Good afternoon and welcome to the Enova International Third Quarter 2016 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 for Enova. Please go ahead.

Thank you, operator and good afternoon everyone. Enova released results for the third quarter of 2016 ended September 30, 2016 this afternoon after the market close. If you did not receive a copy of our earnings press release, you can 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 would like to note that today’s discussion will contain forward-looking statements based on the business environment as we currently see it and 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 would like to turn the call over to David.

Thanks and good afternoon everyone. Thanks for joining our call today. I am going to start off by giving a brief overview of the quarter, then I will update you on our strategy and initiatives, and finally, I will share perspectives looking forward. Then I will turn the call over to Steve Cunningham, our CFO to discuss our financial results and guidance in more detail. We continue to be very pleased with the strong performance and momentum we are seeing in our core businesses as well as the sustained traction of our new initiatives to drive additional growth. For the third quarter, our revenue was $196 million, an increase of 19% from Q3 of last year and above our guidance of $175 million to $190 million. Our higher than expected revenue was driven by strong originations across almost all of our products. We believe the continued strength in our originations this year is due to a combination of factors. First, our team has done an excellent job of continually improving our products to meet customers’ needs and pairing those products with efficient marketing that is resonating with our customers. Second, we are likely benefiting from where we are in the economic cycle. The economy is still in good enough shape that our customers feel comfortable borrowing when necessary, but it’s not so strong that savings have increased meaningfully. As we have discussed before, over 47% of Americans don’t have sufficient savings to cover up $400 financial emergency. Finally, we are winning on the competitive front. As a result of our significant experience and solid diversified funding, we have been able to be aggressive this year as others have had to pullback in the face of credit concerns and liquidity issues. Adjusted EBITDA for the quarter was $34.2 million, which was…

Thank you, David and good afternoon everyone. I will start by reviewing our financial and operating performance for the third quarter and then provide our outlook for the fourth quarter. As David mentioned, we are very pleased with the company’s strong performance in the third quarter, the continued moment we are seeing in our core businesses and attraction of our new initiatives to drive additional growth. Total revenue was $195.9 million in the third quarter, an 18.6% increase from the year ago quarter and above our guidance range of $175 million to $190 million. On a constant currency basis, revenue increased 21.4% year-over-year. In the third quarter, total company origination volume increased 7.6% on a year-over-year basis and 12.7% sequentially. This drove ending total company loans and finance receivable balances to $667.3 million, that’s up 38.4% year-over-year from $482.2 million in the third quarter of last year and up 12.1% sequentially. New customer acquisitions continued to drive a significant amount of our originations during the quarter. The dollar amount of new customer loan originations has exceeded 25% for two consecutive quarters with increases across all of our significant products. Domestic revenue increased 23.7% on a year-over-year basis and 17.8% sequentially to $165.3 million in the third quarter and accounted for 84% of total revenue. In particular, year-over-year revenue growth for domestic installment loans and receivable purchase agreements and for line of credit products increased 34% and 41%, respectively. During the quarter, we continued to see increased demand for our domestic near-prime installment products and line of credit offerings, which drove our domestic loan and finance receivable balances up 44% year-over-year. International revenue declined 3% on a year-over-year basis to $30.6 million and accounted for 16% of total company revenue in the third quarter. On a constant currency basis, international revenue…

Great. Thanks, Steve. At this time, we are happy to take any questions you might have.

[Operator Instructions] Our first question comes from Bob Ramsey of FBR. Please go ahead.

Hey, good afternoon guys. This is actually Kyle Peterson on for Bob today. I just want to touch on the G&A it went down you guys mentioned in your prepared remarks that some of that was kind of capitalized labor costs, is this type of run-rate something we might be able to expect moving forward or G&A might kind of drift backup a little bit?

Yes, I would. This is Steve. Hey, it’s nice to have you on the call. I would expect that the drift backup there was some one-time catch-up in that. Yes, you should not take that reduction as a run-rate.

Okay, great. And then also switching a little bit on NetCredit, you guys have the average yields that you guys are getting on NetCredit available?

Yes, the average yield on the total portfolio is in the low 50%.

Okay. You say low 50%?

Yes.

Okay. And then I guess just finally on NetCredit here, I know you guys upsized the securitization or is that kind of your primary vehicle for funding that book going forward and just want to kind of want to get your thoughts on funding in NetCredit?

Yes. Our securitization facility, as you know, NetCredit is really our business that doesn’t benefit from a self-funding type of mechanism. So, we rely on that securitization facility to fund the bulk of the NetCredit originations.

Right, right. I guess, I was just trying to get about how – do you guys have any kind of leeway or runway in terms of what the upsize gives you guys before maybe you guys had considered tapping the market again or kind of exploring some other financing options, because obviously it’s growing very quickly?

Yes. Well, I think the structure and size will take us through our needs for 2017.

Alright, great. I think that’s all for me. Thanks, guys.

Good. Thank you.

And our next question comes from David Scharf of JMP. Please go ahead.

Hi, good afternoon. Thanks for taking questions. Dave, wondering if you can talk a little bit about, well, maybe the quality – credit losses are obviously holding it nice and stable. But as we think about the ending allowance rate going forward and the consolidated gross margin going forward was the pullback in origination, the intentional pullback at the end of the quarter partially based on the quality of the applications that were coming in or was it just sort of managing capital liquidity and volume?

Yes, it was absolutely not based on quality of the applications. The quality we saw was very good. Credit quality has been consistently good this entire year. It’s really just based on the extremely strong level of demand we are seeing particularly in new customer demand, as Steve mentioned in his remarks, with the highest level of new customer originations this quarter. And if we would have continued at the pace we were running, it will be great top line growth and great long-term growth, but would not have been good for Q3 profitability, so really just pulled back on those origination levels and purely to maintain that profitability level for the quarter, nothing at all to do with credit quality.

Got it, perfect. And along those same lines, as we think about the ending allowance, which was up at 14.5%, obviously reflective of a bigger mix of new borrowers, since you – as you said sort of throttle back a bit at the end of the quarter and possibly into the fourth quarter, is those newer borrower sees and you get a better read-on and then presumably they start generating more repeat borrowing in the first of half or throughout next year, is that 14.5%, should we think of that as a high watermark, should it be trending downward from here?

Well, it depends on mix going forward. But as we mentioned, Steve mentioned, with very high new customer mix this quarter that’s why that number is higher, it’s why gross profit margin was lower this quarter. And Steve guided to a higher expected gross profit margin all things equal going forward.

Got it. Switching to small business, before your comments, I have noticed that the origination volumes sort of tapered off of a bit, I am just curious if you can expand upon your comment regarding the discipline you are showing with respect to just confidence level in the model just you had and how competitive is out there, I mean reading between the lines, I got the sense you were implying that it’s still – if not frothy very, very competitive market right now that you don’t want to necessarily jump into first?

Well, this is a competitive market. That’s not necessarily our biggest concern. We actually think there is a little bit of a competitive shakeout going on right now. We have some of the kind of smaller competitors are starting to running with some funding issues. I think people are finally stepping up from regulatory standpoint providing better disclosures, making better products available which will help us because we certainly didn’t play on the fringes like some of the people did out there. But until that shakes out and if we have been at this 10 years that we have on the consumer side, maybe we would be more aggressive, but as we are still refining our operations, our credit models really understanding lifetime value, we are happy to go a little bit slower while that shakeout is happening, continue to refine and kind of we fully expect that still to be a good business for us long-term. And I would expect sometime in 2017, there is a good chance we would become more aggressive in growing that business.

Got it. And then lastly, just the UK and what’s going on competitively, I know you have talked about during the whole sort of regulatory shakeout sort of halted maybe from further force to first in terms of market share, any anecdotal commentary about Dfc Global’s brands, did you feel like you are growing simply because, you are emerging from the darkness like everybody else after that first year post new rules or do you feel like competitors are actually losing share to you?

We feel like competitors are really losing share to us. We can see it in some of our marketing and customer reach numbers as well beyond the origination numbers. And if you look at the UK growth, on it’s phase it doesn’t look spectacular in Q3, but if you look at it on a constant currency basis and see daily some of those numbers, it’s actually really strong growth in the UK. And the market isn’t growing in the UK, kind of grows of rate population, but our business certainly is and we think that’s largely from taking share.

Got it. Great, thank you.

And our next question comes from John Hecht of Jefferies. Please go ahead.

Good afternoon guys. Thanks very much. I guess, just getting a little bit more to the new customers and higher compensation of new customers in the quarter, as you have hit, I guess if you were to hit an optimal balance of new and recurring customers, where are you in the context of that. And then the second question is which – would they across all products and geographies or maybe can you tells us where the new customer benefits came in from the product perspective?

Yes. So let me – let’s do the first part first. Absent on having public guidance out there quarter-to-quarter being a public company with kind of expectations, we would take as many new customers as we can possibly get every single quarter. While it does hurt near-term profitability, it’s very near-term. And so we do not think it, we won’t be putting the business at risk by taking as many new customers as we possibly could because those new customers turn into returning customers pretty quickly and become great profit drivers for us. So managing that balance is really more about kind of whatever came through this year, which is doing what we said we are going to doing. And once we have those expectations out there, we certainly work hard to meet them. The second part of your question…?

In terms of like which business we are driving it, both the U.S. and the UK core businesses you saw gains in the quarter or how constant from an already strong second quarter same thing within that credit. So really our largest businesses most significant products we are seeing, those new customer acquisitions.

That’s balanced across all products there.

Yes.

Yes.

And it sounded like, as you mentioned, David to deliver on what you set forth with respect to guidance you kind of throttled back, are you able to tell us month ended this quarter or is there interest in new customer the appetite for new customers is strong as it was kind of too last quarter at this point in time?

Yes. We are still seeing good new customer volume.

Okay, great. Thanks so much. And the last question, you mentioned the upside credit facility, any changes with covenants or anything worth noting in that, because I know that was just yesterday, I think you announced that?

Yes. No changes in covenants.

Great, alright. Thanks very much.

And our next question comes from John Rowan of Janney. Please go ahead.

Good afternoon, guys. Steve, I just wanted to make sure I understood gross profit guidance for 2017 is between 55% and 60%, is that correct that’s all consolidated?

Yes. Well, that’s in our guidance for 2017 necessarily, but that’s sort of where we would expect. Quarter-to-quarter it can vary. And we would expect a full year to sort of fall into that range.

Do you think that it’s more – it’s a seasonal lumber or maybe you have a higher gross profit in the beginning half of the year trailing up for the back half of the year?

That’s correct. That’s how the gross profit pattern works in the business.

Okay. And then on an earlier question you mentioned some one-time catch-up items in G&A, can you kind of just go over that again, I didn’t really catch what you said, how big were the items that – I guess, if you reverse that of G&A in the quarter?

Well, we capitalize labor that’s related to the development of technology in the firm. And in this quarter, there was a little bit of catch-up, which created some of the goodness that you saw on that line item. If I had to sort of guide you a little bit between the items that I mentioned in my comments, there is probably about $1.5 million of goodness, $1.5 million to $2 million of one-timeish type items in that G&A line item.

So that reduced to $21.3 million in G&A line items?

That’s correct.

Okay. Versus your initial guidance when you came out when you see if we put out the rules, you were saying 60% to 65% of your products will be impacted in some way, shape or form, you have obviously grown ancillary products, you have been generating loan growth out of the UK, so can you update just on what that number is today, I think you said you said there was if I am not mistaken 28% of your U.S. portfolio was lending so let me square out what the overall buckets of business are that are exposed to that rule, Dave you into your bunch of numbers earlier today, I just I think that will more damage you are going through them?

Yes. We are probably not going to update that number every quarter our momentum on get to that number on the back end of the year, but I think it hasn’t changed a tremendous amount. We have got some outside growth from Brazil since that time, but it’s very small. NetCredit has grown maybe incrementally faster than CNU has, but both of those businesses have grown on an absolute basis size, CNUs actually probably growing faster than NetCredit. So, it hasn’t changed at times since June when we first put that out there.

Okay. And then just last question, when did Google actually change their policy on marketing, because I heard that the ads are actually still showing up on Google? That I know obviously you don’t get a lot of direct marketing from Google but I know some of your lead gens also do use Google. And that will be my last question.

They were couple of weeks late in getting it out. So, it was right around the 1st of August.

Okay, thanks.

And our next question comes from Tom White of Macquarie. Please go ahead.

Great, thanks for taking my question. I have done a little late. So, I apologize if this is already covered. But Enova decisions maybe just – can you give us kind of an update there on number of customers, any new customer wins? And just kind of stepping back, I am just kind of curious how you guys are differentiating or trying to differentiate that product with some of the other kind of online lending platforms that are looking to provide kind of outsourced credit positioning. And then just housekeeping on the guidance – the full year guidance, I am just curious the strengthening of the dollar versus the pound, can you kind of call out sort of what the headwind since you guys last kind of gave a full year guidance number? And how should we be thinking about that headwind in the new guidance?

Yes. So, Enova decision is actually, we didn’t doing really well. They have a nice pipeline. We have a few signed customers now, but more importantly we have half a dozen or more and kind of what in data studies are prototyping, which is kind of like the first step to a long-term sign agreement. So, really it’s obviously very, very small and its early stages, but we like the traction we are getting in our conversations with customers, which kind of leads into the second part of your question about how we differentiate that product. And it’s not a lending platform, that’s not what Enova decision – the decisioning platform. And the focus for Enova decisions and how we differentiate ourselves is really to provide real-time transactional decisions to customers. So, we are not doing big data studies for them. We are writing custom algorithms. We are using our existing tools whether it’s customer acquisition, credit decisioning, fraud prevention to help these companies make decisions about their own customer bases in real time. And Steve, you want to address on the pound?

On the pound, just to give you some context, the third quarter of this year versus last year, the pound is down about 14% – 14%, 15%. And clearly, the line items associated with the pound are going to be worth less whether it’s P&L or a balance sheet line item. And I think our point is our guidance is just highlighting that we are subject to volatility from the pound dollar relationship, but that’s really all we are trying to communicate. And we try to give you some color on the constant currency measures back in our commentary, so you can get a feel for more of an apples-to-apples.

Okay, thank you.

[Operator Instructions] Our next question comes from Greg Hillman of First Wilshire Securities. Please go ahead.

Yes, good afternoon gentlemen. Hey, first of all, Steve, when you say near prime 47% origination to NetCredit near-prime, does that mean 36% per year at an existing below when you say near-prime?

No, we are not talking about APR cutoffs, we are talking about customers that we think are between above our credit quality for sub-prime, but not obviously, not in the prime space, so it’s broader than just the NetCredit, sub 36%.

Okay. Well, then just overall, for domestic U.S. lending, what percentage is 36% or below at this point, in terms of APR?

Yes. We don’t break out and disclose that separately.

Okay. So, it’s like hard – so, it’s hard for investors now for your installer program, your installment products and your line of credit products, what the exposure is to the regulatory risk. Is that right, it’s hard to tell, if that’s the guess?

Well, we actually gave specific guidance back in June about the percentage of our revenue that was subject to the new rules. And I think once the rules – so, once we have filed rules from the CFPB next year, that’s the guidance that we will likely update.

Okay. I think we are just sticking with that guidance from June at this point.

Yes. Like we said, it hasn’t moved a lot in 3 or 4 months since then.

Okay. And then the other thing I wanted to touch on was you have so-called credit cycle when – at certain times when lenders pulled back, because you are getting into two bad losses on their loans in particular, I think the loss rate on second mortgages and auto loans is going – is trending up right now. And since you are just a 12-year-old company, the last time there was a pullback tightening of credit standards, you were kind of a fast growing company, you just had single-pay loans and now you have your long-tail loans that go on as much as I don’t know 3 to 4 years. So, you haven’t really been stress-tested in the period when you have significant percentage of long-tail loans in the portfolio. Is that correct?

We had installment loans back in 2008, ‘09, ‘10 shorter term than some of the loans that we have today. That is correct.

Yes. But – okay, but the whole composition in your portfolio and what’s just going back – how do those loans performed in that period, the installment loans, what was the longest term for the installment loans back then?

A year.

Okay. And you have loans now that go for as long as like 3 years or 4 years, is that correct?

That is correct. Yes.

Okay. So, you haven’t gone through a period where you have kind of stress-tested your really long-tailed loans?

Is that a question?

No, no, I am thinking. Yes, is that true. You have not gone through the period.

Well, I mean, we have – those loans get stress tested at more micro levels on a very regular basis. We have states with different economic cycles. We see kind of towns with big factories that shutdown where we can see the impacts of default. So, that’s one of the great things about our model. It can be very micro focused. So, we can learn from the impacts of some of those smaller changes and adjust our underwriting – our collections of portfolio management, so that we can adapt when they are wider spread. And that’s certainly what we saw in our shorter term from portfolio back in 2008 and 2009. Our models were good enough that they were able to – they had seen smaller shocks throughout the first 4 or 5 years of our existence and we performed very, very well through the recession that started in 2008. So, we feel very, very confident in the quality of the analytics behind our longer term installment loan models and think we are in a great position to be able to withstand economic changes. I think the other thing that certainly differentiates that portfolio versus sub-prime model portfolios are certainly mortgages. It was obviously much higher interest rates on that portfolio with an average APR, north of 50% gives us a lot more cushion to withstand a downturn than say single-digit interest rate on the mortgage.

For the entire book of business, preferred series of loans?

Yes.

Okay. And then going back to your earlier part of microenvironment, so basic – so if I am correct, you said you could, let’s say, a particular town, I don’t know, loses their main factory or something like that, that you could go to that particular town and then see how your loans performed in that geographical area as kind of as many stress tests, if you will, for how those particular loans perform in an economic downturn because of that geographical area?

Yes, we are doing that virtually everyday here. Yes, absolutely.

Okay. So that’s interesting. So in a way you are saying you can simulate a general economic downturn by all these many things that happen around the country?

Yes. That’s absolutely right. And we saw the effectiveness of that, again through 2008, 2009, 2010.

And ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to David Fisher for any closing remarks.

Great. Thank you. And thanks everyone so much for joining us today. We look forward to updating you on our progress next quarter and most importantly Go Cubs.

And ladies and gentlemen, the conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.