Enova International, Inc.

Good afternoon and welcome to the ENOVA International Second 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 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 second quarter, 2023, and in June 30, 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.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, 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.

Thanks. Good afternoon, everyone. I appreciate you joining our call today. I'll start with an overview of our second quarter results, and then I'll discuss our strategy and outlook for the remainder of 2023. After that, I'll turn the call over to Steve Cunningham, our CFO. We'll discuss our financial results and outlook in more detail. In the second quarter, we were once again able to deliver strong top and bottom line numbers. Our consistent performance is the result of our talented team executing on our balanced approach to growth by leveraging our world-class machine learning algorithms and technology across our diversified product offerings, enabling us to quickly adapt to the current macroeconomic backdrop. The result was Innova originating more than $1 billion for the seventh quarter in a row, Additionally, we're pleased to see solid credit quality across all of our businesses. Revenue in the second quarter was just shy of half a billion dollars, which is a 22% increase year over year and 3% sequentially, demonstrating our ability to generate strong growth in an uncertain market environment. As a result of strong revenue growth and diligent credit management, adjusted EBITDA and adjusted EPS increased 24% and 5% year-over-year to $126 million and $1.72 respectively. In line with our expectations and typical seasonality for our business, adjusted EBITDA was flat compared to Q1 of this year and adjusted EPS was down 4% sequentially. Given the continued uncertainty in the macroeconomic environment, We are maintaining the higher than typical ROE targets across our products as we've discussed in prior quarters. That being said, strong demand, especially on the consumer side of our business, combined with continued solid credit performance, enabled us to be more aggressive with originations. Our combined loan and finance receivables increased 20% year over year to $2.9 billion, driven by a 2% year over year increase and 5% sequential increase in originations. Strong demand and our balanced approach to growth contributed to efficient marketing in the quarter as it decreased to 19% of our total revenue from 22% in Q2 of last year. So much of the past few quarters, our diversified portfolio continues to drive our growth. While business products represented 62% of our total portfolio, up from 57% in Q2 of last year. SMB revenue increased 27% year-over-year and was down 2% sequentially as we continued to maintain good credit and hit our unit economic targets. Under Q1 call, we discussed that in general, not all of our products move in lockstep. there may be quarters where we tighten our underwriting in either our consumer or SMB business to bring our results in line with ROE targets. As a result of our conscious decision to raise our unit economic targets and our proven ability to manage our portfolio, we continue to generate strong unit economics in our SMB portfolio as we have targeted those higher ROE and unit economic targets. As Steve will discuss in more detail, We are pleased to have recently raised more than $500 million of funding to support our SMB business and our receivables growth, reinforcing the strength of our performance of that portfolio. Turning to our consumer business, which performed exceptionally well in Q2, consumer revenue increased 19% year-over-year and 8% sequentially, driven by strong demand for our consumer line of credit products. Credit metrics are very strong across our portfolio, evidenced by the fact that our consumer net charge-off rate declined to the lowest levels we've seen in the past several years. This is to be expected given our focus on prudent underwriting coupled with all the positive consumer economic data. Job growth remains strong, wages are continuing to rise, and inflation is easing. In line with our expectations, and consistent with the prior few quarters, the percentage of consumer installment loans in our portfolio decreased in Q2, while our line of credit products increased as a percent of total consumer loans. As a reminder, we have continued to de-emphasize our longer-term near prime installment loans and are instead focusing on our shorter duration and smaller dollar consumer line of credit products, giving us a more real-time view into credit performance given the higher payment frequency and relatively short duration. Turning to credit performance, overall credit was strong in the quarter as we continued to successfully manage credit through the current macroeconomic environment, leading to continued solid profitability. Net charge-offs were 7.6% in the second quarter, down from 8.2% last quarter. Notably, net charge-offs remained well below pre-COVID levels of 11.8% in Q2 of 2019 and 15.9% in Q2 of 2018. In sum, our stable, strong results continue to prove time and time again that we are skillful operators in a variety of environments. Our flexible online-only business model nimble machine learning powered credit risk management capabilities, diversified product offerings, and solid balance sheet position us well to continue to drive profitable growth while also effectively managing risk. Our sophisticated technology and analytics are primed to quickly adapt to any changes in the economic environment, which combined with our vast experience puts us in a unique competitive position to take market share in a nine prime lending landscape. To wrap up, as Steve will discuss in more detail, we've been very thoughtful about building a strong balance sheet and ended the quarter with $1.1 billion of total liquidity. This gives us the flexibility to continue to deliver on our commitment to driving long-term value for our shareholders. We have demonstrated our ability to drive consistently strong results in a variety of macroeconomic environments. Yet we continue to believe there's still a disconnect between our business fundamentals and our current valuation. As such, we will continue to work with external advisors to gauge various alternatives. While we are exploring all options to further unlock shareholder value and are not set on any one plan yet, We remain committed to repurchasing shares and bonds and are confident that there's more that can be done. 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 will be happy to answer any questions that you may have. Steve?