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Enova(ENVA) - 2022 Q3 - Earnings Call Transcript
ENVAEnova(ENVA)2022-10-28 01:37
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Financial Data and Key Metrics - Revenue in Q3 2022 increased 42% YoY and 12% sequentially to 456million[10]−AdjustedEBITDAwas456 million [10] - Adjusted EBITDA was 115 million, and adjusted EPS was 1.74,bothshowingincreasesfromQ32021[10]−Netcharge−offswere8.41.74, both showing increases from Q3 2021 [10] - Net charge-offs were 8.4% in Q3, slightly higher than Q2 but well below pre-COVID levels of 13.4% in Q3 2019 [13] - Total company originations reached 1.2 billion, up 10% sequentially and 40% YoY [23] - The portfolio grew 59% YoY to just over 2.6billion[24]BusinessLineDataandKeyMetrics−Smallbusinessproductsrepresented602.6 billion [24] Business Line Data and Key Metrics - Small business products represented 60% of the portfolio, while consumer products accounted for 40% [19] - Within consumer products, line of credit products increased to 33% of the portfolio, while installment products decreased to 67% [19] - Small business revenue increased 15% sequentially and 72% YoY to 173 million [34] - Consumer revenue increased 10% sequentially and 29% YoY to 277million[35]MarketDataandKeyMetrics−Smallbusinessoriginationsincreased75277 million [35] Market Data and Key Metrics - Small business originations increased 75% YoY to 807 million [34] - Consumer originations were flat YoY at 396million[35]−Thecompanyobservedstrongdemandandlowcompetition,withsomecompetitorspullingbackonoriginations[27]CompanyStrategyandIndustryCompetition−Thecompanyisfocusingonshorter−termsubprimelineofcreditproductsandSMBproducts,whichhaveaverageeffectivetermsofunderayear[18]−Thecompanyismaintainingabalancedapproachtogrowthandrisk,increasingROEtargetsacrossallproducts[22]−Thecompanyisleveragingitstechnology,analytics,anddiversifiedproductofferingstodifferentiatefromcompetitors[15][16]−ThecompanyisseeingstrongdemandforSMBproductsasbankstightencredit,leadingtohigh−qualityborrowerscomingtothem[26]ManagementCommentaryonOperatingEnvironmentandFutureOutlook−Managementhighlightedthestrengthofthecompany′stechnology,analytics,andteaminnavigatingeconomicuncertainty[12]−ThecompanyexpectsstrongoriginationsinQ4,drivenbystrongdemandandlowcompetition[23]−Managementisoptimisticaboutthecompany′sabilitytomanagecreditrisk,givenhistoricallyhighemploymentlevelsandstrongwagegrowth[25]−ThecompanyexpectstotalrevenueforQ4togrowsequentiallybutataslowerratethanQ3[36]OtherImportantInformation−ThecompanyendedQ3with396 million [35] - The company observed strong demand and low competition, with some competitors pulling back on originations [27] Company Strategy and Industry Competition - The company is focusing on shorter-term subprime line of credit products and SMB products, which have average effective terms of under a year [18] - The company is maintaining a balanced approach to growth and risk, increasing ROE targets across all products [22] - The company is leveraging its technology, analytics, and diversified product offerings to differentiate from competitors [15][16] - The company is seeing strong demand for SMB products as banks tighten credit, leading to high-quality borrowers coming to them [26] Management Commentary on Operating Environment and Future Outlook - Management highlighted the strength of the company's technology, analytics, and team in navigating economic uncertainty [12] - The company expects strong originations in Q4, driven by strong demand and low competition [23] - Management is optimistic about the company's ability to manage credit risk, given historically high employment levels and strong wage growth [25] - The company expects total revenue for Q4 to grow sequentially but at a slower rate than Q3 [36] Other Important Information - The company ended Q3 with 769 million of liquidity, including 189millionincashandmarketablesecurities[51]−Thecompanyacquired588,000sharesatacostofapproximately189 million in cash and marketable securities [51] - The company acquired 588,000 shares at a cost of approximately 20 million during Q3 [53] - The company expects marketing expenses to be in the low 20% range of revenue in the near term [48] Q&A Session Summary Question: Impact of Fed actions and inflation on credit risk [61] - Management stated that the company is not incorporating macroeconomic adjustments into its fair value calculations and is confident in its ability to manage credit risk even if unemployment rates rise [62] Question: Origination strategy and duration risk [64] - Management explained that the company is focusing on shorter-duration loans to reduce risk in an uncertain macroeconomic environment [66] Question: Yields and mix shift in consumer products [69] - Management noted that the mix shift towards higher APR loans is driving higher yields in the consumer portfolio [69] Question: Fourth-quarter margin guidance [71] - Management confirmed that the long-term margin range of 55% to 65% remains appropriate [71] Question: Competition and market dynamics [77] - Management attributed weaker competition to credit fears and liquidity crunches, with some competitors pulling back on originations [78] Question: Use cases for credit in an inflationary environment [82] - Management noted that use cases have shifted slightly towards smaller cash needs but remain consistent with historical trends [83] Question: Small business borrower health and leading indicators [89] - Management highlighted that the company segments small business lending by industry and size, avoiding sectors like construction and trucking that are currently struggling [90][91] Question: Funding needs and impact of rising rates [95] - Management stated that the company has been successful in raising new facilities with favorable terms and expects to continue accessing external financing as needed [96]