Enova International, Inc.
Q2 2021 Earnings Call Transcript

Published: 29 Jul 2021

[Operator:]

Good day, and welcome to the Enova International Second Quarter 2021 Earnings Conference Call. All participants will be in a listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Lindsay Savarese, Investor Relations. Please go ahead.

[Lindsay Savarese:]

Thank you, operator, and good afternoon, everyone. Enova released results for the second quarter of 2021 ended June 30, 2021, 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.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.

[David Fisher:]

Good afternoon, everyone. Thanks for joining our call today. I'll give an overview of our second quarter results and then I will discuss our strategy and outlook for the remainder of 2021. 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 second quarter played out just as we expected and as we discussed on our Q1 earnings call. As the economy began to open back up, consumers rapidly increase their spending, demonstrating the pent-up demand that we believed existed. In addition as predicted, we are finding that small businesses have been beneficiaries of this pent-up consumer demand. Because of these dynamics, we saw a sharp increase in demand across all of our products during the quarter. To capture this increase in demand, we aggressively and quickly ramped up marketing to lean into the strong demand and solid credit quality we observed. One of the real benefits of our online-only model is the ability to rapidly adjust marketing investment based on consumer behavior. For quite some time we've been trying to increase marketing as a percentage of revenue and are pleased with our ability to do exactly this in Q2. The result was solid originations growth with Q2 originations, up 35% sequentially and more than seven times the second quarter of last year when we scaled back originations at the onset of the pandemic. In addition, originations from new customers increased to 39% of total originations, up from 33% in Q1 of 2021 and well above the 7.4% during the pandemic in Q2 of 2020.

[Steve Cunningham:]

Thank you, David, and good afternoon, everyone. As David mentioned in his remarks, we continue to be encouraged by our historically strong credit quality and the meaningful increase in originations across our businesses as demand continues to improve. We originated more receivables this quarter than any second quarter in our company's history, ended the second quarter with the largest receivables portfolio in our company's history and continue to deliver near record profits. The ability of our talented team to successfully navigate, a challenging operating environment, and to smoothly integrate OnDeck over the past year has us well positioned to grow meaningfully from here as we leverage our resilient direct online-only business model, nimble machine learning powered credit risk management capabilities, and solid balance sheet. Now turning to Enova's second quarter results. As you'll note in my comments, our total company and small business results, when compared to the year-ago quarter are heavily influenced by our acquisition of OnDeck last October. As expected second quarter total company revenue from continuing operations was $265 million, an increase of 2% sequentially and 5% from the second quarter a year ago. Total company combined loan and finance receivables balances on an amortized basis were $1.4 billion at the end of the second quarter, up 12% sequentially and 73% higher than the second quarter a year ago. Total company originations were $681 million, up 35% sequentially and originations from new customers were 39% of total originations, our highest percentage since the third quarter of 2019, as we were able to accelerate our marketing activities and attract a higher proportion of new customer demand as the economy opened up in the second quarter.

[Operator:]

We will now begin the question-and-answer session. And the first question comes from David Scharf with JMP Securities. Please go ahead.

[David Scharf:]

Great, good afternoon, and thanks for taking my questions. Terrific commentary on the increase in demand. And I'm wondering, if you can maybe given all the variables that are still unknown and how this pandemic proceeds, certainly understand not having guidance at this point. But I'm wondering, in terms of when we would expect demand to fully normalize, it looked like your originations in the quarter were still 40% below the second quarter of 2019 this is for consumer loans. But you had mentioned that the June volumes were considerably higher than April and May. I'm wondering if you were to quartertize the June volumes, can you give us a little more sense for how we exited the quarter relative to two years ago, and whether your expectation based on child tax credit and everything else we know, whether you're expecting the back half of the year to be pretty close to the back half of 2019 in terms of consumer originations?

[David Fisher:]

Yeah. Good question. We saw a meaningful acceleration in the quarter. So June was much stronger than April with May being the transitional month. So we certainly exited the quarter at a run rate much higher than the average from the quarter similar to the commentary Steve gave about average AR versus ending AR for the quarter. Making projections about the rest of the year is difficult. We don't know what's going to happen with COVID over the next few months and to what degree the economy continues to open up or pauses or even reverts a bit. But given the momentum we saw in Q2 and we're still seeing so far in Q3 for what it's worth there's every reason to believe that over time as the pandemic winds down, consumer demand will come right back to where it was before. It's just again difficult to predict because it's difficult to predict the pandemic. The only other thing I would add to that is on the child tax credit that's more of a -- remember that's more of a timing issue than an absolute change in consumer demand. It'll just reduce the seasonal impact of tax return season next year. So while it could shave a couple percentage points off demand through the rest of 2021 there will probably be higher demand during tax return season in early 2022. And that from our operating perspective, less seasonality is actually better, it's easier to operate the business. So in total that shouldn't be a negative for demand over time and in reality should help us run the business a little more smoothly.

[David Scharf:]

Got it. No, it's helpful. And maybe just one follow-up on the demand side. With respect to the new borrowers you're bringing onboard, I guess it was 39% of originations

[David Fisher:]

Yes.

[David Scharf:]

Is there anything different in the profile of that consumer versus 2019 whether it's your internal scoring the company....

[David Fisher:]

Nothing particularly obvious. The kind of state mix is a little different. The states that have opened up more we're seeing more demand earlier and that's been true for months now so that's not surprising. And so as the economy continues to open it's the states that have opened up slower where most of the additional demand is coming; it's not even across the board. So that's really the primary difference. Other than that nothing significant. It's the same customers. It really is it's the same customers that we had same types of customers we had pre-pandemic or the same types of customers that are coming back to post-pandemic.

[David Scharf:]

Got it. Great. Thank you very much.

[David Fisher:]

Yes, thanks David.

[Operator:]

The next question comes from John Hecht with Jefferies. Please go ahead.

[John Hecht:]

Afternoon. Congrats on a great quarter. Thanks for taking my questions as well. So as you guys have sort of seasoned into the OnDeck book, I'm wondering can you maybe describe to us how the kind of customer acquisition channel is different between the consumer segments and the small business segments? And over time will those differences migrate at all from what you've learned so far?

[David Fisher:]

Sure. So I think the primary difference is, on the consumer side we have kind of leads and then direct stuff that we go out and control whether it's TV direct mail or digital. And on the small business side you have their partner channel also known as iSOS and then you have direct. Historically Enova if you go back 8 -- 5, 8, 10 years ago was very much lead-driven. So all of or the large majority of our consumer business came from lead providers. And kind of starting five to eight years ago kind of around the time I started we've made a big push into controlling more of our own destiny by doing a lot more direct marketing activities. And now it's completely flip-flop. We have a large majority of our business on the consumer side is direct. That similar dynamic is we think is what will happen on the small business side. The good news about OnDeck at least they had a direct channel and a pretty good direct channel because of their terrific brand on the small business side where our small business products had no direct channel; it was all through iSOS. So, we gain that capability through OnDeck. And certainly, by leveraging the brand plus our marketing capabilities that we developed on the consumer side through the direct channels we certainly expect to increase the proportion of our small business loans that come through the direct channel over time.

[John Hecht:]

Okay. Okay. That's great. And then I know this -- well, I don't know if this is going to be a difficult question or not. But do you guys have an opinion just based on what you're seeing right now the cadence of recovery and demand from the business small business versus the consumer, are they going to pursue different paths? And a similar question, but on the normalization of credit quality; do you guys have an opinion on that at this time?

[David Fisher:]

Sure. On demand, we think they'll follow the same path. It's kind of -- we kind of -- we didn't reiterate, what we said in the Q1 call and actually the Q4 call before that during our remarks. But what we said then is as the economy opens up the consumers are going to get back out there and start spending, and where they're going to start spending is small businesses, because during the pandemic, it continued to spend at large businesses. They're still going to Costco and Walmart and paying their cable bill and paying their cell phone bill. But what they weren't doing is walking down the street and popping into the little boutique or taking their dog to get their nails clipped or hair cut, or going to their local bars and restaurants; that was what's really pulled back during the pandemic. And I think as we got into June as economy really started opening up and the weather got better across the northern half of the country, you saw the consumer start to get out and small businesses were a huge beneficiary of that. So we saw a small business maybe pick up a month or two earlier. I think small businesses anticipated the same thing we did and we're kind of looking to stock back up and get their stores back in order and hire new employees in anticipation of economy opening back up and consumers coming in and then the consumers followed as that really started to happen with vaccination rates increasing and mask mandates being eliminated and weather improving. So maybe a month or two difference, but in the grand scheme of things kind of right on top of each other. And then on the credit side, so far, we've seen great credit across both even with very high percentages of new customers. So I think over time that, our view is they'll both come down to historic levels. And it'd be pretty surprising at this point, if the trend is too much different between consumer and small business. Again, I could be off by a month or two over time but -- and there's certainly some seasonality in those numbers as we get into kind of Q1 of 2022, but would expect it to largely be the same.

[John Hecht:]

Wonderful. Thanks guys very much.

[David Fisher:]

Yep. Thanks, John.

[Operator:]

It appears we have no other questions. So this session -- back over to David Fisher to make any closing remarks.

[David Fisher:]

Great. Thanks everybody for joining our call today. We look forward to speaking with you again next quarter. Have a great evening.

[Operator:]

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.