Enova International, Inc.

Good afternoon and welcome to the ANOVA International Third Quarter 2022 Earnings Conference Call. All participants will be in listen-only mode. To need assistance, please signal 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 a question, please press star then two. Please note this event is being recorded. I'd like to turn the call to Dr. Lindsay Satter-Reese, Investor Relations for Innova International. Please go ahead.

Thank you, Operator, and good afternoon, everyone. The Innova release results for the third quarter of 2022 ended September 30, 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 US GAAP reporting, ANOVA 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. I appreciate you joining our call today. I'll start with an overview of our third quarter results, and then I'll discuss our strategy and outlook for the fourth quarter 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. The third quarter was another strong one for Inova. Revenue in the third quarter increased 42% year-over-year and 12% sequentially to $456 million. Adjusted EBITDA was $115 million and adjusted EPS was $1.74. Both increases from Q3 of last year. As these results demonstrate, the Inova team executed extremely well to deliver solid top and bottom line results despite the economic uncertainty. Last quarter, I know some questioned whether we were being overly optimistic in our forward-looking commentary. believing that we would not be able to effectively manage credit given high levels of inflation and the corresponding rising interest rates. But our deep experience, sophisticated and proven machine learning-driven analytics, diversified product offerings, strong balance sheet, and a world-class team enabled us to adapt to the changing landscape. As a result, credit quality across our portfolio remains solid. Net charge-offs were 8.4% in the third quarter. This is slightly higher than Q2 as we continue to add a large number of new customers, which were 43% of total origination. Despite the increase over Q2, net charge-offs remain well below pre-COVID levels of 13.4% in Q3 of 2019 and 13.8% in Q3 of 2018. In addition, at the end of the quarter we saw improvement in early payment performance across recent vintages, which is an encouraging sign as we head into what is typically our busiest season. For years, we have spoken about the strength of our technology, our analytics, our team, and our consistent financial performance. Underwriting non-prime customers is not easy, and that's where these strengths give us a big advantage. In a less certain environment, like the one we are currently in, really highlights our differentiation from our competitors in these areas. In addition, the high payment frequency and relatively short duration of our portfolio provides fast feedback that we can incorporate into ongoing decision-making, enabling us to react quickly if needed. Additionally, our diversified portfolio enables us to lean into the products that are doing well in a particular environment while being more conservative with those that are maybe a bit more challenging. Recently, we've been moderately more aggressive with our shorter maturity products while being a bit more conservative with our longer-term products. This provides us with more visibility and allows us to adapt more quickly in an uncertain macroeconomic environment. So in this last quarter, we emphasized our shorter-term subprime line of credit products as well as our SMB products which all have average effective terms of under a year, while pulling back a bit on our near-prime installment loans that have the longest average duration of any of our products. In the third quarter, small business products represented 60% of our portfolio, while consumer accounted for 40%. Within consumer, line of credit products increased to 33% of our portfolio, while installment products decreased to 67%. Given our continued focus on short maturity products, we expect the percentage of consumer installment loans in our portfolio to decrease over the next several quarters. In addition, it is likely that SMB originations will continue to grow as a percentage of the total, as we are seeing strong demand and strong unit economics. Credit performance of the SMB portfolio remains solid, and despite setting higher ROE targets during the quarter, originations remain strong. We continue to analyze real-time cash flows as well as external data to monitor industries that are more prone to recessions and inflationary pressures. And we are pleased with the portfolio we have curated over the last several quarters. Our small business brand presence as well as the diversity of our three SMB products positions us well to continue to capture share in this market. Finally, as Steve will discuss in more detail, Due to our consistent and predictable results, we've been able to build a strong balance sheet, ending the quarter with almost $800 million of total liquidity. As we look forward to Q4 in early 2023, we are maintaining the balanced approach to growth and risk I mentioned a few minutes ago, and have increased the ROE targets across all of our products. While this approach will likely result in us originating a little less volume than we would have if we had a more growth-focused approach, we were still able to generate strong growth in Q3 and are optimistic that we will have strong originations in Q4 as well. This optimism is in part due to us observing some of the strongest demand and lowest levels of competition in my nine years at Inova. Total company originations for the quarter reached 1.2 billion up 10% sequentially and up 40% compared to the third quarter of 2021, while our portfolio grew 59% year-over-year to just over $2.6 billion. On the demand side, while many consumers still have elevated savings from pandemic stimulus, these savings levels are declining, in part due to the high levels of inflation we are currently experiencing. This is resulting in an uptick in demand for credit. We believe that customers will be able to effectively manage these higher credit levels due to the historically high employment levels and strong wage growth. It is important to understand that our customers are familiar with living paycheck to paycheck and are sophisticated at managing variabilities in their cash flows. Demand has also remained strong for our SMB products. Small business government stimulus has been exhausted and we believe that we're seeing additional tailwinds as banks have tightened credit, resulting in high credit quality borrowers who may have otherwise gone to a bank coming to us. On the competitive side, we are seeing both consumer and SMB competitors pull back meaningfully on originations as they struggle to manage both credit and their loan portfolios and access to capital, problems that we are not experiencing. Before I wrap up, I want to spend a minute on the recent ruling in the Fifth Circuit CFPB case. It now appears likely that the payment provision of the CFPB small dollar rule will not become effective. The work to comply with this provision would have been significant, and those efforts will now be focused on our balanced approach to growth and better serving our customers. Also, if the original rule would have been implemented as proposed, would have likely required us to reduce lending to our lowest credit quality customers who are the ones most in need of credit. Notwithstanding the court's ruling in this case, we continue to support sensible regulation that balances appropriate consumer protections with access to credit for all. In sum, our continued success is a testament to our strong team, diversified product offerings, and the strength of our proprietary technology and analytics. Looking ahead, we remain dedicated to our mission of helping hardworking people get access to fast, trustworthy credit. We will continue to manage the business to produce sustainable and profitable growth. I would like to turn the call over to Steve. We'll 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?