Enova International, Inc.

Good day and welcome to the Inova International first quarter 2021 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 telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Lindsay Savarese, Investor Relations for Inova International. Please go ahead.

Thank you, Operator, and good afternoon, everyone. Inova released results for the first quarter of 2021 and in March 31, 2021, 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, and Steve Cunningham, Chief Financial Officer. This call is being webcast and will be archived on the investor relations section of our 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. Actual results may differ materially as a result from various important risk factors, including those discussed in our earnings press release and in our annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Forms 8-K. 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.

Thanks, and good afternoon, everyone, and thank you for joining our call today. I'll provide an overview of our first quarter results, and then I will discuss our strategy and outlook for the remainder of 2021. After that, I'll turn the call over to Steve Cunningham, our CFO, who will discuss our financial results and outlook in more detail. We started the year with a solid first quarter despite the ongoing pandemic. Our top line results were in line with our expectations, and we delivered record first quarter profitability driven by solid credit performance, improving originations, and disciplined expense management. Revenue in the first quarter decreased 2% sequentially, reflecting typical Q1 seasonality, and 28% year over year. Adjusted EBITDA rose 278% year-over-year to $137 million. And adjusted EPS increased more than eight times to $2.20, both first quarter records. Following a reacceleration during Q4, originations were down 5% sequentially, mostly due to typical first quarter seasonality. But they increased 7% year-over-year in Q1 as we ramped up marketing activities late in the quarter in response to improving macroeconomic factors, including the aggressive rollout of the COVID vaccines. As a result, originations from new customers increased to 33% of total originations, up from 28% in Q4 of 2020. Notably, we are seeing continued strong payment performance for new customers. While Q1 is typically a seasonally slow quarter for originations, as I just mentioned, We did see some additional softness on the consumer side of our business from the combination of stimulus payments and tax returns. And on the small business side, we saw similar impacts from PPP. However, despite these headwinds, we were able to maintain consistent originations from our strong growth in Q4. And importantly, based on what we are seeing today, we do not believe that stimulus will be an impediment to our future growth. As we have mentioned, our analysis of prior stimulus showed a marked improvement in credit and collections performance, followed by a quick rebound in demand when the stimulus ended. And we're seeing similar dynamics now. As stimulus payments, tax returns, and PPP are winding down in Q2, we have seen an encouraging acceleration in originations recently. We believe this demonstrates that consumers will continue to need access to credit and that these needs should increase as the pandemic eases. As the economy opens back up, we believe that consumers will raise their spending potentially to elevated levels due to increased activity and 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 consumers 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. And on the small business side, 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 and big stock stores, utilities, streaming entertainment, and Amazon. 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 businesses have used up their savings trying to survive the pandemic and will need to access credit to rebuild inventory, rehire employees, and other reopening activities. This could lead to a large surge in demand that we are ready to fill. As a result, we continue to believe that it is an excellent time to be increasing our focus on SMB lending. Looking ahead, while there remains uncertainty related to COVID, based on what we are seeing today, we expect growth and originations to continue for the foreseeable future. For example, recent economic data appears very positive for our business. US retail sales jumped 9.8% in March from the prior month as stimulus, vaccinations, and reopening spurred a burst of shopping. In another sign of economic recovery, jobless claims dropped sharply last week to 576,000, a new low since the onset of the pandemic. In the first quarter, Small business products represented 55% of our portfolio, while consumers accounted for 45%. Within consumer, line of credit products represented 27% of our consumer portfolio, installment products accounted for 71%, and short-term loans represented just 2%. With small business now over 50% of our portfolio, we are pleased with our small business offerings as originations continue to be strong. Our SMB originations increased 11% sequentially to $322 million, and total revenue from our SMB products increased 17% sequentially and more than tripled year over year to $76 million. We believe we are continuing to take share in the SMB market with a diversified portfolio across a wide range of industries, states, product types, loan sizes, and prices. From an operational perspective, the integration of ONDEC is largely complete. Our three SMB products are working together as a single business, and we are on track to deliver more than the forecasted $50 million of annual cost synergies, primarily from eliminated duplicative resources, as well as $15 million in run rate net revenue synergies. We will achieve all of these synergies this year with upside in future years from longer-dated projects like data center consolidation, real estate, cross-selling, and further integration of our advanced analytics and machine learning into OnDeck. We also continue to expect that the transaction will be accretive in 2021 and generate EPS accretion of more than 40% in 2022. And as we discussed last quarter, while we originally thought that OnDeck's legacy portfolio would have very little value, We now expect to receive over $200 million of total cash from the acquired portfolio net of securitization repayments. Before I wrap up, I want to spend a few minutes on a recent acquisition of Pangea Universal Holdings. For those of you that are not familiar with Pangea, they are a Chicago-based payments platform offering mobile international money transfer services. They have helped the underbanked seamlessly complete millions of transfers over the last 10 years. Pangea's mission is to make money transfer secure, simple, and affordable. They have revolutionized the customer experience in this growing market as consumers increasingly choose online money transfer solutions instead of relying on brick-and-mortar storefronts. Pangea's mobile app allows users to transfer money quickly and seamlessly from the U.S. to 40 countries. Their focus has primarily been on Latin America and Asia, which the World Bank estimates to be a combined $71 billion per year market in outflows from the U.S. With the acquisition of Pangea, we gain a product in a segment of the market we know well, underbanked Americans, and we now have another high-growth business in our portfolio. Pangea will leverage Innova's online business expertise as well as our analytics, technology, marketing, regulatory compliance, and capital markets capabilities. Given our extensive experience managing online businesses, we believe there's a significant opportunity to bring a world-class technology, machine learning, and artificial intelligence capabilities to Pangea's operations. While Pangea's financial results are not material right now to the overall Innova business, We are excited about the opportunity to rapidly grow this business given the large addressable market. In summary, I'm pleased with our solid start to the year and believe it sets us up well for the remainder of 2021 and beyond. Our world-class analytics have enabled us to successfully navigate challenging market conditions, and we remain focused on accelerating growth. We continue to see very good credit in our portfolio, which gives us flexibility to lean into demand as the economy continues to improve. We remain committed to helping hardworking people get access to fast, trustworthy credit. COVID has created uncertainty in the near term. However, our experienced management team, solid financial position, and diverse product offerings position us well to continue to produce sustainable and profitable growth and drive shareholder value. Now I'd like to turn the call over to Steve Cunningham, our CFO, who will discuss the financial results and outlook in more detail. And following Steve's remarks, we'll be happy to answer any questions that you may have. Steve?