Good day. Welcome to the Enova International First Quarter 2019 Earnings Conference Call and Webcast. All participants are in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing Star key followed by 0. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press Star, then 1 on a touch-tone phone. To withdraw your question, please press Star, then 2. Please note, this event is being recorded. I would now like to turn the conference over to Monica Gould, Investor Relations. Please go ahead.
Thank you, Chantal. Good afternoon, everyone. Enova released results for the first quarter of 2019, ended March 31st, 2019 this afternoon after the 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, Chief Executive Officer, and Steve Cunningham, Chief Financial Officer. This call is being webcast and will be available 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, 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 press release, we have posted supplemental financial information on the IR portion of our website. With that, I'd like to turn the call over to David.
Good afternoon, everyone. Thanks for joining our call today. I'm going to start by giving a brief overview of the first quarter, and then I'll update you on our strategy. After that, I'll turn the call over to Steve Cunningham, our CFO, who will discuss our financial results and guidance in more detail. We kicked off the year with a strong first quarter. Topline results were in line with our guidance, driven by demand consistent with typical Q1 seasonality. In the quarter, we also experienced good credit performance and very effective and efficient marketing. This enabled us to deliver solid profitability that exceeded the top end of our guidance. First quarter revenue of $293 million increased 15% over last year, primarily driven by growth in our U.S. businesses.
First quarter adjusted EBITDA was a record $75 million, an increase of 10% over last year, while adjusted EPS increased 14% to $1.16. These results reflect the strong credit quality I just mentioned, as well as our continued consistent execution and solid operating leverage inherent in our online model. During the quarter, loans to new customers represented 26% of total originations, in line with Q1 of last year. As we've mentioned in the past, these new customers ultimately expand our returning customer base and revenue potential going forward. While the new customer mix was down slightly from the low 30s we saw in the back half of 2018, this is to be expected with typical first quarter seasonality driven by the tax return season in the U.S.
As I mentioned, we also saw excellent credit performance from our customers, with noticeable improvements in credit quality across our portfolio and charge-offs in line with our expectations. While net charge-offs were higher than last year, this is largely a result of the high mix of new customers over the last several quarters, as well as our ongoing portfolio mix shift to installment and line of credit products. We are confident that our sophisticated analytics and over 15 years of experience, as well as all of our data, allows us to effectively maintain excellent credit quality across our products. Total company-wide originations in the first quarter declined 3% year-over-year. This was largely due to a tough comp, as we did not experience the typical tax seasonality in 2018, which resulted in much higher than expected originations last year.
The 21% sequential decline in originations again reflects the seasonality we typically see in Q1, combined with our ongoing diversification into LOC and installment products. This diversification can be seen in total AR, which was up 16% year-over-year and down only 7% sequentially. As Steve will discuss in more detail, the moderation of growth we saw in Q1 resulted in adjusted EBITDA and EPS above our expectations while still delivering strong, consistent revenue growth. As expected in a year where we saw more typical seasonality in the first quarter, originations have accelerated as we've entered the second quarter. We've discussed on prior calls how managing growth can be challenging. Our experienced team is able to leverage our sophisticated analytics models to respond rapidly to changes in demand by adjusting our marketing spend and credit cutoffs.
Our past results have demonstrated our ability to manage these growth versus profitability trade-offs, and we will continue to focus on running the business with this balanced approach going forward. We believe our strong performance is attributable to our focus on our six growth businesses, namely our U.S. subprime business, our U.S. near-prime offering, our U.K. consumer brands, U.S. small business financing, our installment loan business in Brazil, and Enova Decisions, our analytics-as-a-service business. Our large U.S. subprime consumer business generated another strong quarter of growth and profitability. Originations increased 6% year-over-year, and the portfolio remains well-diversified, consisting of 52% line of credit products, 34% installment products, and only 14% single-pay products. We continue to believe there's a significant opportunity for future growth in the U.S., given the large addressable market and our single-digit market share.
NetCredit loan balances increased 21% year-over-year to over $450 million, and originations increased 8% year-over-year. Our U.S. near-prime products represented 46% of our total portfolio at the end of Q1, compared to 45% in Q1 of last year. NetCredit has become a very large business, yet we still see many avenues for future growth in the near-prime market. Our first quarter U.K. revenue decreased 12% year-over-year on a constant currency basis, primarily driven by the purposeful repositioning of our U.K. business to focus on installment offerings. During the quarter, we relaunched On Stride Financial, our installment product in the U.K. On Stride offers a variety of durations and a wider range of APRs and is resonating well with consumers there. Installment loan revenue in the U.K. increased 18% year-over-year and 26% on a constant currency basis.
Overall, we remain the leading subprime lender by market share in the U.K. and believe we are well-positioned for future growth. Turning to small business, as we discussed in our Q4 earnings call, in recent quarters, we've seen a strengthening of demand for our small business products at attractive unit economics, leading us to be moderately more assertive in expanding in this space. The result was good growth in our small business financing products during Q1. Originations increased 58% year-over-year, resulting in small business representing 10% of our total loan book at the end of Q1. Going forward, we will be focused on maintaining growth in this market to the extent we continue to see attractive opportunities. In Brazil, first quarter originations declined 13% year-over-year on a constant currency basis due to a difficult comparison to a strong Q1 of last year.
In addition, we intentionally slowed originations in Brazil while we reconfigured certain operational practices to deal with new debiting practices implemented by the banks there. Brazil is one of our smaller businesses, but we continue to see a large opportunity there with a huge population, growing middle class, and stable regulatory environment. Lastly, Enova Decisions, our real-time analytics-as-a-service business, continues to develop their product offering and outreach to potential customers. While this business remains in the early stages, we still believe there are opportunities for us to use our sophisticated data and analytics to help other businesses with their decisioning. Before I wrap up, I want to provide a brief regulatory update. In March, a federal judge ordered a stay on the August 2019 compliance date for the Small Dollar Rule.
As you know, earlier this year, the CFPB announced it is revisiting the ability to repay portions of that rule. The judge's stay also covers the payment provision in the rule. Right now, it remains unclear how long that stay will remain and whether the payment provisions will also be revisited by the CFPB. As with the ability to repay provision, we believe the flexibility of our online platform, diversified product offerings, and our extensive experience navigating regulatory changes positions us well to succeed regardless of the outcome of the rulemaking and the litigation. At the state level, the California legislature is once again considering a number of bills dealing with consumer credit. We have consistently supported good regulations based on facts that help consumers. For example, the Senate Banking Committee in California passed a bill, which we support, that proposed a set of consumer-oriented protections without restrictive rate caps.
Our team will stay engaged as these bills progress through the summer in California. Separately, Oklahoma just passed a new installment lending bill, which will open up a nice new product opportunity for us there when it takes effect next year. Overall, we are off to a strong start in 2019 and are raising our outlook for the year, as Steve will describe in more detail. As we have demonstrated, we will continue to manage the business to effectively balance growth and profitability. We believe our diversified revenue streams, talented employees, advanced technology, world-class analytics platform, and strong competitive position set us up very well for the remainder of 2019 and beyond. With that, I'll turn the call over to Steve, who will provide more details on our financial and guidance. Following his remarks, we'll be happy to answer any questions that you may have. Steve?
Thank you, David, good afternoon, everyone. I'll start by reviewing our financial and operating performance for the first quarter of 2019, then provide our outlook for the second quarter and the full year 2019. As David mentioned, we are pleased to report another quarter of solid financial results, with revenue in the middle of our guidance range, and adjusted EBITDA and adjusted earnings per share exceeding our guidance. Financial results reflect our typical first quarter seasonality, with sequential declines in originations, receivables, and revenue, which contribute to strong bottom line profitability. In fact, net income, adjusted EBITDA, and adjusted earnings per share this quarter are all quarterly records for Enova as a public company. Total first quarter 2019 revenue increased 15% to $293 million, above the midpoint of our guidance range of $280 million to $300 million. On a constant currency basis, revenue increased 16% year-over-year.
Revenue growth was driven by a 16% year-over-year increase in total company combined loan and finance receivables balances, which grew to $980 million from $844 million at the end of the first quarter of 2018. Installment loan and line of credit products continue to drive the growth in total loans and finance receivables balances. Total quarterly originations decreased 3% year-over-year, which was primarily driven by our continued diversification to installment and line of credit products, lower originations in our international businesses, and currency headwinds. Total domestic originations increased 10% year-over-year compared to the year ago quarter, as consumer line of credit originations rose 34% and small business originations increased 58%. Installment loans, receivables purchase agreements, and line of credit products now comprise nearly 84% of our total revenue and 93% of our total portfolio, demonstrating our customers' preference for these products.
Domestic revenue increased 21% on a year-over-year basis and declined 4% sequentially to $258 million in the first quarter of 2019. Domestic revenue accounted for 88% of our total revenue in the first quarter. Again, this sequential decline in revenue is typical seasonality for our U.S. business. Revenue growth in our domestic operations was driven by a 33% year-over-year increase in line of credit revenue and a 17% increase in installment loan and RPA revenue. Continued strong demand for these products drove our domestic combined loan and finance receivables balances up 21% year-over-year. International revenue decreased 15% from the year ago quarter to $35 million, primarily due to the aforementioned repositioning of our U.K. business as well as currency headwinds. On a constant currency basis, international revenue decreased 8% on a year-over-year basis.
International revenue accounted for 12% of total revenue in the first quarter of 2019. Total international loans decreased 13% compared to a year ago. International installment loan balances increased 4% year-over-year, while international short-term loan balances decreased 47% year-over-year. On a constant currency basis, international loan balances decreased 5% year-over-year. Turning to gross profit margins. Our first quarter gross profit margin for the total company was near the high end of our guidance range expectations at 53%. This compares to 57% in the year ago quarter. As we've described in the past, we typically see gross profit margin in the upper end of our guidance range during the first quarter of the year as we experience seasonally lower growth. Typical of this seasonality, our gross profit margin improved from 43% in the fourth quarter of 2018.
Total company gross profit margin continues to reflect the solid credit quality of the portfolio. Overall, the credit performance of the portfolio is stable and in line with our expectations. We continually monitor the marginal and portfolio economics across our products and vintages and remain pleased with the returns we're generating on our originations. Net charge-offs as a percentage of average combined loan and finance receivables increased in the first quarter to 15.8% from 13.7% in the prior year quarter. This increase was expected given the rising proportion of new customers in our portfolio over the past several quarters and was reflected in our ratio of allowance and liability for losses as a percentage of gross loan and financing receivables at the end of the previous quarter, which was 15.7%.
As David mentioned, originations from new customers across all of our businesses were 26% of the total during the first quarter, equal to the proportion from the year ago quarter. At the end of the first quarter, the allowance and liability for losses for the consolidated company as a percentage of combined gross loan and financing receivables was 14.6% compared to the year ago quarter of 13.7%. The increase reflects the expectation of continued seasoning of new customer receivables originated in recent quarters. For 2019, we continue to expect our consolidated gross profit margin to be in the range of 45%-55%. Quarter-to-quarter, our gross profit margin will be influenced by seasonality and growth characteristics, including the pace of growth in originations, the mix of new versus returning customers in originations, and the mix of loans and financings in the portfolio.
Our domestic gross profit margin was 56% in the first quarter compared to 59% in the first quarter of 2018, and 43% in the fourth quarter of 2018. Our international gross profit margin was 28% in the first quarter compared to 51% in the prior year quarter. The decrease in international gross profit margin from the year ago quarter was driven primarily by the seasoning of new customer originations in recent quarters, and by the change in gross profit margin for international installment loans, which reflects the recent growth of new customers from the purposeful repositioning of our U.K. business to focus on installment offerings that David mentioned earlier. We expect our international gross profit margin in 2019 to be in the range of 45%-55%, slightly lower than our previous guidance as we grow and attract new customers in our international installment businesses.
As a reminder, quarter-to-quarter, the international gross profit margin will be influenced by seasonality and growth characteristics, including the pace of growth in originations, the mix of new versus returning customers in originations, and the mix of loans and financings in the portfolio. Efficient marketing and operating leverage in our scalable online model contributed to our ability to generate record quarterly levels of profit while meeting customer demand. During the first quarter of 2019, total operating expenses, including marketing, were $83 million, or 28% of revenue, compared to $80 million, or 32% of revenue in the first quarter of 2018. We continue to see efficiency in our marketing spend. Marketing expenses in the first quarter declined 15% year-over-year to $24 million, or 8% of revenue, compared to $28 million, or 11% of revenue in the first quarter of 2018.
We expect marketing spend will range in the low to mid-teens percentage of revenue in 2019, with the highest spend during our seasonal growth periods in the second half of the year. Operations and technology expenses totaled $30 million, or 10% of revenue in the first quarter, compared to $26 million, or 10% of revenue in the first quarter of 2018, and were higher primarily from volume related variable expenses, including ongoing expenses associated with complaints in the U.K. General administrative expenses were $30 million, or 10% of revenue in the first quarter, compared to $27 million, or 11% of revenue in the first quarter of the prior year, and were higher primarily from higher personnel-related expenses. Adjusted EBITDA, a non-GAAP measure, reached a quarterly record of $75 million and increased 10% year-over-year in the first quarter.
Our adjusted EBITDA margin was 25.5%, compared to 26.7% in the first quarter of the prior year. Our stock-based compensation expense was $3.1 million in the first quarter, which compares to $2.4 million in the first quarter of 2018. Our effective tax rate was 22.5% in the first quarter compared to a 20.8% rate in the first quarter of 2018. We expect our ongoing normalized effective tax rate to be in the mid-20% range. Net income increased to $35 million, or $1.02 per diluted share in the first quarter from net income of $27.9 million, or $0.81 per diluted share in the first quarter of 2018. Adjusted earnings, a non-GAAP measure, increased to $39.9 million, or $1.16 per diluted share, from $35.4 million, or $1.02 per diluted share in the first quarter of the prior year.
We continue to maintain a solid liquidity position with strong operating cash flows and meaningful available capacity in our financing facilities. During the first quarter, cash flows from operations totaled $222 million, and we ended the quarter with unrestricted cash and cash equivalents of $93 million and total debt of $792 million. Our debt balance at the end of the quarter includes $99 million outstanding under our $350 million of combined installment loan securitization facilities and no amount outstanding under our $125 million corporate revolver. Now I'd like to turn to our outlook for the second quarter and full year 2019. We expect to see our typical quarterly seasonality during 2019. As we move through the year, seasonal demand and originations typically increase from the first quarter low point and peak during the fourth quarter.
As we move into our faster growth periods, the seasonality typically generates sequential revenues that rise faster than adjusted EBITDA and adjusted EPS as growth-related provisioning lowers gross margins and outpaces scale benefits. Our outlook also reflects an expectation of continued faster growth, relative growth in installment and line of credit products, stable credit, steady growth in the mix of new customers and originations, no significant impacts to our businesses from regulatory changes, and no significant volatility in the British pound from current levels. As noted in our earnings release, in the second quarter of 2019, we expect total revenue to be between $265 million-$285 million, diluted earnings per share to be between $0.41-$0.63 per share, adjusted EBITDA to be between $45 million-$55 million, and adjusted earnings per share to be between $0.48-$0.70 per share.
Full year, we continue to expect total revenue to be between $1.25 billion-$1.31 billion and are revising our full-year profitability higher based on first quarter performance. We now expect diluted earnings per share to be between $2.83-$3.48 per share, adjusted EBITDA to be between $237 million-$267 million, and adjusted earnings per share to be between $3.17-$3.82 per share. As David mentioned, we remain well-positioned and are very optimistic about our ability to generate growth and increase profitability for the remainder of 2019. With that, we would be happy to take your questions. Operator?
Thank you. Your first question will be coming from John Hecht from Jefferies. Please go ahead.
Good afternoon. Thanks, guys. I want to focus on the line of credit versus the installment loans. Both of them had good year-over-year growth, it's clear that in terms of origination trends and this and that there's been higher growth factors tied to the line of credit. I'm wondering, are those tied to some strategic marketing changes or consumer demand, or are you just seeing that in different geographic pockets?
I think what you're seeing there is, especially in counts as opposed to dollar amounts, it's a big shift. It's really over the last several years in our subprime business from short-term products to line of credit products. It's a combination of states passing new line of credit laws, opening up availability for us, as well as us expanding into states that didn't prior have short-term products and single-pay products that do have line of credit products. Certainly in terms of counts, because those are relatively small loan sizes, those have the biggest impacts. In installment, you'll see that that's somewhat muted in terms of dollar amounts because of our larger NetCredit loans, which is actually one of our fastest growing businesses as you've seen over the last year or two.
Okay. Maybe can you talk about, say, over the last year with respect to average balance of line of credit versus installment loan, what's happened?
Our average balances haven't really meaningfully changed over the past year, John.
Okay, it's mixed. Okay. You talked about the international gross margin. I guess it was impacted this year relative to last year on a few factors. You talked about the recovery over the course of the year. How fast do you expect that to recover? Is that just a one-quarter migration as you move things in the U.K.? Is there something longer term?
No, it's definitely longer term. It's a pretty big shift for us from the short-term product to the installment product. As any product ramps up, you obviously are booking a lot of those losses from new customers upfront. That'll take many quarters till it normalizes, really till the growth slows pretty meaningfully. Long term, it's a great thing. As we've talked before, customers really seem to like this new installment product. It does have a very wide range of APRs as well as a wide range of loan sizes. That flexibility seems to be really resonating in the U.K. We've seen strong adoption, stronger than we expected, and that's what's led to the drop in the gross margins there.
Okay. Relative to our model, just much better leveraging of various expenses, including marketing. Maybe can you give us a sense for how you're deploying marketing budget, any changes to the different channels there, and any different kind of efficacy rates and response rates you're seeing in these channels?
Yeah, we saw decent rates in Q1. It's just, again, Q1's more typical seasonality. That's what we typically saw in the past. Last year was definitely an anomaly. It surprised us. I think it surprised everybody. We're kind of getting back to that. We pulled way back in marketing in Q1. This year, we just pulled back a little bit more. As we've entered Q2, we've definitely seen a strengthening of demand post tax return season, as would be expected, and we are clearly leaning into the marketing. I think over the last couple of years, the big growth has been on the direct mail side. I think now we're seeing good success in TV, actually. We're leaning in on the TV side. These are fairly minor and longer-term mix shifts in terms of marketing.
They're not dramatic, they're not overnight, they have had the effect over, say, the last three to five years of greatly reducing our reliance on lead providers and controlling our destiny much more in terms of attracting new customers.
All right, guys. Thanks very much, and congrats on a good quarter.
Great. Thank you.
Thank you. I'll just take this opportunity to remind everyone, to register for a question, please press star then one on your touch tone phone. If you are using speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw the question, please press star, then two. Your next question comes from David Scharf, JMP Securities. Go ahead, please.
Hi. Thanks for taking my questions this afternoon. Hey, David, I wanted to actually follow up on the prior questions and discussion on marketing. It's become pretty clear that you guys have demonstrated that the model has an awful lot of flexibility, in terms of managing to your earnings guidance, particularly by throttling or pulling back on marketing spend. I'm just wondering, just to give us maybe a broader sense for how to think about the range of marketing spend from quarter to quarter. I know you've given guidance as a % of revenue for the year, Based on the scale you're at now, is $23.5 million, should we think of that as a floor on quarterly spend? That anything below that can't sustain this kind of growth?
Yeah. A couple things. Good question. We did not pull back on marketing in Q1 to try to achieve higher profitability. We generated above our guidance range in profitability just through normal operations. We try to make sure we're hitting our return thresholds with our marketing and not exceeding them, and just given the lower levels of demand because of the tax return season, that's where marketing played out. Unlike Q4, where we purposefully pulled back because of the extremely strong levels of new customer growth, we did not do that in Q1, but still saw one of our lowest percentages of marketing as a percentage of revenue we've ever seen. Yeah, I would not expect in the future, marketing in either absolute dollars or as a percentage of revenue, to get much below that number. That was a very low number.
In terms of the ranges, we would be very comfortable spending mid to upper teens as a percentage of revenue for marketing in a given quarter. We found some opportunities to accelerate that in the middle of last year, and it paid off so well that we ended up having to pull back in the back quarter of the year, the last quarter of the year. Right now, we're seeing some good opportunities to deploy marketing dollars as we've exited the tax return season and moved into growth season again. That's why our guidance for marketing for the year hasn't changed a lot. We think we can deploy more marketing dollars throughout the year, and we would like to if we can, because that's great growth for the future. Every marketing dollar we spend, we think we're spending at attractive unit economics and generating good returns for the business.
If you're thinking about a range, we would not expect to go below where we were in Q1. Certainly not in the back three quarters of the year, but really in any quarter going forward, although crazy things can happen. We will be happy to spend in the upper teens if we find the right opportunities in some of the more growth quarters.
Okay. No, that's real helpful going forward. Hey, maybe a question, just a point of clarification. I wanted to make sure I understood the commentary on international gross margins. On the one hand, I thought I heard that the full year guidance was modestly trimmed just a couple percentage points, but still in the 45%-55% range. Yet, a little later, I thought, David, you may have said that those margins aren't going to snap back overnight off of that 28% level in the first quarter, and I'm trying to reconcile those two comments. How to think about the trend over the course of the year.
Yeah, David, this is Steve. I think over the course of the year, you'll see some of the return there. Again, it won't be overnight. That's really what David was talking about, as we're making some of these transitions and purposeful repositionings. Expect to see that. As I talked about in my commentary, it's also going to depend on how fast we're growing, if there's deviations from our new versus returning as we're looking to the future. That's probably the best way to think about it. It was a fairly meaningful reduction. We brought it down five points. Again, you should expect to see some normalization based on our best view going forward today.
Okay. Got it. Then, hey, lastly for you, Steve, this is more just sort of a mechanical question. It looks like your EBITDA guidance for the year was taken up by $7 million, both at the high and the low end. Yet the earnings guidance went up by about $0.40, which by my calculation, that's roughly $18 million of pre-tax. I'm sort of wondering, is there sort of an $11 million reduction in below the operating line assumptions? I can take it offline if it's easier, I was just trying to reconcile.
Well, no, really below EBITDA is the big two levers are financing and tax. I think our tax view has been pretty steady. We did expect to have maybe a slightly lower balance sheet than we did going into the year. If there's lower size balance sheet, you have a lower level of financing needed against that. That's really the leverage you see below the EBITDA line.
Got it. Great. Thank you.
we also have some mix shifts across our financing instruments as well.
All right.
Thank you. If anyone does have any further questions, please press the star key followed by the number one.