Enova International, Inc.

Good afternoon, and welcome to the Inova International Second Quarter 2022 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 release results for the second quarter 2022 ended June 30th, 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 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 Forms 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.

Good afternoon, everyone. Thanks for joining our call today. I will start with an overview of our second quarter results, and then we'll 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. In the second quarter, we once again delivered solid top and bottom line results driven by strong demand and stable credit across all of our products. Revenue in the second quarter increased 54% year over year and 6% sequentially to $408 million. Adjusted EBITDA was $102 million and adjusted EPS was $1.64. We are committed to producing sustainable and profitable growth and are pleased with our continued execution on this front. Despite some turbulence in the macroeconomic environment, including elevated inflation and recession concerns, our customer base remains stable with better than expected demand and continued strong credit performance. I know these results will come as a surprise to some, but the macro trends for our target customers remain positive. Non-prime customers are actually on pretty solid footing with strong wage growth, particularly at lower income levels and excess saving levels of $2 to $3 trillion in totals, according to Barker. More importantly, the labor market remains high. The latest data from the Bureau of Labor Statistics shows that there were more job openings than people seeking jobs for the first time ever. In addition, the unemployment rate remains historically low, and wages are growing. While real wage growth has been negative the last couple of months because of elevated inflation, it remains very positive over a six-month, one-year, and five-year period. At a more focused level, the electronic bank statement data we obtained shows a meaningful increase in our customers' monthly income over the past year. The electronic bank statement data also shows healthy spending as consumers still have savings accumulated during the COVID pandemic and appear to be trying to make up for lost time by increasing their spending in dining, travel, and clothing. Despite the higher savings in wages, many of our customers still live paycheck to paycheck and have temporary dislocations between their earnings and expenditures. As we've mentioned before, low unemployment plus inflation generally mean consumers may need loans for additional capital, but have earnings to pay those loans back. And as the results demonstrate, our customers continue to manage well through the current rise in inflation. Looking forward, while the economy could dip into a recession, and possibly already has, recessions tend to have less of an impact on our customers than on prime borrowers. They are experienced in living paycheck to paycheck and are able to quickly adjust their finances as needed. As for our S&V customers, the surge in consumer spending I mentioned is helping small businesses. And businesses have been able to pass along price increases, bolstering their bottom line and creating a strong credit environment. So while we feel very good about the performance of our customers in this current environment, we are cognizant of the fact that the economy could continue to deteriorate. As a result, we are taking a more balanced approach between growth and risk at the moment. while we always keep a sharp focus on credit. In late 2020, we began aggressively increasing our origination coming out of the pandemic, and by Q2 of 2021, our focus was to grow as fast as prudently possible given the strong demand we received, very strong credit metrics, and supportive macroeconomic environment. But beginning in late Q1 of this year, we shifted our focus to put credit performance on a more even plane with growth. As you can see from our origination growth in Q2, this does not mean we are retracting, but it does increase the resiliency of our portfolio. We do this by increasing our ROE targets across our products. In Q2, our ROE was more than double our weighted average cost per capita, showing that we have plenty of room for credit performance to deteriorate while still generating healthy returns. And finally, The high payment frequency and relatively short duration of our portfolio provides fast feedback that we incorporate into ongoing decision-making, enabling us to react quickly if the economic environment changes. The result is that credit quality remains strong, with net charge-offs of 7.2% in the second quarter compared to 7.6% in Q1. Notably, net charge-offs remained well below pre-COVID levels of 11.8% in Q2 of 2019 and 12.4% in Q2 of 2018. Total originations for the second quarter totaled just over $1 billion, up 5% sequentially from an unusually strong Q1, and up 60% compared to our second quarter of 2020, while our portfolio grew 68% nearly $2.4 billion. Our marketing efforts have been highly effective as originations from new customers were 42% of total originations. The strong new customer growth we have seen over the last several quarters provides a big tailwind as those customers return for additional credit over time. We're encouraged by this growth as returning customers with a successful history of paying performance typically default at a much lower rate than new customers. As we've discussed in depth, our highly diversified portfolio provides us additional protection against changes in the macroeconomic and regulatory environment and changes in the competitive environment. In the second quarter, small business products represented 57% of our portfolio, while consumer accounted for 43%. Within consumer, line of credit products represented 30% of our consumer portfolio, installment products accounted for 69%, and short-term loans are now only 1%. We continue to expect the mix between consumer and small business to fluctuate over time based on both macroeconomic factors and seasonality. We continue to see strength in small businesses that have been beneficiaries of the economy reopening as the pandemic raged. Due to small business originations were 3% higher than Q1, and credit performance in the portfolio remained strong. We do continue to analyze real-time cash flows as well as external data to monitor industries that are more prone to recession. And over the last several quarters, we have been pulling back on a few recession-prone industries like construction and transportation. As we have discussed previously, we have demonstrated a prudent approach to growing our small business growth. Looking further out, we believe we are competitively well-positioned given the strong brand presence and diversity of our portfolio. And the success of the ONDEC acquisition continues to exceed our expectations. We delivered on our divestiture strategy this year that we communicated at the time of the acquisition to monetize our investments in ODX, ONDEC Canada, and ONDEC Australia. These transactions will enable us to focus our resources on our core consumer and small business brands in the US and Brazil. In sum, we've been successful through a number of economic cycles, including the Great Recession and the onset of the COVID pandemic. Our success is a testament to the strength of our proprietary technology and analytics and our extremely talented employees. In addition, our diversified product offering provides additional resiliency and our portfolio is more diversified than ever. We continue to see solid momentum across Inova, with a very strong start to Q3 originations and continued stable credit. We will, as always, manage the business to drive profitable growth and believe that our highly flexible, online-only model, extensive track record of navigating different market conditions, strong balance sheet, and talented team will drive our performance in the years to come. 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. And following Steve's remarks, we'll be happy to answer any questions that you may have. Steve?