Enova International, Inc.

Good afternoon and welcome to the ANOVA International First Quarter 2023 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 2. Please note this event is being recorded. I would now like to turn the conference over to Lindsay Savarese of Investor Relations. Please go ahead.

Thank you, Operator, and good afternoon, everyone. Innova released results for the first quarter 2023 and in March 31, 2023, this afternoon after 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.enova.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. I appreciate you joining our call today. I'll start with an overview of our first quarter results, and then I'll discuss our strategy and outlook for 2023. 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 once again delivered strong results. Our balanced approach to growth combined with our diversified product offerings have enabled us to successfully navigate the current macroeconomic backdrop. Thanks to the skillful execution of our world-class team, we're able to generate more than $1 billion in originations for the sixth quarter in a row. Revenue in the first quarter of $483 million increased 25% year-over-year demonstrating our ability to drive profitable growth while remaining focused on maintaining stable credit in this environment. Q1 revenue was flat sequentially due to normal first quarter seasonality. As a result of strong revenue growth and diligent credit management, adjusted EBITDA increased 19% year-over-year and 5% sequentially to $126 million. And adjusted EPS increased 7% year-over-year and 2% sequentially to $1.79. While demand is seasonally weakest in Q1, it remained relatively solid this year. Our customers across both consumer and small business are underserved by traditional banks, and they need access to capital during a variety of economic environments. That being said, in Q1, we prioritize maintaining strong credit metrics as opposed to maximizing origination growth, especially early in the quarter. Our combined loan and finance receivables increased 28% year over year to $2.8 billion. Originations increased 2% year over year, but we're down 9% sequentially in line with typical Q1 seasonality. Marketing was very efficient in the quarter and decreased its percentage of our total revenue to 17% from 24% last year evidencing the solid demand I just mentioned. Similar to the past few quarters, the growth came from our SMB business and our consumer line of credit products, demonstrating the clear importance of having a diversified portfolio. Today, small business products represent 65% of our portfolio, up from 56% in Q1 of last year. SMB revenue increased 47% year-over-year and 1% sequentially. Given our strong brand presence, minimal competition, and diverse portfolio, we continue to see a long runway ahead to drive meaningful volume. Our consumer businesses also performed well in Q1. Consumer revenue increased 13% year-over-year, but was down 2% from a strong Q4, again reflecting typical Q1 seasonality. In line with our expectations, the percentage of consumer installment loans in our portfolio decreased in Q1, while our line of credit products increased as a percentage of total consumer loans. We have continued to de-emphasize our longer-term near-prime installment loans and have emphasized instead our shorter duration and smaller dollar line of credit consumer products, resulting in higher payment frequency and a relatively short duration of our portfolio. This gives us a more real-time view into credit performance. In addition, last year we made the decision to wind down our short-term single-pay or payday product. We made our final single-pay loan in Q2 of last year, and all single-pay loans had run off our books by the end of Q3. In Inova's early years, single-pay loans were the large majority of our business. However, over the years, their significance dwindled largely due to customer preference for other products we offered. This move will allow us to simplify our operations and focus on our faster growing products. Prior to discontinuance last year, they represented less than 2% of our total portfolio. Given how small of a contribution this product had on our overall results, exiting it has had no material impact on our business, as you can see from our results over the past few quarters. Turning to credit performance, Overall credit was very good in the quarter and is looking even better heading into Q2 as we continue to successfully manage credit through numerous changes in the macroeconomic environment, leading to continued solid profitability. Net charge-offs were 8.2% in the first quarter, down from 8.8% last quarter. Notably, net charge-offs remain well below pre-COVID levels of 15.8% in Q1 of 2019, and 13.7% in Q1 of 2018 from a combination of mix shift and good credit management. To give added perspective on how we manage credit, over the past five years, we've been using a sophisticated recession monitoring analysis to assess the macroeconomic environment. This is what led us to increase our ROE targets across all of our products during the back half of 2022, to strike a more prudent balance between growth and risk. In addition, our sophisticated machine learning models, combined with our experienced team, are continually making small operational changes to address areas of concern and take advantage of opportunities. We are literally making hundreds of small changes each quarter to optimize between originations and credit performance. It's important to understand that not all products move in lockstep. For example, in mid-2022, consumer defaults became elevated. Accordingly, we tightened our underwriting in late Q2 and into Q3 to bring these metrics back in line with our targets. And the result was some of the strongest credit metrics we had ever seen by Q1. In contrast, credit metrics for the SMB portfolio lagged consumer by a quarter or two as we saw much better than historical averages for most of 2022 in that business. However, late in the year, as we saw the impact to our credit metrics of the portfolio normalizing to historic levels, we tightened the small business models and increased our focus on collections to ensure strong credit performance and unit economics. Now, credit metrics across SMB look solid, although there will be a bit of a lag with net charge off into Q2, as Steve will discuss. Again, this demonstrates the importance of having a diversified portfolio, world-class machine learning algorithms, and a deep and experienced team. Looking forward, as a result of the current solid credit performance and strong demand we're observing, We believe there is opportunity to be moderately more aggressive with originations now, particularly on the consumer side. And in fact, volume has been quite strong so far in April. To wrap up, while other financial service companies have struggled to access liquidity in the current market environment, our solid balance sheet, more than $900 million of liquidity, and proven ability to access the capital markets gives us the flexibility to continue to deliver on our commitment to drive long-term value for our shareholders. The macroeconomic environment was obviously noisy in Q1, but not at Inova. We had another strong quarter, again, demonstrating that it's not an overly risky business, but instead one that can operate well in a variety of economic environments. This consistent and industry-leading performance combined with our strong recent results and lackluster stock price, has made it more clear to us than ever that there's meaningful upside to our current share price and that we need to do more to unlock shareholder value. We are working with external advisors to gauge various alternatives. In addition, as you may have noticed, we are providing more insights about our business to show its strength. Last quarter, we discussed how large and strong our SMB business has become. And this quarter, we've discussed more on how we manage credit. We have not yet identified all the tactics we will take to unlock value, but we are confident that we have the right strategy, products, tech, and analytics, team, and balance sheet in place to build on our success. With that, I would like to turn the call over to Steve, 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?