Enova International, Inc. Q4 FY2025 Earnings Call

Good day, and welcome to the Enova International Fourth Quarter and Full Year 2025 Earnings Conference Call. All participants will be in listen-only mode. Please note, this event is being recorded. I would now like to turn the conference over to Lindsay Savarese, Investor Relations for Enova. Please go ahead.

Thank you, operator, and good afternoon, everyone. Enova released results for the fourth quarter and full year 2025 ended December 31, 2025, this afternoon after market close. 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, Executive Chairman of the Board of Directors; Steve Cunningham, Chief Executive Officer; and Scott Cornelis, 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 Form 10-Q and current reports on Form 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, Enova 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, and good afternoon, everyone. I appreciate you joining our call today. Also with me today are Steve Cunningham and Scott Cornelis. As I'm sure most of you know, effective January 1, Steve became CEO of Enova and Scott became CFO as I transitioned to the Executive Chairman role, and I have committed to remain as an executive chair for at least 2 years. With the full support of the Board, this move was thoroughly, thoughtfully and deliberately planned over more than a year and having worked closely with both Steve and Scott for many years, I'm confident that they are the right leaders to see Enova through its next phase of growth. The timing has worked out even better than we had hoped. As Steve and Scott will discuss in more detail, Q4 was another very strong quarter, wrapping up a record year for Enova. As announced in December, with our pending acquisition of Grasshopper Bank, we believe we have found the perfect partner at the perfect time to take Enova to the next level by simplifying our regulatory structure, opening up additional markets for our consumer products, adding additional low-cost funding sources, and providing a platform for new product opportunities. When I first joined Enova, I never anticipated staying for more than a few years. But this role unexpectedly grew into the longest, most challenging, and most rewarding of my career. I unequivocally attribute that to the extraordinary people and the culture at Enova and due in large part to that team, the future of Enova is bright. Steve and I share a common vision that our focused growth strategy will steer our path forward. We will continue to adapt and innovate and remain committed to producing sustainable and profitable growth, while meeting the needs of our customers and driving shareholder value. With that, I would like to turn the call over to Steve.

Thank you, David, and good afternoon, everyone. I appreciate you joining our call today. Our fourth quarter results capped off another exceptional year for Enova. Strong originations growth and solid credit across our portfolio once again drove strong financial performance. For the full year 2025, originations grew 27%, leading to revenue growth of nearly 20%, which when combined with stable credit and the significant operating leverage in our business model drove adjusted EPS growth of 42%. 2025 was our second consecutive year of adjusted EPS growth in excess of 30%, demonstrating the resiliency of our balanced growth strategy, and the ability of our experienced team to deliver consistent and differentiated performance by leveraging our diversified product offerings, flexible online-only model, and world-class risk management and technology. Turning to the quarter, we're pleased to deliver fourth quarter results that were in line or better than our expectations. Fourth quarter originations increased 32% year-over-year to $2.3 billion. As a result of the strong originations growth, our portfolio increased 23% year-over-year to a record $4.9 billion. Small Business products represented 68% of our portfolio at the end of the year, while consumer accounted for 32%. Strong demand and solid credit performance enabled us to be more aggressive with our marketing during the quarter, as we leveraged our sophisticated technology and analytics to capture this demand at attractive unit economics. Marketing expense was 23% of our total revenue during the fourth quarter, driving record quarterly originations. We expect marketing spend to revert back to more typical levels although we'll continue to opportunistically lean into marketing to meet demand with attractive unit economics. The strong quarterly portfolio growth revenue increased to the top of our expected range, growing 15% year-over-year to $839 million in the fourth quarter and profitability metrics grew even faster as adjusted EPS increased 33%, driven by strong credit and our significant operating leverage. SMB revenue accelerated to 34% year-over-year to $383 million, and our consumer revenue increased 3% year-over-year to $446 million, both quarterly records. In addition to our strong growth this quarter, our fourth quarter credit results also demonstrate that both our small business and consumer customers remain on solid footing. The consolidated net charge-off ratio for the fourth quarter of 8.3% was down both sequentially and compared to the fourth quarter of 2024. External data highlighted that the U.S. economy ended 2025 on a good note. The Federal Reserve's recent wage report pointed to economic gains across most of the country. In addition, the unemployment rate ticked down to 4.4% in December, with recent unemployment claims status underscoring that the labor market remains relatively stable and resilient. Further, real wage growth continues to be positive, with average hourly earnings rising 3.8% year-over-year in December after rising 3.6% during November. Early reads indicate December consumer spending grew moderately and continues to support economic activity. Looking at our consumer business, this constructive economic backdrop supported the reacceleration of growth and improvement in credit metrics that we discussed last quarter. With the strong early default performance we were seeing at that time, we leaned into boosting consumer originations, which accelerated as we moved through the fourth quarter. As expected, credit metrics for the consumer portfolio improved both sequentially and compared to the year-ago quarter. Turning to small business, our SMB business continues its stream of outstanding performance. Our leading brand presence, scale and competitive landscape again resulted in significant growth in remarkably stable credit performance. Fourth quarter originations for SMB increased 20% sequentially and 48% year-over-year to $1.6 billion, marking the eighth consecutive quarter of year-over-year originations growth of 20% or more. Credit metrics for the small business portfolio continue to be very stable as they have been for the past 2 years. Our internal and external data highlight that SMBs continue to express confidence in the economy and expect favorable operating conditions during 2026. In conjunction with Ocrolus, we released the non-federation of our small business cash flow trend report, which offers key insights into the state of small businesses and highlights ongoing trends observed over the past year. Consistent with previous findings, the survey found that small business optimism remains strong. Overall, growth expectations remain at an all-time high with 94% of small businesses projecting growth over the next 12 months. Nearly 75% of small business owners reported bypassing traditional banks in favor of alternative lenders like Enova. Of those that went to a traditional bank first, 46% reported being denied a loan. External data also supports these findings as the NFIB Small Business Optimism Index rose to 99.5% in December and remained above its 52-year average of 98%. The NFIB's Chief Economist pointed out that while Main Street business owners remain concerned about taxes, they anticipate favorable economic conditions in 2026 due to waning cost pressures, easing labor challenges, and an increase in capital investments. While these surveys and external economic data provide useful context, our proprietary data offers more real-time and granular views into trends in the operating environment and the conditions of our customers. This data allows us to react quickly and nimbly as the operating environment changes. Our deep experience serving non-prime consumers and small businesses, meaningful diversification, powerful technology and analytics, and our disciplined unit economics approach have been key to our ability to navigate varying operating environments while generating consistently strong financial results. As we've demonstrated for many years, we believe our business is resilient across a wide range of macroeconomic environments. Before I wrap up, I'd like to spend a few moments discussing our strategy and outlook for 2026. We've demonstrated a long track record of consistency between stated priorities and execution, and we remain committed to this approach. Our balanced growth strategy works, and we expect to generate sustainable and profitable growth while delivering on our commitment to driving long-term shareholder value and on our mission of helping hardworking people get access to fast, trustworthy credit. Another key focus for 2026 will be closing the acquisition of Grasshopper Bank that we announced last month. We're excited about this powerful combination. By uniting Enova's sophisticated online lending platform with Grasshopper's national charter and deposit-gathering capabilities, we'll be able to expand access to more consumers and small businesses who have been traditionally underserved by banks. In addition, this combination simplifies our product and operational model under a national bank charter, providing significant opportunities to accelerate the growth of our existing products, enhance our ability to serve our customers in more states, and expand into new complementary products. Since our announcement, the energy and excitement from the teams for both companies have been tremendous. Together, we recognize the opportunities in our complementary capabilities, cultural alignment, and significant synergies. As a reminder, we expect net synergies related to the transaction to increase adjusted net income by $125 million to $220 million annually within the first 2 years post-closing, driving adjusted EPS accretion of more than 25% once the synergies are fully realized. We filed our regulatory applications earlier this month, seeking approval from the Federal Reserve and the OCC, and we continue to make great progress on integration planning in anticipation of closing during the second half of 2026. Overall, we're pleased to end the year with another strong quarter of solid revenue and profit growth. We have considerable momentum heading into 2026. Though it's still very early in the year, we're off to a great start with solid originations growth across our businesses. Based on what we're seeing today, we expect 2026 to be another year of significant origination revenue and adjusted EPS growth. Before turning the call over to Scott, I would like to sincerely thank the entire Enova team for all their hard work and dedication. You all are the force behind our success. We're thrilled to celebrate our 13-year streak on Computerworld's 2026 Best Places to Work in IT list, reflecting the creativity, collaboration, and passion that fuel our technology teams. We're looking forward to another great year ahead. Thank you. And with that, I'd like to turn the call over to Scott Cornelis, our CFO, who will discuss our financial results and outlook in more detail. And following Scott's remarks, we'll be happy to answer any questions you may have.

Thank you, Steve, and good afternoon, everyone. We're pleased to close 2025 with solid fourth quarter financial results that once again met or exceeded our expectations. Our strong financial performance in the fourth quarter and the full year 2025 continues to demonstrate how the powerful combination of our diversified product offerings, scalable operating model, world-class risk management capabilities, and balance sheet flexibility allow us to consistently deliver strong top and bottom-line results. Turning to our fourth quarter results, total company revenue of $839 million increased 15% from the fourth quarter of 2024 at the top end of our expectations as total company combined loan and finance receivable balances on an amortized basis increased 23% from the end of the fourth quarter of 2024. Total company originations during the fourth quarter rose 32% from the fourth quarter of 2024 to $2.3 billion. Revenue from small business lending increased 34% from the fourth quarter of 2024 to $383 million as small business receivables on an amortized basis ended the quarter at $3.3 billion or 34% higher than the end of the fourth quarter of 2024. Small business originations rose 48% year-over-year to $1.6 billion. Revenue from our consumer businesses increased approximately 3% from the fourth quarter of 2024 to $446 million as consumer receivables on an amortized basis ended the fourth quarter at $1.6 billion or approximately 6% higher than the end of the fourth quarter of 2024. Consumer originations grew 2% from the fourth quarter of 2024 to $613 million. As Steve mentioned earlier, we successfully reaccelerated our consumer originations as we moved through the quarter, particularly in December, thanks to strong demand and credit. For the first quarter of 2026, we expect total company revenue to be flat to slightly higher sequentially. This expectation will depend on the level, timing, and mix of originations growth during the quarter. Now turning to credit, which is the most significant driver of net revenue and portfolio fair value. The consolidated net revenue margin of 60% for the fourth quarter was also at the higher end of our expected range and reflects continued strong credit performance across our portfolios. The consolidated net charge-off ratio in the fourth quarter declined 60 basis points from the fourth quarter a year ago to 8.3%. As we expected, the consumer net charge-off ratio improved to 16%, which was flat sequentially and compared to the year-over-year quarter. The small business net charge-off ratio was 4.6%, which was within our expected range. Expectations for our future credit performance remain solid, as reflected by sequential and year-over-year stability or improvement in the 30-plus day delinquency rates and fair value premiums for the consolidated consumer and small business portfolios. The consolidated 30-plus day delinquency ratio at the end of the fourth quarter declined 70 basis points from the end of the fourth quarter a year ago to 6.7%, and the consolidated fair value premium of 115% remains stable and consistent with levels we have reported over the past 2 years. Looking ahead, we expect the total company net revenue margin for the first quarter of 2026 to be between 55% to 60% as the impact of lower consolidated originations from our typical consumer seasonality is offset by the sequential improvement in the consolidated net charge-off rate we typically see in the first quarter. This expectation will depend upon portfolio payment performance and the level, timing, and mix of originations growth during the first quarter. Now turning to expenses. Total operating expenses for the fourth quarter, including marketing were 36% of revenue compared to 34% of revenue in the fourth quarter of 2024. As Steve noted, we leaned into our efficient marketing spend to meet demand with strong unit economics, resulting in record originations growth. Fourth quarter marketing increased to $192 million or 23% of revenue compared to $151 million or 21% of revenue in the fourth quarter of 2024. With the seasonality we typically experience during the first quarter of the year, we expect marketing expenses as a percentage of revenue to range in the upper teens for the first quarter and will depend upon the growth and mix of originations. Operations and technology expenses for the fourth quarter increased to $68 million or 8% of revenue compared to $58 million or 8% of revenue in the fourth quarter of 2024, driven by growth in receivables and originations over the past year. Given the significant variable component of this expense category, sequential increases in O&T costs should be expected in an environment where originations and receivables are growing and should be around 8% of total revenue. Our fixed costs continue to scale as we focus on operating efficiencies and thoughtful expense management. General and administrative expenses for the fourth quarter were $47 million or 5.6% of revenue compared to $38 million or 5.2% of revenue in the fourth quarter of 2024. The current quarter included $6.7 million of one-time deal-related expenses associated with the pending Grasshopper acquisition. Excluding these items, G&A expenses were $41 million or 4.8% of revenue, reflecting continued operating leverage and disciplined expense management. While there may be slight variations from quarter-to-quarter, we expect G&A expenses in the near term will be between 5% and 5.5% of total revenue, excluding any one-time costs. Our balance sheet and liquidity position remain strong and give us financial flexibility to successfully navigate a range of operating environments, while delivering on our commitment to drive long-term shareholder value through continued investment in our business and disciplined capital allocation. During the fourth quarter, we acquired approximately 278,000 shares at a cost of $35 million. We started 2026 with share repurchase capacity of approximately $106 million available under our senior note covenants. We were pleased to see the improvement in our valuation during 2025. Though we believe there remains additional upside given our track record of consistent growth and earnings, our expectations for 2026, and the significant future opportunities associated with the Grasshopper acquisition. With that in mind, we will continue stock repurchases opportunistically while ensuring we are well prepared to close the Grasshopper Bank acquisition and transition to a bank holding company later this year. We ended the fourth quarter with approximately $1.1 billion of liquidity, including $422 million of cash and marketable securities and $649 million of available capacity on our debt facilities, providing us with flexibility to support our strategic objectives. Our cost of funds for the fourth quarter was 8.3%, down from 8.6% in the third quarter, reflecting lower SOFR rates and strong execution on recent financing transactions. Even with no additional rate cuts by the Fed, we expect some reduction in our cost of funds during 2026. The level will depend upon credit spreads on new financing transactions, our funding mix, and the level of timing and mix of originations growth. Our effective tax rate for the fourth quarter was 20%. The sequential decline was driven by favorable state changes, a decrease in our uncertain tax position reserve, and related interest and tax benefits resulting from share price increases on stock options exercised during the fourth quarter. While there may be variations from quarter-to-quarter, we expect our normalized annual effective tax rate to remain in the mid-20% range. Finally, we continue to deliver solid profitability this quarter. Compared to the fourth quarter of 2024, adjusted EPS, a non-GAAP measure, increased 33% to $3.46 per diluted share and adjusted EBITDA, a non-GAAP measure, increased 21% to $211 million. To wrap up, let me summarize our first quarter and full year 2026 expectations. For the first quarter, we expect revenue to follow our typical seasonality and to be flat to slightly higher sequentially. We expect a net revenue margin of 55% to 60% on a consolidated basis as seasonally lower originations are offset by an improvement in the net charge-off rate. In addition, we expect marketing expenses as a percentage of revenue to be in the upper teens, O&T costs around 8% of revenue, and G&A costs between 5% and 5.5% of revenue. Interest expense as a percentage of revenue is expected to be around 10.5%. With a more normalized tax rate, these expectations should lead to adjusted EPS for the first quarter of 2026 that is 20% to 25% higher than the first quarter of 2025. Our first-quarter expectations will depend upon customer payment rates and the level, timing, and mix of originations growth. Turning to our expectations for the full year of 2026, assuming a stable macroeconomic environment with no material changes in the employment situation and a largely unchanged interest rate environment, we would expect growth in originations for the full year 2026 compared to the full year of 2025 to increase by around 15%. The resulting growth in receivables with stable credit, continued operating leverage, and a reduced cost of funds should result in full year 2026 revenue growth similar to originations growth and adjusted EPS growth of at least 20%. Our expectations for 2026 will depend on the macroeconomic environment and the resulting impact on demand, customer payment rates, and the level, timing, and mix of originations growth. As a reminder, our 2026 financial expectations do not assume any contribution from the pending acquisition of Grasshopper Bank, which we expect to close in the second half of 2026. Our results in 2025 reinforce the flexibility and scalability of our business model. As we move into 2026, we are well positioned to drive meaningful financial results supported by a diversified product set, a continued focus on unit economics, favorable competitive positioning, and balance sheet flexibility. And with that, we'd be happy to take your questions.

The first question comes from Moshe Orenbuch with TD Cohen.

Great. And congrats, David, Steve and Scott on all of the management changes and promotions. I'm hoping, Steve, if you could talk a little bit about the consumer business. You talked about the growth having slowed and then accelerated. How much faster kind of is the exit rate? How should we think about it? And are there impacts that we should be aware of given this upcoming tax season and new withholding types of patterns?

Moshe, thanks for the question. As I mentioned in my comments and as we expected after seeing really remarkably good credit last quarter, we did accelerate the growth in the consumer business. And that growth rate accelerated as we went through the quarter. Similar to last year, we saw December exceptionally strong. So sometimes the seasonal pattern of consumer growth in the fourth quarter can vary depending on the timing of the holidays, but really for the second year in a row, we saw a significant amount of the growth coming in December. So we were really pleased with that. Our nimble and efficient marketing allowed us to continue to lean into that. We learned from last year where we saw a similar pattern, and if that demand showed up the same way, we could take more of that down. We're pleased with how the fourth quarter wrapped up for consumer and how the 2026 consumer business is starting. Regarding the tax refund season, based on what we know today, it sounds like there's potential for some larger refunds this year, which would be great for credit for us. A lot of the originations that we put on should perform very well.

Great. And good to hear that you're moving forward with all the steps for Grasshopper. Are there things that you're going to do differently in your core portfolio prior to closing or maybe talk a little bit about what the earliest impacts that you might see starting in the second half of the year after closing?

Until we close the transaction, both companies are business as usual. The outlook that Scott gave you is our expectation of continuing that track record of strong growth in our business and being opportunistic as we see demand and follow our balanced growth approach. You should expect more of that. Once we're beyond the close of that transaction, step #1 is really with the product set that we have today, expanding our footprint to continue to serve more customers.

The next question comes from Bill Ryan with Seaport Research Partners.

Following Moshe, I'd like to say congratulations to everybody. A couple of questions. You talked about mix of origination growth being about 15% in 2026. If you can elaborate on what you're expecting in terms of the mix between consumer and small business?

Yes, Bill. We're in a good position with what we know today to grow around 15% for the year. With the resumption of consumer growth that we just talked about, we think we'll settle in at more typical levels than maybe what we saw for some quarters in 2025. We think we'll continue a pattern that you've seen with SMB. Some of the growth rates that we've seen have been really strong, and we've had a track record of growing that business at over 20% for quite a while. You may see a slow tilt towards SMB in our portfolio just in terms of where the demand has been, but we'll continue to be opportunistic.

Okay. And just one follow-up. I know you guys continue to make adjustments on your underwriting. If you can talk about any changes that you made on the consumer side in the fourth quarter? Was there any change in industry focus?

Yes. We continue to follow our nimble approach, making credit adjustments in both portfolios. In consumer, particularly after we saw exceptionally strong credit in the third quarter, we did try to move back to more typical levels of credit. Overall, we are pleased with how that settled. On the small business side, it's been remarkably stable, and we're keeping a close eye on industries like construction and transportation as those could be affected by tariff and trade policies.

The next question comes from David Scharf with Citizens Capital Markets.

Great. I'll echo the congrats to the new team or new positions. Steve, I wanted to switch just to sort of the post Grasshopper operations. Can you remind us post close, how we ought to think about regulatory capital ratios you're going to adhere to and whether or not existing levels of buybacks are likely to continue under the new structure?

David, thanks for the question. We're sitting at around 17%, 18% tangible capital ratio, which is analogous to the Tier 1 leverage ratio. We expect to stay in that same range, so I would not expect us to change our leverage position significantly. After we close, there should be opportunities with strong ROEs that we expect to generate. Our focus early on will be investing in the opportunities that the new structure will present, but we will be able to return capital as well.

Got it. And maybe just a follow-up on the consumer products. It's been a while since line of credit volumes have materially eclipsed installment. Are there any risks or structural reasons that will continue to lean into a line of credit?

We're agnostic across our products in terms of the growth. What we try to do is meet the demand that meets our unit economic hurdle rates. There might be times where one product grows more strongly than another, and we will follow the demand as it comes.

The next question comes from John Hecht with Jefferies.

Again, congratulations on all the movements at the executive level. Are there geographies that you can enter that are not approachable by you or limited access at this point?

When we talked about expansion, we have some states with our NetCredit brand where we would like to expand that we could access with a national bank charter. There are specific states that are on our hit list—states like California, Pennsylvania, and Ohio—where our current licenses limit us, but we could expand more freely with a national charter.

The next question comes from Vincent Caintic with BTIG.

Actually, another regulatory question regarding broader consumer finance when the government started contemplating rate caps. What are your thoughts on these rate caps and how they may affect Enova and the industry?

I think the cap being discussed is specific to credit cards. If it happens, it would likely be positive for us since fewer credit card customers would access credit, and we would serve as an alternate solution. Historically, rates caps tend to reduce availability for those who need it most, which aligns with our business model. However, the likelihood of rate caps being implemented is low.

Okay. Great. That's helpful. Can you discuss the current environment for small business and what you think is sustainable for 2026 given the consumer loan growth we mentioned earlier?

The numbers speak for themselves, reflecting the strength of our ability to underwrite those customers and the stability of the customer base we serve. Despite the noise around tariffs and the macro environment, small businesses are looking positively into 2026. While 30%-40% growth rates aren't something we anticipate, we expect to continue strong growth with the guidance Scott provided.

Next question comes from Kyle Joseph with Stephens.

You've had some solid years, and congrats on the promotions. Any thoughts on changes to the small business side resulting from the BBB and the implications for seasonality for 2026?

I don't expect any significant changes for 2026. Larger refunds are good for our credit profile, and likely spending will also benefit our small business customers. We're not anticipating disruptions.

Great. Can you walk us through your thoughts on scalability in '26, particularly focusing on marketing expenses?

We aim to continue generating operating leverage and scale. As the market presents itself, we will invest in marketing to drive profitable growth. You can expect a decline in some expense categories as we continue to grow overall.

This concludes our question and answer session. I would like to turn the conference back over to Steve Cunningham for any closing remarks. Please go ahead.

We thank you all for joining our call today, and we look forward to updating you next quarter. Have a good night.

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