Enova International, Inc.

Good afternoon and welcome to the Inova International fourth quarter and full year 2020 earnings conference call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch tone phone. To withdraw from the question queue, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Monica Gould, Investor Relations for Inova. Please go ahead.

Thank you, Operator, and good afternoon, everyone. Inova released results for the fourth quarter and full year 2020 ended December 31, 2020, this afternoon after the market closed. If you did not receive a copy of our earnings press release, you may obtain it from the Investor Relations section of our website at ir.inova.com. With me on today's call are David Fisher, Chief Executive Officer of Inova, and Steve Cunningham, Chief Financial Officer of Inova. This call is being webcast and will be archived on the Investor Relations section of Inova's website. Before I turn the call over to David, I'd like to note that today's discussion will contain forward-looking statements and, as such, is subject to risks and uncertainties. Please note that any forward-looking statements that are made on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events. In addition to U.S. GAAP reporting, Inova reports certain financial measures that do not conform to generally accepted accounting principles. We believe these non-GAAP measures enhance the understanding of our performance. Reconciliations between these GAAP and non-GAAP measures are included in the tables found in today's press release. As noted in our earnings release, we have posted supplemental financial information on the IR portion of our website. And with that, I'd like to turn the call over to David.

Good afternoon, everyone. Thanks for joining our call today. First, I'll provide an overview of our fourth quarter and full year results. Then I'll discuss our strategy and outlook for 2021. And after that, I'll turn the call over to Steve Cunningham, our CFO, who will discuss our financial results and outlook in more detail. The adaptability of our sophisticated technology-driven online business was evident in Q4 as we quickly re-accelerated our originations while continuing to produce strong credit metrics, even as COVID pandemic persisted. Total revenue in the fourth quarter increased nearly 30% sequentially to $264 million, while declining only 24% year-over-year despite our significant pullback in originations from March to July in response to COVID. We also delivered yet another quarter of record profitability. Adjusted EBITDA rose 126% year-over-year to a record $149 million, and adjusted EPS grew 160% to $2.39. Our performance navigating a difficult operating environment throughout 2020 would not have been possible without our experienced and talented team. Their hard work combined with the ability of our sophisticated machine learning analytics enabled us to quickly adapt to the changing environment, pulling back on originations early in the crisis, and then driving a strong recovery and growth in the second half of the year. The result was that for the full year, total revenue declined just 8% to $1.1 billion, while adjusted EBITDA rose 51% to $415 million, and adjusted EPS grew 78% to a record $7.26. As we discussed the last two quarters, our prudent approach to originations earlier in the pandemic led to a contraction in our loan portfolio during Q2 and Q3. However, our ability to quickly accelerate originations during Q4, supported by the strong unit economics we've been seeing, led to the first expansion in our loan portfolio since the pandemic began, with growth both in our legacy loan book and in the on-deck book. In the fourth quarter, our book increased 87% sequentially and 4% from the fourth quarter of last year. Small business products represented 52% of our portfolio in Q4, while consumer accounted for 48%. Within consumer, line of credit products represented 29% of our consumer portfolio and Selma products accounted for 69%, and short-term loans represented just 2%. Fourth quarter originations more than quadrupled sequentially, while down 18% from a year ago. By way of comparison, third quarter originations were down 77% from the third quarter of last year, demonstrating how our nimble online business and rapidly adjusting analytics allows to quickly adjust the business to changing market environments. Another positive trend in Q4 was the increase in originations from new customers to 28% of total originations, up from 11% in Q3. As we continue accelerating originations, we expect that the proportion of new customers will continue to increase over the next several quarters given the demand we are currently seeing. We closed 2020 with month-over-month growth in revenue, AR, and originations for the first time since the pandemic began. And while it was difficult to make forward-looking predictions given the ongoing impacts from COVID, based on what we are seeing today, we expect growth in our originations to continue for the foreseeable future. On the consumer side of our business, taking into account typical Q1 seasonality and despite persistent elevated unemployment, we have had a solid start to 2021, following on the strong sequential growth in originations we produced in Q4. As the economy opens back up, we continue to believe that consumers will increase their spending potentially at elevated levels, as there will be pent-up demand. And as they do, they will need access to credit to support any temporary dislocations between their income and their expenses. Since those customers have been paying down debt during COVID, their personal balance sheet should be in a position where we can successfully lend to them. We saw the same dynamic following the financial crisis, which led to strong origination growth in 2010 and 2011. We are also mindful of any potential impacts from additional stimulus, but based on what we saw from the last round, we do not anticipate it being an impediment to our growth. Our analysis of the prior stimulus showed a marked improvement in credit and collections performance with little impact to customer demand. On the small business side, with the closing of the on-deck acquisition, we are excited to add a world-class brand, great products, and a talented team to Inova's diversified businesses. Our combined S&B products originated over $120 million in December alone, up 26% from November. In addition, we are not seeing much effect from PPP as originations have remained strong so far in 2021. So needless to say, we are very pleased so far with the on-deck acquisition. And as we view the economic landscape, we continue to believe that is an excellent time to be increasing our focus on SMB lending. As the economy emerges from the pandemic, we believe small businesses will be a huge beneficiary of the pent-up consumer demand I just mentioned. Today, much of consumer spending is at large businesses, such as grocery stores, big box stores, utilities, streaming entertainment, and Amazon, of course. But as the economy reopens, consumers will likely increase their spending at small businesses like hair salons, gyms, local retailers, and restaurants. Many of these small businesses have used up their savings trying to survive the pandemic. And they will need access to credit to rebuild inventory, rehire employees, et cetera. This could lead to a huge surge in demand that we are ready to fill. The integration of on-deck is also going well, and we are on track to deliver the forecasted $50 million of annual cost synergies, primarily from eliminated duplicative resources, as well as $50 million in run rate revenue synergies. We also continue to expect that the transaction will be accretive this year and generate EPS accretion of more than 40% when synergies are fully realized in 2022, possibly more as it now appears that our purchase price is even more attractive than we believed at the time we announced the deal. As a reminder, we paid $116 million for OnDeck in a mix of stock and cash. Benefiting from the strong credit performance of the legacy OnDeck portfolio, we are now expecting the value of their portfolio to be much higher than we modeled when we completed the deal. We originally thought that the legacy portfolio would have very little residual value. but we've already realized over $50 million in residual cash payments alone since the closing, and we now expect to receive at least $200 million of total cash from the acquired portfolio net of securitization repayments. In addition, it is likely that we will look to monetize our interest in ODX, OnDeck Canada, and OnDeck Australia, allowing us to focus on the core US SMB lending business. further reducing our net investment in ONDEC. While ODX has been able to sign some high-profile bank clients, divesting ODX will allow for more efficient use of capital as the business has over 70 employees but less than $10 million in revenue. The Australian and Canadian businesses are viable businesses in the respective markets but are small compared to ONDEC's U.S. operations and are unlikely to have a significant impact on Inova's overall growth. In addition, OnDeck only has partial ownership of those two businesses. In summary, we are very pleased with our strong fourth quarter and full-year performance. Our world-class analytics enabled us to successfully navigate an unusual year, and the strength of our business enabled us to further diversify with the opportunistic acquisition of OnDeck. Having successfully navigated 2020, our focus is squarely on accelerating growth in 2021. We have good momentum after an encouraging Q4 and start to 2021, and we are continuing to see very good credit in our portfolio, which gives us flexibility to further increase volume as the economy improves. We remain committed to helping hardworking people get access to fast, trustworthy credit. COVID has created uncertainty in the near term. However, our solid financial position and diverse product offerings position us well to continue to produce sustainable and profitable growth and drive shareholder value. With that, I'll turn the call over to Steve to provide more details on our financial performance and outlook. And following Steve's remarks, we'll be happy to answer any questions that you may have. Steve?