enva-10q_20180630.htm

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

34,153,648 of the Registrant’s common shares, $.00001 par value, were outstanding as of July 30, 2018.

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

The foregoing list of factors is not exhaustive and new factors may emerge or changes to these factors may occur that would impact the Company’s business and cause actual results to differ materially from those expressed in any of our forward-looking statements. Additional information regarding these and other factors may be contained in the Company’s filings with the Securities and Exchange Commission (the “SEC”). Readers of this report are encouraged to review all of the Risk Factors contained in the Company’s filings with the SEC to obtain more detail about the Company’s risks and uncertainties. All forward-looking statements involve risks, assumptions and uncertainties. The occurrence of the events described, and the achievement of the expected results, depends on many events, some or all of which are not predictable or within the Company’s control. If one or more events related to these or other risks or uncertainties materialize, or if management’s underlying assumptions prove to be incorrect, actual results may differ materially from what the Company anticipates. The forward-looking statements in this report are made as of the date of this report, and the Company disclaims any intention or obligation to update or revise any forward-looking statements to reflect events or circumstances occurring after the date of this report. All forward-looking statements in this report are expressly qualified in their entirety by the foregoing cautionary statements.

	June 30,						December 31,
	2018			2017			2017
Assets
Cash and cash equivalents	$	47,414		$	46,209		$	68,684
Restricted cash (includes restricted cash of consolidated VIEs of $21,744, $19,119 and $21,696 as of June 30, 2018 and 2017 and December 31, 2017, respectively)		28,863			26,636			29,460
Loans and finance receivables, net (includes loans of consolidated VIEs of $257,972, $240,444 and $282,724 and allowance for losses of $21,019, $17,072 and $22,728 as of June 30, 2018 and 2017 and December 31, 2017, respectively)		750,131			563,996			704,705
Income taxes receivable		3,006			13,410			4,092
Other receivables and prepaid expenses		25,373			22,006			23,817
Property and equipment, net		47,752			44,329			48,525
Goodwill		267,013			267,012			267,015
Intangible assets, net		3,790			4,865			4,325
Other assets		9,862			13,406			8,837
Total assets	$	1,183,204		$	1,001,869		$	1,159,460
Liabilities and Stockholders' Equity
Accounts payable and accrued expenses	$	72,406		$	62,799		$	77,123
Deferred tax liabilities, net		14,322			25,753			12,108
Long-term debt (includes long-term debt of consolidated VIEs of $179,059, $151,987 and $211,406 and debt issuance costs of $2,131, $1,054 and $3,271, as of June 30, 2018 and 2017 and December 31, 2017, respectively)		762,831			638,749			788,542
Total liabilities		849,559			727,301			877,773
Commitments and contingencies (Note 10)
Stockholders' equity:
Common stock, $0.00001 par value, 250,000,000 shares authorized, 34,633,819, 33,752,662 and 33,932,673 shares issued and 34,145,146, 33,635,215 and 33,504,555 outstanding as of June 30, 2018 and 2017 and December 31, 2017, respectively		—			—			—
Preferred stock, $0.00001 par value, 25,000,000 shares authorized, no shares issued and outstanding		—			—			—
Additional paid in capital		39,335			23,753			29,781
Retained earnings		312,440			261,180			264,695
Accumulated other comprehensive loss		(10,905	)		(9,069	)		(7,086	)
Treasury stock, at cost (488,673, 117,447 and 428,118 shares as of June 30, 2018 and 2017 and December 31, 2017, respectively)		(7,225	)		(1,296	)		(5,703	)
Total stockholders' equity		333,645			274,568			281,687
Total liabilities and stockholders' equity	$	1,183,204		$	1,001,869		$	1,159,460

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2018			2017			2018			2017
Revenue	$	253,301		$	189,904		$	507,599		$	382,167
Cost of Revenue		121,494			79,862			230,047			161,746
Gross Profit		131,807			110,042			277,552			220,421
Expenses
Marketing		29,386			23,410			57,122			42,993
Operations and technology		27,195			21,818			52,733			45,349
General and administrative		28,295			26,245			55,216			51,941
Depreciation and amortization		3,837			3,366			7,675			6,863
Total Expenses		88,713			74,839			172,746			147,146
Income from Operations		43,094			35,203			104,806			73,275
Interest expense, net		(19,355	)		(17,012	)		(39,028	)		(34,234	)
Foreign currency transaction (loss) gain		(204	)		62			(2,292	)		289
Loss on early extinguishment of debt		—			—			(4,710	)		—
Income before Income Taxes		23,535			18,253			58,776			39,330
Provision for income taxes		5,310			6,380			12,653			13,605
Net Income	$	18,225		$	11,873		$	46,123		$	25,725
Earnings Per Share:
Net income per common share:
Basic	$	0.54		$	0.35		$	1.36		$	0.77
Diluted	$	0.52		$	0.35		$	1.32		$	0.75
Weighted average common shares outstanding:
Basic		33,984			33,553			33,821			33,463
Diluted		35,371			34,125			34,966			34,081

									Accumulated
					Additional				Other									Total
	Common Stock				Paid in		Retained		Comprehensive			Treasury Stock, at cost						Stockholders'
	Shares		Amount		Capital		Earnings		Loss			Shares			Amount			Equity
Balance at December 31, 2016		33,365	$	—	$	18,446	$	235,455	$	(11,578	)		(71	)	$	(624	)	$	241,699
Stock-based compensation expense		—		—		5,307		—		—			—			—			5,307
Shares issued under stock-based plans		388		—		—		—		—			—			—			—
Net income		—		—		—		25,725		—			—			—			25,725
Foreign currency translation loss, net of tax		—		—		—		—		2,509			—			—			2,509
Purchases of treasury shares, at cost		—		—		—		—		—			(46	)		(672	)		(672	)
Balance at June 30, 2017		33,753	$	—	$	23,753	$	261,180	$	(9,069	)		(117	)	$	(1,296	)	$	274,568

Balance at December 31, 2017		33,933	$	—	$	29,781	$	264,695	$	(7,086	)		(428	)	$	(5,703	)	$	281,687
Stock-based compensation expense		—		—		5,267		—		—			—			—			5,267
Shares issued under stock-based plans		701		—		4,287		—		—			—			—			4,287
Net income		—		—		—		46,123		—			—			—			46,123
Foreign currency translation gain, net of tax		—		—		—		—		(2,197	)		—			—			(2,197	)
Purchases of treasury shares, at cost		—		—		—		—		—			(61	)		(1,522	)		(1,522	)
Reclassification of certain deferred tax effects		—		—		—		1,622		(1,622	)		—			—			—
Balance at June 30, 2018		34,634	$	—	$	39,335	$	312,440	$	(10,905	)		(489	)	$	(7,225	)	$	333,645

	Six Months Ended
	June 30,
	2018			2017
Cash Flows from Operating Activities
Net Income	$	46,123		$	25,725
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		7,675			6,863
Amortization of deferred loan costs and debt discount		3,038			3,134
Cost of revenue		230,047			161,746
Stock-based compensation expense		5,267			5,307
Loss on early extinguishment of debt		4,710			—
Deferred income taxes, net		2,458			10,011
Other		55			—
Changes in operating assets and liabilities:
Finance and service charges on loans and finance receivables		(2,911	)		3,463
Other receivables and prepaid expenses		(1,681	)		(4,095	)
Accounts payable and accrued expenses		(151	)		(12,404	)
Current income taxes		1,086			(13,692	)
Net cash provided by operating activities		295,716			186,058
Cash Flows from Investing Activities
Loans and finance receivables originated or acquired		(786,788	)		(607,432	)
Loans and finance receivables repaid		510,238			442,701
Purchases of property and equipment		(7,065	)		(5,301	)
Other investing activities		42			1,482
Net cash used in investing activities		(283,573	)		(168,550	)
Cash Flows from Financing Activities
Borrowings under revolving line of credit		77,000			—
Repayments under revolving line of credit		(24,001	)		—
Borrowings under securitization facility		80,300			65,600
Repayments under securitization facility		(112,647	)		(79,031	)
Repayments of senior notes		(50,000	)		—
Debt issuance costs paid		(360	)		(1,797	)
Debt prepayment penalty paid		(3,656	)		—
Payment of promissory note		(3,000	)		—
Proceeds from exercise of stock options		4,287			—
Treasury shares purchased		(1,522	)		(672	)
Net cash used in financing activities		(33,599	)		(15,900	)
Effect of exchange rates on cash, cash equivalents and restricted cash		(411	)		4,997
Net (decrease) increase in cash, cash equivalents and restricted cash		(21,867	)		6,605
Cash, cash equivalents and restricted cash at beginning of year		98,144			66,240
Cash, cash equivalents and restricted cash at end of period	$	76,277		$	72,845

Supplemental Disclosures
Loans and finance receivables renewed	$	184,383		$	148,322

The consolidated financial statements of the Company reflect the historical results of operations and cash flows of the Company during each respective period. The consolidated financial statements include goodwill and intangible assets arising from businesses previously acquired. The financial information included herein may not be indicative of the consolidated financial position, operating results, changes in stockholders’ equity and cash flows of the Company in the future. Intercompany transactions are eliminated. Certain amounts in the consolidated financial statements for prior years have been reclassified to conform to the current consolidated financial statement presentation.

The Company operates an internet-based lending platform to serve customers in need of cash to fulfill their financial responsibilities. Through a network of direct and indirect marketing channels, the Company offers funds to its customers through a variety of unsecured loan and finance receivable products. The business is operated primarily through the internet to provide convenient, fully-automated financial solutions to its customers. The Company originates, arranges, guarantees or purchases consumer loans and provides financing to small businesses through a line of credit account, installment loan or receivables purchase agreement product (“RPAs”). Consumer loans include short-term loans, line of credit accounts and installment loans. RPAs represent a right to receive future receivables from a small business. “Loans and finance receivables” include consumer loans, small business lines of credit, small business installment loans and RPAs.

The Company consolidates any variable interest entity (“VIE”) where it has been determined it is the primary beneficiary. The primary beneficiary is the entity which has both the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance as well as the obligation to absorb losses or receive benefits of the entity that could potentially be significant to the VIE.

The consolidated financial statements presented as of June 30, 2018 and 2017 and for the three and six-month periods ended June 30, 2018 and 2017 are unaudited but, in management’s opinion, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for such interim periods. Operating results for the three and six-month periods are not necessarily indicative of the results that may be expected for the full fiscal year.

These consolidated financial statements and related notes should be read in conjunction with the Company’s audited consolidated financial statements as of December 31, 2017 and 2016 and for the years ended December 31, 2017, 2016 and 2015 and related notes, which are included on Form 10-K filed with the SEC on February 26, 2018.

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

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

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

pursuant to the agreement with the customer. For short-term loans that the Company offers, interest and finance charges are recognized on an effective yield basis over the term of the loan. For line of credit accounts, interest is recognized over the reporting period based upon the balance outstanding and the contractual interest rate, draw fees are recognized on an effective yield basis over the estimated outstanding period of the draw, and minimum billing fees are recognized when assessed to the customer. For installment loans, interest and origination fees are recognized on an effective yield basis over the term of the loan. For RPAs, revenue and purchase fees are recognized on an effective yield basis over the projected delivery term of the agreements and fees are recognized when assessed. CSO fees are recognized on an effective yield basis over the term of the loan. Late and nonsufficient funds fees are recognized when assessed to the customer. Direct costs associated with originating loans and purchasing RPAs, such as third-party customer acquisition costs, are deferred and amortized against revenue on an effective yield basis over the term of the loan or the projected delivery term of the finance receivable. Short-term loans, line of credit accounts, installment loans, RPAs, unpaid and accrued interest, fees and revenue and deferred origination costs are included in “Loans and finance receivables, net” in the consolidated balance sheets.

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, the Company tests goodwill and intangible assets with an indefinite life for potential impairment annually as of June 30 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.

The Company first assesses qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. In assessing the qualitative factors, management considers relevant events and circumstances including but not limited to macroeconomic conditions, industry and market environment, overall financial performance of the Company, cash flow from operating activities, market capitalization and stock price. If the Company determines that the two-step quantitative impairment test is required, management uses the income approach to complete its annual goodwill assessment. The income approach uses future cash flows and estimated terminal values for the Company 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 but not identical from an operational and economic standpoint. The Company completed its annual assessment of goodwill as of June 30, 2018 based on qualitative factors and determined that the fair value of its goodwill exceeded carrying value, and, as a result, no impairment existed at that date. Although no goodwill impairment was noted, there can be no assurances that future goodwill impairments will not occur.

In May 2009 and October 2009, the Company began providing services in Australia and Canada under the brand name DollarsDirect. Due to the small size of the Australian and Canadian markets and our limited operations there, we decided to exit those markets in 2016 and reallocate our resources to our other existing businesses. As a result, we stopped originating loans in those countries and have wound down our loan portfolios. During the quarter ended March 31, 2018, the Company continued the liquidation process of the legal entities related to Australia and Canada and recorded a $2.3 million loss to “Foreign currency transaction (loss) gain” in the consolidated statements of income to recognize the cumulative translation adjustment balance that had been previously recorded to “Accumulated other comprehensive loss” on the consolidated balance sheets.

In February 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-02, Income Statement - Reporting Comprehensive Income, (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (“ASU 2018-02”) which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the newly enacted federal corporate income tax rate under the Tax Cuts and Jobs Act. The amount of the reclassification would be the difference between the historical corporate income tax rate and the newly enacted 21 percent corporate income tax rate. ASU 2018-02 is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2018 with early adoption in any interim period permitted. The Company adopted this ASU in the first quarter of 2018 and, as a result, reclassified $1.6 million of accumulated other comprehensive income to retained earnings. The amount of the reclassification is reported as “Reclassification of certain deferred tax effects” on the consolidated statements of comprehensive income and the consolidated statements of stockholders’ equity.

In May 2017, the FASB issued ASU 2017-09, Compensation–Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU 2017-09”) clarifying when a change to the terms or conditions of a share-based payment award must be accounted for as a modification. The new guidance requires modification accounting if the fair value, vesting condition or the classification of the award is not the same immediately before and after a change to the terms and conditions of the award. The new guidance is effective on a prospective basis for annual periods beginning after December 15, 2017, and interim periods within those annual periods, with early adoption permitted. The Company adopted ASU 2017-09 as of January 1, 2018. The adoption of ASU 2017-09 did not have a material impact on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU 2017-05, Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets (“ASU 2017-05”) to clarify the scope of Subtopic 610-20, Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets, and to add guidance for partial sales of nonfinancial assets. ASU 2017-05 is effective at the same time as the amendments in ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). Therefore, for public entities, the amendments are effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. The Company adopted ASU 2017-05 as of January 1, 2018. The adoption of ASU 2017-05 did not have a material effect on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805) – Clarifying the Definition of a Business (“ASU 2017-01”). ASU 2017-01 provides a screen to determine when an asset or group of assets acquired is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This screen reduces the number of transactions that need to be further evaluated. ASU 2017-01 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017. The Company adopted ASU 2017-01 as of January 1, 2018. The adoption of ASU 2017-01 did not have a material effect on the Company’s consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230), Restricted Cash (“ASU 2016-18”). ASU 2016-18 clarifies certain existing principles in ASC 230, Statement of Cash Flows, including providing additional guidance related to transfers between cash and restricted cash and how entities present, in their statement of cash flows, the cash receipts and cash payments that directly affect the restricted cash accounts. ASU 2016-18 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company adopted ASU 2016-18 as of January 1, 2018. The adoption of ASU 2016-18 resulted in a $13 thousand increase in net cash used in investing activities and a $0.3 million increase in the effect of exchange rates on cash for the six months ended June 30, 2017.

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory (“ASU 2016-16”), which requires entities to recognize the income tax impact of an intra-entity sale or transfer of an asset other than inventory when the sale or transfer occurs, rather than when the asset has been sold to an outside party. ASU 2016-16 is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. The Company adopted ASU 2016-16 as of January 1, 2018. The adoption of ASU 2016-16 did not have a material effect on the Company’s consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016‑01”), which requires that equity investments, except for those accounted for under the equity method or those that result in consolidation of the investee, be measured at fair value, with subsequent changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. ASU 2016-01 also impacts the presentation and disclosure requirements for financial instruments. ASU 2016-01 is effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. The Company adopted ASU 2016-01 as of January 1, 2018. The adoption of ASU 2016-01 did not have a material effect on the Company’s consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which supersedes the revenue recognition requirements in Accounting Standards Codification 605, Revenue Recognition. ASU 2014-09 is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including

significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The Company adopted this ASU under the modified-retrospective method effective January 1, 2018. The Company completed its assessment of the guidance and determined its loan and finance receivables are excluded from the scope of ASU 2014-09. As a result of this scope exception, the adoption of this ASU was not material to the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350) – Simplifying the Test for Goodwill Impairment (“ASU 2017-04”) to simplify the accounting for goodwill impairment. ASU 2017-04 removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. Goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company does not expect that the adoption of ASU 2017-04 will have a material effect on its consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (“ASU 2016‑13”). The amendments in ASU 2016‑13 replace the incurred loss impairment methodology in current GAAP with a methodology that reflects lifetime expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016‑13 is effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods. Early adoption is permitted for annual periods beginning after December 15, 2018, and interim periods within those fiscal years. The Company is assessing the impact of ASU 2016‑13, which at the date of adoption will increase the allowance for credit losses with a resulting negative adjustment to retained earnings.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 requires lessee recognition on the balance sheet of a right-of-use asset and a lease liability, initially measured at the present value of the lease payments. It further requires recognition in the income statement of a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a generally straight-line basis. Finally, it requires classification of all cash payments within operating activities in the statement of cash flows. ASU 2016-02 is effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2018. Early adoption is permitted for all entities upon issuance. Upon adoption of ASU 2016-02, the Company expects to report higher assets and liabilities as a result of including additional leases on the consolidated balance sheet. The Company does not expect the adoption of ASU 2016-02 to have a material impact on the consolidated statements of income or the consolidated statements of stockholders' equity.

On June 23, 2015, the Company completed the purchase of certain assets of a company operating as The Business Backer, LLC, which purchases discounted future accounts receivables from small businesses in the United States through RPAs, which provide working capital for small businesses. The total consideration of $26.4 million was comprised of $17.7 million in cash at closing, a $3.0 million promissory note (included in “Accounts payable and accrued expenses” in the consolidated balance sheets) and estimated contingent consideration of $5.7 million based on future earn-out opportunities. The promissory note and all accrued but unpaid interest was paid on June 22, 2018. The contingent purchase consideration was recorded at its estimated fair value at the date of acquisition based upon the Company’s assessment of the probable earnings attributable to the business as defined in the purchase agreement. To the extent operating results exceed the Company’s estimate, additional contingent consideration would be due, however the total consideration paid may not exceed $71 million. The contingent purchase consideration was revalued each reporting period with changes in fair value of the contingent consideration obligations recognized as a gain or loss on fair value remeasurement in our consolidated statements of income. The fair value of the contingent purchase consideration was remeasured as of December 31, 2016 and a gain from the fair value remeasurement of $3.3 million was recognized. Based on future expected earnings, the Company did not expect to pay any additional contingent consideration and recorded an adjustment to write-off the remaining liability in 2017. As of June 30, 2018 the Company had not made and was no longer potentially liable for any contingent payments related to this acquisition.

This purchase was not material to the Company’s consolidated financial statements. The operating results of the purchased assets, which were not material, have been included in the Company’s consolidated financial statements from the date of acquisition.

Revenue generated from the Company’s loans and finance receivables for the three and six months ended June 30, 2018 and 2017 was as follows (dollars in thousands):

The Company classifies its loans and finance receivables as either current or delinquent. Short-term loans are considered delinquent when payment of an amount due is not made as of the due date. If a line of credit account or installment loan customer misses one payment, that payment is considered delinquent and the balance of the loan is considered current. If a line of credit account or installment loan customer does not make two consecutive payments, the entire account or loan is classified as delinquent and placed on a non-accrual status. The Company allows for normal payment processing time before considering a loan delinquent but does not provide for any additional grace period.

The Company does not accrue interest on delinquent loans and does not resume accrual of interest on a delinquent loan unless it is returned to current status. In addition, delinquent loans generally may not be renewed, and if, during its attempt to collect on a delinquent loan, the Company allows additional time for payment through a payment plan or a promise to pay, it is still considered delinquent. Generally, all payments received are first applied against accrued but unpaid interest and fees and then against the principal balance of the loan.

The Company monitors the performance of its loan and finance receivable portfolios and maintains either an allowance or liability for estimated losses on loans and finance receivables (including revenue, fees and/or interest) at a level estimated to be adequate to absorb losses inherent in the portfolio. The allowance for losses on the Company’s owned loans and finance receivables reduces the outstanding loans and finance receivables balance in the consolidated balance sheets. The liability for estimated losses related to loans guaranteed under its CSO programs is initially recorded at fair value and is included in “Accounts payable and accrued expenses” in the consolidated balance sheets.

In determining the allowance or liability for estimated losses on loans and finance receivables, the Company applies a documented systematic methodology. In calculating the allowance or liability for receivable losses, outstanding loans and finance receivables are divided into discrete groups of short-term loans, line of credit accounts, installment loans and RPAs and are analyzed as current or delinquent. Increases in either the allowance or the liability, net of charge-offs and recoveries, are recorded as a “Cost of revenue” in the consolidated statements of income.

The allowance or liability for short-term loans classified as current is based on historical loss rates adjusted for recent default trends for current loans. For delinquent short-term loans, the allowance or liability is based on a six-month rolling average of loss rates by stage of collection. For line of credit account, installment loan and RPA portfolios, the Company generally uses either a migration analysis or roll-rate based methodology to estimate losses inherent in the portfolio. The allowance or liability calculation under the migration analysis and roll-rate methodology is based on historical charge-off experience and the loss emergence period, which represents the average amount of time between the first occurrence of a loss event and the charge-off of a loan or RPA. The factors the Company considers to assess the adequacy of the allowance or liability include past due performance, historical behavior of monthly vintages, underwriting changes and recent trends in delinquency in the migration analysis. The roll-rate methodology is based on delinquency status, payment history and recency factors to estimate future charge-offs.

The Company fully reserves for loans and finance receivables once the receivable or a portion of the receivable has been classified as delinquent for 60 consecutive days and generally charges off loans and finance receivables between 60 – 65 days delinquent. If a loan or finance receivable is deemed uncollectible before it is fully reserved, it is charged off at that point. Loans and finance receivables

classified as delinquent generally have an age of one to 64 days from the date any portion of the receivable became delinquent, as defined above. Recoveries on loans and finance receivables previously charged to the allowance are credited to the allowance when collected.

The components of Company-owned loans and finance receivables at June 30, 2018 and 2017 and December 31, 2017 were as follows (dollars in thousands):

	As of June 30, 2018
	Short-term			Line of Credit			Installment Loans and
	Loans			Accounts			RPAs			Total
Current receivables	$	40,443		$	172,755		$	575,750		$	788,948
Delinquent receivables:
Delinquent payment amounts⁽¹⁾		—			6,917			2,108			9,025
Receivables on non-accrual status		26,812			1,462			45,668			73,942
Total delinquent receivables		26,812			8,379			47,776			82,967
Total loans and finance receivables, gross		67,255			181,134			623,526			871,915
Less: Allowance for losses		(18,861	)		(31,050	)		(71,873	)		(121,784	)
Loans and finance receivables, net	$	48,394		$	150,084		$	551,653		$	750,131

	As of June 30, 2017
	Short-term			Line of Credit			Installment Loans and
	Loans			Accounts			RPAs			Total
Current receivables	$	39,213		$	125,953		$	424,703		$	589,869
Delinquent receivables:
Delinquent payment amounts⁽¹⁾		—			2,983			2,470			5,453
Receivables on non-accrual status		22,352			5,218			24,943			52,513
Total delinquent receivables		22,352			8,201			27,413			57,966
Total loans and finance receivables, gross		61,565			134,154			452,116			647,835
Less: Allowance for losses		(15,688	)		(22,847	)		(45,304	)		(83,839	)
Loans and finance receivables, net	$	45,877		$	111,307		$	406,812		$	563,996

	As of December 31, 2017
	Short-term			Line of Credit			Installment Loans and
	Loans			Accounts			RPAs			Total
Current receivables	$	45,552		$	161,070		$	537,634		$	744,256
Delinquent receivables:
Delinquent payment amounts⁽¹⁾		—			7,696			3,635			11,331
Receivables on non-accrual status		28,120			1,302			42,740			72,162
Total delinquent receivables		28,120			8,998			46,375			83,493
Total loans and finance receivables, gross		73,672			170,068			584,009			827,749
Less: Allowance for losses		(19,917	)		(31,148	)		(71,979	)		(123,044	)
Loans and finance receivables, net	$	53,755		$	138,920		$	512,030		$	704,705

Changes in the allowance for losses for the Company-owned loans and finance receivables and the liability for losses on the Company’s guarantees of third-party lender-owned loans during the three and six months ended June 30, 2018 and 2017 were as follows (dollars in thousands):

	Three Months Ended June 30, 2018
	Short-term			Line of Credit			Installment Loans and
	Loans			Accounts			RPAs			Total
Allowance for losses for Company-owned loans and finance receivables:
Balance at beginning of period	$	19,136		$	27,120		$	68,027		$	114,283
Cost of revenue		19,764			31,211			69,837			120,812
Charge-offs		(25,615	)		(30,554	)		(79,744	)		(135,913	)
Recoveries		5,989			3,273			14,866			24,128
Effect of foreign currency translation		(413	)		—			(1,113	)		(1,526	)
Balance at end of period	$	18,861		$	31,050		$	71,873		$	121,784
Liability for third-party lender-owned loans:
Balance at beginning of period	$	1,261		$	—		$	149		$	1,410
Increase in liability		622			—			60			682
Balance at end of period	$	1,883		$	—		$	209		$	2,092

	Three Months Ended June 30, 2017
	Short-term			Line of Credit			Installment Loans and
	Loans			Accounts			RPAs			Total
Allowance for losses for Company-owned loans and finance receivables:
Balance at beginning of period	$	15,161		$	21,765		$	46,328		$	83,254
Cost of revenue		15,867			19,868			43,373			79,108
Charge-offs		(21,062	)		(22,080	)		(54,452	)		(97,594	)
Recoveries		5,523			3,294			10,009			18,826
Effect of foreign currency translation		199			—			46			245
Balance at end of period	$	15,688		$	22,847		$	45,304		$	83,839
Liability for third-party lender-owned loans:
Balance at beginning of period	$	1,044		$	—		$	143		$	1,187
Increase in liability		717			—			37			754
Balance at end of period	$	1,761		$	—		$	180		$	1,941

	Six Months Ended June 30, 2018
	Short-term			Line of Credit			Installment Loans and
	Loans			Accounts			RPAs			Total
Allowance for losses for Company-owned loans and finance receivables:
Balance at beginning of period	$	19,917		$	31,148		$	71,979		$	123,044
Cost of revenue		40,931			56,594			132,688			230,213
Charge-offs		(54,100	)		(63,361	)		(160,950	)		(278,411	)
Recoveries		12,261			6,669			28,991			47,921
Effect of foreign currency translation		(148	)		—			(835	)		(983	)
Balance at end of period	$	18,861		$	31,050		$	71,873		$	121,784
Liability for third-party lender-owned loans:
Balance at beginning of period	$	2,105		$	—		$	153		$	2,258
(Decrease) increase in liability		(222	)		—			56			(166	)
Balance at end of period	$	1,883		$	—		$	209		$	2,092

	Six Months Ended June 30, 2017
	Short-term			Line of Credit			Installment Loans and
	Loans			Accounts			RPAs			Total
Allowance for losses for Company-owned loans and finance receivables:
Balance at beginning of period	$	17,770		$	26,594		$	54,581		$	98,945
Cost of revenue		32,141			39,699			89,961			161,801
Charge-offs		(45,441	)		(50,544	)		(119,774	)		(215,759	)
Recoveries		10,927			7,098			20,152			38,177
Effect of foreign currency translation		291			—			384			675
Balance at end of period	$	15,688		$	22,847		$	45,304		$	83,839
Liability for third-party lender-owned loans:
Balance at beginning of period	$	1,716		$	—		$	280		$	1,996
Increase (decrease) in liability		45			—			(100	)		(55	)
Balance at end of period	$	1,761		$	—		$	180		$	1,941

In connection with its CSO programs, the Company guarantees consumer loan payment obligations to unrelated third-party lenders for short-term and installment loans and is required to purchase any defaulted loans it has guaranteed. The guarantee represents an obligation to purchase specific loans that go into default. As of June 30, 2018 and 2017 and December 31, 2017, the amount of consumer loans guaranteed by the Company was $28.7 million, $28.0 million and $34.1 million, respectively, representing amounts due under consumer loans originated by third-party lenders under the CSO programs. The estimated fair value of the liability for estimated losses on consumer loans guaranteed by the Company of $2.1 million, $1.9 million and $2.3 million, as of June 30, 2018 and 2017 and December 31, 2017, respectively, is included in “Accounts payable and accrued expenses” in the consolidated balance sheets.

In order to leverage its online lending platform, the Company launched a program with a bank in 2016 to provide technology, marketing services, and loan servicing for near-prime unsecured consumer installment loans. Under the program, the Company receives marketing and servicing fees while the bank receives an origination fee. The bank has the ability to sell the loans it originates to the Company. The Company does not guarantee the performance of the loans originated by the bank.

The Company records an investment in the preferred stock of a privately-held developing financial services entity under the cost method. The carrying value of the Company’s investment in this unconsolidated investee was $6.7 million as of June 30, 2018 and 2017 and December 31, 2017, and was held in “Other assets” in the Company’s consolidated balance sheets. The Company evaluates this investment for impairment if an event occurs or circumstances change that would more likely than not reduce the fair value of the investment below carrying value. Based on the Company’s evaluation of this investment at June 30, 2018, the Company determined that an impairment loss was not probable at that date.

The Company’s long-term debt instruments and balances outstanding as of June 30, 2018 and 2017 and December 31, 2017 were as follows (dollars in thousands):

On September 1, 2017, the Company issued and sold $250.0 million in aggregate principal amount of 8.50% Senior Notes due 2024 (the “2024 Senior Notes”). The 2024 Senior Notes were sold to qualified institutional buyers in accordance with Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”) and outside the United States pursuant to Regulation S under the Securities Act. The 2024 Senior Notes bear interest at a rate of 8.50% annually on the principal amount payable semi-annually in arrears on March 1 and September 1 of each year, beginning on March 1, 2018. The 2024 Senior Notes were sold at a price of 100%. The 2024 Senior Notes will mature on September 1, 2024. The 2024 Senior Notes are unsecured debt obligations of the Company, and are unconditionally guaranteed by certain of the Company’s domestic subsidiaries.

The 2024 Senior Notes are redeemable at the Company’s option, in whole or in part, (i) at any time prior to September 1, 2020 at 100% of the aggregate principal amount of 2024 Senior Notes redeemed plus the applicable “make whole” premium specified in the indenture that governs the Company’s 2024 Notes (the "2024 Senior Notes Indenture"), plus accrued and unpaid interest, if any, to the redemption date and (ii) at any time on or after September 1, 2020 at the premium, if any, specified in the 2024 Senior Notes Indenture that will decrease over time, plus accrued and unpaid interest, if any, to the redemption date. In addition, prior to September 1, 2020, at its option, the Company may redeem up to 40% of the aggregate principal amount of the 2024 Senior Notes at a redemption price of 108.5% of the aggregate principal amount of 2024 Senior Notes redeemed, plus accrued and unpaid interest, if any, to the redemption date, with the proceeds of certain equity offerings as described in the 2024 Senior Notes Indenture.

The 2024 Senior Notes and the related guarantees have not been and will not be registered under the Securities Act, or the securities laws of any state or other jurisdiction, and may not be offered or sold in the United States without registration or an applicable exemption from the registration requirements of the Securities Act and applicable state securities or blue sky laws and foreign securities laws.

The Company used the net proceeds of the 2024 Senior Notes offering to retire a portion of its outstanding 9.75% senior notes due 2021, to pay the related accrued interest, premiums, fees and expenses associated therewith and for general corporate purposes, which may include working capital and future repurchases of its outstanding debt securities.

As of June 30, 2018 and December 31, 2017, the carrying amount of the 2024 Senior Notes was $243.3 million and $242.8 million, respectively, which includes unamortized issuance costs of $6.7 million and $7.2 million, respectively. The issuance costs are being amortized to interest expense over a period of seven years, through the maturity date of September 1, 2024. The total interest expense recognized was $11.2 million of which $0.5 million represented the non-cash amortization of the issuance costs for the six months ended June 30, 2018.

On January 15, 2016, the Company and certain of its subsidiaries entered into a receivables securitization (as amended, the “2016-1 Securitization Facility”) with certain purchasers, Jefferies Funding LLC, as administrative agent (the “Administrative Agent”) and Bankers Trust Company, as indenture trustee and securities intermediary (the “Indenture Trustee”). The 2016-1 Securitization Facility securitizes unsecured consumer installment loans (“Receivables”) that have been, or will be, originated or acquired under the

Company’s NetCredit brand by several of the Company’s subsidiaries and that meet specified eligibility criteria. Under the 2016-1 Securitization Facility, Receivables are sold to EFR 2016-1, LLC, a wholly-owned special purpose subsidiary (the “Issuer”), and serviced by another subsidiary. The 2016-1 Securitization Facility was amended on July 26, 2016, August 17, 2016, September 12, 2016, October 20, 2016, November 14, 2016 and December 14, 2016. The 2016-1 Securitization Facility, as amended, provided for a maximum principal amount of $275 million, variable funding notes maximum principal amount of $30 million per month and a revolving period of the facility ending in October 2017.

On October 20, 2017 (the “Amendment Closing Date”), the Company and certain of its subsidiaries amended and restated the 2016‑1 Securitization Facility (the “Amended Facility”). The counterparties to the Amended Facility included certain purchasers, the Administrative Agent and the Indenture Trustee. The Amended Facility relates to Receivables that have been and will be originated or acquired under the Company’s NetCredit brand and that meet specified eligibility criteria. The eligible Receivables that were owned by the Issuer remained in the Amended Facility and the ineligible Receivables were removed. Under the Amended Facility, additional eligible Receivables may be sold to the Issuer and serviced by another subsidiary of the Company.

In connection with the amendment and restatement, all of the outstanding notes issued by the Issuer prior to the Amendment Closing Date were redeemed and the Issuer issued an initial term note with an initial principal amount of $181.1 million (the “2017 Initial Term Note”) and variable funding notes (the “2017 Variable Funding Notes”) with an aggregate committed availability of $75 million per quarter with an option to increase the commitment to $90 million with the consent of the holders of the 2017 Variable Funding Notes. As described below, the Issuer will subsequently issue term notes (the “2017 Term Notes” and, together with the 2017 Initial Term Note and the 2017 Variable Funding Notes the “2017 Securitization Notes”) at the end of each calendar quarter. The maximum principal amount of the 2017 Securitization Notes that may be outstanding at any time under the Amended Facility is $275 million.

On each of January 2, 2018, April 2, 2018, July 2, 2018, October 1, 2018, December 31, 2018 and April 1, 2019, the Receivables financed under the 2017 Variable Funding Notes were or will be allocated to a 2017 Term Note, which 2017 Term Note will be issued to the holders of the 2017 Variable Funding Notes and the 2017 Variable Funding Note on such date will be reduced to zero. The 2017 Securitization Notes are non-recourse to the Company and mature at various dates, the latest of which will be April 15, 2022 (the “2017 Final Maturity Date”).

The 2017 Securitization Notes are issued pursuant to an amended and restated indenture, dated as of the Amendment Closing Date, between the Issuer and the Indenture Trustee. The 2017 Securitization Notes bear interest at a rate per annum equal to One-Month LIBOR (subject to a floor) plus 7.50%. In addition, the Issuer paid certain customary upfront closing fees to the Administrative Agent and will pay customary annual commitment and other fees to the purchasers under the Amended Facility. Subject to certain exceptions, the Issuer is not permitted to prepay or redeem any of the 2017 Securitization Notes prior to April 15, 2019 except for a one-time prepayment of the 2017 Securitization Notes related to a removal of Receivables in an amount no greater than $100 million. Following such date, the Issuer is permitted to voluntarily prepay any of the 2017 Securitization Notes, subject to an optional redemption premium. Interest and principal payments on the 2017 Securitization Notes will be made monthly. Any remaining amounts outstanding will be payable no later than the 2017 Final Maturity Date.

All amounts due under the 2017 Securitization Notes are secured by all of the Issuer’s assets, which include the Receivables transferred to the Issuer, related rights under the Receivables, specified bank accounts and certain other related collateral.

The Amended Facility documents contain customary provisions for securitizations, including: representations and warranties as to the eligibility of the Receivables and other matters; indemnification for specified losses not including losses due to the inability of consumers to repay their loans; covenants regarding special purpose entity matters and other subjects; and default and termination provisions which provide for the acceleration of the 2017 Securitization Notes under the Amended Facility in circumstances including, but not limited to, failure to make payments when due, servicer defaults, certain insolvency events, breaches of representations, warranties or covenants, failure to maintain the security interest in the receivables, and defaults under other material indebtedness. From time to time, the Company repurchases Receivables at its discretion or under the terms of the Amended Facility.

On October 25, 2017, the Issuer and the Indenture Trustee amended the Amended Facility to permit a holder of a 2017 Term Note or the 2017 Initial Term Note to exchange such notes for notes with an alternative structure with terms not materially different to the Issuer than the exchanged Term Notes or Initial Term Notes.

As of June 30, 2018 and 2017 and December 31, 2017, the carrying amount of the Amended Facility or 2016-1 Securitization Facility was $161.8 million, $138.8 million and $193.0 million, respectively, which included unamortized issuance costs of $2.1 million, $1.1 million and $3.3 million, respectively. The issuance costs related to the Amended Facility are being amortized to interest expense over a period of three years. The total interest expense recognized related to the 2016-1 Securitization facility and the Amended Facility

was $10.0 million, of which $1.1 million represented the non-cash amortization of the issuance costs, and $7.5 million, of which $0.8 million represented the non-cash amortization of the issuance costs for the six months ended June 30, 2018 and 2017, respectively.

On December 1, 2016, the Company and certain of its subsidiaries entered into a receivables securitization (the “2016‑2 Facility”) with Redpoint Capital Asset Funding, LLC, as lender (the “Lender”). The 2016‑2 Facility securitizes unsecured consumer installment loans (“Redpoint Receivables”) that have been and will be originated or acquired under the Company’s NetCredit brand by several of the Company’s subsidiaries and that meet specified eligibility criteria, including that the annual percentage rate for each securitized consumer loan is greater than or equal to 90%. Under the 2016‑2 Facility, Redpoint Receivables are sold to a wholly-owned special purpose subsidiary of the Company (the “Debtor”) and serviced by another subsidiary of the Company.

The Debtor has issued a revolving note with an initial maximum principal balance of $20.0 million (the “Initial Facility Size”), which is required to be secured by $25.0 million in unsecured consumer loans. The Initial Facility Size may be increased under the 2016‑2 Facility to $40 million. The 2016‑2 Facility is non-recourse to the Company and matures on December 1, 2019.

The 2016‑2 Facility is governed by a loan and security agreement, dated as of December 1, 2016, between the Lender and the Debtor. The 2016‑2 Facility bears interest at a rate per annum equal to LIBOR (subject to a floor) plus an applicable margin, which rate per annum was initially 12.50%. In addition, the Debtor paid certain customary upfront closing fees to the Lender. Interest payments on the 2016‑2 Facility will be made monthly. Subject to certain exceptions, the Debtor is not permitted to prepay the 2016‑2 Facility prior to October 1, 2018. Following such date, the Debtor is permitted to voluntarily prepay the 2016‑2 Facility without penalty. Any remaining amounts outstanding will be payable no later than December 1, 2019.

All amounts due under the 2016‑2 Facility are secured by all of the Debtor’s assets, which include the Redpoint Receivables transferred to the Debtor, related rights under the Redpoint Receivables, a bank account and certain other related collateral.

The 2016‑2 Facility documents contain customary provisions for securitizations, including: representations and warranties as to the eligibility of the Redpoint Receivables and other matters; indemnification for specified losses not including losses due to the inability of consumers to repay the related Receivables; and default and termination provisions which provide for the acceleration of the 2016‑2 Facility in circumstances including, but not limited to, failure to make payments when due, certain insolvency events, breaches of representations, warranties or covenants, failure to maintain the security interest in the receivables and defaults under other material indebtedness of the Debtor.

As of June 30, 2018 and 2017 and December 31, 2017, the carrying amount of the 2016‑2 Facility was $15.1 million, $12.1 million and $15.1 million, respectively. In connection with the issuance of the 2016‑2 Facility, the Company incurred debt issuance costs of approximately $0.2 million. The unamortized balance of these costs as of June 30, 2018 is included in “Other assets” in the consolidated balance sheets. These costs are being amortized to interest expense over a period of 36 months, the term of the 2016‑2 Facility. The total interest expense recognized was $1.1 million and $0.9 million for the six months ended June 30, 2018 and 2017, respectively.

On June 30, 2017, the Company and certain of its operating subsidiaries entered into a secured revolving credit agreement with a syndicate of banks including TBK Bank, SSB (“TBK”), as Administrative Agent and Collateral Agent, Jefferies Finance LLC and TBK as Joint Lead Arrangers and Joint Lead Bookrunners, and Green Bank, N.A., as Lender (the “2017 Credit Agreement”). On April 13, 2018, the 2017 Credit Agreement was amended to include Pacific Western Bank, as Lender in the syndicate of lenders from the 2017 Credit Agreement.

The 2017 Credit Agreement is secured by domestic receivables. The borrowing limit in the 2017 Credit Agreement, as amended, is $75 million (an increase from $40 million) and its maturity date is May 1, 2020. The Company had outstanding borrowings of $53.0 million as of June 30, 2018 and no outstanding borrowings under the 2017 Credit Agreement, as amended, as of June 30, 2017 and December 31, 2017.

The 2017 Credit Agreement provides for a revolving credit line with interest on borrowings under the facility at prime rate plus 1.00%. As of June 30, 2018 the interest rate on the outstanding balance was 6.00%. In addition, the 2017 Credit Agreement provides for payment of a commitment fee calculated with respect to the unused portion of the line, and ranges from 0.30% per annum to 0.50% per annum depending on usage. A portion of the revolving credit facility, up to a maximum of $20 million, is available for the issuance of letters of credit. The Company had outstanding letters of credit under the 2017 Credit Agreement of $7.6 million and $6.0

million as of June 30, 2018 and 2017 and $8.0 million as of December 31, 2017. The 2017 Credit Agreement provides for certain prepayment penalties if it is terminated on or before its first and second anniversary date, subject to certain exceptions.

The 2017 Credit Agreement contains certain limitations on the incurrence of additional indebtedness, investments, the attachment of liens to the Company’s property, the amount of dividends and other distributions, fundamental changes to the Company or its business and certain other activities of the Company. The 2017 Credit Agreement contains standard financial covenants for a facility of this type based on a leverage ratio and a fixed charge coverage ratio. The 2017 Credit Agreement also provides for customary affirmative covenants, including financial reporting requirements, and certain events of default, including payment defaults, covenant defaults and other customary defaults.

In connection with the issuance and amendment of the 2017 Credit Agreement the Company incurred debt issuance costs of approximately $2.5 million, which primarily consisted of underwriting fees and legal expenses. The unamortized balance of these costs as of June 30, 2018 is included in “Other assets” in the consolidated balance sheets. These costs are being amortized to interest expense over a period of 34 months, the term of the 2017 Credit Agreement.

On May 30, 2014, the Company issued and sold $500.0 million in aggregate principal amount of 9.75% Senior Notes due 2021 (the “2021 Senior Notes”). The 2021 Senior Notes bear interest at a rate of 9.75% annually on the principal amount payable semi-annually in arrears on June 1 and December 1 of each year, beginning on December 1, 2014. The 2021 Senior Notes were sold at a discount of the principal amount to yield 10.0% to maturity and will mature on June 1, 2021.

During the six months ended June 30, 2018, the Company repurchased $50.0 million principal amount of the 2021 Senior Notes for aggregate cash consideration of $53.7 million plus accrued interest. In connection with these purchases, the Company recorded a loss on extinguishment of debt of approximately $4.7 million ($3.7 million net of tax), which is included in “Loss on early extinguishment of debt” in the consolidated statements of income.

As of June 30, 2018 and 2017 and December 31, 2017, the carrying amount of the 2021 Senior Notes was $289.6 million, $487.8 million and $337.6 million, respectively, which included an unamortized discount of $1.8 million, $4.0 million and $2.4 million, respectively, and unamortized issuance costs of $3.6 million, $8.2 million and $4.9 million, respectively. The discount and issuance costs are being amortized to interest expense over a period of seven years, through the maturity date of June 1, 2021. The total interest expense recognized for the six months ended June 30, 2018 and 2017 was $15.6 million and $25.8 million, respectively, of which $0.3 million and $0.4 million, respectively represented the non-cash amortization of the discount and $0.6 million and $1.0 million, respectively, represented the non-cash amortization of the issuance costs.

Weighted-average interest rates on long-term debt were 10.06% and 10.72% during the six months ended June 30, 2018 and 2017, respectively.

As of June 30, 2018 and 2017 and December 31, 2017, the Company was in compliance with all covenants and other requirements set forth in the prevailing long-term debt agreement(s).

The Company’s effective tax rate for the six months ended June 30, 2018, decreased to 21.5% from 34.6% for the six months ended June 30, 2017. The decrease was primarily attributable to the reduction of the U.S. federal statutory income tax rate to 21% from 35% resulting from the Tax Cuts and Jobs Act, which was enacted into law on December 22, 2017.

The following table sets forth the components of accumulated other comprehensive income (loss), net of tax for the six months ended June 30, 2018 and 2017 (in thousands):

	Foreign
	currency
	translation
	gain (loss)			Total
Balance at December 31, 2016	$	(11,578	)	$	(11,578	)
Other comprehensive income, before reclassifications and tax		3,927			3,927
Tax impact		(1,418	)		(1,418	)
Balance at June 30, 2017	$	(9,069	)	$	(9,069	)

Balance at December 31, 2017	$	(7,086	)	$	(7,086	)
Other comprehensive loss, before reclassifications and tax		(4,850	)		(4,850	)
Tax impact		1,091			1,091
Australia and Canada liquidation ⁽¹⁾		2,343			2,343
Tax impact		(781	)		(781	)
Reclassification of certain deferred tax effects ⁽²⁾		(1,622	)		(1,622	)
Balance at June 30, 2018	$	(10,905	)	$	(10,905	)

Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated by giving effect to the potential dilution that could occur if securities or other contracts to issue common shares were exercised and converted into common shares during the period. Restricted stock units issued under the Company’s stock-based employee compensation plans are included in diluted shares upon the granting of the awards even though the vesting of shares will occur over time.

The following table sets forth the reconciliation of numerators and denominators of basic and diluted earnings per share computations for the three and six months ended June 30, 2018 and 2017 (in thousands, except per share amounts):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
Numerator:
Net income	$	18,225	$	11,873	$	46,123	$	25,725
Denominator:
Total weighted average basic shares		33,984		33,553		33,821		33,463
Shares applicable to stock-based compensation		1,387		572		1,145		618
Total weighted average diluted shares		35,371		34,125		34,966		34,081
Earnings per share:
Net income per share – basic	$	0.54	$	0.35	$	1.36	$	0.77
Net income per share – diluted	$	0.52	$	0.35	$	1.32	$	0.75

For the three months ended June 30, 2018, no shares of common stock underlying stock options and 2,479 shares of common stock underlying restricted stock units were excluded from the calculation of diluted net income per share because their effect would have

been antidilutive. For the three months ended June 30, 2017, 1,640,484 shares of common stock underlying stock options and 193,156 shares of common stock underlying restricted stock units were excluded from the calculation of diluted net income per share because their effect would have been antidilutive. For the six months ended June 30, 2018 and 2017, 595,872 and 1,503,370 shares of common stock underlying stock options, respectively, and 149,268 and 331,326 shares of common stock underlying restricted stock units, respectively, were excluded from the calculation of diluted net income per share because their effect would have been antidilutive.

The Company provides online financial services to alternative credit consumers and small businesses in the United States, United Kingdom and Brazil and has one reportable segment, which is composed of the Company’s domestic and international operations and corporate services. Corporate services primarily includes personnel, occupancy and other operating expenses for shared functions, such as executive management, technology, analytics, business development, legal and licensing, compliance, risk management, internal audit, human resources, payroll, treasury, finance, accounting, and tax. Corporate Services assets primarily include: corporate property and equipment, nonqualified savings plan assets, marketable securities, restricted cash and prepaid expenses. The Company has aggregated all components of its business into a single reportable segment based on the similarities of the economic characteristics, the nature of the products and services, the nature of the production and distribution methods, the type of customer and the nature of the regulatory environment.

The following tables present information on the Company’s domestic, international operations and corporate services as of and for the three and six months ended June 30, 2018 and 2017 (dollars in thousands):

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2018			2017			2018			2017
Revenue
Domestic	$	213,638		$	158,073		$	426,604		$	322,742
International		39,663			31,831			80,995			59,425
Total revenue	$	253,301		$	189,904		$	507,599		$	382,167

Income from operations
Domestic	$	72,183		$	58,565		$	159,942		$	120,635
International		1,070			3,728			2,788			5,922
Corporate services		(30,159	)		(27,090	)		(57,924	)		(53,282	)
Total income from operations	$	43,094		$	35,203		$	104,806		$	73,275

Depreciation and amortization
Domestic	$	1,897		$	1,532		$	3,755		$	3,058
International		371			361			743			740
Corporate services		1,569			1,473			3,177			3,065
Total depreciation and amortization	$	3,837		$	3,366		$	7,675		$	6,863

Expenditures for property and equipment
Domestic	$	2,214		$	1,429		$	4,204		$	2,040
International		886			1,035			1,954			2,120
Corporate services		616			681			907			1,141
Total expenditures for property and equipment	$	3,716		$	3,145		$	7,065		$	5,301

The following table presents the Company’s revenue by geographic region for the three and six months ended June 30, 2018 and 2017 (dollars in thousands):

The Company’s long-lived assets, which consist of the Company’s property and equipment, were $47.8 million and $44.3 million at June 30, 2018 and 2017, respectively. The operations for the Company’s domestic and international businesses are primarily located within the United States, and the value of any long-lived assets located outside of the United States is immaterial.

On March 8, 2013, Flemming Kristensen, on behalf of himself and others similarly situated, filed a purported class action lawsuit in the U.S. District Court of Nevada against the Company and other unaffiliated lenders and lead providers. The lawsuit alleges that the lead provider defendants sent unauthorized text messages to consumers on behalf of the Company and the other lender defendants in violation of the Telephone Consumer Protection Act. The complaint seeks class certification, statutory damages, an injunction against “wireless spam activities,” and attorneys’ fees and costs. The Company filed an answer to the complaint denying all liability. On March 26, 2014, the Court granted class certification. On July 20, 2015, the court granted the Company’s motion for summary judgment, denied Plaintiff’s motion for summary judgment and, on July 21, 2015, entered judgment in favor of the Company. Plaintiff filed a motion for reconsideration, which was denied. On May 3, 2016, Plaintiff filed a notice of appeal of the order granting summary judgment for the Company, the judgment in favor of the company, and the order denying Plaintiff’s motion to reconsider. On January 10, 2018, the Ninth Circuit filed an opinion affirming the district court's entry of summary judgment for us and the other defendants. The plaintiff had 90 days from the date of the opinion to petition the United States Supreme Court to review the matter and did not do so; the judgment in favor of the Company is now final.

On April 23, 2018, the Commonwealth of Virginia, through Attorney General Mark R. Herring, filed a lawsuit in the Circuit Court for the County of Fairfax, Virginia against NC Financial Solutions of Utah, LLC (“NC Utah”), a subsidiary of the Company. The lawsuit alleges violations of the Virginia Consumer Protection Act (“VCPA”) relating to NC Utah’s communications with customers, collections of certain payments, its loan agreements, and the rates it charged to Virginia borrowers. The plaintiff is seeking to enjoin NC Utah from continuing its current lending practices in Virginia, restitution, civil penalties, and costs and expenses in connection with the same. Neither the likelihood of an unfavorable decision nor the ultimate liability, if any, with respect to this matter can be determined at this time, and the Company is currently unable to estimate a range of reasonably possible losses, as defined by ASC

450-20-20, Contingencies–Loss Contingencies–Glossary, for this litigation. The Company carefully considered applicable Virginia law before NC Utah began lending in Virginia and, as a result, believes that the Plaintiff’s claims in the complaint are without merit and intends to vigorously defend this lawsuit.

The Company is also involved in certain routine legal proceedings, claims and litigation matters encountered in the ordinary course of its business. Certain of these matters may be covered to an extent by insurance or by indemnification agreements with third parties. The Company has recorded accruals in its consolidated financial statements for those matters in which it is probable that it has incurred a loss and the amount of the loss, or range of loss, can be reasonably estimated. In the opinion of management, the resolution of these matters will not have a material adverse effect on the Company’s financial position, results of operations or liquidity.

During 2014 the Company accelerated the lease expiration date for approximately 86,000 rentable square feet at its prior headquarters office space effective June 30, 2015. The Company relocated to its current headquarters in 2015 and recognized an expense of $3.7 million which was included as “General and administrative expense” and consisted of a lease exit liability of $2.9 million for the remaining lease payments, net of estimated sublease income of $1.7 million, and $0.8 million for the removal of property and restoration costs related to the prior headquarters lease. The Company did not incur further material costs related to the relocation.

The following table is a summary of the exit and disposal activity and liability balances as a result of the headquarters relocation for the twelve months ended December 31, 2017 (in thousands):

The Company periodically uses derivative instruments to manage risk from changes in market conditions that may affect the Company’s financial performance. The Company has primarily used derivative instruments to manage its primary market risks, which are interest rate risk and foreign currency exchange rate risk.

The Company has periodically used forward currency exchange contracts to minimize the effects of foreign currency risk in the United Kingdom and Brazil. The forward currency exchange contracts are non-designated derivatives. Any gain or loss resulting from these contracts is recorded as income or loss and is included in “Foreign currency transaction gain” in the Company’s consolidated statements of income. As of June 30, 2018, the Company did not manage its exposure to risk from foreign currency exchange rate fluctuations through the use of forward currency exchange contracts in the United Kingdom or Brazil.

The Company had no outstanding derivative instruments as of June 30, 2018 and 2017.

The following table presents information related to the Company’s derivative instruments as of December 31, 2017 (in thousands):

The following table presents information on the effect of derivative instruments on the consolidated results of operations and accumulated other comprehensive income (“AOCI”) for the six months ended June 30, 2018 and 2017 (dollars in thousands):

	Gains (Losses)								Gains (Losses)
	Recognized in				Gains (Losses)				Reclassified From
	Income				Recognized in AOCI				AOCI into Income
	Six Months Ended				Six Months Ended				Six Months Ended
	June 30,				June 30,				June 30,
	2018		2017		2018		2017		2018		2017
Non-designated derivatives:
Forward currency exchange contracts⁽¹⁾	$	243	$	—	$	—	$	—	$	—	$	—
Total	$	243	$	—	$	—	$	—	$	—	$	—

An officer of the Company, who resigned effective July 1, 2018, had an ongoing ownership interest in the small business from which the Company acquired certain assets and assumed certain liabilities in June 2015 (see Note 2 for additional information). Pursuant to the acquisition, a subsidiary of the Company issued a promissory note to the small business in the amount of $3.0 million (the “Promissory Note”) and granted the company an opportunity to earn certain contingent purchase consideration (see Note 2 for additional information), both of which were guaranteed by the Company. The Promissory Note accrued interest at a rate of 4.0% per annum and the total outstanding principal and accrued interest of $3.4 million was paid on June 22, 2018. During the six months ended June 30, 2018 and 2017, the Company incurred interest expense of $62 thousand and $63 thousand, respectively, related to the Promissory Note. In addition, as a condition precedent to the acquisition, a subsidiary of the Company executed a Transition Services Agreement with the small business from which the Company acquired certain assets whereby it agreed to provide certain transition services to the business for three years following the acquisition. During the six months ended June 30, 2018 and 2017, the Company was paid $20 thousand and $14 thousand, respectively, for such services.

In October 2017, the Company entered into an agreement for direct mail production and fulfillment services with a marketing services company where David Fisher, the Company’s Chief Executive Officer and Chairman of the Board, also serves as a member of the marketing services company’s Board of Directors. During the six months ended June 30, 2018, the Company paid $4.0 million to the agency. As of June 30, 2018, the Company owed the agency $1.1 million related to services provided.

As part of the Company’s overall funding strategy and as part of its efforts to support its liquidity from sources other than its traditional capital market sources, the Company has established a securitization program through the 2016-1 and 2016-2 Securitization Facilities. The Company transferred certain consumer loan receivables to wholly owned, bankruptcy-remote special purpose subsidiaries (VIEs), which issue term notes backed by the underlying consumer loan receivables and are serviced by another wholly owned subsidiary.

The Company is required to evaluate the VIEs for consolidation. The Company has the ability to direct the activities of the VIEs that most significantly impact the economic performance of the entities as the servicer of the securitized loan receivables. Additionally, the Company has the right to receive residual payments, which expose it to potentially significant losses and returns. Accordingly, the Company determined it is the primary beneficiary of the VIEs and is required to consolidate them.

The assets and liabilities related to the VIEs are included in the Company’s consolidated financial statements and are accounted for as secured borrowings.

The Company parenthetically discloses on its consolidated balance sheets the VIE’s assets that can only be used to settle the VIE’s obligations and the VIE liabilities if the VIE’s creditors have no recourse against the Company’s general credit. The carrying amounts of consolidated VIE assets and liabilities associated with the Company’s securitization entities were as follows (dollars in thousands):

	June 30,				December 31,
	2018		2017		2017
Assets
Restricted cash	$	21,744	$	19,119	$	21,696
Loans and finance receivables, net		236,953		223,372		259,996
Other receivables and prepaid expenses		8		3		—
Other assets		132		2,190		178
Total assets	$	258,837	$	244,684	$	281,870
Liabilities
Accounts payable and accrued expenses	$	1,489	$	1,433	$	1,671
Long-term debt		176,928		150,933		208,135
Total liabilities	$	178,417	$	152,366	$	209,806

In accordance with ASC 820, Fair Value Measurements and Disclosures, certain of the Company’s assets and liabilities, which are carried at fair value, are classified in one of the following three categories:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.

During the six months ended June 30, 2018 and 2017, there were no transfers of assets or liabilities in or out of Level 1, Level 2 or Level 3 fair value measurements. It is the Company’s policy to value any transfers between levels of the fair value hierarchy based on end of period fair values.

The Company’s financial assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2018 and 2017 and December 31, 2017 are as follows (dollars in thousands):

	June 30,			Fair Value Measurements Using
	2018			Level 1		Level 2			Level 3
Financial assets (liabilities):
Non-qualified savings plan assets⁽¹⁾	$	2,093		$	2,093	$	—		$	—
Total	$	2,093		$	2,093	$	—		$	—

	June 30,			Fair Value Measurements Using
	2017			Level 1		Level 2			Level 3
Financial assets (liabilities):
Non-qualified savings plan assets⁽¹⁾	$	1,387		$	1,387	$	—		$	—
Contingent consideration		(2,358	)		—		—			(2,358	)
Total	$	(971	)	$	1,387	$	—		$	(2,358	)

	December 31,			Fair Value Measurements Using
	2017			Level 1		Level 2			Level 3
Financial assets (liabilities):
Forward currency exchange contracts	$	(55	)	$	—	$	(55	)	$	—
Non-qualified savings plan assets⁽¹⁾		1,460			1,460		—			—
Total	$	1,405		$	1,460	$	(55	)	$	—

The Company determined the fair value of the liability for the contingent consideration based on a probability-weighted discounted cash flow analysis. This analysis reflects the contractual terms of the purchase agreement and utilizes assumptions with regard to future earnings, probabilities of achieving such future earnings, the timing of expected payments and a discount rate. Significant increases with respect to assumptions as to future earnings and probabilities of achieving such future earnings would result in a higher fair value measurement while an increase in the discount rate would result in a lower fair value measurement. The fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement as defined in the fair value hierarchy. Based on future expected earnings, the Company did not expect to pay any additional contingent consideration and recorded an adjustment to write-off the remaining liability in 2017. As of June 30, 2018 the Company had not made and was no longer potentially liable for any contingent payments related to this acquisition.

The changes in the fair value of the contingent consideration, which is a Level 3 liability measured at fair value on a recurring basis, are summarized in the table below for the six months ended June 30, 2017 (dollars in thousands):

The Company measures non-financial assets and liabilities such as property and equipment and intangible assets at fair value on a non-recurring basis or when events or circumstances indicate that the carrying amount of the assets may be impaired. At June 30, 2018 and 2017 and December 31, 2017, there were no assets or liabilities recorded at fair value on a non-recurring basis.

The Company’s financial assets and liabilities as of June 30, 2018 and 2017 and December 31, 2017 that are not measured at fair value in the consolidated balance sheets are as follows (dollars in thousands):

	Balance at
	June 30,		Fair Value Measurements Using
	2018		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	47,414	$	47,414	$	—	$	—
Short-term loans and line of credit accounts, net ⁽¹⁾		198,478		—		—		198,478
Installment loans and RPAs, net ⁽¹⁾⁽⁴⁾		551,653		—		—		578,489
Restricted cash ⁽⁵⁾		28,863		28,863		—		—
Investment in unconsolidated investee⁽²⁾⁽³⁾		6,703		—		—		6,703
Total	$	833,111	$	76,277	$	—	$	783,670
Financial liabilities:
Liability for estimated losses on consumer loans guaranteed by the Company	$	2,092	$	—	$	—	$	2,092
Revolving line of credit		52,999		—		—		52,999
Securitization Notes		179,059		—		181,853		—
9.75% senior notes due 2021		293,178		—		310,488		—
8.50% senior notes due 2024		250,000		—		259,178		—
Total	$	777,328	$	—	$	751,519	$	55,091

	Balance at
	June 30,		Fair Value Measurements Using
	2017		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	46,209	$	46,209	$	—	$	—
Short-term loans and line of credit accounts, net ⁽¹⁾		157,184		—		—		157,184
Installment loans and RPAs, net ⁽¹⁾⁽⁴⁾		406,812		—		—		441,701
Restricted cash ⁽⁵⁾		26,636		26,636		—		—
Investment in unconsolidated investee⁽²⁾⁽³⁾		6,703		—		—		6,703
Total	$	643,544	$	72,845	$	—	$	605,588
Financial liabilities:
Liability for estimated losses on consumer loans guaranteed by the Company	$	1,941	$	—	$	—	$	1,941
Promissory note		3,000		—		—		3,202
Securitization Notes		151,987		—		153,812		—
9.75% senior notes due 2021		496,029		—		518,855		—
Total	$	652,957	$	—	$	672,667	$	5,143

	Balance at
	December 31,		Fair Value Measurements Using
	2017		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	68,684	$	68,684	$	—	$	—
Short-term loans and line of credit accounts, net ⁽¹⁾		192,675		—		—		192,675
Installment loans and RPAs, net ⁽¹⁾⁽⁴⁾		512,030		—		—		544,799
Restricted cash ⁽⁵⁾		29,460		29,460		—		—
Investment in unconsolidated investee⁽²⁾⁽³⁾		6,703		—		—		6,703
Total	$	809,552	$	98,144	$	—	$	744,177
Financial liabilities:
Liability for estimated losses on consumer loans guaranteed by the Company	$	2,258	$	—	$	—	$	2,258
Promissory note		3,000		—		—		3,287
Securitization Notes		211,406		—		215,063		—
9.75% senior notes due 2021		342,558		—		365,700		—
8.50% senior notes due 2024		250,000		—		255,000		—
Total	$	809,222	$	—	$	835,763	$	5,545

Cash and cash equivalents and restricted cash bear interest at market rates and have original maturities of less than 90 days. The carrying amount of cash and cash equivalents and restricted cash approximates fair value.

Short-term loans, line of credit accounts, installment loans and RPAs are carried in the consolidated balance sheet net of the allowance for estimated losses, which is calculated by applying historical loss rates combined with recent default trends to the gross receivable balance. Short-term loans and line of credit accounts have relatively short maturity periods that are generally 12 months or less. The unobservable inputs used to calculate the fair value of these receivables include historical loss rates, recent default trends and estimated remaining loan term; therefore, the carrying value approximates the fair value. The fair value of installment loans and RPAs is estimated using discounted cash flow analyses, which consider interest rates on loans and discounts offered for receivables with similar terms to customers with similar credit quality, the timing of expected payments, estimated customer default rates and/or valuations of comparable portfolios. As of June 30, 2018 and 2017 and December 31, 2017, the fair value of the Company’s installment loans and RPAs was greater than the carrying value of these loans and finance receivables. Unsecured installment loans typically have terms between two and 60 months. RPAs typically have estimated delivery terms between six and 18 months.

The Company measures the fair value of its investment in unconsolidated investee using Level 3 inputs. Because the unconsolidated investee is a private company and financial information is limited, the Company estimates the fair value based on the best available information at the measurement date. As of June 30, 2018 and 2017 and December 31, 2017 the Company estimated the fair value of its investment to be approximately equal to the book value.

In connection with its CSO programs, the Company guarantees consumer loan payment obligations to unrelated third-party lenders for short-term and installment loans the Company arranges for consumers on the third-party lenders’ behalf and is required to purchase any defaulted loans it has guaranteed. The estimated fair value of the liability for estimated losses on consumer loans guaranteed by the Company was $2.1 million, $1.9 million and $2.3 million as of June 30, 2018 and 2017 and December 31, 2017, respectively. The Company measures the fair value of its liability for third-party lender-owned consumer loans under Level 3 inputs. The fair value of these liabilities is calculated by applying historical loss rates combined with recent default trends to the gross consumer loan balance. The unobservable inputs used to calculate the fair value of these loans include historical loss rates, recent default trends and estimated remaining loan terms; therefore, the carrying value of these liabilities approximates the fair value.

The Company measured the fair value of the Promissory Note using Level 3 inputs. The fair value of the Promissory Note was estimated using a discounted cash flow analysis. There was no outstanding balance for the Promissory Note as of June 30, 2018. As of June 30, 2017 and December 31, 2017, the Promissory Note had a higher fair value than the carrying value.

The Company measures the fair value of its Revolving line of credit borrowings using Level 3 inputs. The Company considered the fair value of its other long-term debt and the timing of expected payment(s). As of June 30, 2018, the fair value of the Company’s Revolving line of credit borrowings approximated the carrying value.

The Company measures the fair value of its Securitization Notes using Level 2 inputs. The fair value of the Company’s Securitization Notes is estimated based on quoted prices in markets that are not active. As of June 30, 2018 and 2017 and December 31, 2017, the Company’s Securitization Notes had a higher fair value than the carrying value.

The Company measures the fair value of its 9.75% senior notes due 2021 using Level 2 inputs. The fair value of the Company’s 9.75% senior notes due 2021 is estimated based on quoted prices in markets that are not active. As of June 30, 2018 and 2017 and December 31, 2017, the Company’s 9.75% senior notes due 2021 had a higher fair value than the carrying value.

The Company measures the fair value of its 8.50% senior notes due 2024 using Level 2 inputs. The fair value of the Company’s 8.50% senior notes due 2024 is estimated based on quoted prices in markets that are not active. As of June 30, 2018 and December 31, 2017, the Company’s 8.50% senior notes due 2024 had a higher fair value than the carrying value.

The Company’s 2021 Senior Notes are unconditionally guaranteed by certain of the Company’s subsidiaries (the “Guarantor Subsidiaries”) and are not secured by its other subsidiaries (the “Non-Guarantor Subsidiaries”). The Guarantor Subsidiaries are 100% owned, all guarantees are full and unconditional, and all guarantees are joint and several. As a result of the guarantee arrangements, the Company is required, in accordance with Rule 3-10 of Regulation S-X, to present the following condensed consolidating financial statements.

The condensed consolidating financial statements reflect the investments in subsidiaries of the Company using the equity method of accounting. The principal elimination entries eliminate investments in subsidiaries and intercompany balances and transactions. Condensed consolidating financial statements of Enova International, Inc. (the “Parent”), its Guarantor Subsidiaries and Non-Guarantor Subsidiaries as of June 30, 2018 and 2017 and December 31, 2017 and for the periods ended June 30, 2018 and 2017 are shown on the following pages.

				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Assets
Cash and cash equivalents	$	840		$	45,950		$	624		$	—		$	47,414
Restricted cash		—			7,119			21,744			—			28,863
Loans and finance receivables, net		—			513,178			236,953			—			750,131
Income taxes receivable		128,843			(125,867	)		30			—			3,006
Other receivables and prepaid expenses		111			24,387			875			—			25,373
Property and equipment, net		—			47,286			466			—			47,752
Goodwill		—			267,013			—			—			267,013
Intangible assets, net		—			3,790			—			—			3,790
Investment in subsidiaries		454,886			60,505			—			(515,391	)		—
Intercompany receivable		342,821			—			—			(342,821	)		—
Other assets		1,810			7,921			131			—			9,862
Total assets	$	929,311		$	851,282		$	260,823		$	(858,212	)	$	1,183,204
Liabilities and Stockholders' Equity
Accounts payable and accrued expenses	$	9,867		$	60,086		$	2,453		$	—		$	72,406
Intercompany payables		—			313,707			29,114			(342,821	)		—
Income taxes currently payable		—			—			—			—			—
Deferred tax liabilities, net		(104	)		14,833			(407	)		—			14,322
Long-term debt		585,903			—			176,928			—			762,831
Total liabilities		595,666			388,626			208,088			(342,821	)		849,559
Commitments and contingencies
Stockholders' equity		333,645			462,656			52,735			(515,391	)		333,645
Total liabilities and stockholders' equity	$	929,311		$	851,282		$	260,823		$	(858,212	)	$	1,183,204

				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Assets
Cash and cash equivalents	$	—		$	41,612		$	4,597		$	—		$	46,209
Restricted cash		—			7,517			19,119			—			26,636
Loans and finance receivables, net		—			331,618			232,378			—			563,996
Income taxes receivable		97,048			(83,659	)		21			—			13,410
Other receivables and prepaid expenses		112			20,450			1,444			—			22,006
Property and equipment, net		—			43,681			648			—			44,329
Goodwill		—			267,012			—			—			267,012
Intangible assets, net		—			4,864			1			—			4,865
Investment in subsidiaries		342,490			39,760			—			(382,250	)		—
Intercompany receivable		322,672			—			—			(322,672	)		—
Other assets		3,847			7,369			2,190			—			13,406
Total assets	$	766,169		$	680,224		$	260,398		$	(704,922	)	$	1,001,869
Liabilities and Stockholders' Equity
Accounts payable and accrued expenses	$	4,162		$	56,246		$	2,391		$	—		$	62,799
Intercompany payables		—			247,094			75,578			(322,672	)		—
Deferred tax liabilities, net		(377	)		26,608			(478	)		—			25,753
Long-term debt		487,816			—			150,933			—			638,749
Total liabilities		491,601			329,948			228,424			(322,672	)		727,301
Commitments and contingencies
Stockholders' equity		274,568			350,276			31,974			(382,250	)		274,568
Total liabilities and stockholders' equity	$	766,169		$	680,224		$	260,398		$	(704,922	)	$	1,001,869

				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Assets
Cash and cash equivalents	$	12,183		$	54,659		$	1,842		$	—		$	68,684
Restricted cash		—			7,764			21,696			—			29,460
Loans and finance receivables, net		—			442,516			262,189			—			704,705
Income taxes receivable		114,494			(110,852	)		450			—			4,092
Other receivables and prepaid expenses		833			20,731			2,253			—			23,817
Property and equipment, net		—			47,965			560			—			48,525
Goodwill		—			267,015			—			—			267,015
Intangible assets, net		—			4,325			—			—			4,325
Investment in subsidiaries		388,538			63,956			—			(452,494	)		—
Intercompany receivable		354,457			—			—			(354,457	)		—
Other assets		1,785			6,874			178			—			8,837
Total assets	$	872,290		$	804,953		$	289,168		$	(806,951	)	$	1,159,460
Liabilities and Stockholders' Equity
Accounts payable and accrued expenses	$	10,336		$	64,541		$	2,246		$	—		$	77,123
Intercompany payables		—			331,425			23,032			(354,457	)		—
Deferred tax liabilities, net		(140	)		12,726			(478	)		—			12,108
Long-term debt		580,407			—			208,135			—			788,542
Total liabilities		590,603			408,692			232,935			(354,457	)		877,773
Commitments and contingencies
Stockholders' equity		281,687			396,261			56,233			(452,494	)		281,687
Total liabilities and stockholders' equity	$	872,290		$	804,953		$	289,168		$	(806,951	)	$	1,159,460

				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Revenue	$	—		$	214,799		$	36,790		$	1,712		$	253,301
Cost of Revenue		—			100,528			20,966			—			121,494
Gross Profit		—			114,271			15,824			1,712			131,807
Expenses
Marketing		—			28,553			833			—			29,386
Operations and technology		—			26,730			(1,247	)		1,712			27,195
General and administrative		56			27,581			658			—			28,295
Depreciation and amortization		—			3,796			41			—			3,837
Total Expenses		56			86,660			285			1,712			88,713
(Loss) Income from Operations		(56	)		27,611			15,539			—			43,094
Interest expense, net		(14,061	)		3			(5,297	)		—			(19,355	)
Foreign currency transaction loss		(200	)		(4	)		—			—			(204	)
(Loss) Income before Income Taxes and Equity in Net Earnings of Subsidiaries		(14,317	)		27,610			10,242			—			23,535
(Benefit from) provision for income taxes		(3,210	)		6,277			2,243			—			5,310
(Loss) Income before Equity in Net Earnings of Subsidiaries		(11,107	)		21,333			7,999			—			18,225
Net earnings of subsidiaries		29,332			7,999			—			(37,331	)		—
Net Income (Loss)	$	18,225		$	29,332		$	7,999		$	(37,331	)	$	18,225
Other comprehensive (loss) gain, net of tax:
Foreign currency translation (loss) gain		(6,583	)		(6,270	)		(314	)		6,584			(6,583	)
Total other comprehensive (loss) gain, net of tax		(6,583	)		(6,270	)		(314	)		6,584			(6,583	)
Comprehensive Income (Loss)	$	11,642		$	23,062		$	7,685		$	(30,747	)	$	11,642

				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Revenue	$	—		$	157,406		$	33,744		$	(1,246	)	$	189,904
Cost of Revenue		—			58,517			21,345			—			79,862
Gross Profit		—			98,889			12,399			(1,246	)		110,042
Expenses
Marketing		—			22,890			520			—			23,410
Operations and technology		—			20,237			1,581			—			21,818
General and administrative		86			25,455			1,950			(1,246	)		26,245
Depreciation and amortization		—			3,320			46			—			3,366
Total Expenses		86			71,902			4,097			(1,246	)		74,839
(Loss) Income from Operations		(86	)		26,987			8,302			—			35,203
Interest expense, net		(13,365	)		(29	)		(3,618	)		—			(17,012	)
Foreign currency transaction gain		57			5			—			—			62
(Loss) Income before Income Taxes and Equity in Net Earnings of Subsidiaries		(13,394	)		26,963			4,684			—			18,253
Provision for income taxes		(4,673	)		9,425			1,628			—			6,380
(Loss) Income before Equity in Net Earnings of Subsidiaries		(8,721	)		17,538			3,056			—			11,873
Net earnings of subsidiaries		20,594			3,056			—			(23,650	)		—
Net Income (Loss)	$	11,873		$	20,594		$	3,056		$	(23,650	)	$	11,873
Other comprehensive gain (loss), net of tax:
Foreign currency translation gain (loss)		1,371			2,383			(1,012	)		(1,371	)		1,371
Total other comprehensive gain (loss), net of tax		1,371			2,383			(1,012	)		(1,371	)		1,371
Comprehensive Income (Loss)	$	13,244		$	22,977		$	2,044		$	(25,021	)	$	13,244

				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Revenue	$	—		$	429,533		$	78,066		$	—		$	507,599
Cost of Revenue		—			183,757			46,290			—			230,047
Gross Profit		—			245,776			31,776			—			277,552
Expenses
Marketing		—			55,530			1,592			—			57,122
Operations and technology		3			51,080			1,650			—			52,733
General and administrative		132			53,061			2,023			—			55,216
Depreciation and amortization		—			7,590			85			—			7,675
Total Expenses		135			167,261			5,350			—			172,746
(Loss) Income from Operations		(135	)		78,515			26,426			—			104,806
Interest expense, net		(28,005	)		(445	)		(10,578	)		—			(39,028	)
Foreign currency transaction gain (loss)		55			(2,347	)		—			—			(2,292	)
Loss on early extinguishment of debt		(4,710	)		—			—			—			(4,710	)
(Loss) Income before Income Taxes and Equity in Net Earnings of Subsidiaries		(32,795	)		75,723			15,848			—			58,776
(Benefit from) provision for income taxes		(7,060	)		16,302			3,411			—			12,653
(Loss) Income before Equity in Net Earnings of Subsidiaries		(25,735	)		59,421			12,437			—			46,123
Net earnings of subsidiaries		71,858			12,437			—			(84,295	)		—
Net Income (Loss)	$	46,123		$	71,858		$	12,437		$	(84,295	)	$	46,123
Other comprehensive (loss) gain, net of tax:
Foreign currency translation (loss) gain		(2,197	)		(3,773	)		(47	)		3,820			(2,197	)
Reclassification of certain deferred tax effects		(1,622	)		—			—			—			(1,622	)
Total other comprehensive (loss) gain, net of tax		(3,819	)		(3,773	)		(47	)		3,820			(3,819	)
Comprehensive Income (Loss)	$	42,304		$	68,085		$	12,390		$	(80,475	)	$	42,304

				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Revenue	$	—		$	318,173		$	66,528		$	(2,534	)	$	382,167
Cost of Revenue		—			117,932			43,814			—			161,746
Gross Profit		—			200,241			22,714			(2,534	)		220,421
Expenses
Marketing		—			42,263			730			—			42,993
Operations and technology		—			42,179			3,170			—			45,349
General and administrative		134			50,314			4,027			(2,534	)		51,941
Depreciation and amortization		—			6,775			88			—			6,863
Total Expenses		134			141,531			8,015			(2,534	)		147,146
(Loss) Income from Operations		(134	)		58,710			14,699			—			73,275
Interest expense, net		(26,542	)		(64	)		(7,628	)		—			(34,234	)
Foreign currency transaction gain		284			5			—			—			289
(Loss) Income before Income Taxes and Equity in Net Earnings of Subsidiaries		(26,392	)		58,651			7,071			—			39,330
(Benefit from) provision for income taxes		(9,129	)		20,288			2,446			—			13,605
(Loss) Income before Equity in Net Earnings of Subsidiaries		(17,263	)		38,363			4,625			—			25,725
Net earnings of subsidiaries		42,988			4,625			—			(47,613	)		—
Net Income (Loss)	$	25,725		$	42,988		$	4,625		$	(47,613	)	$	25,725
Other comprehensive gain (loss), net of tax:
Foreign currency translation gain (loss)		2,509			2,893			(384	)		(2,509	)		2,509
Total other comprehensive gain (loss), net of tax		2,509			2,893			(384	)		(2,509	)		2,509
Comprehensive Income (Loss)	$	28,234		$	45,881		$	4,241		$	(50,122	)	$	28,234

				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Cash Flows from Operating Activities	$	(13,091	)	$	333,840		$	(12,596	)	$	(12,437	)	$	295,716
Cash Flows from Investing Activities
Loans and finance receivables originated or acquired		—			(786,788	)		—			—			(786,788	)
Securitized loans transferred		—			120,727			(120,727	)		—			—
Loans and finance receivables repaid		—			329,932			180,306			—			510,238
Purchases of property and equipment		—			(6,997	)		(68	)		—			(7,065	)
Capital contributions to subsidiaries		—			15,888			—			(15,888	)		—
Other investing activities		—			42			—			—			42
Net cash (used in) provided by investing activities		—			(327,196	)		59,511			(15,888	)		(283,573	)
Cash Flows from Financing Activities
(Payments for) proceeds from member's equity		—			(12,437	)		(15,888	)		28,325			—
Debt issuance costs paid		(360	)		—			—			—			(360	)
Debt prepayment penalty		(3,656	)		—			—			—			(3,656	)
Payment of promissory note		—			(3,000	)		—			—			(3,000	)
Treasury shares purchased		(1,522	)		—			—			—			(1,522	)
Repayments of Senior Notes		(50,000	)		—			—			—			(50,000	)
Borrowings under revolving line of credit		77,000			—			—			—			77,000
Repayments under revolving line of credit		(24,001	)		—			—			—			(24,001	)
Borrowings under securitization facility		—			—			80,300			—			80,300
Repayments under securitization facility		—			—			(112,647	)		—			(112,647	)
Proceeds from exercise of stock options		4,287			—			—			—			4,287
Net cash provided (used in) by financing activities		1,748			(15,437	)		(48,235	)		28,325			(33,599	)
Effect of exchange rates on cash, cash equivalents and restricted cash		—			(561	)		150			—			(411	)
Net decrease in cash, cash equivalents and restricted cash		(11,343	)		(9,354	)		(1,170	)		—			(21,867	)
Cash, cash equivalents and restricted cash at beginning of year		12,183			62,423			23,538			—			98,144
Cash, cash equivalents and restricted cash at end of period	$	840		$	53,069		$	22,368		$	—		$	76,277

				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Cash Flows from Operating Activities	$	672		$	203,382		$	(10,877	)	$	(7,119	)	$	186,058
Cash Flows from Investing Activities
Loans and finance receivables originated or acquired		—			(592,766	)		(14,666	)		—			(607,432	)
Securitized loans transferred		—			98,610			(98,610	)		—			—
Loans and finance receivables repaid		—			311,931			130,770			—			442,701
Purchases of property and equipment		—			(5,148	)		(153	)		—			(5,301	)
Capital contributions to subsidiaries		—			(7,510	)		—			7,510			—
Other investing activities		—			1,482			—			—			1,482
Net cash (used in) provided by investing activities		—			(193,401	)		17,341			7,510			(168,550	)
Cash Flows from Financing Activities
(Payments for) proceeds from member's equity		—			(7,119	)		7,510			(391	)		—
Debt issuance costs paid		—			(1,797	)		—			—			(1,797	)
Treasury shares purchased		(672	)		—			—			—			(672	)
Borrowings under securitization facility		—			—			65,600			—			65,600
Repayments under securitization facility		—			—			(79,031	)		—			(79,031	)
Net cash used in financing activities		(672	)		(8,916	)		(5,921	)		(391	)		(15,900	)
Effect of exchange rates on cash		—			5,169			(172	)		—			4,997
Net increase in cash, cash equivalents and restricted cash		—			6,234			371			—			6,605
Cash, cash equivalents and restricted cash at beginning of year		—			42,895			23,345			—			66,240
Cash, cash equivalents and restricted cash at end of period	$	—		$	49,129		$	23,716		$	—		$	72,845

Subsequent events have been reviewed through the date these financial statements were available to be issued.

On July 23, 2018, the Company and several of its subsidiaries entered into a receivables funding (the “2018‑1 Facility”) with Pacific Western Bank, as lender (the “2018‑1 Lender”). The 2018‑1 Facility collateralizes Receivables that have been and will be originated or acquired under the Company’s NetCredit brand by several of the Company’s subsidiaries and that meet specified eligibility criteria in exchange for a revolving note. Under the 2018‑1 Facility, Receivables are sold to a wholly-owned special purpose subsidiary of the Company (the “2018‑1 Debtor”) and serviced by another subsidiary of the Company.

The 2018‑1 Debtor has issued a revolving note with an initial maximum principal balance of $150.0 million, which is required to be secured by 1.25 times the drawn amount in eligible Receivables. The 2018‑1 Facility is non-recourse to the Company and matures on July 22, 2023.

The 2018‑1 Facility is governed by a loan and security agreement, dated as of July 23, 2018, between the 2018‑1 Lender and the 2018‑1 Debtor. The 2018-1 Facility bears interest at a rate per annum equal to LIBOR (subject to a floor) plus an applicable margin, which rate per annum is initially 4.00%. In addition, the 2018‑1 Debtor paid certain customary upfront closing fees to the 2018‑1 Lender. Interest payments on the 2018‑1 Facility will be made monthly. The 2018‑1 Debtor shall be permitted to prepay the 2018‑1 Facility, subject to certain fees and conditions. In the event of prepayment for the purposes of securitizations, no fees shall apply. Any remaining amounts outstanding will be payable no later than July 22, 2023, the final maturity date.

All amounts due under the 2018‑1 Facility are secured by all of the 2018‑1 Debtor’s assets, which include the Receivables transferred to the 2018‑1 Debtor, related rights under the Receivables, a bank account and certain other related collateral.

consumers to repay their loans; covenants regarding special purpose entity matters; and default and termination provisions which provide for the acceleration of the 2018‑1 Facility in circumstances including, but not limited to, failure to make payments when due, servicer defaults, certain insolvency events, breaches of representations, warranties or covenants, failure to maintain the security interest in the receivables and defaults under other material indebtedness of the 2018‑1 Debtor.

The following discussion of financial condition, results of operations, liquidity and capital resources and certain factors that may affect future results, including economic and industry-wide factors, of Enova International, Inc. and its subsidiaries should be read in conjunction with our consolidated financial statements and accompanying notes included under Part I, Item 1 of this Quarterly Report on Form 10-Q, as well as with Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2017. This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements. The matters discussed in these forward-looking statements are subject to risk, uncertainties, and other factors that could cause actual results to differ materially from those made, projected or implied in the forward-looking statements. Please see “Risk Factors” and “Cautionary Statement Concerning Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions associated with these statements.

We are a leading technology and analytics company focused on providing online financial services to consumers and small businesses. In 2017, we extended approximately $2.1 billion in credit to borrowers. As of June 30, 2018, we offered or arranged loans or draws on lines of credit to consumers in 32 states in the United States and in the United Kingdom and Brazil. We also offered financing to small businesses in all 50 states and Washington D.C. in the United States. We use our proprietary technology, analytics and customer service capabilities to quickly evaluate, underwrite and fund loans or provide financing, allowing us to offer consumers and small businesses credit or financing when and how they want it. Our customers include the large and growing number of consumers who and small businesses which have bank accounts but use alternative financial services because of their limited access to more traditional credit from banks, credit card companies and other lenders. We were an early entrant into online lending, launching our online business in 2004, and through June 30, 2018, we have completed over 45.2 million customer transactions and collected more than 22 terabytes of currently accessible customer behavior data since launch, allowing us to better analyze and underwrite our specific customer base. We have significantly diversified our business over the past several years having expanded the markets we serve and the financing products we offer. These financing products include short-term loans, line of credit accounts, installment loans and receivables purchase agreements (“RPAs”).

We believe our customers highly value our products and services as an important component of their personal or business finances because our products are convenient, quick and often less expensive than other available alternatives. We attribute the success of our business to our advanced and innovative technology systems, the proprietary analytical models we use to predict the performance of loans and finance receivables, our sophisticated customer acquisition programs, our dedication to customer service and our talented employees.

We have developed proprietary underwriting systems based on data we have collected over our 14 years of experience. These systems employ advanced risk analytics to decide whether to approve financing transactions, to structure the amount and terms of the financings we offer pursuant to jurisdiction-specific regulations and to provide customers with their funds quickly and efficiently. Our systems closely monitor collection and portfolio performance data that we use to continually refine the analytical models and statistical measures used in making our credit, purchase, marketing and collection decisions.

Our flexible and scalable technology platform allows us to process and complete customers’ transactions quickly and efficiently. In 2017, we processed approximately 3.9 million transactions, and we continue to grow our loans and finance receivable portfolios and increase the number of customers we serve through desktop, tablet and mobile platforms. Our highly customizable technology platform allows us to efficiently develop and deploy new products to adapt to evolving regulatory requirements and consumer preference, and to enter new markets quickly. In 2012, we launched a new product in the United States designed to serve near-prime customers, and in April 2014 we introduced a similar product in the United Kingdom. In June 2014, we launched our business in Brazil, where we lend to borrowers through a local Brazilian financing structure. In addition, in July 2014, we introduced a new line of credit product in the United States to serve the needs of small businesses. In June 2015, we further expanded our product offering by acquiring certain assets of a company that provides financing to small businesses by offering RPAs (see Note 2 in the Notes to Consolidated Financial Statements included in this report). In May 2017, we expanded products available to small businesses by offering installment loans. These new products are intended to allow us to further diversify our product offerings, customer base and geographic scope. In the six-month period ended June 30, 2018, we derived 84.0% of our total revenue from the United States and 16.0% of our total revenue internationally, with 85.2% of international revenue (representing 13.6% of our total revenue) generated in the United Kingdom.

We have been able to consistently acquire new customers and successfully generate repeat business from returning customers when they need financing. We believe our customers are loyal to us because they are satisfied with our products and services. We acquire new customers from a variety of sources, including visits to our own websites, mobile sites or applications, and through direct

marketing, affiliate marketing, lead providers and relationships with other lenders. We believe that the online convenience of our products and our 24/7 availability to accept applications with quick approval decisions are important to our customers.

Once a potential customer submits an application, we quickly provide a credit or purchase decision. If a loan or financing is approved, we or our lending partners typically fund the loan or financing the next business day or, in some cases, the same day. During the entire process, from application through payment, we provide access to our well-trained customer service team. All of our operations, from customer acquisition through collections, are structured to build customer satisfaction and loyalty, in the event that a customer has a need for our products in the future. We have developed a series of sophisticated proprietary scoring models to support our various products. We believe that these models are an integral component of our operations and they allow us to complete a high volume of customer transactions while actively managing risk and the related quality of our loan and finance receivable portfolios. We believe our successful application of these technology innovations differentiates our capabilities relative to competitive platforms as evidenced by our history of strong growth and stable portfolio quality.

Our online financing products and services provide customers with a deposit of funds into their bank account in exchange for a commitment to repay the amount deposited plus fees, interest and/or revenue. We originate, arrange, guarantee or purchase short-term consumer loans, line of credit accounts, installment loans and RPAs. We have one reportable segment that includes all of our online financial services.

As of June 30, 2018 and 2017, the outstanding amount of active short-term consumer loans originated by third-party lenders under the CSO programs was $24.8 million and $24.1 million, respectively, which were guaranteed by us.

As of June 30, 2018 and 2017, the outstanding amount of active installment loans originated by third-party lenders under the CSO programs was $3.9 million and $3.9 million, respectively, which were guaranteed by us.

Our internet websites and the information contained therein or connected thereto are not intended to be incorporated by reference into this Quarterly Report on Form 10-Q.

On July 24, 2018, the Ohio Legislature passed House Bill 123, a bill that places limits on short-term loans and extensions of credit. The legislation sets specific limits for fees, charges and interest that can be assessed on small loans with a maximum loan amount of $1,000 and an overall cap on fees, charges and interest of 60% of the loan amount. The governor of Ohio signed the legislation into law on July 30, 2018, and it will apply to credit extended 270 days thereafter. Management does not anticipate that the legislation will have a material adverse effect on the Company. We cannot currently assess the likelihood of any future unfavorable federal, state, local or international legislation or regulations being proposed or enacted that could affect our products and services.

There have been no changes in critical accounting policies as described in our Annual Report on Form 10-K for the year ended December 31, 2017.

See Note 1 in the Notes to Consolidated Financial Statements included in this report for a discussion of recent accounting pronouncements.

Our financial results for the three-month period ended June 30, 2018, or the current quarter, are summarized below.

The following tables reflect our results of operations for the periods indicated, both in dollars and as a percentage of total revenue (dollars in thousands, except per share data):

	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
Revenue
Loans and finance receivables revenue	$	253,019		$	189,657		$	506,811		$	381,622
Other		282			247			788			545
Total Revenue		253,301			189,904			507,599			382,167
Cost of Revenue		121,494			79,862			230,047			161,746
Gross Profit		131,807			110,042			277,552			220,421
Expenses
Marketing		29,386			23,410			57,122			42,993
Operations and technology		27,195			21,818			52,733			45,349
General and administrative		28,295			26,245			55,216			51,941
Depreciation and amortization		3,837			3,366			7,675			6,863
Total Expenses		88,713			74,839			172,746			147,146
Income from Operations		43,094			35,203			104,806			73,275
Interest expense, net		(19,355	)		(17,012	)		(39,028	)		(34,234	)
Foreign currency transaction (loss) gain		(204	)		62			(2,292	)		289
Loss on early extinguishment of debt		—			—			(4,710	)		—
Income before Income Taxes		23,535			18,253			58,776			39,330
Provision for income taxes		5,310			6,380			12,653			13,605
Net Income	$	18,225		$	11,873		$	46,123		$	25,725
Diluted net income per share	$	0.52		$	0.35		$	1.32		$	0.75

Revenue
Loans and finance receivables revenue		99.9	%		99.9	%		99.8	%		99.9	%
Other		0.1			0.1			0.2			0.1
Total Revenue		100.0			100.0			100.0			100.0
Cost of Revenue		48.0			42.1			45.3			42.3
Gross Profit		52.0			57.9			54.7			57.7
Expenses
Marketing		11.6			12.3			11.3			11.2
Operations and technology		10.7			11.5			10.4			11.9
General and administrative		11.2			13.8			10.9			13.6
Depreciation and amortization		1.5			1.8			1.5			1.8
Total Expenses		35.0			39.4			34.1			38.5
Income from Operations		17.0			18.5			20.6			19.2
Interest expense, net		(7.6	)		(8.9	)		(7.7	)		(9.0	)
Foreign currency transaction gain		(0.1	)		—			(0.4	)		0.1
Loss on early extinguishment of debt		—			—			(0.9	)		—
Income before Income Taxes		9.3			9.6			11.6			10.3
Provision for income taxes		2.1			3.3			2.5			3.6
Net Income		7.2	%		6.3	%		9.1	%		6.7	%

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

Management provides 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.

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. Management believes 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. Management also believes 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, management believes that the adjustments shown below are useful to investors in order to allow them to compare our financial results during the periods shown without the effect of each of these expense items.

The following table provides reconciliations between net income and diluted earnings per share calculated in accordance with GAAP to the Adjusted Earnings Measures, which are shown net of tax (in thousands, except per share data):

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2018			2017			2018			2017
Net Income	$	18,225		$	11,873		$	46,123		$	25,725
Adjustments:
Loss on early extinguishment of debt		—			—			4,710			—
Intangible asset amortization		268			271			535			542
Stock-based compensation expense		2,834			2,987			5,267			5,307
Foreign currency transaction loss (gain)		204			(62	)		2,292			(289	)
Cumulative tax effect of adjustments		(777	)		(1,113	)		(2,756	)		(1,923	)
Adjusted earnings	$	20,754		$	13,956		$	56,171		$	29,362

Diluted net income per share	$	0.52		$	0.35		$	1.32		$	0.75
Adjustments:
Loss on early extinguishment of debt		—			—			0.13			—
Intangible asset amortization		0.01			0.01			0.02			0.02
Stock-based compensation expense		0.08			0.08			0.15			0.16
Foreign currency transaction loss (gain)		—			—			0.07			(0.01	)
Cumulative tax effect of adjustments		(0.02	)		(0.03	)		(0.08	)		(0.06	)
Adjusted earnings per share	$	0.59		$	0.41		$	1.61		$	0.86

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. Management believes 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, management believes that the adjustment for loss on early extinguishment of debt shown below is useful to investors in order to allow them to compare our financial results during the periods shown without the effect of the expense item. The computation of Adjusted EBITDA, as presented below, may differ from the computation of similarly-titled measures provided by other companies (in thousands):

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2018			2017			2018			2017
Net Income	$	18,225		$	11,873		$	46,123		$	25,725
Depreciation and amortization expenses		3,837			3,366			7,675			6,863
Interest expense, net		19,355			17,012			39,028			34,234
Foreign currency transaction loss (gain)		204			(62	)		2,292			(289	)
Provision for income taxes		5,310			6,380			12,653			13,605
Stock-based compensation expense		2,834			2,987			5,267			5,307
Adjustment:
Loss on early extinguishment of debt		—			—			4,710			—
Adjusted EBITDA	$	49,765		$	41,556		$	117,748		$	85,445

Adjusted EBITDA margin calculated as follows:
Total Revenue	$	253,301		$	189,904		$	507,599		$	382,167
Adjusted EBITDA		49,765			41,556			117,748			85,445
Adjusted EBITDA as a percentage of total revenue		19.6	%		21.9	%		23.2	%		22.4	%

In addition to reporting financial results in accordance with GAAP, we have provided certain other non-GAAP financial information on a constant currency basis. We operate in the United Kingdom and Brazil. During the current quarter 15.7% of our revenue originated in currencies other than the U.S. Dollar, principally the British Pound Sterling. As a result, changes in our reported revenue and profits include the impacts of changes in foreign currency exchange rates. As additional information to the reader, we provide constant currency assessments in the following discussion and analysis to remove and/or quantify the impact of the fluctuation in foreign exchange rates and utilize constant currency results in our analysis of performance. Our constant currency assessment assumes foreign exchange rates in the current fiscal periods remained the same as in the prior fiscal year periods. All conversion rates below are based on the U.S. Dollar equivalent to one of the applicable foreign currencies:

Management believes that our non-GAAP constant currency assessments are a useful measure, as they indicate the actual growth and profitability of our operations.

In addition to reporting loans and finance receivables balance information in accordance with GAAP (see Note 3 in the Notes to Consolidated Financial Statements included in this report), we have provided metrics on a combined basis. The Combined Loans and Finance Receivables Measures are non-GAAP measures that include both loans and RPAs we own or have purchased and loans we

guarantee, which are either GAAP items or disclosures required by GAAP. See “—Loan and Finance Receivable Balances,” “—Loans and Finance Receivables Loss Experience” and “—Loans and Finance Receivables Loss Experience by Product” below for reconciliations between Company owned and purchased loans and finance receivables, gross, allowance and liability for losses, cost of revenue and charge-offs (net of recoveries) calculated in accordance with GAAP to the Combined Loans and Finance Receivables Measures.

Management believes these non-GAAP measures provide investors with important information needed to evaluate the magnitude of potential receivable losses and the opportunity for revenue performance of the loans and finance receivable portfolio on an aggregate basis. Management also believes that the comparison of the aggregate amounts from period to period is more meaningful than comparing only the amounts reflected on our consolidated balance sheet since both revenue and cost of revenue are impacted by the aggregate amount of receivables we own and those we guarantee as reflected in our consolidated financial statements.

Revenue increased $63.4 million, or 33.4%, to $253.3 million for the current quarter as compared to $189.9 million for the prior year quarter. On a constant currency basis, revenue increased by $62.1 million, or 32.7%, for the current quarter compared to the prior year quarter. Our domestic operations contributed an increase of $55.6 million, primarily resulting from a 47.8% increase in installment loan and RPA revenue and a 35.6% increase in line of credit account revenue in the current quarter compared to the prior year quarter driven by strong customer demand for these products. Our international operations contributed an increase of $7.8 million (an increase of $6.5 million on a constant currency basis), primarily resulting from a 39.6% increase in installment loan and RPA revenue and a 11.7% increase in short-term loan revenue.

Our gross profit increased by $21.8 million to $131.8 million for the current quarter from $110.0 million for the prior year quarter. On a constant currency basis, gross profit increased by $20.7 million for the current quarter compared to the prior year quarter. Our consolidated gross profit as a percentage of revenue, or our gross profit margin, decreased only slightly to 52.0% for the current quarter, from 57.9% for the prior year quarter.

The following tables set forth the components of revenue and gross profit, separated by product and between domestic and international for the current quarter and the prior year quarter (in thousands):

	Three Months Ended June 30,
	2018			2017			$ Change		% Change
Revenue by product:
Short-term loans	$	50,312		$	46,776		$	3,536		7.6	%
Line of credit accounts		79,658			58,824			20,834		35.4
Installment loans and RPAs		123,049			84,057			38,992		46.4
Total loans and finance receivables revenue		253,019			189,657			63,362		33.4
Other		282			247			35		14.2
Total revenue	$	253,301		$	189,904		$	63,397		33.4	%

Revenue by product (% to total):
Short-term loans		19.9	%		24.6	%
Line of credit accounts		31.4			31.0
Installment loans and RPAs		48.6			44.3
Total loans and finance receivables revenue		99.9			99.9
Other		0.1			0.1
Total revenue		100.0	%		100.0	%

	Three Months Ended June 30,
	2018			2017			$ Change			% Change
Domestic:
Revenue	$	213,638		$	158,073		$	55,565			35.2	%
Cost of revenue		102,206			67,393			34,813			51.7
Gross profit	$	111,432		$	90,680		$	20,752			22.9
Gross profit margin		52.2	%		57.4	%		(5.2	)%		(9.1	)%
International:
Revenue	$	39,663		$	31,831		$	7,832			24.6	%
Cost of revenue		19,288			12,469			6,819			54.7
Gross profit	$	20,375		$	19,362		$	1,013			5.2
Gross profit margin		51.4	%		60.8	%		(9.4	)%		(15.5	)%
Total:
Revenue	$	253,301		$	189,904		$	63,397			33.4	%
Cost of revenue		121,494			79,862			41,632			52.1
Gross profit	$	131,807		$	110,042		$	21,765			19.8
Gross profit margin		52.0	%		57.9	%		(5.9	)%		(10.2	)%

Our loan and finance receivable balance in our consolidated financial statements for June 30, 2018 and 2017 was $871.9 million and $647.8 million, respectively, before the allowance for losses of $121.8 million and $83.8 million, respectively. The combined loan and finance receivable balance includes $28.7 million and $28.0 million as of June 30, 2018 and 2017, respectively, of consumer loan balances that are guaranteed by us but not owned by us, which are not included in our consolidated financial statements for June 30, 2018 and 2017, respectively, before the liability for estimated losses of $2.1 million and $1.9 million provided in “Accounts payable and accrued expenses” in our consolidated financial statements for June 30, 2018 and 2017, respectively.

The ending portfolio balance of loans and finance receivables, net of allowance for losses, increased $186.1 million, or 33.0%, to $750.1 million as of June 30, 2018 from $564.0 million as of June 30, 2017, and the outstanding combined portfolio balance of loans and finance receivables, net of allowance and liability for estimated losses, increased $186.7 million, or 31.6%, to $776.7 million as of June 30, 2018 from $590.1 million as of June 30, 2017, primarily due to increased demand for all of our installment products and, to a lesser extent, our short-term and line of credit products. The outstanding loan balance for our domestic near-prime product increased 42.9% in the current quarter compared to the prior year quarter resulting in a domestic near-prime portfolio balance that comprises 45.4% of our total loan and finance receivable portfolio balance while short-term loans comprised approximately 10.2% of our total loan and finance receivable portfolio balance in the current quarter, compared to 12.7% in the prior year quarter. Management expects the loan balances for our domestic near-prime installment loan product will continue to comprise a larger percentage of the total loan and finance receivable portfolio, due to customer demand for these products and their longer loan term. Our portfolio of loans and finance receivables serving the needs of small businesses decreased to 8.5% in the current quarter from 12.6% in the prior year quarter due to a 10.2% decrease in the small business loan and finance receivables balance and strong growth in our consumer products. See “—Non-GAAP Disclosure—Combined Loans and Finance Receivables” above for additional information related to combined loans and finance receivables.

The following tables summarize loan and finance receivable balances outstanding as of June 30, 2018 and 2017 (in thousands):

	As of June 30,
	2018									2017
				Guaranteed									Guaranteed
	Company			by the						Company			by the
	Owned^(a)			Company^(a)			Combined^(b)			Owned^(a)			Company^(a)			Combined^(b)
Ending loans and finance receivables balances:
Short-term loans	$	67,255		$	24,764		$	92,019		$	61,565		$	24,123		$	85,688
Line of credit accounts		181,134			—			181,134			134,154			—			134,154
Installment loans and RPAs		623,526			3,917			627,443			452,116			3,890			456,006
Total ending loans and finance receivables, gross		871,915			28,681			900,596			647,835			28,013			675,848
Less: Allowance and liabilities for losses^(a)		(121,784	)		(2,092	)		(123,876	)		(83,839	)		(1,941	)		(85,780	)
Total ending loans and finance receivables, net	$	750,131		$	26,589		$	776,720		$	563,996		$	26,072		$	590,068
Allowance and liability for losses as a % of loans and finance receivables, gross		14.0	%		7.3	%		13.8	%		12.9	%		6.9	%		12.7	%

	As of June 30,
	2018						2017
			Guaranteed						Guaranteed
	Company		by the				Company		by the
	Owned^(a)		Company^(a)		Combined^(b)		Owned^(a)		Company^(a)		Combined^(b)
Ending loans and finance receivables:
Total domestic, gross	$	763,742	$	28,681	$	792,423	$	557,566	$	28,013	$	585,579
Total international, gross		108,173		—		108,173		90,269		—		90,269
Total ending loans and finance receivables, gross	$	871,915	$	28,681	$	900,596	$	647,835	$	28,013	$	675,848

The average amount outstanding per loan is calculated as the total combined loans, gross balance at the end of the period divided by the total number of combined loans outstanding at the end of the period. The following table shows the average amount outstanding per loan by product at June 30, 2018 and 2017:

The average amount outstanding per loan increased to $1,413 from $1,277 during the current quarter compared to the prior year quarter, primarily due to a greater mix of installment loans and line of credit accounts, which have higher average amounts outstanding relative to short-term loans, in the current quarter compared to the prior year quarter.

The average loan origination amount is calculated as the total amount of combined loans originated and renewed for the period divided by the total number of combined loans originated and renewed for the period. The following table shows the average loan origination amount by product for the current quarter compared to the prior year quarter:

The average loan origination amount increased to $579 from $521 during the current quarter compared to the prior year quarter, mainly due to a greater mix of installment loan originations which have higher principal amounts. Additionally, each of our products saw an increase in the average origination amount resulting from higher origination amounts to new customers.

The allowance and liability for estimated losses as a percentage of combined loans and RPAs increased only slightly to 13.8% as of June 30, 2018 from 12.7% as of June 30, 2017.

The cost of revenue in the current quarter was $121.5 million, which was composed of $120.8 million related to Company-owned loans and finance receivables and a $0.7 million increase in the liability for estimated losses related to loans we guaranteed through the CSO programs. The cost of revenue in the prior year quarter was $79.9 million, which was composed of $79.1 million related to Company-owned loans and finance receivables and a $0.8 million increase in the liability for estimated losses related to loans we guaranteed through the CSO programs. Total charge-offs, net of recoveries, were $111.8 million and $78.8 million in the current quarter and the prior year quarter, respectively.

The following tables show loan and finance receivable balances and fees receivable and the relationship of the allowance and liability for losses to the combined balances of loans and finance receivables for each of the last five quarters (in thousands):

	2017									2018
	Second			Third			Fourth			First			Second
	Quarter			Quarter			Quarter			Quarter			Quarter
Loans and finance receivables:
Gross - Company owned	$	647,835		$	742,796		$	827,749		$	817,359		$	871,915
Gross - Guaranteed by the Company^(a)		28,013			28,943			34,134			26,594			28,681
Combined loans and finance receivables, gross^(b)		675,848			771,739			861,883			843,953			900,596
Allowance and liability for losses on loans and finance receivables		85,780			107,077			125,302			115,693			123,876
Combined loans and finance receivables, net^(b)	$	590,068		$	664,662		$	736,581		$	728,260		$	776,720
Allowance and liability for losses as a % of loans and finance receivables, gross^(b)		12.7	%		13.9	%		14.5	%		13.7	%		13.8	%

Management evaluates loss rates for all financing products in our portfolio to determine credit quality and evaluate trends. For our products, we evaluate loans and finance receivables losses as a percentage of the average loan and finance receivable balance outstanding or the average combined loan and finance receivable balance outstanding, whichever is applicable, for each portfolio.

Demand for our short-term loan product in the United States has historically been highest in the third and fourth quarters of each year, corresponding to the holiday season, and lowest in the first quarter of each year, corresponding to our customers’ receipt of income tax refunds. Strong customer demand for short-term loans in both the United States and the United Kingdom has led to higher short-term consumer loan balances year over year.

Our gross profit margin for short-term loans is typically highest in the first quarter of each year, corresponding to the seasonal decline in consumer loan balances outstanding. The cost of revenue as a percentage of the average combined loan balance for short-term loans outstanding is typically lower in the first quarter and generally peaks in the second half of the year with higher loan demand.

The following table includes information related only to short-term loans and shows our loss experience trends for short-term loans for each of the last five quarters (in thousands):

	2017									2018
	Second			Third			Fourth			First			Second
	Quarter			Quarter			Quarter			Quarter			Quarter
Short-term loans:
Cost of revenue	$	16,584		$	23,849		$	22,129		$	20,323		$	20,386
Charge-offs (net of recoveries)		15,539			20,439			21,201			22,213			19,626
Average short-term combined loan balance, gross:
Company owned^(a)		57,653			65,949			70,040			71,442			66,171
Guaranteed by the Company^(a)(b)		21,368			25,787			26,785			26,383			23,638
Average short-term combined loan balance, gross^(a)(c)	$	79,021		$	91,736		$	96,825		$	97,825		$	89,809
Ending short-term combined loan balance, gross:
Company owned	$	61,565		$	67,719		$	73,672		$	65,858		$	67,255
Guaranteed by the Company^(b)		24,123			24,248			28,875			21,409			24,764
Ending short-term combined loan balance, gross^(c)	$	85,688		$	91,967		$	102,547		$	87,267		$	92,019
Ending allowance and liability for losses	$	17,449		$	21,047		$	22,022		$	20,397		$	20,744

Short-term loan ratios:
Cost of revenue as a % of average short-term combined loan balance, gross^(a)(c)		21.0	%		26.0	%		22.9	%		20.8	%		22.7	%
Charge-offs (net of recoveries) as a % of average short-term combined loan balance, gross^(a)(c)		19.7	%		22.3	%		21.9	%		22.7	%		21.9	%
Gross profit margin		64.5	%		52.2	%		58.5	%		61.9	%		59.5	%
Allowance and liability for losses as a % of combined loan balance, gross^(c)(d)		20.4	%		22.9	%		21.5	%		23.4	%		22.5	%

The cost of revenue as a percentage of average loan balance for line of credit accounts exhibits a similar quarterly seasonal trend to short-term loan loss rates as the ratio is typically lower in the first quarter and increases throughout the remainder of the year, peaking in the second half of the year with higher loan demand. The gross profit margin is generally lower for line of credit accounts as compared to short-term loans because the highest levels of default are exhibited in the early stages of the account, while revenue is recognized over the term of the account. Underwriting changes made in the second quarter of 2017 have led to improved credit quality and higher year over year gross margin.

The following table includes information related only to line of credit accounts and shows our loss experience trends for line of credit accounts for each of the last five quarters (in thousands):

	2017									2018
	Second			Third			Fourth			First			Second
	Quarter			Quarter			Quarter			Quarter			Quarter
Line of credit accounts:
Cost of revenue	$	19,868		$	23,439		$	30,278		$	25,383		$	31,211
Charge-offs (net of recoveries)		18,786			19,476			25,940			29,411			27,281
Average loan balance^(a)		128,348			145,398			161,905			168,118			168,881
Ending loan balance		134,154			154,689			170,068			160,923			181,134
Ending allowance for losses balance	$	22,847		$	26,810		$	31,148		$	27,120		$	31,050

Line of credit account ratios:
Cost of revenue as a % of average loan balance^(a)		15.5	%		16.1	%		18.7	%		15.1	%		18.5	%
Charge-offs (net of recoveries) as a % of average loan balance^(a)		14.6	%		13.4	%		16.0	%		17.5	%		16.2	%
Gross profit margin		66.2	%		66.0	%		59.9	%		67.6	%		60.8	%
Allowance for losses as a % of loan balance^(b)		17.0	%		17.3	%		18.3	%		16.9	%		17.1	%

The cost of revenue as a percentage of average loan and finance receivable balance for installment loans and RPAs is typically more consistent throughout the year as compared to short-term loans and line of credit accounts. Due to the scheduled monthly or bi-weekly payments and delivery of receivables that are inherent with installment loans and RPAs, we do not experience the higher level of repayments in the first quarter for these products as we experience with short-term loans and, to a lesser extent, line of credit accounts.

The gross profit margin is generally lower for the installment loan product than for other loan products, primarily because the highest levels of default are exhibited in the early stages of the loan, while revenue is recognized over the term of the loan. In addition, installment loans and RPAs typically have higher average origination amounts. Another factor contributing to the lower gross profit margin is that the product yield for installment loans and RPAs is typically lower than the yield for the other financing products we offer. As a result, particularly in periods of higher growth for the installment loan and RPA portfolios, which has been the case in recent years, the gross profit margin is typically lower for this product than for our short-term loan and line of credit products. Our average installment combined loan and RPA portfolio balance outstanding at June 30, 2018 increased 39.4% in the current quarter compared to the prior year quarter.

The following table includes information related only to our installment loans and RPAs and shows our loss experience trends for installment loans and RPAs for each of the last five quarters (in thousands):

	2017									2018
	Second			Third			Fourth			First			Second
	Quarter			Quarter			Quarter			Quarter			Quarter
Installment loans and RPAs:
Cost of revenue	$	43,410		$	60,053		$	75,138		$	62,847		$	69,897
Charge-offs (net of recoveries)		44,443			46,598			62,116			67,081			64,878
Average installment and RPA combined loan and finance receivable balance, gross:
Company owned^(a)		433,698			487,436			552,003			591,739			605,025
Guaranteed by the Company^(a)(b)		3,631			4,628			5,025			5,760			4,500
Average installment and RPA combined loan and finance receivable balance, gross^(a)(c)	$	437,329		$	492,064		$	557,028		$	597,499		$	609,525
Ending installment and RPA combined loan and finance receivable balance, gross:
Company owned	$	452,116		$	520,388		$	584,009		$	590,578		$	623,526
Guaranteed by the Company^(b)		3,890			4,695			5,259			5,185			3,917
Ending installment and RPA combined loan and finance receivable balance, gross ^(c)	$	456,006		$	525,083		$	589,268		$	595,763		$	627,443
Ending allowance and liability for losses	$	45,484		$	59,220		$	72,132		$	68,176		$	72,082

Installment and RPA loan ratios:
Cost of revenue as a % of average installment and RPA combined loan and finance receivable balance, gross^(a)(c)		9.9	%		12.2	%		13.5	%		10.5	%		11.5	%
Charge-offs (net of recoveries) as a % of average installment and RPA combined loan and finance receivable balance, gross^(a)(c)		10.2	%		9.5	%		11.2	%		11.2	%		10.6	%
Gross profit margin		48.4	%		39.3	%		34.4	%		48.5	%		43.2	%
Allowance and liability for losses as a % of combined loan and finance receivable balance, gross^(c)(d)		10.0	%		11.3	%		12.2	%		11.4	%		11.5	%

Total expenses increased $13.9 million, or 18.5%, to $88.7 million in the current quarter, compared to $74.8 million in the prior year quarter. On a constant currency basis, total expenses increased $13.5 million, or 18.0%, to $88.3 million for the current quarter compared to the prior year quarter.

Marketing expense increased to $29.4 million in the current quarter compared to $23.4 million in the prior year quarter. The increase was primarily due to higher direct mail costs related to our domestic products, volume from lead providers in both our domestic and international businesses and domestic television advertising.

Operations and technology expense increased to $27.2 million in the current quarter compared to $21.8 million in the prior year quarter, primarily due to higher volume-driven underwriting and transaction expenses and headcount costs in our call center.

General and administrative expense increased $2.1 million, or 7.8%, to $28.3 million in the current quarter compared to $26.2 million in the prior year quarter, primarily due to higher corporate services personnel costs primarily driven by an increase in headcount in the current quarter compared to the prior year quarter.

Depreciation and amortization expense increased $0.4 million, or 14.0%, in the current quarter compared to the prior year quarter, primarily due to increased capitalized development software costs to support our growth.

Interest expense, net increased $2.4 million, or 13.8%, to $19.4 million in the current quarter compared to $17.0 million in the prior year quarter. The increase was primarily due to an increase in the average amount of debt outstanding, which increased $132.0 million to $766.7 million during the current quarter from $634.7 million during the prior year quarter, partially offset by a decrease in the weighted average interest rate on our outstanding debt to 10.02% during the current quarter from 10.65% during the prior year quarter.

Provision for income taxes decreased $1.1 million, or 16.8%, to $5.3 million in the current quarter compared to $6.4 million in the prior year quarter. The decrease was primarily due to a decrease in effective tax rate to 22.6% in the current quarter from 35.0% in the prior year quarter partially offset by a 28.9% increase in income before income taxes. The decrease in the effective tax rate is mainly due to the Tax Cuts and Jobs Act, and an adjustment related to share based compensation deferred tax benefits.

As of June 30, 2018, the balance of unrecognized tax benefits was $863 thousand ($807 thousand net of the federal benefit of state matters), all of which, if recognized, would favorably affect the effective tax rate in any future periods. We had $562 thousand ($529 thousand net of the federal benefit of state matters) of unrecognized tax benefits as of June 30, 2017. We do not believe it is reasonably possible that, within the next twelve months, unrecognized domestic tax benefits will change by a significant amount. We record interest and penalties related to tax matters as income tax expense in the consolidated statement of income.

Our U.S. tax returns are subject to examination by federal and state taxing authorities. The IRS audits for tax years 2011 through 2014 were concluded with no adjustments to our consolidated financial statements. The 2016 and 2015 tax years are open to examination by the IRS. 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.

Net income increased $6.3 million, or 53.5%, to $18.2 million during the current quarter compared to $11.9 million during the prior year quarter. The increase was primarily due to higher revenue from all products partially offset by higher loan loss provision and higher operating expenses incurred to support the loan growth in the current quarter.

Revenue increased $125.4 million, or 32.8%, to $507.6 million for the six-month period ended June 30, 2018, or current six-month period, as compared to $382.2 million for the six-month period ended June 30, 2017, or prior year six-month period. On a constant currency basis, revenue increased by $120.5 million, or 31.5%, for the current six-month period compared to the prior year six-month period. Our domestic operations contributed an increase of $103.9 million, resulting from a 45.8% increase in domestic installment loan and RPA revenue and a 33.7% increase in line of credit revenue in the current six-month period compared to the prior year six-month period primarily driven by growth in our installment and line of credit account products. Additionally, international operations of revenue increased $21.6 million (an increase of $16.6 million on a constant currency basis).

Our gross profit increased by $57.2 million to $277.6 million for the current six-month period from $220.4 million for the prior year six-month period. On a constant currency basis, gross profit increased by $51.6 million for the current six-month period compared to the prior year six-month period. Our consolidated gross profit margin decreased to 54.7% for the current six-month period, from 57.7% for the prior year six-month period. The decrease in gross profit margin was primarily driven by the strong new customer growth of our domestic and international installment loan portfolios resulting in a higher mix of new customers overall which requires higher loss provisions as new customers default at a higher rate than returning customers with a successful history of loan performance. Management expects the consolidated gross profit margin will continue to be influenced by the mix of loans to new and returning customers, the mix of lower yielding and higher yielding loan products, and loan originations.

The following tables set forth the components of revenue and gross profit, separated by product and between domestic and international for the current six-month period and the prior year six-month period (in thousands):

	Six Months Ended June 30,
	2018			2017			$ Change		% Change
Revenue by product:
Short-term loans	$	103,687		$	94,199		$	9,488		10.1	%
Line of credit accounts		157,967			118,283			39,684		33.6
Installment loans and RPAs		245,157			169,140			76,017		44.9
Total loans and finance receivables revenue		506,811			381,622			125,189		32.8
Other		788			545			243		44.6
Total revenue	$	507,599		$	382,167		$	125,432		32.8	%

Revenue by product (% to total):
Short-term loans		20.4	%		24.6	%
Line of credit accounts		31.1			31.0
Installment loans and RPAs		48.3			44.3
Total loans and finance receivables revenue		99.8			99.9
Other		0.2			0.1
Total revenue		100.0	%		100.0	%

	Six Months Ended June 30,
	2018			2017			$ Change			% Change
Domestic:
Revenue	$	426,604		$	322,742		$	103,862			32.2	%
Cost of revenue		190,319			138,042			52,277			37.9
Gross profit	$	236,285		$	184,700		$	51,585			27.9
Gross profit margin		55.4	%		57.2	%		(1.8	)%		(3.1	)%
International:
Revenue	$	80,995		$	59,425		$	21,570			36.3	%
Cost of revenue		39,728			23,704			16,024			67.6
Gross profit	$	41,267		$	35,721		$	5,546			15.5
Gross profit margin		51.0	%		60.1	%		(9.1	)%		(15.1	)%
Total:
Revenue	$	507,599		$	382,167		$	125,432			32.8	%
Cost of revenue		230,047			161,746			68,301			42.2
Gross profit	$	277,552		$	220,421		$	57,131			25.9
Gross profit margin		54.7	%		57.7	%		(3.0	)%		(5.2	)%

The average loan origination amount increased to $574 during the current six-month period compared to $502 during the prior year six-month period.

The cost of revenue in the current six-month period was $230.0 million, which was composed of $230.2 million related to Company-owned loans and finance receivables offset by a $0.2 million decrease in the liability for estimated losses related to loans we guaranteed through the CSO programs. The cost of revenue in the prior year six-month period was $161.8 million, which was composed of $161.8 million related to Company-owned loans and finance receivables. Total charge-offs, net of recoveries, were $230.5 million and $177.6 million in the current six-month period and the prior year six-month period, respectively.

Total expenses increased $25.6 million, or 17.4%, to $172.7 million in the current six-month period, compared to $147.1 million in the prior year six-month period. On a constant currency basis, total expenses increased $24.1 million, or 16.4%, for the current six-month period compared to the prior year six-month period.

Marketing expense increased to $57.1 million in the current six-month period compared to $43.0 million in the prior year six-month period. The increase was primarily due to higher direct mail costs related to our domestic products, volume from lead providers in both our domestic and international businesses and domestic television advertising.

Operations and technology expense increased to $52.7 million in the current six-month period compared to $45.3 million in the prior year six-month period, primarily due to higher personnel expenses, underwriting and transaction costs.

General and administrative expense increased $3.3 million, or 6.3%, to $55.2 million in the current six-month period compared to $51.9 million in the prior year six-month period , primarily due to higher corporate services personnel costs primarily driven by higher incentive accruals reflecting strong financial performance in the current six-month period.

Depreciation and amortization expense increased $0.8 million, or 11.8%, in the current six-month period compared to the prior year six-month period, primarily due to an increase in fixed assets driven by higher capitalized software development costs.

Interest expense, net increased $4.8 million, or 14.0%, to $39.0 million in the current six-month period compared to $34.2 million in the prior year six-month period. The increase was primarily due to an increase in the average amount of debt outstanding, which increased $131.1 million to $767.7 million during the current six-month period from $636.6 million during the prior year six-month period, partially offset by a slight decrease in the weighted average interest rate on our outstanding debt to 10.06% during the current six-month period from 10.72% during the prior year six-month period.

Provision for income taxes decreased $0.9 million, or 7.0%, to $12.7 million in the current six-month period compared to $13.6 million in the prior year six-month period. The decrease was primarily due to a decrease in effective tax rate to 21.5% in the current six-month period from 34.6% in the prior year six-month period partially offset by a 49.4% increase in income before income taxes. The decrease in the effective tax rate is mainly due to the Tax Cuts and Jobs Act, and an adjustment related to share based compensation deferred tax benefits.

Net income increased $20.3 million, or 79.3%, to $46.1 million during the current six-month period compared to $25.8 million during the prior year six-month period. The increase was primarily due to higher revenue from all products partially offset by higher loan loss provision and higher operating expenses incurred to support the loan growth in the current six-month period.

Historically, we have generated significant cash flow through normal operating activities for funding both long-term and short-term needs. Our near-term liquidity is managed to ensure that adequate resources are available to fund our seasonal working capital growth, which is driven by demand for our loan and financing products, and to meet the continued growth in the demand for our near-prime

installment products. On May 30, 2014, we issued and sold $500.0 million in 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 June 30, 2017, we entered into a secured revolving credit agreement (the “2017 Credit Agreement”) which replaced our previous credit agreement (the “2014 Credit Agreement”) that was terminated on June 30, 2017. On April 13, 2018, we and certain of our operating subsidiaries entered into an amendment of our 2017 Credit Agreement (the "Amended Credit Agreement"). As of July 30, 2018, our available borrowings under the Amended Credit Agreement were $11.4 million. On January 15, 2016 and December 1, 2016, we entered into the 2016‑1 and 2016‑2 Securitization Facilities, respectively, as further described below. On October 20, 2017, we amended and restated the 2016-1 Securitization Facility, as further described below. On July 23, 2018, we and several of our subsidiaries entered into a receivables funding (the “2018‑1 Facility”) with Pacific Western Bank, as lender (the “2018‑1 Lender”) as further described below. As of July 30, 2018, the outstanding balance under our securitization facilities was $195.4 million. 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 2017 Credit Agreement, or any refinancing, replacement thereof or increase in borrowings thereunder, and securitization or sale of loans and finance receivables under our consumer loan securitization facilities.

As of June 30, 2018, 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 2017 Credit Agreement, or any refinancing or replacement thereof, and reductions in capital spending which could be expected to generate additional liquidity.

On September 1, 2017, we issued and sold the 2024 Senior Notes. The 2024 Senior Notes were sold to qualified institutional buyers in accordance with Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”) and outside the United States pursuant to Regulation S under the Securities Act. The 2024 Senior Notes bear interest at a rate of 8.50% annually on the principal amount payable semi-annually in arrears on March 1 and September 1 of each year, beginning on March 1, 2018. The 2024 Senior Notes were sold at a price of 100%. The 2024 Senior Notes will mature on September 1, 2024. The 2024 Senior Notes are unsecured debt obligations of ours, and are unconditionally guaranteed by certain of our domestic subsidiaries.

The 2024 Senior Notes are redeemable at our option, in whole or in part, (i) at any time prior to September 1, 2020 at 100% of the aggregate principal amount of 2024 Senior Notes redeemed plus the applicable “make whole” premium specified in the 2024 Senior Notes Indenture, plus accrued and unpaid interest, if any, to the redemption date and (ii) at any time on or after September 1, 2020 at the premium, if any, specified in the 2024 Senior Notes Indenture that will decrease over time, plus accrued and unpaid interest, if any, to the redemption date. In addition, prior to September 1, 2020, at our option, we may redeem up to 40% of the aggregate principal amount of the 2024 Senior Notes at a redemption price of 108.5% of the aggregate principal amount of 2024 Senior Notes redeemed, plus accrued and unpaid interest, if any, to the redemption date, with the proceeds of certain equity offerings as described in the 2024 Senior Notes Indenture.

We used the net proceeds of the 2024 Senior Notes offering to retire a portion of our outstanding 9.75% senior notes due 2021, to pay the related accrued interest, premiums, fees and expenses associated therewith and for general corporate purposes, which may include working capital and future repurchases of our outstanding debt securities.

On January 15, 2016, we and certain of our subsidiaries entered into a receivables securitization (as amended, the “2016‑1 Securitization Facility”) with certain purchasers, Jefferies Funding LLC, as administrative agent (the “Administrative Agent”) and Bankers Trust Company, as indenture trustee and securities intermediary (the “Indenture Trustee”). The 2016‑1 Securitization Facility securitizes unsecured consumer installment loans (“Receivables”) that have been, or will be, originated or acquired under our NetCredit brand and that meet specified eligibility criteria. Under the 2016‑1 Securitization Facility, Receivables are sold to a wholly-owned special purpose

subsidiary (the “Issuer”) and serviced by another subsidiary. The 2016-1 Securitization Facility was amended on July 26, 2016, August 17, 2016, September 12, 2016, October 20, 2016, November 14, 2016 and December 14, 2016. The 2016-1 Securitization Facility, as amended, provided for a maximum principal amount of $275 million, variable funding notes maximum principal amount of $30 million per month and a revolving period of the facility ending in October 2017.

On October 20, 2017 (the “Amendment Closing Date”), we and certain of our subsidiaries amended and restated the 2016-1 Securitization Facility (the “Amended Facility”). The counterparties to the Amended Facility included certain purchasers, the Administrative Agent and the Indenture Trustee. The Amended Facility relates to Receivables that have been and will be originated or acquired under our NetCredit brand by several of our subsidiaries and that meet specified eligibility criteria. The eligible Receivables that were owned by the Issuer remained in the Amended Facility and the ineligible Receivables were removed. Under the Amended Facility, additional eligible Receivables may be sold to the Issuer and serviced by another subsidiary of ours.

On each of January 2, 2018, April 2, 2018, July 2, 2018, October 1, 2018, December 31, 2018 and April 1, 2019, the Receivables financed under the 2017 Variable Funding Notes were or will be allocated to a 2017 Term Note, which 2017 Term Note will be issued to the holders of the 2017 Variable Funding Notes and the 2017 Variable Funding Note on such date will be reduced to zero. The 2017 Securitization Notes are non-recourse to us and mature at various dates, the latest of which will be April 15, 2022 (the “2017 Final Maturity Date”).

The Amended Facility documents contain customary provisions for securitizations, including: representations and warranties as to the eligibility of the Receivables and other matters; indemnification for specified losses not including losses due to the inability of consumers to repay their loans; covenants regarding special purpose entity matters and other subjects; and default and termination provisions which provide for the acceleration of the 2017 Securitization Notes under the Amended Facility in circumstances including, but not limited to, failure to make payments when due, servicer defaults, certain insolvency events, breaches of representations, warranties or covenants, failure to maintain the security interest in the receivables, and defaults under other material indebtedness. From time to time, we repurchase Receivables at our discretion or under the terms of the Amended Facility.

On December 1, 2016, we and certain of our subsidiaries entered into a receivables securitization (the “2016‑2 Facility”) with Redpoint Capital Asset Funding, LLC, as lender (the “Lender”). The 2016‑2 Facility securitizes unsecured consumer installment loans (“Redpoint Receivables”) that have been and will be originated or acquired under our NetCredit brand by several of our subsidiaries and that meet specified eligibility criteria, including that the annual percentage rate for each securitized consumer loan is greater than or equal to 90%. Under the 2016‑2 Facility, Redpoint Receivables are sold to a wholly-owned special purpose subsidiary of ours (the “Debtor”) and serviced by another subsidiary of ours.

The 2016‑2 Facility documents contain customary provisions for securitizations, including: representations and warranties as to the eligibility of the Redpoint Receivables and other matters; indemnification for specified losses not including losses due to the inability of consumers to repay the related Receivables; and default and termination provisions which provide for the acceleration of the 2016‑2 Facility in circumstances including, but not limited to, failure to make payments when due certain insolvency events, breaches of representations, warranties or covenants, failure to maintain the security interest in the receivables and defaults under other material indebtedness of the Debtor.

On July 23, 2018, we and several of our subsidiaries entered into a receivables funding (the “2018‑1 Facility”) with Pacific Western Bank, as lender (the “2018‑1 Lender”). The 2018‑1 Facility collateralizes Receivables that have been and will be originated or acquired under our NetCredit brand by several of our subsidiaries and that meet specified eligibility criteria in exchange for a revolving note. Under the 2018‑1 Facility, Receivables are sold to a wholly-owned special purpose subsidiary of ours (the “2018‑1 Debtor”) and serviced by another subsidiary of ours.

The 2018‑1 Facility documents contain customary provisions for securitizations, including: representations and warranties as to the eligibility of the Receivables and other matters; indemnification for specified losses not including losses due to the inability of consumers to repay their loans; covenants regarding special purpose entity matters; and default and termination provisions which provide for the acceleration of the 2018‑1 Facility in circumstances including, but not limited to, failure to make payments when due, servicer defaults, certain insolvency events, breaches of representations, warranties or covenants, failure to maintain the security interest in the receivables and defaults under other material indebtedness of the 2018‑1 Debtor.

On June 30, 2017, we and certain of our operating subsidiaries entered into a secured revolving credit agreement with a syndicate of banks including TBK Bank, SSB (“TBK”), as Administrative Agent and Collateral Agent, Jefferies Finance LLC and TBK as Joint Lead Arrangers and Joint Lead Bookrunners, and Green Bank, N.A., as Lender. On April 13, 2018, the 2017 Credit Agreement was amended to include Pacific Western Bank, as Lender in the syndicate of lenders from the 2017 Credit Agreement.

The 2017 Credit Agreement is secured by domestic receivables. The borrowing limit in the 2017 Credit Agreement, as amended, is $75 million (an increase from $40 million) and its maturity date is May 1, 2020. We had $53.0 million of outstanding borrowings under the 2017 Credit Agreement as of June 30, 2018.

The 2017 Credit Agreement provides for a revolving credit line with interest on borrowings under the facility at prime rate plus 1.00%. In addition, the 2017 Credit Agreement provides for payment of a commitment fee calculated with respect to the unused portion of the line, and ranges from 0.30% per annum to 0.50% per annum depending on usage. A portion of the revolving credit facility, up to a maximum of $20 million, is available for the issuance of letters of credit. We had outstanding letters of credit under the 2017 Credit Agreement of $7.6 million as of June 30, 2018. The 2017 Credit Agreement provides for certain prepayment penalties if it is terminated on or before its first and second anniversary date, subject to certain exceptions.

The 2017 Credit Agreement contains certain limitations on the incurrence of additional indebtedness, investments, the attachment of liens to our property, the amount of dividends and other distributions, fundamental changes to us or our business and certain other of our activities. The 2017 Credit Agreement contains standard financial covenants for a facility of this type based on a leverage ratio and a fixed charge coverage ratio. The 2017 Credit Agreement also provides for customary affirmative covenants, including financial reporting requirements, and certain events of default, including payment defaults, covenant defaults and other customary defaults.

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

Net cash provided by operating activities increased $109.7 million, or 58.9%, to $295.7 million for the current six-month period from $186.1 million for the prior year six-month period. The increase was primarily driven by a $68.3 million increase in cost of revenue, a non-cash expense, during the current six-month period, and a $20.3 million increase in net income.

Other significant changes in net cash provided by operating activities for the current six-month period compared to the prior year six-month period included cash flows from the following activities:

Management believes cash flows from operations and available cash balances and borrowings under our consumer loan securitization facilities and 2017 Credit Agreement, which may include increased borrowings under our 2017 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.

Net cash used in investing activities increased $115.0 million, or 68.2%, for the current six-month period compared to the prior year six-month period. This increase was primarily due to a $111.8 million increase in net cash invested in loans and finance receivables, reflecting a $179.3 million increase in the amount of loans and finance receivables originated or acquired partially offset by an $67.5 million increase payments received from customers. Additionally, purchases of property and equipment increased $1.8 million for the current six-month period compared to the prior year six-month period.

Cash flows provided by financing activities for the current six-month period primarily reflects $53.0 million in net borrowings under our 2017 Credit Agreement, $50.0 million in payments under our 2021 Senior Notes and our 2024 Senior Notes, $32.3 million in net payments under our securitization facilities, $4.3 million of proceeds from the exercise of stock options, a $3.7 million penalty paid in connection with the early payment of our 2021 Senior Notes and the $3.0 million payment of our promissory note related to a previous acquisition. Cash flows provided by financing activities for the prior year six-month period primarily reflects $13.4 million in net borrowings under our securitization facilities and $1.8 million of debt issuance costs paid in connection with the 2017 Credit Agreement.

In certain markets, we arrange for consumers to obtain consumer loan products from independent third-party lenders through our CSO programs. For consumer loan products originated by third-party lenders under the CSO programs, each lender is responsible for providing the criteria by which the customer’s application is underwritten and, if approved, determining the amount of the consumer loan. We are responsible for assessing whether or not we will guarantee such loan. When a customer executes an agreement with us under our CSO programs, we agree, for a fee payable to us by the customer, to provide certain services to the customer, one of which is to guarantee the customer’s obligation to repay the loan received by the customer from the third-party lender if the customer fails to do so. The guarantee represents an obligation to purchase specific loans if they go into default, which generally occurs after one payment is missed. As of June 30, 2018 and 2017, the outstanding amount of active consumer loans originated by third-party lenders under the CSO programs was $28.7 million and $28.0 million, respectively, which were guaranteed by us. The estimated fair value of the liability for estimated losses on consumer loans guaranteed by us of $2.1 million and $1.9 million, as of June 30, 2018 and 2017, respectively, is included in “Accounts payable and accrued expenses” in the consolidated balance sheets. Our CSO programs are further described under the caption “Products and Services” above.

Market risks relating to our operations result primarily from changes in foreign currency exchange rates. We do not engage in speculative or leveraged transactions, nor do we hold or issue financial instruments for trading purposes. There have been no material changes to our exposure to market risks since December 31, 2017.

Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, our management has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, or the “Exchange Act”) as of June 30, 2018 (the “Evaluation Date”). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective and provide reasonable assurance (i) to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms; and (ii) to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.

There was no change in our internal control over financial reporting during the quarter ended June 30, 2018 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or internal controls will prevent or detect all possible misstatements due to error or fraud. Our disclosure controls and procedures and internal controls are, however, designed to provide reasonable assurance of achieving their objectives, and our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective at that reasonable assurance level.

See the “Litigation” section of Note 10 of the notes to our unaudited consolidated financial statements of Part I, “Item 1 Financial Statements.”

There have been no material changes from the Risk Factors described in Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, except as follows:

We are subject to cyber security risks and security breaches and may incur increasing costs in an effort to minimize those risks and to respond to cyber incidents.

Our business involves the storage and transmission of consumers’ and businesses’ proprietary information, and security breaches could expose us to a risk of loss or misuse of this information, litigation, and potential liability. We are entirely dependent on the secure operation of our websites and systems as well as the operation of the internet generally. While we have incurred no material cyber-attacks or security breaches to date, a number of other companies have disclosed cyber-attacks and security breaches, some of which have involved intentional attacks. Attacks may be targeted at us, our customers, or both. Although we devote significant resources to maintain and regularly upgrade our systems and processes that are designed to protect the security of our computer systems, software, networks and other technology assets and the confidentiality, integrity and availability of information belonging to us and our customers, our security measures may not provide absolute security. Despite our efforts to ensure the integrity of our systems, it is possible that we may not be able to anticipate or to implement effective preventive measures against all security breaches of these types, especially because the techniques used change frequently or are not recognized until launched, and because cyber-attacks can originate from a wide variety of sources, including third parties outside the company such as persons who are involved with organized crime or associated with external service providers or who may be linked to terrorist organizations or hostile foreign governments. These risks may increase in the future as we continue to increase our mobile and other internet-based product offerings and expand our internal usage of web-based products and applications or expand into new countries. If an actual or perceived breach of security occurs, customer and/or supplier perception of the effectiveness of our security measures could be harmed and could result in the loss of customers, suppliers or both. Actual or anticipated attacks and risks may cause us to incur increasing costs, including costs to deploy additional personnel and protection technologies, train employees, and engage third party experts and consultants.

A successful penetration or circumvention of the security of our systems could cause serious negative consequences, including significant disruption of our operations, misappropriation of our confidential information or that of our customers, or damage to our computers or systems or those of our customers and counterparties, and could result in violations of applicable privacy and other laws, financial loss to us or to our customers, loss of confidence in our security measures, customer dissatisfaction, significant litigation exposure, and harm to our reputation, all of which could have a material adverse effect on us. In addition, our applicants provide sensitive information, including bank account information when applying for loans or financing. We rely on encryption and authentication technology licensed from third parties to provide the security and authentication to effectively secure transmission of confidential information, including customer bank account and other personal information. Advances in computer capabilities, new discoveries in the field of cryptography or other developments may result in the technology used by us to protect transaction data being breached or compromised. Data breaches can also occur as a result of non-technical issues. In addition, federal and some state regulators are considering rules and standards to address cybersecurity risks and many US states and the UK have already enacted laws requiring companies to notify individuals of data security breaches involving their personal data. These mandatory disclosures regarding a security breach are costly to implement and may lead to widespread negative publicity, which may cause customers to lose confidence in the effectiveness of our data security measures.

Our servers are also vulnerable to computer viruses, physical or electronic break-ins, and similar disruptions, including denial-of-service attacks. We may need to expend significant resources to protect against security breaches or to address problems caused by breaches. Security breaches, including any breach of our systems or by persons with whom we have commercial relationships that result in the unauthorized release of consumers’ personal information or businesses’ proprietary information, could damage our reputation and expose us to a risk of loss or litigation and possible liability. In addition, many of the third parties who provide products, services or support to us could also experience any of the above cyber risks or security breaches, which could impact our customers and our business and could result in a loss of customers, suppliers or revenue.

Any of these events could result in a loss of revenue and could have a material adverse effect on our business, prospects, results of operations, financial condition and cash flows.

Our ability to collect payment on loans and maintain the accuracy of accounts may be adversely affected by computer viruses, electronic break-ins, technical errors and similar disruptions.

The accessibility and automated nature of our platform may make for an attractive target for hacking, computer viruses, physical or electronic break-ins and similar disruptions. Despite efforts to ensure the integrity of our platform, it is possible that we may not be able to anticipate or to implement effective preventive measures against all security breaches of these types, in which case there would be an increased risk of fraud or identity theft, and we may experience losses on, or delays in the collection of amounts owed on, a fraudulently induced loan. In addition, the software that we have developed is highly complex and may contain undetected technical errors that could cause our computer systems to fail. Because each loan and financing provided involves our proprietary underwriting and fraud scoring models, and the applications are highly automated, any failure of our computer systems involving our proprietary credit and fraud scoring models and any technical or other errors contained in the software pertaining to our proprietary underwriting and fraud scoring models could compromise the ability to accurately evaluate potential customers, which would negatively impact our results of operations. Furthermore, any failure of our computer systems could cause an interruption in operations that may result in disruptions or reductions in the amount of collections from the loans and financings we provide to customers. If any of these risks were to materialize, it could have a material adverse effect on our business, prospects, results of operations, financial condition or cash flows.

Customer complaints to the Financial Ombudsman Service (“FOS”) could increase, which could have a negative effect on our operations in the United Kingdom.

We continue to experience an increased volume of complaints about loans issued prior to changes we implemented in 2014, and the FOS has taken a very consumer friendly approach to its complaint handling process and dispute resolutions. We have been required to make significant payments to customers to resolve these complaints. We have also incurred significant costs in the form of FOS administrative fees associated with each individual complaint submitted to FOS, as well as operational costs necessary to manage the large volume of complaints. The FOS has evidenced signs of expanding its consumer focused approach through changes in the FOS’s interpretation of its complaint handling rights and obligations. We also observed the FOS interpreting FCA rules and guidance in a manner that is stricter than, and sometimes in direct conflict with, the FCA’s own interpretation of its rules and guidance. If the FOS continues to issue findings in this manner, and we are required to continue making significant payments to resolve complaints, such findings could again have a material adverse effect on our business, prospects, results of operations, financial condition and cash flows.

The following table provides the information with respect to purchases made by us of shares of our common stock.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Delaware		45-3190813
(State or other jurisdiction of Incorporation or organization)		(I.R.S. Employer Identification No.)

175 West Jackson Blvd. Chicago, Illinois		60604
(Address of principal executive offices)		(Zip Code)

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐ (Do not check if a smaller reporting company)	Smaller reporting company	☐
		Emerging growth company	☐


		Page
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)
	Consolidated Balance Sheets – June 30, 2018 and 2017 and December 31, 2017	1
	Consolidated Statements of Income – Three and Six Months Ended June 30, 2018 and 2017	2
	Consolidated Statements of Comprehensive Income – Three and Six Months Ended June 30, 2018 and 2017	3
	Consolidated Statements of Stockholders’ Equity – Three and Six Months Ended June 30, 2018 and 2017	4
	Consolidated Statements of Cash Flows – Six Months Ended June 30, 2018 and 2017	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	38
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	59
Item 4.	Controls and Procedures	59

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	60
Item 1A.	Risk Factors	60
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	61
Item 3.	Defaults upon Senior Securities	61
Item 4.	Mine Safety Disclosures	62
Item 5.	Other Information	62
Item 6.	Exhibits	62

SIGNATURES		63

	Three Months Ended
	June 30,
	2018		2017
Average loan origination amount (in ones) ^(a)
Short-term loans ^(b)	$	464	$	451
Line of credit accounts ^(c)		339		294
Installment loans ^(b)(d)		1,710		1,654
Total loans ^(b)(d)	$	579	$	521

	Lease Termination Costs			Other Exit Costs			Total
Balance at January 1, 2017	$	637		$	135		$	772
Payments		(554	)		(9	)		(563	)
Adjustments		(83	)		(126	)		(209	)
Balance at December 31, 2017	$	—		$	—		$	—

	As of December 31, 2017
			Gross Amounts		Gross Amounts		Net Amounts of Assets
			of Recognized		Offset in the		Presented in the
	Notional		Financial		Consolidated		Consolidated Balance
Forward currency exchange contracts	Amount		Instruments		Balance Sheets⁽¹⁾		Sheets⁽²⁾
Assets	$	—	$	—	$	—	$	—
Liabilities	$	12,039	$	55	$	—	$	55

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Contingent consideration		Total
Balance at December 31, 2016	$	2,358	$	2,358
Adjustments		—		—
Balance at June 30, 2017	$	2,358	$	2,358

Period	Total Number of Shares Purchased^(a)		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plan^(b)		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plan^(b) (in thousands)
April 1 – April 30, 2018		—	$	—		—	$	21,454
May 1 – May 31, 2018		562		33.90		—		21,454
June 1 – June 30, 2018		10,257		36.50		—		21,454
Total		10,819	$	36.36		—	$	21,454

Exhibit No.		Exhibit Description


10.1		First Amendment to Credit Agreement among Enova International, Inc., as a Borrower and the Parent, certain restricted subsidiaries of the Parent from time to time party hereto, as Borrowers, certain restricted subsidiaries of the Parent from time to time party hereto, as Guarantors, the lenders party hereto, and TBK Bank, SSB, as Administrative Agent and Collateral Agent dated as of April 13, 2018

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

Date: August 1, 2018	ENOVA INTERNATIONAL, INC.

	By:	/s/ Steven E. Cunningham
		Steven E. Cunningham
		Chief Financial Officer
		(On behalf of the Registrant and as Principal Financial Officer)