Welcome everyone. I'm Moshe Orenbuch, Specialty Finance Analyst here at Credit Suisse. Very pleased to have the management of Enova with us today. Enova is a leading diversified financial services company, both in small business lending and non-prime consumer finance. Company has made over $48 billion of loans to 8 million customers. I think its key strength, which I think is something Steve is gonna talk about, is that diversification across various products and industries. Steve Cunningham, the CFO, is with us. Steve has been with Enova since 2016, before which he was the Chief Risk Officer at Discover and had also had some divisional CFO responsibilities at Cap One as well. Welcome, Steve. Thanks, Moshe. Thanks for having me. Great. I guess, you know, a couple of things that you and the management team have talked about on your recent earnings calls has been, first of all, raising the hurdle rate for your, for your products. Can you talk about, you know, what led you to that decision and what have you seen as a result of that and the impact on growth and returns? Yes, sure. common question we get. We're a very disciplined, we call it unit economics shop in terms of how we make decisions across both our SMB and consumer businesses and within the products and vintages themselves. ROE is, you know, a very specific metric that we hold our business leaders accountable to at the product level as well as at the vintage level on a marginal basis. It's fairly conceptually simple, I think. If you think there's a likelihood for increased variability in outcomes, you should require a higher return on that. I think what ends up happening is this is not a pricing exercise as much as it is an adjustment to what types of credit you're approving. As a result of that, it leads to a little bit more predictability in our credit outcomes, and which you've seen in our results over the past year, with strong net revenue margins and strong returns. We're probably leaving a little bit of growth on the table, and I think we're fine with that. But we still originated $4.5 billion across the businesses in 2022, which is a very meaningful growth number. I think what's happening is, even though we're raising the bar a bit to improve the predictability of our outcomes, the demand for credit has been strong, and we've just seen this maybe on the supply side, competitively, maybe not as many people growing as quickly as we are. We've been able to do a little bit of both, raise our returns, drive more predictable outcomes, and still grow meaningfully. Meaningfully, yes. You alluded to this, but clearly your ability to do that is helped or enhanced by the fact that you are diversified. Maybe spend an extra couple of minutes kinda talking about maybe some specific examples of how that manifests itself. Obviously, you know, your acquisition of OnDeck kind of put you in a different position from a small business standpoint, so it made that a different sort of thing. Maybe kinda two questions at once. You know, our roots are in consumer. We've been in small business lending, you know, since 2014, 2015, just not at the scale that we do today with the OnDeck acquisition now in the walls. Even within consumer, we've been pretty diversified. Let me just talk a little bit about our strategy. Having both SMB and consumer businesses that are sort of at scale, in large, you know, parts of the U.S., if not all of the U.S. in the case of SMB, we've been able to kinda lean in to where we see opportunities and where we wanna manage risks. Q4 was a great example, where our consumer business, you typically see a lot of seasonal, sequential change in originations, Q3, Q4. We made some decisions to lean in a bit more into our line of credit products and less into our installment products on the consumer side. We didn't see as much seasonal uptick in originations, but we think that it led to a much better profile. Alongside that, we saw SMB continue to grow very nicely. That's sort of a within a product grouping and then as an overall company, we're able to lean into those areas where we see opportunities to deliver results that are stable and consistent while also driving the overall total company results in line with the expectations that we're setting. We think, you know, if you just take a look back five years ago, we talked a bit about this on our last earnings call. Small business, was around 6% of EBITDA for the company, just, you know, 2017. In 2022, it was about 60%. Some pretty meaningful remix and diversification, which we think allows us to be more stable, more consistent, and to scale our operating expenses on our online only model, you know, with those two married together. Right. I mean, small business, the markets that you're in are, you know, calling consumer and small business the two markets. They're both large markets, but I think small business probably has a, you know, you probably have an even smaller share there is what I would imagine, right? We do. I mean, that is a very large target market. If you just look at our addressable market, even though we are the market leader, we still have a small amount of share there. We have some of those stats in our investor deck, to give you more context on it. One of the topics that was discussed on the fourth quarter call was that management is more interested in taking steps to ensure or that these better results kind of find their way into the valuation of the company. Can you talk about what that could mean, things that, you know, that the team could do? I think you've done a terrific job kind of moving around within your product sets to, you know, to enjoy better performance than peers. You know, can you expand on what, you know, you said on the conference call? Yeah. It's been the hot topic since the call for sure. I think, you know, kind of going back to the data point I just mentioned, in terms of the SMB contribution to the total, it kind of starts there. If you kind of take a step back for a moment, you just look at even our quarterly credit statistic stats, our quarterly charge-off rates are about half of what they were back in 2018, five years ago, yet we're driving the same level of margins and returns. We've de-risked the company, improved the risk-adjusted returns for the company. At the same time, we've been very steady. We've been a very consistent performer, in terms of like misses or doing things that we, you know, said we always do what we say we're gonna do and not doing things that don't lead to that. When you sort of take that together, we've also been doing a big buyback program opportunistically. Those have been the ways we've tried to lean into, you know, making sure that we're optimizing value. Even with all of that done and said, we sort of sit here trading not very dissimilar from a multiple point of view from, you know, some of our more narrow peers that are smaller, have less product diversification. You know, we pointed to a couple of things. If you just take our SMB business alone and look at more commercially oriented type public comps, there's no perfect analog. Just in general, a commercial entity trades at a higher multiple than the consumer side, and we haven't seen that. Even though our relative performance has been pretty good, we think that there's some room to go. Beyond just a buyback and that consistent performance, which we're gonna continue to do, we think there's more that we can do, and that list is not limited. We could focus on things that are fairly simple, like I just mentioned, to things that are more complicated. The focus is to try to make sure that we're optimizing the value of the company for our shareholders. To be clear, you do think there is a some degree of synergy in having both products inside the same company and giving you that ability to kind of move the diversification in different directions at different points in time. I definitely think so. I mean, you could do a sum of the parts analysis, but if you put the two together in what I just described, our ability, in particular in an environment like this, where we can it's a little uneven, we can lean in and out of where we think that there are opportunities to drive the right risk-adjusted returns. I think that's worth more, you know, together obviously with the results we've been driving. Even, you know, some of the concerns about the consumer business and the regulatory overhang there, like being part of a larger enterprise, a state-to-state variation in what, you know, legislation may bring has a much more muted impact. Right than if it was alone, by itself. There's definitely some advantages. Let's drill down a little bit into, you know, into the two sides. You know, the, as you mentioned, the, you know, the big step up on the SMB side came when you bought, you know, the portfolio at OnDeck. What did you know, what did you have to then do to, number one, absorb that and kinda take it to the next level? Can you talk a little bit about that? Quite, you know, you mentioned there aren't a lot of public companies comparables. You know, it's not for lack of trying, so. Yeah, it's a good question. You know, the cultures of OnDeck and Enova on the SMB side weren't radically different. We had a little bit, you know, different approach in terms of how many different things we wanted to be in. That core OnDeck domestic platform was very solid, great market presence, very well-known brand. You know, we ended up being able to collect a lot more on the portfolio that we acquired than we expected. The synergies came along fairly quickly, probably faster than we would have thought. We were able to keep pieces that we wanted to keep in terms of the talent and the technology to bring those two together. I think we sit here now, and you see, you know, a small business franchise, a market-leading small business franchise. It's very well-known across the country. We're in, you know, pretty much every industry across the country and every state, with a really talented team that knows how to deliver with, you know, whether it's affiliates that help us identify new customers or different financial advisors or directly may have seen our advertising as well with OnDeck, Loan Cannon and Loan Falcon. It's pretty humorous commercials that you can see now on the news channels occasionally. All right. You know, that diversification philosophy, you know, do you apply that to the different industries in your portfolio as you kinda think about managing kinda risk and growth? For sure. We do. Our analytics team is very focused on understanding the risk in different industry segments. In any part of the cycle, like you have what I would call the green industries that look clear and you might wanna lean into, and you have the red industries that you might wanna to be a little bit more cautious with. People are always more interested in the red industries. We've talked about those on the call, construction, real estate, trucking, and distribution. Obviously some of the hospitality spaces can be volatile in, you know, more challenging economic times. Even during COVID, there were industries that were doing well. obviously quite a few that weren't, but we're very focused on making sure that we're making the right risk-adjusted decisions, whether that's in terms of where we draw the credit line, loan size, the price points that we're playing in those industries as well. Do you have a target or sense as to how large that portion of the business is gonna be over the next several years? You know, we don't sit back and sort of say we want one to be a certain size versus the other. Back to that unit economics concept, we don't restrict marketing dollars to the businesses. To the extent that there are opportunities that meet our requirements, whether it's a higher hurdle, you know, a higher NPV, whatever that may be, we will allocate dollars to you. To the extent, there's gonna be quarter-to-quarter variations, just because of some of the seasonality. Right. Consumer tends to be a little bit more seasonal. I don't think you're gonna see one wildly outstrip the other. I mean, SMB has been about 60%. It's been creeping up slowly. Some of that is deliberate as we've done some of those changes in our consumer mix. Over time, I think it gets back to where we have opportunities, we'll continue to drive them. Let's shift and talk a little bit about the consumer side. You mentioned kind of marketing more aggressively on line of credit products than so installment and the benefit that's had. Maybe, you know, kinda drill down for us a little bit, you know, how your process, you know, what is it that you're looking at that tells you that? You know, how do you know, I guess when you think about the better performance versus some of your peers, you know, kinda give us a sense as to how you think we'll be able to see that during the next year or two. The line of credit, our consumer line of credit products are a shorter duration, smaller dollar, they're not payday loans, but they're a smaller loan. A 12-14 month maturity, contractual maturity compared to a near-prime installment loan, which would be more like a three year contractual maturity and, you know, a few thousand dollars in terms of principal that's out there. We felt like in this environment, you know, better visibility through shorter duration, smaller loan sizes is the right move. These products are in high demand as well. I think also there's a in the utility, in the hierarchy of how consumers think about these products. If you think about a consumer with a line of credit product, and these are consumers that maybe don't have a credit card, so they can draw what they need. Employment markets for our customers are really strong. You know, maybe they can work some overtime, pay that back, but in six weeks, they need to draw again. Rather than having to reapply, they just make a draw on their line of credit. You can see there's some, there's some utility there. In, in the payment hierarchy, there's probably, at least anecdotally, probably some. You know, if you think about how a customer's thinking about keeping that around, there might be some benefits versus installment. This is a near-term focus. This isn't like. Right what we're planning to do long term. We still think the near-prime installment product, which we are originating, just not as much as the LOC product, is the right move. Got it. I think from a competitive point of view, this should give us some... It gives us quick visibility in terms of what's happening. The risk-adjusted returns on that product, it has a little bit better premium in terms of the fair value framework that we follow. We feel like that's gonna position us pretty well, you know, vis-à-vis the competition being able to lean in and out like that. You mentioned kind of payment hierarchy, and I think that's I mean, it's a really important point. I think that any other kind of insights that you've had in terms of ways to, you know, stay important to those consumers. One of the comments we've heard from some of the non-prime lenders was that post-COVID, everyone was like a new customer because they sort of paid down their balance and sort of started again and not having that degree of consistent or persistent kind of contact. When we measure, I mean, the way we think about new customers, it's typically people we haven't seen in quite a while. It wouldn't be like somebody who's paid down and come back. We, you know, returning customers are folks who haven't been in our franchise in years. We know them, you know, the returning customers we know well. One of the things that we are doing is we're leaning a lot more into the new customer set more than we historically have. We're mid-40% of originations are from new customers, whereas historically, it's been more like in the mid-30s. That again, is like our opportunity, even though we're not growing as quickly as we could because we wanna make sure that we are balanced more towards predictability versus just growing as quickly as we can, we're still taking share and being very thoughtful. We do recognize those customers have a riskier profile because you don't know them as well as your existing customers. All that is considered, you know, when we're thinking about those risk selections and meeting our unit economics and ROE hurdles as well. Okay. Let's talk a little bit about funding. You know, I think that when we've looked at many, many of your kind of peers and competitors don't have as well established a funding, platform as you do. You know, talk about what you're doing and how it gives you a competitive advantage. Sure. Scott Cornelis, our treasurer, is here with me today as well. Scott has been instrumental in this. From the early days, I mean, there's a couple of things that when I joined Enova I recognized were very important. Obviously, credit, you know, I'll use the word obsess. We obsess about credit, and we obsess about liquidity, right? We wanna make sure that we're way ahead of what we might need. We've been following, you know, basically a three-pronged approach to liquidity. Securitization is very important, and for the most part, we've transitioned our consumer and small business facilities to bank-backed security warehouses, so think pledge and draw. Right. In most markets and cases, we would then term those out through the securitization and the ABS markets. That's kinda been our mode. Our primary mode. It's very efficient. We've seen our spreads come down over the years, which has allowed us to maintain a cost of funds that's very competitive. We do have some senior debt out there, cause you can't securitize 100%. You need some term or some equity, obviously. We think there's some term debt that's important. Just for the variations that you have, you know, week to week, month to month, we have a large bank-backed revolver as well, which helps us bridge market disruptions, seasonality, any working capital things that happen in the near term. That's been our approach. It's worked really well. We ended the quarter with a little over $700 million in liquidity available. Those numbers have been, you know, pretty large as we've talked about them. We like to keep a lot in reserve so that we have flexibility to sort of navigate disrupted businesses or growth opportunities. We feel like the financial flexibility is there, and we're gonna continue to stay the course. Maybe not a bad segue to a different topic, and that is you did take a big step when you bought OnDeck, and you've already said it's, you know, turned out a lot better than your expectations. You know, when you see those, you know, that type of disruption in the market, you know, just talk a little bit about what, you know, made you so confident in that ability and perhaps, you know, do you anticipate that some of the, you know, some of the volatility and variability we've seen today could create other opportunities, you know, for Enova? We're not a serial acquirer. We tend to be very value-oriented, and our acquisition strategies tend to focus more on adjacencies, and they tend to be small. Some of the acquisitions we've made, like in the money service business, and some other very small things you don't even really see, we do talk about them now because they're growing and becoming more important. OnDeck was a great example of where we had aspirations to grow more in small business. We felt like there were some opportunities by merging our two capabilities that we could accelerate that quite a bit. We're typically not using M&A to buy other people's paper or customer lists 'cause we feel like we'll compete that away rather than try to buy it. That tends to be where our M&A is focused is on adjacencies. You're right. In these, in these markets where, you know, I'll say even though we're not happy with our valuation today, the relative value of our currency. Right. gives us some opportunities, particularly if there's, you know, some quality platforms that haven't been fully, you know, fully recognized or maybe need some help, right? Yeah, there are opportunities in markets like these, but we're always, you know, looking at opportunities whether, you know, times are a little less uncertain like they are today or in the best of times as well. Yeah. Okay. You alluded in the answers to a couple of the questions about your technology platform and what it allows you to do, I was hoping to give you a little bit of time to expand on that because I think, you know, it sort of is the thing that, you know, everyone says they have. Relatively few companies can actually demonstrate the effects of it. I, you know, wanted to give you know, a chance to talk about that a little bit because I think it has been a key factor for Enova. Our, you know, most of our corporate employees are technology people, right? At the heart of it, we are a tech-enabled financial services provider. We spend a lot of time and attention and investment on our proprietary platforms, whether it's the, you know, all the way through the life cycle of a loan. I think we try to be very thoughtful about where we make those investments, how we are making changes in those environments to keep them nimble. I think the, You think about what I just described with, I'll just use credit as an example. Most of our loans are very quick, every other week or faster repayment type frequencies, not a, not monthly pays. We have quick visibility into what's happening. If you're looking at initial defaults on VantageScore and we can see, you know, our technology gives us great self-service MIS, but we also formally look at it very frequently. We can look at by marketing channel, by state, by product, the way you pay us, whatever it may be, to see if those expectations are in line. If they're not, one way or the other, we could make changes in our environment tonight. There's not. You know, I've worked in organizations where there could be a two-week lead time to make a change in the environment. That doesn't mean that we're uncontrolled. It's a highly controlled but a highly nimble environment as well. You know, there's been a lot of talk about machine learning and artificial intelligence over the past couple of years with some of the SPACs that have come out. We've been doing this for years. We're not out, you know, being flashy about it. Machine learning is really the key piece. We have some information in our IR deck that you can take a look. Machine learning is kind of the backbone of how we are using technology and models to drive better decisions throughout our customer's life cycle. There are opportunities to use AI, but more so probably in the areas like fraud, where it can move very quickly and you're okay, you know, maybe calling a stop versus using a pure AI in like underwriting and something like that. Gotcha. In addition to those two, I mean, those two kind of major product areas, you've also got business in other countries. You deliver those products internationally. Just talk a little bit about, you know, what excites you about a market and, you know, are there any areas that you're, you know, thinking of developing international? Right now, we are in Brazil with an installment lending product. We've been there for a few years. I'll use that as an example of what's the international recipe. Number one, it needs to be a large addressable market, which Brazil has a very large, what I would call, sort of underserved population. There needs to be fragmentation, so it's not, you know, highly consolidated like, you know, U.S. credit cards is a highly consolidated industry. There's room to take share without, you know, sacrificing returns. Good sources of data and analytics. In Brazil, for example, there's a strong credit bureau. In fact, our person that runs that business is from one of the big three. There also needs to be a good understanding of the regulatory environment and one that's you think that you can sort of manage through. Typically, if you sort of take a step back, we were in the U.K. Right. We were a very large player in the U.K., but there was some regulatory confusion, so we exited that market. We've also been in Canada and Australia, both on the consumer and the SMB side, and in China. In all of those markets, we've decided to exit just because we don't think they check all the boxes, which means we don't think we can get them to a meaningful contribution to the overall Enova. We're also very focused on how many things around our core that you can do at the same time, right? Which I think is really important to give you flexibility through a range of operating environments, the best of times and the worst of times. Got it. All right. Got a question here. Okay. On the, on the SMB side, can you just give us a little bit of color on what pricing looks like? I mean, I sort of thought that as deposit costs for banks went up, they were gonna get a little squeeze, but it seems like FHLB stepped in and, you know, given them all the liquidity they need. Like, is there anything going on in pricing relative to the banks here, and how do you think that'll play out? Yeah. I mean, we don't really compete with banks. The typical SMB loan that we have, it's unsecured. It typically has a personal guarantee of the proprietor. We're underwriting the business. The average loan size is usually around $40,000-$50,000, but we'll do smaller, and we'll do, you know, larger, including, you know, $100,000, $150,000 loans. The pricing typically is around 40% APR. The maturity is typically, you know, 12-14 months. You know, most of these customers have bank accounts, but they're not well-served by the banks for one reason or another. Maybe they're viewed as too risky or too small, given the way banks go about C&I lending. As banks increasingly have pulled back a bit, you'll see some of what they might view as their riskier customers actually come to us. They would be like some of our better customers in terms of the crossover. That has also been a source of demand that we've seen in the broader SMB space as well. Got it. Oh, got another question here. I know you touched on your international strategy. Is there anything more you could share there? Does it potentially fit into overall acquisition strategy as well? Yeah. I mean, we don't feel like we have to go bigger internationally. We think, you know, just given the size of our domestic market in terms of the target market and our share, there's a lot of greenfield there. We're constantly looking at those opportunities around the world. We also have a money service business that predominantly does money transfer business. A similar customer to our consumer franchise in sending money to Latin America, Philippines, Mexico. We're learning more about those markets along the way as well. Right now, it, you know, it's mainly exploratory in terms of whether, you know, we would make those moves or not. Obviously, we would update publicly once we've made some calls like that down the road. Okay. Steve, can you talk a little bit about the, you know, the kind of flexibility of approach that we've talked about? You know, what actually does happen when you see if you were to see something kinda not going as expected, maybe talk about, you know, the steps that you take? Yeah. Number one, it depends on sort of the magnitude, right? I think, our organization is highly tuned around, as I mentioned, unit economics and credit performance is the big lever. To the extent that, like I mentioned, we can see things every day. As you move through certain, you know, payment frequencies and you start to see things tilting away from you, worse than you thought, I think the immediate reaction is either if it's significant, start to understand, like what do you do today to, like, make sure you get back on track instead of chasing it with more. Also spending the time after you've done that to make sure you're not oversteering and understanding where it's actually coming from. I think it's, it happens fairly quickly, but the goal is, again, to try to make sure that you're not just continuing to put more money out while you diagnose, like, where to fine-tune your next steps with your credit modeling. You alluded to, you know, the diversification also being a benefit, you know, kind of from a regulatory standpoint. As you kinda think about, you know, the regulatory environment, particularly as it relates to the consumer side of the business, anything that, you know, that you would kinda call out in terms of either state activity or federal activity that, you know, is gonna have an impact on your business or competitors of yours? Yeah. I mean, at the state level, in my time at Enova, there's always something going on at the states. There's been a number of states that have made changes, like capping rates or certain products. There's been states that have expanded, but through it all, we haven't really missed a beat. We've, you know, we kinda navigate through that. It's not always a zero-sum game, so sometimes there's context required. Beyond sort of the normal legislatures staring at certain opportunities, there's not anything in particular that we're concerned about at the state level. I think at the federal level, you know, federal rate caps is not something that we think is imminent, given the makeup of Congress. I don't think there was a lot of support for it before. I think some of the CFPB's focus is really not in our space anymore at the consumer level. They tend to be, you know, very focused on a few other things. I think the recent conversation around fees and fee structures could lead to some opportunities for us. To the extent that there are particularly banks that might serve similar customers that have to change their economics model a touch, that could actually push more people into products like a line of credit that we offer if they didn't qualify, let's say, for a credit card anymore. Right. We, you know, we try to obviously we're risk managers and we're looking at the risk, but we're also looking at the silver linings underneath, you know, different actions that are going on. I would just say at the SMB level, just as a reminder, there is really no similar focus at the state or federal level around usury caps. There's some data gathering and some disclosure work that's going on, but all stuff that we already. Right. You know, as a large player in the industry that we're already accomplishing. The regulatory risk in the SMB side is very low. Right. Well, good. I don't see any other hands. With that, I have to take the opportunity to thank Steve for his time today and for his thoughts on Enova. Thanks. Thanks, Moshe. Thank you all.