Good day and welcome to the Enova International First Quarter 2020 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Monica Gould, Investor Relations of Enova. Please go ahead, ma'am.

Thank you, Operator, and good afternoon, everyone. Enova released results for the first quarter of 2020 ended March 31, 2020, 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. Before I turn the call over to David, I'd like to note that today's discussion will contain forward-looking statements, based on the business environment as we currently see it. As such, does include certain risks and uncertainties. Please refer to our press release and our SEC filings for more information on the specific risk factors that could cause our actual results to differ materially from the projections described in today's discussion. Any forward-looking statements that we make 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, we report 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 Dave.

Thanks, Monica, and good afternoon, everyone. Thank you for joining our call today. Instead of a usual practice of providing an in-depth review of the quarter, I'm going to spend most of this call discussing Enova's response to COVID-19 and the economic crisis we are all facing. After that, I'll turn the call over to Steve Cunningham, our CFO, who will discuss our financial results and outlook in more detail. First, I hope that you, your families, and loved ones are safe and healthy. I would like to extend my heartfelt gratitude to our country's first responders, and healthcare professionals. I would also like to thank all of our employees for their continued hard work and teamwork through this difficult time to support not only our customers, but also each other. Our priority is the safety and well being of our employees and customers. Fortunately, given the advantageous nature of our online only business model, we believe we are well positioned to help them manage through this crisis. Enova's nearly 1300 team members across all corporate and contact centre functions have been working remotely since mid-March. Our nimble technology and online model have enabled us to continue to operate at high levels of productivity with full access to all of our data and tools. This includes maintaining high customer service levels with our dedicated in-house contact centre team across all contact points, phone, email and chat. Approximately 50% of emails and 30% of calls with our customers pertain to COVID. But service levels remain high, as do customer satisfaction scores with over 90% of customers indicating they were satisfied with the solutions we've worked on with them. Turning to the quarter, our performance through mid-March exceeded our expectations, and we're on track to again meet our revenue and earnings guidance…

Thank you, David, and good afternoon everyone. As David mentioned in his remarks, our direct online-only business model, world class analytics and technology and deep organizational preparedness have allowed us to adapt quickly to current market conditions, and will serve us well if we continue to adjust to the rapidly evolving and uncertain economic environment facing our country. Our consistent and disciplined focus on unit economics has delivered predictable and steadily increasing returns in recent years, resulting in strong earnings. This earnings capacity provides a strong first line of defense to absorb an increase in credit losses caused by the current crisis. In fact, as David mentioned ahead of the rapid deterioration in the economic environment during late March, we were on track to deliver another solid quarter as reflected by strong year-over-year growth in receivables and revenue. Excluding some initial COVID related pressure already experienced at March 31, resulting in an adjustment of approximately $60 million to the fair value of our portfolio to address the uncertain credit environment as the quarter closed, we would have once again delivered financial results consistent with our guidance ranges. As I will explain in more detail the additional adjustment address risk to the fair value of the portfolio from some observed worsening of credit risk, as well as our view of higher expected required returns at March 31. In addition, our solid cash, liquidity and balance sheet position provide a significant flexibility and will be a strength as we navigate economic uncertainties in the coming month. Our balance sheet resiliency is supported by a strong tangible capital position, significant committed financing capacity with strong counterparty, and low refinancing risk from thoughtful laddering of debt maturities. We ended the first quarter with $214 million in cash and marketable securities, including $171 million unrestricted…

[Operator Instructions] And our first question will come from John Hecht with Jefferies. Please go ahead sir.

[indiscernible]?

John, I heard you. I mentioned - I think you were referring we lost you with a bad connection there, John. But I think what you were asking was in the trends that we discussed at least through end of last week and we've seen anything discernible as it relates to stimulus and payments, rest I would pick up, but I would basically say I think some of the reasons that we've seen some stabilization and I'm very careful to highlight, we don't necessarily think this is a trend just yet, but some of the reasons that we've seen, some of the stability likely has to do with some of the transfer payments that are entering the economy.

Okay. And hopefully my connection is a little better now. Not sure. I guess it's a little bit related to that as you - the marketing spend was even at an apples-to-apples basis in Q4. Can you give us a sense for what the composition of it? Was your first time customers before you tightened, and have you seen any strange patterns or like in first payment defaults or anything?

Sure, our new customers were very similar running in mid-30% that we have seen over the recent quarters. And I don't think we would say we've seen anything differentiated as it relates to what we typically see from new versus returning customers. And I think Dave and I both highlighted, we were beginning to see stress at the end of the quarter, and both of those, and we've seen some continuing of that before that stability that we highlighted sort of set in here as we got to late April.

I would just add two quick things to that. One is the biggest reason for the large increase in marketing spend in Q1 was that we're no longer deferring any marketing spend under the fair value of getting roles more than an absolute spend on an operational basis. On an operational basis, it was pretty consistent to what we've seen in the past. I would say second, we haven't seen any material difference and performance of customers either by vintage so the most recent vintages or new versus existing in terms of the amounts of deterioration. As Steve and I both mentioned, we have seen deterioration not anywhere near the magnitude we would have expected it's actually very, very manageable at this point, and not a material difference in the amount of deterioration between new and existing, obviously, existing customers perform better than the absolute, but the relative change isn't significant between the two.

Okay, and appreciate the color and glad to hear everybody's doing well there. Last question is just if you could comment on the small business lending environment. I mean, I've heard lots of different stories about the variability in that market. I know it's not a very large portfolio for you guys, but I'm just - I'm curious as to how that's being impacted because you just think that that the impact of small business given foreclosures and so forth, you must be interesting to observe.

Yes, so a few things there. Again, it's only in the teens as a percentage of total portfolio, so very much manageable for us. We are also very early much earlier than most of our competitors and stopping originations and tightening down on lines for existing customers. I think the other thing we benefit from as we are extremely diversified by sector in our small business portfolio, and in particular, we do not have large exposures to entertainment, hospitality and restaurants. And so many other small businesses will actually have larger exposures are doing okay. So we do a fair amount of construction which is held up obviously a little bit of weakness that held up okay. In trucking, transportation and warehousing which have all done fairly well. So, obviously that portfolio stress like all others, but again, defaults there have not increased anywhere near as much as we had expected, lots of payments deferrals and modifications. But with the PPP checks coming in and states opening back up, we are somewhat encouraged that we haven't seen very high levels of default yet.

Our next question will come from David Scharf with JMP. Please go ahead.

First off, maybe just following up on the initial question about some trends in April, it sounds like you're speculating a lot of what you're seeing is likely impacted by State and Federal stimulus. Just curious - I couldn’t write down quickly enough and some metrics around the percentage of the portfolio that had 1 to 3 payments do recently since mid-March, but can you give us a sense for like what percentage of your borrowers, I guess in forbearance or have requested some formal relief from you just put things into context that way maybe.

Yes, let me grab the first part of that, then I will hand it over to Steve for the second part. In terms of the April performance, I think the most interesting thing is we haven’t seen deterioration, we haven’t seen a part of improvement necessarily with the stimulus, but we haven’t seen the deterioration we would have expected with the high levels of unemployment. It's actually been much steadier, certainly in terms of the default rate than we would have guessed and the improvement we've seen is in the deferral modification rates coming down over time. Now part of that is just a lot of customers got the deferral they need and now they're moving on. Yes but part of that could also be the stimulus, but certainly we're not chalking up the overall performance of the portfolio being better than we would have expected six weeks ago to stimulus because of its actually been more stable. We haven't seen a sharp increase as stimulus has increased. So I think we chalked it up more to some of the comments I made around the recession worthiness of our customers being very familiar with living paycheck, to paycheck having to manage variability and cash flow and so being somewhat familiar with how to operate in an environment like this.

And David yes, I was just going to say David in terms of payment frequency, a couple of the things that I threw out, were about three quarters of the portfolio had a payment due in the second half of March. So we got a handle on some of those things, David mentioned very quickly and a little over half of our portfolio has had a payment due since mid-March has had at least three or more payments due. And so you might recall, I talked about, two-thirds of our portfolio has a payment frequency of every other week or faster, essentially. And keep in mind too, we have a very short duration on our portfolio, even though contractual maturities for the portfolio like net credit might look a little longer when you wait the cash flows that come off of that portfolio, the weighted average life is very short and everything else is inside of that. So that helped us really get a handle on what's happening with the customer. It helps us recover more the portfolio and cash collect more quickly. And so, I think being able to work with customers is a win-win as we can help customers manage through what we hope is sort of a short lived situation while it also helps us to financially collect.

Right in it actually that foreshadow kind of my next question, which was sort of related to the payment rate. I mean I guess with a June 30th target of 350 million to 400 million in cash in combination with I think you said depending on product as much as 80% drop in origination, there's a plug in there obviously for payment rate. That would help us kind of try to forecast at these near term, the drop off in the portfolio. Your comment about average life probably is part of the answer. I mean, is there an ballpark sort of payment rate, whether it's percentage of beginning balance per month per quarter, that's a good way to think about the life of the portfolio right now?

While I think as Steve mentioned, the average life of the net credit portfolio is about the - the weighted average life is right around 12 months. And then your prime portfolio and the rest of the portfolio, it's beneath that somewhere like in the 10 month range. So that's probably we kind of using those weighted average lives is probably the best way of thinking that we're below a year on the entire portfolio.

Perfect, perfect hey if you don't mind. One last giving the accounting question here on fair value. But if I oversimplify kind of the fair value line is primarily the mark-to-market adjustment plus credit losses. You know you mentioned the $60 million mark down. And if I add that to 203 million charge offs, you know, it gives me a change in fair value, you know closer to 263 versus the reported 238. There is some other sort of contra-item in there, Steve that offsets those two?

Yes I mean we can go into more detail but that’s not the only thing I have kind of generalized there are some puts and takes in there might get you exactly to that number that are a little bit more made a little bit smaller that won’t necessarily detail.

Our next question will come from Vincent Caintic with Stephens. Please go ahead.

First question and so and it's another one on fair value assumptions, I just wondering if you could slightly detail what sort of macro-economic scenarios you're assuming in fair value in your fair value marks. And then, since this is kind of a new concept to us, how are you thinking about what your fair value adjustment would look like? And what would move it for the second quarter?

Steve you want to handles this?

Yes, sure. So as you heard Vincent in my remarks, I think what we tried to do, instead of trying to pull out the crystal ball and figure out, the timing and the shape of the recovery or some type of economic scenario. We felt the best way to accommodate the fair value adjustment was to look at where are we, at the end of March given again we had some quick visibility given the payment rates of the book. But also to take into consideration that volatility, just like you would in a typical sort of fixed income approach, and that discount rate so you would require a higher level of return in a period of increased volatility in your cash flows. And so that's the way we tried to tackle it. And I would, we looked at a bunch of different ways that the economy could play out. And as I mentioned, none of those you know - it was really hard for us to determine one that could create a real liquidity or solvency issue for us. So again, that's the way we've accommodated this quarter. And I think as we roll forward, as things become clearer and a little bit more stable and predictable, you could see a bit of a movement between those buckets in a fair value calculation where you could, you can, you required returns move in a different direction, whereas you start to see some of the credit rolling through that calculation if that makes sense.

Okay, yes that does make sense. And just to clarify, so sounds like things have stabilized maybe not improved, but not worsened. Currently, this hasn't changed much say from the end of April to today just I think usually your portfolio moves quicker than other guys. Have trends stabilize since the end of March, or it's sort of April?

Yes, I would say in terms of defaults. We saw, a tick up again, not huge. I want to make that clear when we call that pick up for a reason. It wasn't a massive spike. But we did see the pickup at the end of March. And that has remained very stable, actually, all the way through, really up until today. The bigger impact we saw in the beginning of the month of April was increased deferrals and loan modification. Especially during the you know, very end of March and the first couple weeks accelerating the first couple weeks of April, and that has not only stabilized but improved and come down somewhat. So, pretty good trends there with the stable, stabilizing - stabilized default rate and improving the deferral loan mod rate. Now I would say hard to predict where we go from here. A lot of them depend on where the economy goes from here. But yes it's looking kind of across the customer performance metrics, you would definitely call them stable at the moment.

Okay, great. That's really helpful. Second question, when you talk about tightening your underwriting and your origination volume declining. When you tighten your underwriting is that through pricing and so I just I'm wondering if the originations you're having right now the margins on that business is going up is usually I think, if you look at the prior recession, we saw the business that you were writing came down really, strong coming out of recession just wanting your thoughts there.

Yes, so primarily not through pricing meaning a little bit moving people through the kind of bucket of risk based pricing, more cherry picking, you know, the highest credit quality customers originating for them and originating them with very little market cost. So, while most of the tightening of the credit model isn't on pricing, we do think the originations we are doing now, probably have much better unit economics than typical because we really are cherry picking the best of the best then very, very little marketing. And then for the second part coming out of the recession, yes 2000 - late 2009 and 2010 was very, very strong years from our business. We have no reason to expect that this one is the different. And just to reiterate a point I made in my prepared remarks, we don't need a recovery to begin actively originating and actually originating some pretty aggressive levels. We just need unemployment rates and really, really more the new jobless claims to be the kind of more leading indicator than a lagging indicator, really new jobless claims to stabilize whoever maybe even if unemployment is 30%. Once the new jobless claims stabilize our underwriting models can very quickly get back to analyzing who is big credit quality and who's that credit quality. Obviously, the market is bigger when unemployment rates are 5%, I wonder at 30%. But we think there is going to be a huge amount of pent-up demand. And as employment improves over the next couple of years that's just grows the market, again, the addressable market. And so, we're hopeful that the recovery is very positive for the business like it was in after the Great Recession.

[Technical difficulty].

I mean more on the fair value, but I'm just trying to conceptualize what the cost of revenue looks like into 2Q. I know you're not giving guidance, but you kind of send it to me like the run rate for the number would be 235 less the 60 million in additional fair value adjustments which are putting out about 170. Am I thinking about that completely wrong, or is that correct just conceptually?

Steve?

Yes, sure. So I think, John there is, I think you're thinking about it generally correctly. There is a little bit of seasonality and all things being equal if we weren't dealing with the COVID crisis. You would see a little bit of seasonality not like you saw under our old accounting method, where you typically see a little bit of a drift up in the fair value at the end of Q1. And then see some of that drift back down in terms of Q2. So like I had mentioned on an earlier question, I think, depending on how we see, credit playing out from a year and the stability and predictability do - have we captured at all, there may be more to come, but that's yet to be seen, just one reason why we didn't give guidance. But you could definitely see a situation where the required returns may come down, as you start to recognize some of that, recognize some of the credit rolling through from folks who aren't able to repay. So we can talk more offline about, how to think about some of those things, but that's generally how you should be, thinking about.

Okay. And just you gave the guidance for the cash at the end of the quarter. And then, you know, kind of backfilling that into my model, it would indicate that there's a little bit of a - I mean, not gigantic, but there is a reduction in the loan portfolio sequentially between first quarter and second quarter. I mean, does that sound about right is this is the only way I can get you up to that level of cash by the end of 2Q?

Yes absolutely. I mean with - as we've mentioned we’ve cut back on origination 60% to 80% at the end of Q1 and haven't reaccelerated that yet. So that combined with the short average life of our portfolio is we were talking about a little earlier, would mean it's very likely the portfolio is smaller at the end of the quarter?

Okay. And then you mentioned that you're bringing paid marketing expenses down to zero effectively, how much is the marketing line is that paid number or is it all of it?

That's all of it. Now that line won't be exactly zero. They're still small bits of marketing we differ. There's some stuff that we couldn't cancel that we'll go through into Q1 put that line item it’s likely to be very, very low in Q2.

So the 34 goes to something nominal pretty fast?

Yes.

Okay. And then just, thinking about, your California book. I assume you started with large installment loans liquidating the portfolio on January 1. I mean, is that almost a blessing in disguise at this point? How much of that book did you liquidate? I mean, it kind of seems like, you know, it was a love that no one really wanted. But it kind of preempted possibly a bigger loss on that portfolio given the crisis?

Yes Steve, do you want to handle that one?

Yes I mean, I think John that we - I think we had plans to continue to navigate that market. So we weren't necessarily relying on California for some of our 2020 outlook, as we had previously mentioned on prior calls. I wouldn't call it a blessing by any means or either to get the economy and these markets going again and moving past this crisis, and once we do, we'll be ready to operate in all the states that where we have products that are ready to go.

Our next question will come from David Scharf with JMP. Please go ahead.

Thanks. Just one follow up, application volume - listen, we heard you loud and clear about the cessation and underwriting and until things stabilize, but trying to think longer-term whether this pandemic kind of serves as a catalyst with all the sheltering in place for perhaps accelerating even more the migration online. Notwithstanding the cessation in underwriting, has there been any noticeable change since mid-March, particularly since sheltered home in credit application volume and the inbound traffic?

Yes, I mean, it's down. Probably not down to your point, not as much as we would have expected given how much we cut marketing. So that's why it's difficult to say exactly when you turn off so much marketing so much quickly, you're expecting applications by the way down. I've never done that before. So we didn't have a great estimate of how much they were to be down. Clearly in the small business space, we're seeing huge demand. Still that was largely going unfilled in, and I think anecdotally we have the sense that there's still plenty of - that there is still plenty of demand out there. We're able to originate everything we want to originate, even with spending almost nothing on marketing right now. So it's a pretty good indication that there is strong demand that will likely only continue once the economy stabilizes and people will get back to work and back to spending a little more money.

This concludes our question-and answer session. I would like to turn the conference back over to David Fisher for any closing remarks. Please go ahead, sir.

Just thanks again everybody for joining our call today. I know these are difficult times for all and we certainly appreciate your time and your questions. So have a good evening. We'll speak with you soon.

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