Enova International, Inc.

Good day and welcome to the Inova International first quarter 2022 earnings call. All participants will be in a 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 the star then one. Please note that this event is being recorded. I would now like to turn the conference over to Cassidy Fuller, Investor Relations. Please go ahead.

Thank you, Operator, and good afternoon, everyone. Inova released results for the first quarter 2022 and in March 31st, 2022, 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 has been 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, ANOVA reports certain financial measures that do not conform to generally accepted accounting principles. We believe that 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 will first provide an overview of our first quarter results, and then I will discuss our strategy and outlook for the remainder of 2022. 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 are pleased to start the year on such a positive note with a seasonally robust first quarter highlighted by stronger than expected demand. Originations were particularly strong in our SMB and near prime businesses. We also continue to see good credit quality across all of our businesses, well below pre-COVID levels. Net charge-offs of 7.6% in the first quarter were less than half those in the first quarter of both 2020 and 2019. Given these dynamics, we meaningfully leaned into the demand with our marketing efforts. Marketing spend was 24% of revenue in Q1. While this is higher than historic levels, a portion of the increase is due to our switch to fair value accounting, where no marketing costs are deferred to future periods resulting in higher marketing costs as a percentage of revenue and periods of strong growth. Steve will provide a bit more detail on this impact, which we've discussed in prior quarters. But more importantly, at these current levels of spend, our expected unit economics on our recent vintages remain well above our targets. But as always, we'll keep a close eye on these metrics to ensure we produce sustainable and profitable growth over the long term. As a result of the strong demand and our successful marketing, total company originations for the first quarter totaled just over $1 billion, nearly flat sequentially from a very strong Q4, and more than double originations during the first quarter of 2021, while our portfolio grew 71% to $2.2 billion in the quarter. Originations from new customers remained strong at 44% of total originations showing our ability to continue to take share across our non-prime lending businesses. As evidenced by the strong loan growth in Q1, combined with the continued strong credit metrics across our portfolio, our customer base remains resilient despite some of the turbulence in the macroeconomic environment, including concerns over inflation. A large contributor to the stability of our customer is healthy wage and job growth. Americans are experiencing the highest level of job security on record by many measures. New claims for unemployment benefits are trending at their lowest level since 1968, a sign of how few layoffs are happening in the tightest labor market in half a century. In addition, wages have grown almost 6% over the past year, far faster than the normal 2% annual growth over the last couple of decades. Low unemployment plus inflation generally mean consumers may need loans for additional capital to manage through unexpected spikes in expenses, but are earning money to pay back those loans. And overall, our customers appear to be managing well through the current rise in inflation. A recent analysis we performed on our customers' electronic base statement data has shown that while expenditures on a typical basket of goods has increased, there was enough of a cushion in discretionary spending to absorb the higher costs of things like groceries and gas. Therefore, we do not see much risk to portfolio health from inflation. This is further evident to the point that we've made many times in the past. Non-prime consumers and small businesses are very sophisticated at managing their finances, and in many cases, better than prime customers. We're also seeing strength in small businesses who've been beneficiaries of the economy reopening as the pandemic wanes. Credit performance speaks for itself in that portfolio, and we continue to monitor real-time cash flows of our SMB customers, as well as external data to monitor industries in order to adjust our pricing and exposure against the current trends and the macro environment. And a final point on inflation. Given the spreads in our average APRs over our cost of capital, small increases in the Fed funds rate will not have a meaningful impact on our profitability. As Steve will discuss in more detail, the strong performance and long-term stability of our portfolio means we continue to be able to secure low-cost financing as needed. The result is that we actually expect our overall cost of funds this year to be meaningfully lower than prior years, even with the recent and expected rise in rates. As you may recall, first quarter seasonality typically results in a sequential revenue decrease from the fourth quarter driven by tax refunds. However, as a result of the strong origination growth this year, revenue in the first quarter increased 49% year over year and 6% sequentially to $386 million. And benefiting from the strong credit performance, we produced solid bottom line returns as well with adjusted EBITDA of $106 million and adjusted EPS of $1.67, both up 4% from the fourth quarter. As we've discussed in depth, our highly diversified portfolio provides us additional protection against changes in the macroeconomic environment, changes in regulation, and changes in the competitive environment. In the first quarter, small business products represented 56% of our portfolio, while consumer accounted for 44%. Within consumer, line of credit products represented 28% of our consumer portfolio, installment products accounted for 70%, and short-term loans represented less than 2%. We continue to expect the mix between consumer and small business to fluctuate over time based on both macroeconomic factors and seasonality. In summary, we are very encouraged by the momentum in the business. We are seeing the strong demand we witnessed in Q1 continue into the first part of this quarter. And longer term, we are very confident that our highly flexible online-only business model and well-diversified portfolio will enable us to continue to capture market share. In addition, we believe that our long track record of quickly adapting to changes in market conditions and our nimble team will enable us to continue to effectively manage risk and growth. Now I would like to turn the call over to Steve Cunningham, our CFO, who will discuss our financial results and outlook in more detail. Following Steve's remarks, we would be happy to answer any questions that you may have. Steve?