Enova International, Inc.

Good afternoon, and welcome to the Inova International Third 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. Please go ahead.

Thank you, Operator, and good afternoon, everyone. Inova released results for the third quarter of 2021, ended September 30, 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 Form 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, Innova 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. I'll first provide an overview of our third quarter results, and then I will discuss our strategy and outlook for the remainder of 2021 and into next year. After that, I'll turn the call over to Steve Cunningham, our CFO, who will discuss our financial results and outlook in more detail. In the third quarter, we again delivered strong results, as our diversified business model, world-class machine learning analytics, and our terrific team were able to take advantage of the improving economic environment. Similar to Q2, we saw strong and improving demand combined with good credit quality across all of our businesses. Given these dynamics, we continued to lean in heavily with our marketing efforts. As a result, our marketing spend over the last two quarters has been well over 20% of revenue which is meaningfully higher than in prior years. Despite this increase, we are very comfortable that this investment will generate strong returns. As we've discussed, we use our advanced machine learning analytics to constantly monitor expected loan level unit economics at a very detailed level. At our current customer acquisition costs, with the strong credit metrics in our portfolio, the expected unit economics on our recent vintages remained well above our targets. But as always, we will keep a close eye on these metrics as we continue to grow, as we are committed to producing sustainable and profitable growth over the long term. Third quarter originations were up 26% sequentially, building on a strong Q2, and were over six times higher than the third quarter of last year. when we significantly scaled back originations during the pandemic. This is the second consecutive quarter we have produced sequential growth above 25%. In addition, originations from new customers increased to a record 43% of total originations, up from 39% in Q2 of 2021 and well above 11% in Q3 of 2020. as we believe our broad and diverse product offering, combined with effective marketing across a wide range of channels, is resonating very well with customers. In the third quarter, consumer products accounted for 47% of our portfolio, and small business products represented 53%. Within consumer, line of credit products represented 33% of our consumer portfolio, installment products accounted for 65%, and short-term loans represented just 2%. We continue to expect the mix between consumer and small business to fluctuate over time based on both macroeconomic factors as well as seasonality. We are pleased with the diversified nature of our portfolio and do not have specific targets for the optimal mix between consumer and small business lending. Instead, our strategy is to optimize that mix based on the economic environment at the time to maximize our unit economics and the returns we generated on our invested capital. Thanks to the skillful execution of our team during the last 18 months since the pandemic began, we believe we are continuing to take share in both the SMB and consumer markets with our diversified product offerings and consumer-friendly online-only model. As the economy continues its recovery, we're seeing consumers increase their spending, which is driving demand for credit. In addition, as we've been predicting, small businesses have been beneficiaries of the pent-up consumer demand and the resulting increased spending. We are encouraged by these dynamics heading into the end of the year, which is typically our seasonally strongest quarter for growth, and we now have considerable tailwinds heading into 2022. Given that, We expect to see continued strong origination growth and elevated marketing spend for at least the fourth quarter and likely into 2022. During the quarter, we made the decision to wind down Inova Decisions to allow us to strategically focus our efforts on our remaining businesses, which we believe have larger growth opportunities and are better aligned with our core competencies. Innova Decisions would have required significant increased investment to scale to the next level, and we believe we are better served by directing our capital, resources, and our people on the highest growth opportunities ahead of us. We are currently in various stages of experimentation and development with about a half dozen new initiatives in addition to the ones we have previously discussed. While Innova Decisions was growing, albeit at a slow pace, It was never a significant driver of our overall growth and did not significantly contribute to our results. Additionally, we do not expect any major cost to wind down the business. In contrast, Brazil, one of our other new initiatives, is having a nice resurgence in growth. As we've discussed in the past, new legislation in Brazil last year significantly improved our ability to electronically fund and collect from our customers. The new rules became effective March 1st, and since then we've been testing and troubleshooting the new processes with large Brazilian banks. With most of those issues now resolved, we are focusing on quickly increasing origination volume and have seen promising initial results. Before I wrap up today, I want to touch on the CID that we announced in our press release. The CPB is investigating a handful of issues, several of which were self-reported by Inova. We have been cooperating fully with the CFPB, as we always do. This is a routine process with the CFPB, particularly in our industry, and we've been through it with them in the past. As a result, we anticipate being able to work with the CFPB to expeditiously complete this investigation. In summary, Q3 is another great quarter, and we are encouraged by the strong momentum we are seeing. The improving economy, combined with our highly scalable and flexible machine learning technology, provide tailwinds heading into the end of 2021 and beyond. Given this encouraging backdrop, we will continue to lean into man and help hardworking people across the nation get access to fast, trustworthy credit. 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 will be happy to answer any questions that you may have.