, and allows authorities to impose substantial fines on companies that violate the law. LGPD was originally anticipated to go into effect on February 15, 2020; however, several amendments to LGPD delayed the effective date. LGPD took effect on September 18, 2020, and enforcement of the penalties and sanctions for non-compliance began August 1, 2021. Compliance with LGPD may increase the cost of conducting business in Brazil, and we could see regulatory compliance costs and enforcement activity now that the law is in effect. 45 RESULTS OF OPERATIONS Election of Fair Value Option Prior to January 1, 2020, we carried our loans and finance receivables at amortized cost, net of an allowance for estimated losses inherent in the portfolio. Effective January 1, 2020, we elected the fair value option to account for all our loans and finance receivables in conjunction with the transition guidance specified in ASU 2019-05. We believe the fair value option better reflects the value of our portfolio and its future economic performance as well as more closely aligns with our marginal decision-making processes that rely on risk-based pricing and discounted cash flow methodologies. Refer to Note 1 for discussion of the election and its impact on our accounting policies. In comparing our current year results under the fair value option to prior periods, it may be helpful to consider the following. Prior to 2020, origination fees as well as certain direct costs associated with originating loans were deferred and amortized into or against revenue on an effective yield basis over the term of the loan or the projected delivery term of the finance receivable. Subsequent to the election of the fair value option, these fees and costs are no longer eligible for deferral. As such, revenue is slightly higher compared to the prior method due to origination fees being immediately recognized and the lack of amortization of deferred costs into revenue. As origination costs are no longer eligible for deferral, marketing and operations and technology expenses are generally slightly higher, particularly in periods of growth, compared to the prior method. Loans and finance receivables are carried at fair value with changes in fair value recorded in the consolidated income statement. The fair value takes into consideration expected lifetime losses of the loans and finance receivables, whereas the prior method incorporated only incurred losses. As such, changes in credit quality, amongst other significant assumptions, typically have a more significant impact on the carrying value of loans and finance receivables under the fair value option. COVID-19 The COVID-19 pandemic has severely impacted global economic conditions, resulting in substantial volatility in the financial markets, increased unemployment, and operational challenges resulting from measures that governments have imposed to control its spread. We have implemented a number of procedures in response to the pandemic to support the safety and well-being of our employees, customers and stockholders that continue through the date of this report: • As shelter-in-place orders and general distancing guidelines were released, we moved quickly to transition virtually all of our employees to a remote work environment. • We have actively worked with our customers to understand their financial situations, waive late fees, offer a variety of repayment options to increase flexibility and reduce or defer payments for impacted customers. • We took measures to adjust our underwriting procedures, which reduced exposure to more heavily impacted consumers and businesses. • We adjusted loan and draw sizes as well as shortened duration in an effort to reduce risk in this volatile environment. Certain of these measures have eased since the height of the pandemic, with improvement of economic conditions and our outlook. From a loan valuation perspective, the COVID-19 pandemic significantly increased the potential variability of our expected cash flows. We deemed it appropriate to increase the discount rate to capture the increase in potential volatility in expected cash flows due to the unprecedented nature of this pandemic and governmental response. After adjusting the discount rate for the decrease in underlying interest rates, we increased the rate by 500 basis points based on what we deemed a market participant would require to assume the additional risk. Consequently, the associated fair values of these loans were adjusted lower as part of the standard process in our internally-developed valuation models described in the Notes to the Consolidated Financial Statements as well as the “Critical Accounting Estimates” section of this Form 10-K. These rates remained consistent for the remainder of 2020. Over the course of 2021, we noted a tightening of credit spreads in observable pricing in the market; as such, we reduced the discount rate used in our valuations. As of December 31, 2021, our discount rates have generally returned to the levels utilized immediately prior to the pandemic, which we believe is representative of what a market participant would use. The number of loans with payment deferrals or other modifications increased meaningfully toward the end of the first quarter and into the second quarter of 2020. These requests for deferrals and modifications decreased meaningfully over the remainder of 2020 and into 2021. Since the beginning of the pandemic, we have assessed performance of borrowers that had elected to defer or modify loan payments during the pandemic. As of December 31, 2021, our collection data does not appear to indicate increased risk with these borrowers. As modifications and deferrals do not appear to be a strong indicator of future activity, we did not make an adjustment to the fair value of these loans at December 31, 2021 based on current or past modification or deferral. 46 After seeing increases in delinquency and charge-offs early in the pandemic, we experienced significant improvements to these metrics over the remainder of 2020 and carrying into 2021. The U.S. government provided multiple rounds of stimulus assistance to taxpayers and businesses. Positive COVID-19 test counts in the U.S. generally decreased across the first half of 2021 although rose again in the second half of 2021 with the spread of the Delta and Omicron variants. With deceleration in vaccination rates, the emergence of new and more transmissible COVID strains, and questions on the efficacy of the vaccines in use against new variants, there remains significant concern among public health officials and governmental bodies on the forward trajectory of the pandemic and its impacts on the economy. In evaluating inputs to our valuation models as of December 31, 2021, we noted that, although rising in our consumer loan portfolios, delinquencies and charge-off experience were still lower than pre-pandemic levels, both of which were likely to have been favorably impacted by governmental stimulus efforts. Future stimulus is uncertain and, if not provided at the same levels or at all, could cause future behavior to deviate from past performance. Similar to our loan valuations at December 31, 2020, March 31, 2021, June 30, 2021 and September 30, 2021, management concluded that the probability of future charge-offs was higher than what we had experienced in the past and, therefore, increased anticipated charge-offs in our fair value models, which reduced the fair value of our portfolio at December 31, 2021. We deemed the resulting fair value to be an appropriate market-based exit price that considers current market conditions at December 31, 2021. We continue to closely monitor this pandemic and expect to make future changes to respond to the situation as it continues to evolve. HIGHLIGHTS Our financial results for the year ended December 31, 2021 (“2021”) are summarized below. • Revenue increased $124.2 million, or 11.5%, to $1,207.9 million in 2021 compared to $1,083.7 million in the year ended December 31, 2020 (“2020”). • Net revenue was $1,024.3 million in 2021 compared to $684.2 million in 2020. • Income from Operations increased $55.3 million, or 15.4%, to $413.1 million in 2021, compared to $357.8 million in 2020. • Net income was $256.3 million in 2021, compared to $377.8 million in 2020. Diluted earnings per share were $6.79 in 2021 compared to $11.70 in 2020. 47 The following tables reflect our results of operations for the periods indicated, both in dollars and as a percentage of total revenue (dollars in thousands, except per share data): [[GREPCENT_TABLE]] [["","","Year Ended December 31,"],["","","2021","","","2020","","","2019"],["Revenue"],["Loans and finance receivables revenue","","$","1,192,043","","","$","1,076,204","","","$","1,171,857"],["Other","","","15,889","","","","7,506","","","","2,900"],["Total Revenue","","","1,207,932","","","","1,083,710","","","","1,174,757"],["Change in Fair Value","","","(183,672",")","","","(399,517",")","","","\u2014"],["Cost of Revenue","","","\u2014","","","","\u2014","","","","(602,894",")"],["Net Revenue/Gross Profit","","","1,024,260","","","","684,193","","","","571,863"],["Operating Expenses"],["Marketing","","","271,160","","","","69,780","","","","115,132"],["Operations and technology","","","147,700","","","","96,284","","","","84,262"],["General and administrative","","","156,962","","","","140,600","","","","109,204"],["Depreciation and amortization","","","35,375","","","","19,732","","","","15,055"],["Total Operating Expenses","","","611,197","","","","326,396","","","","323,653"],["Income from Operations","","","413,063","","","","357,797","","","","248,210"],["Interest expense, net","","","(76,509",")","","","(86,691",")","","","(75,604",")"],["Foreign currency transaction (loss) gain, net","","","(382",")","","","514","","","","(216",")"],["Gain on bargain purchase","","","\u2014","","","","163,999","","","","\u2014"],["Equity method investment income","","","2,953","","","","628","","","","\u2014"],["Other nonoperating expenses","","","(1,970",")","","","(827",")","","","(2,321",")"],["Income before Income Taxes","","","337,155","","","","435,420","","","","170,069"],["Provision for income taxes","","","80,087","","","","57,191","","","","42,053"],["Net income from continuing operations before noncontrolling interest","","","257,068","","","","378,229","","","","128,016"],["Less: Net income attributable to noncontrolling interest","","","773","","","","85","","","","\u2014"],["Net income from continuing operations","","","256,295","","","","378,144","","","","128,016"],["Net loss from discontinued operations","","","\u2014","","","","(300",")","","","(91,404",")"],["Net income attributable to Enova International, Inc.","","","256,295","","","","377,844","","","","36,612"],["Diluted earnings per share \u2013 continuing operations","","$","6.79","","","$","11.71","","","$","3.72"],["Diluted loss per share \u2013 discontinued operations","","","\u2014","","","","(0.01",")","","","(2.66",")"],["Diluted earnings per share","","$","6.79","","","$","11.70","","","$","1.06"],["Revenue"],["Loans and finance receivables revenue","","","98.7","%","","","99.3","%","","","99.8","%"],["Other","","","1.3","","","","0.7","","","","0.2"],["Total Revenue","","","100.0","","","","100.0","","","","100.0"],["Change in Fair Value","","","(15.2",")","","","(36.9",")","","","\u2014"],["Cost of Revenue","","","\u2014","","","","\u2014","","","","(51.3",")"],["Net Revenue/Gross Profit","","","84.8","","","","63.1","","","","48.7"],["Operating Expenses"],["Marketing","","","22.5","","","","6.4","","","","9.8"],["Operations and technology","","","12.2","","","","8.9","","","","7.2"],["General and administrative","","","13.0","","","","13.0","","","","9.3"],["Depreciation and amortization","","","2.9","","","","1.8","","","","1.3"],["Total Operating Expenses","","","50.6","","","","30.1","","","","27.6"],["Income from Operations","","","34.2","","","","33.0","","","","21.1"],["Interest expense, net","","","(6.3",")","","","(8.0",")","","","(6.4",")"],["Foreign currency transaction (loss) gain, net","","","\u2014","","","","0.1","","","","\u2014"],["Gain on bargain purchase","","","\u2014","","","","15.1","","","","\u2014"],["Equity method investment income","","","0.2","","","","0.1","","","","\u2014"],["Other nonoperating expenses","","","(0.2",")","","","(0.1",")","","","(0.2",")"],["Income before Income Taxes","","","27.9","","","","40.2","","","","14.5"],["Provision for income taxes","","","6.6","","","","5.3","","","","3.6"],["Net income from continuing operations before noncontrolling interest","","","21.3","","","","34.9","","","","10.9"],["Less: Net income attributable to noncontrolling interest","","","0.1","","","","\u2014","","","","\u2014"],["Net income from continuing operations","","","21.2","","","","34.9","","","","10.9"],["Net loss from discontinued operations","","","\u2014","","","","\u2014","","","","(7.8",")"],["Net income attributable to Enova International, Inc.","","","21.2","%","","","34.9","%","","","3.1","%"]] [[/GREPCENT_TABLE]] 48 NON-GAAP FINANCIAL MEASURES In addition to the financial information prepared in conformity with generally accepted accounting principles (“GAAP”), we provide historical non-GAAP financial information. We believe that presentation of non-GAAP financial information is meaningful and useful in understanding the activities and business metrics of our operations. We believe that these non-GAAP financial measures reflect an additional way of viewing aspects of our business that, when viewed with our GAAP results, provide a more complete understanding of factors and trends affecting our business. We provide non-GAAP financial information for informational purposes and to enhance understanding of our GAAP consolidated financial statements. Readers should consider the information in addition to, but not instead of or superior to, our consolidated financial statements prepared in accordance with GAAP. This non-GAAP financial information may be determined or calculated differently by other companies, limiting the usefulness of those measures for comparative purposes. Adjusted Earnings Measures In addition to reporting financial results in accordance with GAAP, we have provided adjusted earnings and adjusted earnings per share, or, collectively, the Adjusted Earnings Measures, which are non-GAAP measures. We believe that the presentation of these measures provides investors with greater transparency and facilitates comparison of operating results across a broad spectrum of companies with varying capital structures, compensation strategies, derivative instruments and amortization methods, which provides a more complete understanding of our financial performance, competitive position and prospects for the future. We also believe that investors regularly rely on non-GAAP financial measures, such as the Adjusted Earnings Measures, to assess operating performance and that such measures may highlight trends in our business that may not otherwise be apparent when relying on financial measures calculated in accordance with GAAP. In addition, we believe that the adjustments shown below are useful to investors in order to allow them to compare our financial results during the periods shown without the effect of each of these income or expense items. The following table provides reconciliations between net income and diluted earnings per share calculated in accordance with GAAP to the Adjusted Earnings Measures, which are shown net of tax (in thousands, except per share data): [[GREPCENT_TABLE]] [["","","Year Ended December 31,"],["","","2021","","","2020","","","2019"],["Net income from continuing operations","","$","256,295","","","$","378,144","","","$","128,016"],["Adjustments:"],["Gain on bargain purchase","","","\u2014","","","","(163,999",")","","","\u2014"],["Transaction-related costs(a)","","","1,424","","","","20,023","","","","\u2014"],["Lease termination and cease use loss(b)","","","7,535","","","","\u2014","","","","726"],["Other nonoperating expenses(c)","","","1,970","","","","827","","","","2,321"],["Intangible asset amortization","","","6,862","","","","1,777","","","","1,070"],["Stock-based compensation expense","","","21,179","","","","18,041","","","","11,967"],["Foreign currency transaction loss (gain), net(d)","","","372","","","","(499",")","","","216"],["Cumulative tax effect of adjustments","","","(9,855",")","","","(8,038",")","","","(3,907",")"],["Discrete tax adjustments(e)","","","\u2014","","","","(11,604",")","","","(141",")"],["Adjusted earnings","","$","285,782","","","$","234,672","","","$","140,268"],["Diluted earnings per share from continuing operations","","$","6.79","","","$","11.71","","","$","3.72"],["Adjustments:"],["Gain on bargain purchase","","","\u2014","","","","(5.08",")","","","\u2014"],["Transaction-related costs(a)","","","0.04","","","","0.62","","","","\u2014"],["Lease termination and cease use loss(b)","","","0.20","","","","\u2014","","","","0.02"],["Other nonoperating expenses(c)","","","0.05","","","","0.03","","","","0.07"],["Intangible asset amortization","","","0.18","","","","0.05","","","","0.03"],["Stock-based compensation expense","","","0.56","","","","0.56","","","","0.35"],["Foreign currency transaction loss (gain), net(d)","","","0.01","","","","(0.02",")","","","\u2014"],["Cumulative tax effect of adjustments","","","(0.26",")","","","(0.25",")","","","(0.11",")"],["Discrete tax adjustments(e)","","","\u2014","","","","(0.36",")","","","\u2014"],["Adjusted earnings per share","","$","7.57","","","$","7.26","","","$","4.08"]] [[/GREPCENT_TABLE]] (a) For the years ended December 31, 2021 and 2020, we recorded expenses of $1.4 million ($1.1 million net of tax) and $20.0 million ($19.5 million net of tax), respectively, related to acquisitions and a divestiture of a subsidiary. 49 (b) For the years ended December 31, 2021 and 2019, we recorded losses of $7.5 million ($5.6 million net of tax), including a net write-off of leasehold improvements of $4.2 million), and $0.7 million ($0.6 million net of tax), respectively, related to exits of leased office spaces. (c) For the year ended December 31, 2021, we recorded a loss of $0.8 million ($0.6 million net of tax) related to the partial divestiture of a subsidiary and a nonoperating expense of $0.8 million ($0.6 million net of tax) related to an incomplete capital markets transaction. For the years ended December 31, 2021, 2020 and 2019, we recorded losses on early extinguishment of debt of $0.4 million ($0.3 million net of tax), $0.8 million ($0.6 million net of tax) and $2.3 million ($1.8 million net of tax), respectively. (d) Excludes amounts attributable to noncontrolling interests. (e) For the years ended December 31, 2020 and 2019, we recorded income tax benefits of $11.6 million resulting from the remeasurement of our liability for certain previously unrecognized tax benefits and $0.1 million from the U.S. Tax Cuts and Jobs Act, respectively. Adjusted EBITDA The table below shows Adjusted EBITDA, which is a non-GAAP measure that we define as earnings excluding depreciation, amortization, interest, foreign currency transaction gains or losses, taxes and stock-based compensation expense. We believe Adjusted EBITDA is used by investors to analyze operating performance and evaluate our ability to incur and service debt and our capacity for making capital expenditures. Adjusted EBITDA is also useful to investors to help assess our estimated enterprise value. In addition, we believe that the adjustments for transaction-related costs, lease termination and cease use (gain) loss, gain on bargain purchase, equity method investment income, and other nonoperating expenses shown below are useful to investors in order to allow them to compare our financial results during the periods shown without the effect of the income or expense items. The computation of Adjusted EBITDA as presented below may differ from the computation of similarly-titled measures provided by other companies (dollars in thousands): [[GREPCENT_TABLE]] [["","","Year Ended December 31,"],["","","2021","","","2020","","","2019"],["Net income from continuing operations","","$","256,295","","","$","378,144","","","$","128,016"],["Depreciation and amortization expenses(d)","","","35,362","","","","19,726","","","","15,055"],["Interest expense, net(d)","","","75,929","","","","86,507","","","","75,604"],["Foreign currency transaction loss (gain), net(d)","","","372","","","","(499",")","","","216"],["Provision for income taxes","","","80,087","","","","57,191","","","","42,053"],["Stock-based compensation expense","","","21,179","","","","18,041","","","","11,967"],["Adjustments:"],["Transaction-related costs(a)","","","1,424","","","","20,023","","","","\u2014"],["Lease termination and cease use loss(b)","","","3,336","","","","\u2014","","","","370"],["Gain on bargain purchase","","","\u2014","","","","(163,999",")","","","\u2014"],["Equity method investment income","","","(2,953",")","","","(628",")","","","\u2014"],["Other nonoperating expenses(c)","","","1,970","","","","827","","","","2,321"],["Adjusted EBITDA","","$","473,001","","","$","415,333","","","$","275,602"],["Adjusted EBITDA margin calculated as follows:"],["Total Revenue","","$","1,207,932","","","$","1,083,710","","","$","1,174,757"],["Adjusted EBITDA","","$","473,001","","","$","415,333","","","$","275,602"],["Adjusted EBITDA as a percentage of total revenue","","","39.2","%","","","38.3","%","","","23.5","%"]] [[/GREPCENT_TABLE]] Refer to footnotes in previous table for explanation of (a), (b), (c) and (d). Combined Loans and Finance Receivables Combined loans and finance receivables is a non-GAAP measure that includes both loans and RPAs we own and loans we guarantee, which are either GAAP items or disclosures required by GAAP. We believe this non-GAAP measure provides investors with important information needed to evaluate the magnitude of potential receivable losses and the opportunity for revenue performance of the loans and finance receivables portfolio on an aggregate basis. We also believe that the comparison of the aggregate amounts from period to period is more meaningful than comparing only the amounts reflected on our consolidated balance sheets since both revenue and cost of revenue are impacted by the aggregate amount of receivables we own and those we guarantee as reflected in our consolidated financial statements. 50 YEAR ENDED 2021 COMPARED TO YEAR ENDED 2020 Revenue and Net Revenue Revenue increased $124.2 million, or 11.5%, to $1,207.9 million for 2021 as compared to $1,083.7 million for 2020. The change in revenue was driven primarily by the inclusion of OnDeck for a full twelve months in 2021, partially offset by a reduction in originations in the prior year as a result of our efforts to mitigate the risk of the COVID‑19 pandemic. Our net revenue was $1,024.3 million for 2021 compared to $684.2 million for 2020. Our net revenue as a percentage of revenue (“net revenue margin”) was 84.8% in 2021 compared to 63.1% in 2020. The increase in net revenue margin was driven by lower delinquency rates and lower than expected charge-offs, particularly in the small business portfolio. The following table sets forth the components of revenue and net revenue, separated by product for 2021 and 2020 (dollars in thousands): [[GREPCENT_TABLE]] [["","","Year Ended December 31,"],["","","2021","","","2020","","","$ Change","","","% Change"],["Revenue by product:"],["Consumer loans and finance receivables revenue","","$","815,251","","","$","962,119","","","$","(146,868",")","","","(15.3",")%"],["Small business loans and finance receivables revenue","","","376,792","","","","114,085","","","","262,707","","","","230.3"],["Total loan and finance receivable revenue","","","1,192,043","","","","1,076,204","","","","115,839","","","","10.8"],["Other","","","15,889","","","","7,506","","","","8,383","","","","111.7"],["Total revenue","","","1,207,932","","","","1,083,710","","","","124,222","","","","11.5"],["Change in fair value","","","(183,672",")","","","(399,517",")","","","215,845","","","","(54.0",")"],["Net revenue","","$","1,024,260","","","$","684,193","","","$","340,067","","","","49.7","%"],["Revenue by product (% to total):"],["Consumer loans and finance receivables revenue","","","67.5","%","","","88.8","%"],["Small business loans and finance receivables revenue","","","31.2","","","","10.5"],["Total loan and finance receivable revenue","","","98.7","","","","99.3"],["Other","","","1.3","","","","0.7"],["Total revenue","","","100.0","","","","100.0"],["Change in fair value","","","(15.2",")","","","(36.9",")"],["Net revenue","","","84.8","%","","","63.1","%"]] [[/GREPCENT_TABLE]] Loan and Finance Receivable Balances The fair value of our loan and finance receivable portfolio in our consolidated financial statements at December 31, 2021 and 2020 was $1,964.7 million and $1,241.5 million, respectively, with an outstanding principal balance of $1,878.4 million and $1,263.1 million, respectively. The fair value of the combined loan and finance receivables portfolio includes $18.8 million with an outstanding principal balance of $11.8 million and $10.3 million with an outstanding principal balance of $8.8 million of consumer loan balances that are guaranteed by us but not owned by us, which are not included in our consolidated financial statements as of December 31, 2021 and 2020, respectively. See “—Non-GAAP Financial Measures—Combined Loans and Finance Receivables” above for additional information related to combined loans and finance receivables. The following table summarizes loan and finance receivable balances outstanding as of December 31, 2021 and 2020 (in thousands): [[GREPCENT_TABLE]] [["","","As of December 31,"],["","","2021","","","2020"],["","","","","","Guaranteed","","","","","","","","","Guaranteed"],["","","Company","","","by the","","","","","","Company","","","by the"],["","","Owned(a)","","","Company(a)","","","Combined(b)","","","Owned(a)","","","Company(a)","","","Combined(b)"],["Consumer loans and finance receivables"],["Principal","","$","867,751","","","$","11,789","","","$","879,540","","","$","576,404","","","$","8,845","","","$","585,249"],["Fair value","","","890,144","","","","18,813","","","","908,957","","","","625,219","","","","10,289","","","","635,508"],["Fair value as a % of principal","","","102.6","%","","","159.6","%","","","103.3","%","","","108.5","%","","","116.3","%","","","108.6","%"],["Small business loans and finance receivables"],["Principal","","$","1,010,675","","","$","\u2014","","","$","1,010,675","","","$","686,730","","","$","\u2014","","","$","686,730"],["Fair value","","","1,074,546","","","","\u2014","","","","1,074,546","","","","616,287","","","","\u2014","","","","616,287"],["Fair value as a % of principal","","","106.3","%","","","\u2014","%","","","106.3","%","","","89.7","%","","","\u2014","%","","","89.7","%"],["Total loans and finance receivables"],["Principal","","$","1,878,426","","","$","11,789","","","$","1,890,215","","","$","1,263,134","","","$","8,845","","","$","1,271,979"],["Fair value","","","1,964,690","","","","18,813","","","","1,983,503","","","","1,241,506","","","","10,289","","","","1,251,795"],["Fair value as a % of principal","","","104.6","%","","","159.6","%","","","104.9","%","","","98.3","%","","","116.3","%","","","98.4","%"]] [[/GREPCENT_TABLE]] 51 (a) GAAP measure. The loan and finance receivable balances guaranteed by us relate to loans originated by third-party lenders through the CSO programs and are not included in our consolidated balance sheets. (b) Amounts represent non-GAAP measures. At December 31, 2021, the ratio of fair value as a percentage of principal was 104.6% on company owned loans and finance receivables and 104.9% on combined loans and finance receivables compared to 98.3% on company owned loans and finance receivables and 98.4% on combined loans and finance receivables at December 31, 2020. These ratios increased during the year due primarily to lower delinquency rates and lower than expected charge-offs in the small business portfolio, partially offset by the impact of the acceleration of originations on the consumer portfolio, particularly to new customers, which carry a higher risk of charge-off. Average Amount Outstanding per Loan and Finance Receivable The average amount outstanding per loan and finance receivable is calculated as the total combined loans and finance receivables, gross balance at the end of the period divided by the total number of combined loans and finance receivables outstanding at the end of the period. The following table shows the average amount outstanding per loan and finance receivable by product at December 31, 2021 and 2020: [[GREPCENT_TABLE]] [["","","As of December 31,"],["","","2021","","","2020"],["Average amount outstanding per loan and finance receivable (in ones)(a)"],["Consumer loans and finance receivables(b)","","$","1,953","","","$","3,040"],["Small business loans and finance receivables","","","38,125","","","","29,093"],["Total loans(b)","","$","3,849","","","$","5,721"]] [[/GREPCENT_TABLE]] (a) The disclosure regarding the average amount per loan is statistical data that is not included in our consolidated financial statements. (b) Includes loans guaranteed by us, which represent loans originated by third-party lenders through the CSO programs and are not included in our consolidated balance sheets. The average amount outstanding per loan decreased to $3,849 as of December 31, 2021 compared to $5,721 from prior year, mainly due to a mix shift in our consumer loan products, partially offset by higher average amount outstanding per loan in the small business portfolio as lending has expanded with economic recovery in 2021. Average Loan and Finance Receivable Origination The average loan and finance receivable origination amount is calculated as the total amount of combined loans and finance receivables originated, renewed and purchased for the period divided by the total number of combined loans and finance receivables originated, renewed and purchased for the period. The following table shows the average loan and finance receivable origination amount by product for 2021 compared to 2020: [[GREPCENT_TABLE]] [["","","Year Ended"],["","","December 31,"],["","","2021","","","2020"],["Average loan and finance receivable origination amount (in ones)(a)"],["Consumer loans and finance receivables(b)(c)","","$","648","","","$","426"],["Small business loans and finance receivables(c)","","","15,703","","","","13,584"],["Total loans(b)","","$","1,419","","","$","600"]] [[/GREPCENT_TABLE]] (a) The disclosure regarding the average loan origination amount is statistical data that is not included in our consolidated financial statements. (b) Includes loans guaranteed by us, which represent loans originated by third-party lenders through the CSO programs and are not included in our consolidated balance sheets. (c) For line of credit accounts the average represents the average amount of each incremental draw. The average loan origination amount increased to $1,419 from $600 during 2021 compared to 2020, due primarily to an increase in the mix of loans and finance receivables held by small businesses in our portfolio as a result of our acquisition of OnDeck in October 2020 and, to a lesser extent, a strategic reduction in loan size in response to the COVID-19 pandemic in the prior year. 52 Credit Performance of Loans and Finance Receivables We monitor the performance of our loans and finance receivables. Internal factors such as portfolio composition (e.g., interest rate, loan term, geography information, customer mix, credit quality) and performance (e.g., delinquency, loss trends, prepayment rates) are reviewed on a regular basis at various levels (e.g., product, vintage). We also weigh the impact of relevant, internal business decisions on portfolio. External factors such as macroeconomic trends, financial market liquidity expectations, competitive landscape and legal/regulatory requirements are also reviewed on a regular basis. The payment status of a customer, including the degree of any delinquency, is a significant factor in determining estimated charge-offs in the cash flow models that we use to determine fair value. The following table shows payment status on outstanding principal, interest and fees as of the end of each of the last eight quarters (dollars in thousands): [[GREPCENT_TABLE]] [["","","2021"],["","","First","","","Second","","","Third","","","Fourth"],["","","Quarter","","","Quarter","","","Quarter","","","Quarter"],["Ending combined loans and finance receivables, including principal and accrued fees/interest outstanding:"],["Company owned","","$","1,265,987","","","$","1,416,533","","","$","1,650,771","","","$","1,944,263"],["Guaranteed by the Company(a)","","","6,792","","","","9,655","","","","13,239","","","","13,750"],["Ending combined loan and finance receivables balance(b)","","$","1,272,779","","","$","1,426,188","","","$","1,664,010","","","$","1,958,013"],[" 30 days delinquent","","","96,228","","","","81,883","","","","90,782","","","","103,213"],[" 30 days delinquency rate","","","7.6","%","","","5.7","%","","","5.5","%","","","5.3","%"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","","2020"],["","","First","","","Second","","","Third","","","Fourth"],["","","Quarter","","","Quarter","","","Quarter","","","Quarter"],["Ending combined loans and finance receivables, including principal and accrued fees/interest outstanding:"],["Company owned","","$","1,145,748","","","$","816,905","","","$","698,964","","","$","1,310,171"],["Guaranteed by the Company(a)","","","11,798","","","","6,054","","","","8,100","","","","10,163"],["Ending combined loan and finance receivables balance(b)","","$","1,157,546","","","$","822,959","","","$","707,064","","","$","1,320,334"],[" 30 days delinquent","","","86,294","","","","36,797","","","","25,841","","","","122,666"],[" 30 days delinquency rate","","","7.5","%","","","4.5","%","","","3.7","%","","","9.3","%"]] [[/GREPCENT_TABLE]] (a) Represents loans originated by third-party lenders through the CSO programs, which are not included in our consolidated financial statements. (b) Non-GAAP measure. 53 Consumer Loans and Finance Receivables The following table includes financial information for our consumer loans and finance receivables. Delinquency metrics include principal, interest and fees, and only amounts that are past due (dollars in thousands): [[GREPCENT_TABLE]] [["","","2021"],["","","First","","","Second","","","Third","","","Fourth"],["","","Quarter","","","Quarter","","","Quarter","","","Quarter"],["Consumer loans and finance receivables:"],["Consumer combined loan and finance receivable principal balance:"],["Company owned","","$","523,170","","","$","585,087","","","$","709,781","","","$","867,751"],["Guaranteed by the Company(a)","","","5,691","","","","8,284","","","","11,354","","","","11,790"],["Total combined loan and finance receivable principal balance(b)","","$","528,861","","","$","593,371","","","$","721,135","","","$","879,541"],["Consumer combined loan and finance receivable fair value balance:"],["Company owned","","$","581,398","","","$","623,975","","","$","723,553","","","$","890,144"],["Guaranteed by the Company(a)","","","7,246","","","","10,824","","","","16,921","","","","18,813"],["Ending combined loan and finance receivable fair value balance(b)","","$","588,644","","","$","634,799","","","$","740,474","","","$","908,957"],["Fair value as a % of principal(b)(c)","","","111.3","%","","","107.0","%","","","102.7","%","","","103.3","%"],["Consumer combined loan and finance receivable balance, including principal and accrued fees/interest outstanding:"],["Company owned","","$","564,934","","","$","630,203","","","$","768,964","","","$","927,673"],["Guaranteed by the Company(a)","","","6,792","","","","9,655","","","","13,239","","","","13,750"],["Ending combined loan and finance receivable balance(b)","","$","571,726","","","$","639,858","","","$","782,203","","","$","941,423"],["Average consumer combined loan and finance receivable balance, including principal and accrued fees/interest outstanding:"],["Company owned(d)","","$","598,900","","","$","580,704","","","$","702,818","","","$","836,147"],["Guaranteed by the Company(a)(d)","","","8,670","","","","7,585","","","","11,366","","","","13,212"],["Average combined loan and finance receivable balance(b)(d)","","$","607,570","","","$","588,289","","","$","714,184","","","$","849,359"],["Revenue","","$","181,737","","","$","174,512","","","$","215,432","","","$","243,570"],["Change in fair value","","","(26,073",")","","","(49,708",")","","","(97,061",")","","","(104,715",")"],["Net revenue","","","155,664","","","","124,804","","","","118,371","","","","138,855"],["Net revenue margin","","","85.7","%","","","71.5","%","","","54.9","%","","","57.0","%"],["Change in fair value as a % of average combined loan and finance receivable balance(b)(d)","","","4.3","%","","","8.4","%","","","13.6","%","","","12.3","%"],["Delinquencies:"],[" 30 days delinquent","","$","24,589","","","$","26,201","","","$","45,804","","","$","59,312"],[" 30 days delinquent as a % of combined loan and finance receivable balance(b)(c)","","","4.3","%","","","4.1","%","","","5.9","%","","","6.3","%"],["Charge-offs:"],["Charge-offs (net of recoveries)","","$","36,408","","","$","27,050","","","$","57,836","","","$","112,582"],["Charge-offs (net of recoveries) as a % of average combined loan and finance receivable balance(b)(d)","","","6.0","%","","","4.6","%","","","8.1","%","","","13.3","%"]] [[/GREPCENT_TABLE]] 54 [[GREPCENT_TABLE]] [["","","2020"],["","","First","","","Second","","","Third","","","Fourth"],["","","Quarter","","","Quarter","","","Quarter","","","Quarter"],["Consumer loans and finance receivables:"],["Consumer combined loan and finance receivable principal balance:"],["Company owned","","$","877,503","","","$","646,534","","","$","569,556","","","$","576,404"],["Guaranteed by the Company(a)","","","10,287","","","","5,195","","","","6,905","","","","8,845"],["Total combined loan and finance receivable principal balance(b)","","$","887,790","","","$","651,729","","","$","576,461","","","$","585,249"],["Consumer combined loan and finance receivable fair value balance:"],["Company owned","","$","917,222","","","$","690,957","","","$","617,921","","","$","625,219"],["Guaranteed by the Company(a)","","","12,445","","","","6,614","","","","7,411","","","","10,289"],["Ending combined loan and finance receivable fair value balance(b)","","$","929,667","","","$","697,571","","","$","625,332","","","$","635,508"],["Fair value as a % of principal(b)(c)","","","104.7","%","","","107.0","%","","","108.5","%","","","108.6","%"],["Consumer combined loan and finance receivable balance, including principal and accrued fees/interest outstanding:"],["Company owned","","$","959,286","","","$","693,991","","","$","614,676","","","$","619,088"],["Guaranteed by the Company(a)","","","11,798","","","","6,054","","","","8,100","","","","10,163"],["Ending combined loan and finance receivable balance(b)","","$","971,084","","","$","700,045","","","$","622,776","","","$","629,251"],["Average consumer combined loan and finance receivable balance, including principal and accrued fees/interest outstanding:"],["Company owned(d)","","$","1,007,336","","","$","813,497","","","$","646,137","","","$","613,683"],["Guaranteed by the Company(a)(d)","","","17,846","","","","7,553","","","","6,855","","","","8,861"],["Average combined loan and finance receivable balance(b)(d)","","$","1,025,182","","","$","821,050","","","$","652,992","","","$","622,544"],["Revenue","","$","335,900","","","$","236,772","","","$","192,567","","","$","196,880"],["Change in fair value","","","(210,725",")","","","(102,159",")","","","(24,378",")","","","(31,167",")"],["Net revenue","","","125,175","","","","134,613","","","","168,189","","","","165,713"],["Net revenue margin","","","37.3","%","","","56.9","%","","","87.3","%","","","84.2","%"],["Change in fair value as a % of average combined loan and finance receivable balance(b)(d)","","","20.6","%","","","12.4","%","","","3.7","%","","","5.0","%"],["Delinquencies:"],[" 30 days delinquent","","$","81,654","","","$","31,149","","","$","21,559","","","$","24,793"],[" 30 days delinquent as a % of combined loan and finance receivable balance(b)(c)","","","8.4","%","","","4.4","%","","","3.5","%","","","3.9","%"],["Charge-offs:"],["Charge-offs (net of recoveries)","","$","191,306","","","$","141,193","","","$","30,670","","","$","34,035"],["Charge-offs (net of recoveries) as a % of average combined loan and finance receivable balance(b)(d)","","","18.7","%","","","17.2","%","","","4.7","%","","","5.5","%"]] [[/GREPCENT_TABLE]] (a) Represents loans originated by third-party lenders through the CSO programs that we have not yet purchased, which are not included in our consolidated balance sheets. (b) Non-GAAP measure. (c) Determined using period-end balances. (d) The average combined loan and finance receivable balance is the average of the month-end balances during the period. The combined ending loan balance, including principal and accrued fees/interest outstanding, of consumer loans and finance receivables at December 31, 2021 increased 49.6% to $941.4 million compared to $629.3 million at December 31, 2020, due primarily to increased originations in the current year following the strategic reduction in originations in the prior year to mitigate risks associated with the COVID-19 pandemic. The percentage of loans greater than 30 days delinquent increased to 6.3% at December 31, 2021, compared to 3.9% at December 31, 2020. The increase was driven primarily by growth in originations in the current year, particularly to new customers, which typically default at a higher percentage than returning customers. At December 31, 2020, this delinquency rate was lower due to our having a 55 more seasoned and lower risk portfolio due to reduced originations as well as our belief that credit was favorably impacted by governmental stimulus efforts. Charge-offs (net of recoveries) as a percentage of average combined loan balance increased to 13.3% for the three months ended December 31, 2021 (the “2021 fourth quarter”), compared to 5.5% for the three months ended December 31, 2020 (the “2020 fourth quarter”), driven primarily by growth in originations, particularly to new customers, which typically default at a higher percentage than returning customers. In the 2020 fourth quarter, this charge-off rate was lower due primarily to our having a more seasoned and lower risk portfolio remaining as originations since the onset of the COVID-19 pandemic had been significantly lower and the majority of higher risk loans to new customers originated in prior quarters had been charged off. The ratio of fair value as a percentage of principal on consumer loans and finance receivables was 103.3% at December 31, 2021, compared to 108.6% at December 31, 2020 and 102.7% at September 30, 2021. The increase from September 30, 2021 was primarily driven by the reduction in discount rate during the fourth quarter. Refer to “Results of Operations—COVID-19” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional discussion on loan valuation, including the discount rate assumption. Small Business Loans and Finance Receivables The following table includes financial information for our small business loans and finance receivables. Delinquency metrics include principal, interest and fees, and only amounts that are past due (dollars in thousands): [[GREPCENT_TABLE]] [["","","2021"],["","","First","","","Second","","","Third","","","Fourth"],["","","Quarter","","","Quarter","","","Quarter","","","Quarter"],["Small business loans and finance receivables:"],["Total loan and finance receivable principal balance","","$","696,678","","","$","781,793","","","$","876,668","","","$","1,010,675"],["Ending loan and finance receivable fair value balance","","","649,313","","","","784,728","","","","911,729","","","","1,074,546"],["Fair value as a % of principal(a)","","","93.2","%","","","100.4","%","","","104.0","%","","","106.3","%"],["Ending loan and finance receivable balance, including principal and accrued fees/interest outstanding","","$","701,053","","","$","786,330","","","$","881,807","","","$","1,016,590"],["Average loan and finance receivable balance(b)","","$","700,348","","","$","739,378","","","$","837,606","","","$","956,110"],["Revenue","","$","75,560","","","$","85,561","","","$","100,610","","","$","115,063"],["Change in fair value","","","4,995","","","","45,078","","","","24,515","","","","22,804"],["Net revenue","","","80,555","","","","130,639","","","","125,125","","","","137,867"],["Net revenue margin","","","106.6","%","","","152.7","%","","","124.4","%","","","119.8","%"],["Change in fair value as a % of average loan balance(b)","","","(0.7",")%","","","(6.1",")%","","","(2.9",")%","","","(2.4",")%"],["Delinquencies:"],[" 30 days delinquent","","$","71,639","","","$","55,682","","","$","44,978","","","$","43,901"],[" 30 days delinquent as a % of loan balance(a)","","","10.2","%","","","7.1","%","","","5.1","%","","","4.3","%"],["Charge-offs:"],["Charge-offs (net of recoveries)","","$","18,042","","","$","5,102","","","$","7,060","","","$","7,677"],["Charge-offs (net of recoveries) as a % of average loan and finance receivable balance(b)","","","2.6","%","","","0.7","%","","","0.8","%","","","0.8","%"]] [[/GREPCENT_TABLE]] 56 [[GREPCENT_TABLE]] [["","","2020"],["","","First","","","Second","","","Third","","","Fourth"],["","","Quarter","","","Quarter","","","Quarter","","","Quarter"],["Small business loans and finance receivables:"],["Total loan and finance receivable principal balance","","$","183,905","","","$","121,070","","","$","81,733","","","$","686,730"],["Ending loan and finance receivable fair value balance","","","175,985","","","","108,705","","","","75,449","","","","616,287"],["Fair value as a % of principal(a)","","","95.7","%","","","89.8","%","","","92.3","%","","","89.7","%"],["Ending loan and finance receivable balance, including principal and accrued fees/interest outstanding","","$","186,462","","","$","122,914","","","$","84,288","","","$","691,083"],["Average loan and finance receivable balance(b)","","$","182,862","","","$","158,684","","","$","101,819","","","$","539,675"],["Revenue","","$","23,906","","","$","14,930","","","$","10,830","","","$","64,419"],["Change in fair value","","","(24,994",")","","","(18,513",")","","","1,601","","","","10,818"],["Net revenue","","","(1,088",")","","","(3,583",")","","","12,431","","","","75,237"],["Net revenue margin","","","(4.6",")%","","","(24.0",")%","","","114.8","%","","","116.8","%"],["Change in fair value as a % of average loan balance(b)","","","13.7","%","","","11.7","%","","","(1.6",")%","","","(2.0",")%"],["Delinquencies:"],[" 30 days delinquent","","$","4,640","","","$","5,648","","","$","4,282","","","$","97,873"],[" 30 days delinquent as a % of loan balance(a)","","","2.5","%","","","4.6","%","","","5.1","%","","","14.2","%"],["Charge-offs:"],["Charge-offs (net of recoveries)","","$","11,918","","","$","14,782","","","$","4,496","","","$","21,052"],["Charge-offs (net of recoveries) as a % of average loan and finance receivable balance(b)","","","6.5","%","","","9.3","%","","","4.4","%","","","3.9","%"]] [[/GREPCENT_TABLE]] (a) Determined using period-end balances. (b) The average loan and finance receivable balance is the average of the month-end balances during the period. The combined ending loan balance, including principal and accrued fees/interest outstanding, of small business loans and finance receivables at December 31, 2021 increased 47.1% to $1,016.6 million compared to $691.1 million at December 31, 2020, due primarily to the acceleration of originations across 2021 as well as strong credit performance, resulting in low charge-offs. The percentage of loans and finance receivables greater than 30 days delinquent decreased to 4.3% at December 31, 2021, compared to 14.2% at December 31, 2020. Since the acquisition of OnDeck in October 2020, delinquency has improved in all of our small business portfolios, as we have actively worked with our customers to understand their financial situations, offering a variety of repayment options to increase flexibility and reducing or deferring payments for impacted customers. Charge-offs (net of recoveries) as a percentage of average loan balance decreased to 0.8% for the 2021 fourth quarter, compared to 3.9% in the 2020 fourth quarter, due primarily to the recovery of the broader economy, our efforts to assist customers and the impact of governmental stimulus. The ratio of fair value as a percentage of principal on small business loans and finance receivables was 106.3% at December 31, 2021, compared to 89.7% at December 31, 2020 and 104.0% at September 30, 2021. The increase from September 30, 2021 was due primarily to strong cash collections and improvements in anticipated cash flow in our valuation models due to reduced risk. The ratio of fair value as a percentage of principal has improved for the legacy Enova portfolio since the second quarter of 2020 and the OnDeck portfolio since acquisition. Total Operating Expenses Total operating expenses increased $284.8 million, or 87.3%, to $611.2 million in 2021, compared to $326.4 million in 2020. Marketing expense increased $201.3 million, or 288.6%, to $271.1 million in 2021 compared to $69.8 million in 2020, due primarily to our efforts to capture increasing market demand for loan products in the current year. The prior year was abnormally low due to our strategic actions to mitigate risks associated with the COVID-19 pandemic. 57 Operations and technology expense increased $51.4 million, or 53.4%, to $147.7 million in 2021 from $96.3 million in 2020, due primarily to the inclusion of OnDeck expenses since its acquisition in October 2020 as well as higher variable underwriting costs due to the increase in originations. General and administrative expense increased $16.4 million, or 11.6%, to $157.0 million in 2021 compared to $140.6 million in 2020, due primarily to the inclusion of OnDeck expenses since October 2020, partially offset by various cost containment initiatives implemented to mitigate the impact of the COVID-19 pandemic. Depreciation and amortization expense increased $15.7 million, or 79.3%, to $35.4 million in 2021 compared to $19.7 million in 2020 due primarily by fixed assets and intangible assets acquired with OnDeck and Pangea and, to a lesser extent, additional internally-developed software placed into service. Interest Expense, Net Interest expense, net decreased $10.2 million, or 11.7%, to $76.5 million in 2021 compared to $86.7 million in 2020, due primarily to a decrease in the weighted average interest rate on our outstanding debt to 7.34% in 2021 from 8.76% in 2020, partially offset by an increase in the average amount of debt outstanding to $1,036.2 million during 2021 from $991.7 million during 2020. See “—Liquidity and Capital Resources—Current Debt Facilities” below for further information. Provision for Income Taxes The effective tax rate from continuing operations of 23.8% in 2021 was higher than the 13.1% rate recorded in 2020 due primarily to re-measurement of unrecognized tax benefits and non-taxable bargain purchase gain in the prior year and, to a lesser extent, additional interest on unrecognized tax benefits and state income tax liability adjustments in the current year. As of December 31, 2021, the balance of unrecognized tax benefits was $44.1 million which is included in “Accounts payable and accrued expenses” on the consolidated balance sheet, $10.5 million of which, if recognized, would favorably affect the effective tax rate in the period of recognition. We had $39.0 million of unrecognized tax benefits as of December 31, 2020. We believe that we have adequately accounted for any material tax uncertainties in our existing reserves for all open tax years. Our U.S. tax returns are subject to examination by federal and state taxing authorities. The statute of limitations related to our consolidated Federal income tax returns is closed for all tax years up to and including 2017. However, the 2014 tax year is still open to the extent of the net operating loss which we carried back from the 2019 tax return. The years open to examination by state, local and foreign government authorities vary by jurisdiction, but the statute of limitation is generally three years from the date the tax return is filed. For jurisdictions that have generated net operating losses, carryovers may be subject to the statute of limitations applicable for the year those carryovers are utilized. In these cases, the period for which the losses may be adjusted will extend to conform with the statute of limitations for the year in which the losses are utilized. In most circumstances, this is expected to increase the length of time that the applicable taxing authority may examine the carryovers by one year or longer, in limited cases. On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act was enacted and signed into U.S. law to provide economic relief to individuals and businesses facing economic hardship as a result of the COVID-19 pandemic. We deferred the timing of federal tax estimates and payroll taxes as permitted by the CARES Act and have availed ourselves of net operating loss carryback provisions. LIQUIDITY AND CAPITAL RESOURCES Capital Funding Strategy Given the unprecedented economic circumstances resulting from the COVID-19 pandemic and high degree of uncertainty, we have taken several actions to create a stable and flexible balance sheet that ensures liquidity and funding available to meet our business obligations. We elected to access our committed funding lines prior to March 31, 2020 to preserve optionality in the face of uncertainty, and, prior to June 30, 2020, we repaid the outstanding balance of our revolving credit agreement. Despite our higher than normal cash balances, we have drawn and repaid funds from our revolving credit agreement in 2021 to meet the minimum utilization requirements. As of December 31, 2021, we had cash, cash equivalents, and restricted cash of $225.9 million, of which $60.4 million was restricted, compared to $369.2 million, of which $71.9 million was restricted, as of December 31, 2020. As of December 31, 2021, we had committed and undrawn funding capacity of $488.2 million. Based on numerous stressed-case modeling scenarios, we believe we have sufficient liquidity to run our operations for the foreseeable future. Further, we have no recourse debt obligations due until September 2024. 58 Historically, we have generated significant cash flow through normal operating activities for funding both long-term and short-term needs. Our near-term liquidity is managed to ensure that adequate resources are available to fund our seasonal working capital growth, which is driven by demand for our loan and financing products. On May 30, 2014, we issued and sold $500.0 million in aggregate principal amount of 9.75% senior notes due 2021 (the “2021 Senior Notes”). On September 1, 2017, we issued and sold $250.0 million in aggregate principal amount of 8.50% Senior Notes due 2024 (the “2024 Senior Notes”) and used the net proceeds, in part, to retire $155.0 million in 2021 Senior Notes. On January 21, 2018, we redeemed an additional $50.0 million in principal amount of the outstanding 2021 Senior Notes. On September 19, 2018, we issued and sold $375.0 million in aggregate principal amount of 8.50% Senior Notes due 2025 (the “2025 Senior Notes”) and used the net proceeds, in part, to retire the remaining $295.0 million in principal amount of the outstanding 2021 Senior Notes. On June 30, 2017, we entered into a secured revolving credit agreement (as amended, the “Credit Agreement”). On April 13, 2018, October 5, 2018, July 1, 2019 and May 10, 2021, we and certain of our operating subsidiaries entered into amendments to our Credit Agreement. As of February 24, 2022, our available borrowings under the Credit Agreement were $109.3 million. Since 2016, we have entered into several loan securitization facilities and offered asset-backed notes to fund our growth, primarily in our near-prime consumer installment loan business. As a result of our acquisition of OnDeck in 2020, we added several additional securitization facilities and asset-backed notes supported by OnDeck’s small business loans, as summarized below under “Current Debt Facilities.” As of February 24, 2022, we had $151.0 million of total committed and undrawn borrowing capacity under our loan securitization facilities. We expect that our operating needs, including satisfying our obligations under our debt agreements and funding our working capital growth, will be satisfied by a combination of cash flows from operations, borrowings under the Credit Agreement, or any refinancing, replacement thereof or increase in borrowings thereunder, and securitization or sale of loans and finance receivables under our loan securitization facilities. As of December 31, 2021, we were in compliance with all financial ratios, covenants and other requirements set forth in our debt agreements. Unexpected changes in our financial condition or other unforeseen factors may result in our inability to obtain third-party financing or could increase our borrowing costs in the future. To the extent we experience short-term or long-term funding disruptions, we have the ability to adjust our volume of lending and financing to consumers and small businesses that would reduce cash outflow requirements while increasing cash inflows through repayments. Additional alternatives may include the securitization or sale of assets, increased borrowings under the Credit Agreement, or any refinancing or replacement thereof, and reductions in capital spending which could be expected to generate additional liquidity. Capital Our Total stockholders' equity increased by $174.3 million to $1,093.1 million at December 31, 2021 from $918.8 million at December 31, 2020. The increase of stockholders' equity was driven primarily by net income for the year ended December 31, 2021, partially offset by $116.7 million in repurchases of our common stock. Our book value per share outstanding increased to $32.01 at December 31, 2021 from $25.69 at December 31, 2020, which was primarily driven by net income and, to a lesser extent, share repurchases in 2021. On January 31, 2019, we announced the Board of Directors had authorized a share repurchase program for the repurchase of up to $50.0 million of our common stock through December 31, 2020 (the “January 2019 Authorization”). On October 24, 2019, we announced the Board of Directors had authorized a new share repurchase program totaling $75.0 million that expired December 31, 2020 (the “October 2019 Authorization”). The October 2019 Authorization replaced the January 2019 Authorization of $50.0 million. On November 5, 2020, we announced the Board of Directors had authorized a share repurchase program for up to $50.0 million of our outstanding common stock through December 31, 2021 (the “2020 Authorization”). The 2020 Authorization was an expansion of the October 2019 Authorization. On November 4, 2021, we announced the Board of Directors authorized a new share repurchase program totaling $150.0 million through December 31, 2022 (the “2021 Authorization”). The 2021 Authorization replaced the 2020 Authorization. On February 9, 2022, we announced the Board of Directors authorized a new share repurchase program totaling $100.0 million through June 30, 2023 (the "2022 Authorization"). The 2022 Authorization replaced the 2021 Authorization. Repurchases under our repurchase programs will be made in accordance with applicable securities laws from time to time in the open market, through privately negotiated transactions or otherwise. The share repurchase program does not obligate us to purchase any shares of our common stock. The authorization for the share repurchase programs may be terminated, increased or decreased by the Board of Directors in its discretion at any time. During 2021, we paid $111.9 million to repurchase common stock under the share repurchase programs. Cash At December 31, 2021, we had $165.5 million of available unrestricted cash to fund our future operations compared to approximately $297.3 million at December 31, 2020. Our cash and cash equivalents at December 31, 2021 were held primarily for working capital purposes and were used to fund a portion of our lending activities. From time to time, we use excess cash and cash equivalents to fund our lending activities. We do not enter into investments for trading or speculative purposes. Our policy is to invest cash in excess of our immediate working capital requirements in 59 short-term investments, deposit accounts or other arrangements designed to preserve the principal balance and maintain adequate liquidity. Our excess cash may be invested primarily in overnight sweep accounts, money market instruments or similar arrangements that provide competitive returns consistent with our polices and market conditions. Our restricted cash primarily consists of funds held in accounts as reserves on certain debt facilities and as collateral for issuing bank partner transactions. We have no ability to draw on such funds as long as they remain restricted under the applicable arrangements but have the ability to use these funds to finance loan originations, subject to meeting borrowing base requirements. Our policy is to invest restricted cash held in debt facility related accounts, to the extent permitted by such debt facility, in investments designed to preserve the principal balance and provide liquidity. Accordingly, such cash is invested primarily in money market instruments that offer daily purchase and redemption and provide competitive returns consistent with our policies and market conditions. Current Debt Facilities The following table summarizes our debt facilities as of December 31, 2021. [[GREPCENT_TABLE]] [["","","Maturity date","","Weighted average interest rate(a)","","Borrowing capacity","","","Principal outstanding"],["Funding Debt:"],["2018-1 Securitization Facility","","September 2026","(b)","4.34%","","","150,000","","","","72,706"],["2018-2 Securitization Facility","","July 2025","(c)","4.21%","","","150,000","","","","75,000"],["2018-A Securitization Notes","","May 2026","","7.37%","","","628","","","","628"],["2019-A Securitization Notes","","June 2026","","7.43%","","","19,255","","","","19,255"],["ODR 2021-1 Securitization Facility","","November 2024","(d)","1.85%","","","150,000","","","","\u2014"],["ODAST III Securitization Notes","","May 2027","(e)","2.07%","","","300,000","","","","300,000"],["RAOD Securitization Facility","","December 2023","(f)","2.59%","","","177,632","","","","101,000"],["Total funding debt","","","","2.90%","","$","947,515","","","$","568,589"],["Corporate Debt:"],["8.50% Senior Notes Due 2024","","September 2024","","8.50%","","","250,000","","","","250,000"],["8.50% Senior Notes Due 2025","","September 2025","","8.50%","","","375,000","","","","375,000"],["Revolving line of credit","","June 2025","","4.00%","","","310,000","","(g)","","200,000"],["Total corporate debt","","","","7.40%","","$","935,000","","","$","825,000"]] [[/GREPCENT_TABLE]] (a) The weighted average interest rate is determined based on the rates and principal balances on December 31, 2021. It does not include the impact of the amortization of deferred loan origination costs or debt discounts. (b) The period during which new borrowings may be made under this facility expires in September 2024. (c) The period during which new borrowings may be made under this facility expires in July 2023. (d) The period during which new borrowings may be made under this facility expires in November 2023. (e) The period during which new borrowings may be made under this facility expires in April 2024. (f) The period during which new borrowings may be made under this facility expires in December 2022. (g) We had outstanding letters of credit under the Revolving line of credit of $0.8 million as of December 31, 2021. Our ability to fully utilize the available capacity of our debt facilities may also be impacted by provisions that limit concentration risk and eligibility. 60 Cash Flows Our cash flows and other key indicators of liquidity are summarized as follows (dollars in thousands): [[GREPCENT_TABLE]] [["","","Year Ended December 31,"],["","","2021","","","2020","","","2019"],["Cash flows provided by (used in) operating activities"],["Cash flows from operating activities - continuing operations","","$","471,868","","","$","741,171","","","$","804,608"],["Cash flows from operating activities - discontinued operations","","","\u2014","","","","(300",")","","","44,031"],["Cash flows provided by operating activities","","","471,868","","","","740,871","","","","848,639"],["Cash flows (used in) provided by investing activities"],["Loans and finance receivables","","","(923,494",")","","","2,986","","","","(851,056",")"],["Acquisitions, net of cash acquired","","","(29,153",")","","","109,920","","","","\u2014"],["Purchases of property and equipment","","","(29,674",")","","","(29,491",")","","","(20,062",")"],["Disposal of a subsidiary","","","1,928","","","","\u2014","","","","\u2014"],["Other investing activities","","","25","","","","168","","","","27"],["Cash flows from investing activities - continuing operations","","","(980,368",")","","","83,583","","","","(871,091",")"],["Cash flows from investing activities - discontinued operations","","","\u2014","","","","\u2014","","","","(70,306",")"],["Total cash flows (used in) provided by investing activities","","","(980,368",")","","","83,583","","","","(941,397",")"],["Cash flows provided by (used in) financing activities","","$","365,149","","","$","(535,974",")","","$","95,484"],["Total debt to Adjusted EBITDA (a)","","","2.9","x","","","2.3","x","","","3.6","x"]] [[/GREPCENT_TABLE]] (a) Total debt to Adjusted EBITDA, a non-GAAP measure, is calculated using Adjusted EBITDA for the twelve months ended for the respective period indicated. See “—Non-GAAP Financial Measures—Adjusted EBITDA.” Cash Flows from Operating Activities Net cash provided by operating activities decreased $269.3 million, or 36.3%, to $471.9 million for 2021 from $741.2 million for 2020. The decrease was driven primarily by reduced originations in the prior year as a result of our efforts to mitigate the risk of the COVID‑19 pandemic and the mix shift from consumer to small business loans and finance receivables, which generally yield less revenue. We believe cash flows from operations and available cash balances and borrowings under our consumer loan securitization facilities and Credit Agreement, which may include increased borrowings under our Credit Agreement, any refinancing or replacement thereof, and additional securitization of consumer loans, will be sufficient to fund our future operating liquidity needs, including to fund our working capital growth. Cash Flows from Investing Activities Net cash flows used in investing activities increased $1,064.0 million, or 1,272.9%, for 2021 compared to 2020, due primarily to a $926.5 million increase in net cash used in loans and finance receivables, due to a 172.1% increase in loans and finance receivables originated or purchased and an 82.1% increase in loans and finance receivables repaid. Additionally, acquisitions, net of cash acquired used $29.2 million of cash from investing activities in 2021 compared to cash provided by acquisitions of $109.9 in 2020. Cash Flows from Financing Activities Net cash provided by financing activities in 2021 was $365.1 million compared to $536.0 million used in financing activities in 2020. Cash flows provided by financing activities for 2021 primarily reflects net borrowings of $200.0 million under the Credit Agreement and $272.6 million under our securitization facilities, partially offset by $116.7 million of cash used in treasury shares purchased, primarily under the share repurchase programs discussed above under “Capital”. Cash flows used in financing activities for 2020 primarily reflects $124.5 million of net repayments under our Credit Agreement, $354.0 million of net repayments under our securitization facilities and $56.4 million of cash used in treasury shares purchased, primarily under the share repurchase programs. CRITICAL ACCOUNTING ESTIMATES Loans and Finance Receivables Beginning January 1, 2020, we have elected the fair value option for our loans and finance receivables. We estimate the fair value of our loans and finance receivables primarily using discounted cash flow analyses at an individual loan level to more accurately predict future payments. We adjust contractual cash flows for estimated losses, prepayments and servicing costs over the estimated duration of the underlying assets and discount the future cash flows using a rate of return that we believe a market participant would require. Model 61 results may be adjusted by management if we do not believe the output reflects the fair value of the portfolio, as defined under U.S. GAAP. The models are updated at each measurement date to capture any changes in internal factors such as nature, term, volume, payment trends, remaining time to maturity, and portfolio mix, as well as changes in underwriting or observed trends expected to impact future performance. We have validated model performance by comparing past valuations with actual performance noted after each valuation. The following describes the primary inputs to the discounted cash flow analyses that require significant judgment: • Net losses – Net losses are estimates of the principal payments that will not be repaid over the life of our portfolio, net of the expected principal recoveries on charged-off receivables. We have developed proprietary underwriting systems based on data we have collected since the Company’s inception. These systems employ advanced risk analytics to decide whether to approve financing transactions, to structure the amount and terms of the financings we offer pursuant to jurisdiction-specific regulations, and to provide customers with funds quickly and efficiently. Our systems closely monitor collection and portfolio performance data that we use to continually refine the analytical models and statistical measures used in making our credit, purchase, marketing, and collection decisions. Leveraging the data at the core of our business, we utilize our models to estimate lifetime credit losses for loans and finance receivables. Inputs to the models include contractual cash flows, customer application information, historical and current performance, and behavioral information. Management may also incorporate discretionary adjustments based on our expectations of future credit performance. • Prepayments – Prepayments are estimates of the amount of principal payments that will occur earlier than contractually required during the life of a loan and finance receivable. Prepayments accelerate the timing of principal repayment and reduce interest payments. Prepayment rates in our discounted cash flow models are developed using historical results as the basis. Model inputs are similar to those utilized to estimate net losses and may also incorporate discretionary adjustments based on our expectations of future performance. • Utilization – Utilization is the rate that a line of credit is utilized in proportion to the borrowing limit. Utilization rates in our discounted cash flow model for the OnDeck line of credit product are developed using historical results as the basis and are used to estimate future draws on the line. Model inputs are similar to those utilized to estimate net losses and may also incorporate discretionary adjustments based on our expectations of future activity. • Servicing costs – Servicing costs applied to the expected cash flows of our portfolio reflect our estimate of the amount investors would incur to service the underlying assets for the remainder of their lives. Servicing costs are derived from our internal analysis of our cost structure considering the characteristics of our receivables and have been benchmarked against observable information on comparable assets in the marketplace. • Discount rates – Determined at a product level, the discount rates utilized in our cash flow analyses reflect our estimates of the rates of return that investors would require when investing in financial instruments with similar risk and return characteristics. Management continuously monitors factors that may impact the fair values of its products. Internal factors such as portfolio composition (for example, interest rate, loan term, geography information, customer mix, credit quality) and performance (e.g., delinquency, loss trends, prepayment rates) are reviewed on a regular basis at various levels, including product and vintage. The Company also weighs the impact of relevant, internal business decisions on estimated fair value. External factors such as macroeconomic trends, financial market liquidity expectations, competitive landscape and legal or regulatory requirements are also reviewed on a regular basis. Management also reviews the results of its fair value model output compared to prior periods for unusual trends, potential model over- or under-reaction, outlier results and other distorting factors. Based on these analyses, management may deem it appropriate to adjust model output to derive management’s best estimate of fair value. Goodwill Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in each business combination. In accordance with Accounting Standards Codification (“ASC”) 350, Goodwill, we test goodwill for potential impairment annually and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value below its carrying amount. We have historically performed our annual goodwill impairment test as of June 30 each year. During the year ended December 31, 2021, we voluntarily changed our annual impairment assessment date from June 30 to October 1 to better align with our budgeting process and year end as well as to include nearly a full year of results after our acquisition of OnDeck, which was a material change to our financial position and results of operations. We believe the change in goodwill impairment testing date does not represent a material change to our method of applying an accounting principle in light of our internal controls and requirements to assess goodwill impairment upon certain triggering events. We first assess qualitative factors to determine whether it is necessary to perform the quantitative goodwill impairment test. In assessing the qualitative factors, we consider relevant events and circumstances including but not limited to macroeconomic conditions, industry and market environment, our overall financial performance, cash flow from operating activities, market capitalization and stock price. If we determine that the quantitative impairment test is required, we use the income approach to complete our annual goodwill 62 assessment. The income approach uses future cash flows and estimated terminal values that are discounted using a market participant perspective to determine the fair value, which is then compared to the carrying value to determine if there is impairment. The income approach includes assumptions about revenue growth rates, operating margins and terminal growth rates discounted by an estimated weighted-average cost of capital derived from other publicly-traded companies that are similar from an operational and economic standpoint. Income Taxes We account for income taxes under ASC 740, Income Taxes. As part of the process of preparing our consolidated financial statements, we are required to estimate income taxes in each of the jurisdictions in which we operate. This process involves estimating the actual current tax expense together with assessing temporary differences in recognition of income for tax and accounting purposes. These differences result in deferred tax assets and liabilities and are included within the consolidated balance sheets. We must then assess the likelihood that the deferred tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not more likely than not, we must establish a valuation allowance. An expense or benefit is included within the tax provision in the consolidated statement of income for any increase or decrease in the valuation allowance for a given period. We report our loans and finance receivables in the Company’s tax returns at fair market value, as determined for U.S. federal income tax purposes, which differs from how we report them in the consolidated financial statements due in part to statutory tax and judicial principles that may lead to different interpretations of expected credit losses and discount rate assumptions. Changes in the fair market value of our loans and finance receivables as determined for tax purposes may have a significant impact on the timing and amount of how income taxes are recognized in the consolidated financial statements. The estimates of fair market value are dependent on multiple assumptions, including expected credit losses and discount rates. We perform an evaluation of the recoverability of our deferred tax assets on a quarterly basis. We establish a valuation allowance if it is more-likely-than-not (greater than 50 percent) that all or some portion of the deferred tax asset will not be realized. We analyze several factors, including the nature and frequency of operating losses, our carryforward period for any losses, the reversal of future taxable temporary differences, the expected occurrence of future income or loss and the feasibility of available tax planning strategies to protect against the loss of deferred tax assets. We account for uncertainty in income taxes in accordance with ASC 740, which requires that a more-likely-than-not threshold be met before the benefit of a tax position may be recognized in the consolidated financial statements and prescribes how such benefit should be measured. We must evaluate tax positions taken on our tax returns for all periods that are open to examination by taxing authorities and make a judgment as to whether and to what extent such positions are more likely than not to be sustained based on the technical merits. We record interest and penalties related to tax matters as income tax expense in the consolidated statement of income. Our judgment is required in determining the provision for income taxes, the deferred tax assets and liabilities and any valuation allowance recorded against deferred tax assets. Our judgment is also required in evaluating whether tax benefits meet the more-likely-than-not threshold for recognition under ASC 740. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS Refer to Note 1 in the Notes to the Consolidated Financial Statements in Part II, Item 8 “Financial Statements and Supplementary Data” in this report for a discussion of recently issued accounting pronouncements.