Q3 2019 Earnings Call
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Thank you operator, and good afternoon, everyone and now were released results for the third quarter ended Septemberthirty 2019. This afternoon after the market close.
If you did not receive a copy of our earnings press release, you may obtain that from the Investor Relations section of our website at <unk> Dot and Nova Dot com.
With me on today's call, our David Fischer, Chief Executive Officer, and Steve Cunningham, Chief Financial Officer.
This call is being webcast and will be archived on the Investor Relations section of our website.
Before I turn the call over to David I'd like to note that today's discussion will contain.
Forward looking statements based on the business environment as we currently see it and as such.
Does include certain risks and uncertainties. Please refer to our press release and our FCC filings for more information on the specific risk factors that could cause results to differ materially from leverage projections described in today's discussion any forward looking statements that we make on this call.
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 you're 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.
That's really.
As noted in our earnings release, we have posted supplemental financial information on the higher portion of our website and with that I'd like to turn the call over to David.
Thanks, <unk> blended and good afternoon, everyone. Thanks for joining our call today.
By giving you a brief overview of the third quarter.
Your honor 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.
Were pleased to deliver another quarter strong top and bottom line growth our third quarter results demonstrate our ability to effectively manage growth with profitability.
Compared to Q3 of last year, we delivered 12% year over year revenue growth.
Third quarter revenue of $330 million.
It was primarily driven by growth in our U.S. businesses.
Third quarter, adjusted EBITDA increased 39% and adjusted EPS Rose 87%.
Well strong revenue growth, particularly from new customers can wait to more immediate earnings growth in the short term, we continue to demonstrate our ability to manage the business for both growth and profitability.
Rational new customer growth efficient marketing spend stable credit and our ability to leverage our fixed cost with our online model.
As has been the case for the last couple of years, our Q3 financial performance was Boyd by robust new customer acquisition, which were able to achieve with only a 3% increase marketing expense year over year.
During the quarter loan to new customers represented 38% of total originations the highest quarterly proportion we have seen since 2000 or for an up from 31% in Q3 of last year.
As we mentioned in the past these new customers become profitable overtime and expand our revenue potential going forward.
Even with a high percentage and new customers. This year gross margins are essentially inline with last year and up 400 basis points over Q3 of last year.
This is clearly evident evidences the strong credit performance, we're saying as credit quality remains good across our entire portfolio were charge offs, well aligned with our expectations.
Well why we have been an upward economic cycle for 10 years now we're not seeing any signs a credit deterioration and no indications that this is likely to change too.
Total way, our was up 17% year over year, and 12% sequentially, while total company wide originations increased in the quarter, 11% sequentially, but declined 2% compared to Q3 of last year.
During the quarter were dramatically slowed originations in the UK given the regulatory headwinds there excluding the UK total originations increased a healthier 12% over Q3 of last year.
We also announced today, our intention to exit the UK market.
Since we started offering loans in the UK in 2007 without knowing ends up hardworking people get access to fast trustworthy cry.
We are one of the first high cost short term lenders to be authorized by the financial conduct authority our industry regulator in the UK.
Following that authorization and an independent review of our business became the largest UK wander in our sector due to our superior products excellent customer service and talented team.
However over the past here and a half we've experienced a challenging and uncertain on certain regulatory environment in the UK.
Despite the fact that the F.C.A. reviewed and approved our business practices and affordability criteria in 2015 follows the financial Armpits Man. It's continued to move the goalpost with its complaint handling decisions in effect setting ever changing de facto policy that in many instances whats into.
Consistent with Fcr guidelines.
We've been in continued conversations with the F.C.N. thoughts regarding their concerns over the past several months with some clarity from them around the future state of complaint handling.
Despite our best efforts to come to a resolution we are unable to find a path for it that provides us a clarity we need to continue investing in our UK business.
This result is disappointing what's the decision to exit the UK market is the right one for noble and our shareholders.
Steve will discuss the financial impact in more detail, but in the long term. We believe this will be a positive for Nova freeing up resources to continue achieving our focus growth strategy and to pursue new potential opportunities.
I want to say a special thanks to our UK team for all the hard work they put into continue serving our customers, while adjusting to the ever changing regulatory environment there.
Well the outcome of the UK, it's not what we hoped we remain encouraged about our ongoing businesses, namely our U.S. subprime business are you at near Prime offering our U.S. small business financing our yard installment loan business in Brazil, and an over decisions our analytics as a service business.
Our domestic lending businesses, which include our large U.S. subprime business that credit and our small business financing products continue to drive our growth and profitability.
Revenue for those three businesses was up 20% year over year in Q3, but by 48% year over year increase in line of credit revenue and 11% increase and installment loan and financed receivables revenue.
Net credit loan balances increased 23% year over year to $556 million and originations increased 39%.
Our U.S. near Prime products represented 46% of <unk> total portfolio at the end of <unk> up at the end of Q3.
Compared to 44% in Q3 of last year.
[noise] that credit remains the fastest growing products in our portfolio at the sport the growth of this business. We recently completed our second term asset base securitization.
This transaction, which saw high investor demand it was significantly oversubscribe demonstrate strong validation of our net credit portfolio and the underlying analytics.
Turning to small business as we as we discussed on our last few calls.
We're seeing good demand for small business products at attractive unit economics, we successfully capitalize on this opportunity, which enabled us to grow originations, 123% year over year and small business now represents 12% of our book as of the end of Q3.
As with our consumer products credit quality remained stable and our small business portfolio.
We feel like we have good momentum and the SMB space right now and expect wheel well, we'll be able to generate further growth at attractive unit economics.
In Brazil third quarter originations declined 35% year over year on a constant currency basis, an increase 2% sequentially.
As we've discussed previously we intentionally slowed originations in Brazil, while we reconfigure our operations to handle new dabbling practices implemented by the banks there.
We continue to believe that Brazil represents a large opportunity with a huge population growing middle class and stable regulatory environment.
And were hopeful that the changes were making positioned us well to capitalize on that large opportunity.
Lastly, I know what decisions are real time analytics as a service business continues to gain traction provides a unique avenue for growth for Nova.
Before I wrap up I want to provide a brief regulatory update.
As you probably aware, California passed a law the caps interest rates at roughly 39% a personal loans between 20 $510000.
Well, we believe this law unfairly and unnecessarily restrict access to credit for Californians would you not believed that well have a material impact on our business.
We currently offer three products in California, a single pay product, a subprime installment product and it near prime installment product.
We will continue to offer a single pay product, which is not impacted by the new law.
And instead of originating near Prime loans, we plan to market and provide underwriting services for national banks originating in California.
With the new law, we will need to wind down our subprime installment product in California.
This product only accounted for approximately 3% originations and a similar percentage of gross profit in Q3.
Well, we believe we'll be able to recapture March if not all of this volume given the strong demand we expect from the elimination of all the subprime installment lending tend to stay.
I'd also like to briefly touch on Googles recent decision to remove apps that offer loans within a PR over 36% from the play store.
Well, we strongly disagree with the Googles decision it should have very little effect on us.
Our websites or designs at all of the functionality is easy to use I nearly all devices and operating systems.
As a result, our customers have always primarily used mobile web or a desktop sites as opposed to apps to access our products and services.
And some overall Q3 was another great quarter and we're on track to achieve record revenue and strong bottom line growth this year.
We have consistently executed on our focused growth strategy and our diversification efforts have positioned us well to produce sustainable and profitable growth.
Looking forward, we are optimistic about Q4 and expect the momentum were seeing to translate to healthy growth and profitability and 2020, given the strong credit and demand environment combined with our track record of efficient execution and significant operating leverage.
With that I'll turn the call over to Steve will provide more details on our financials and guidance and following his remarks, we'll be happy to answer any questions that you may have Steve.
Thank you David and good afternoon, everyone I'll start by reviewing our financial and operating performance for the third quarter of 29 team.
And then provide her outlook and guidance for the fourth quarter and the full year 2019.
As David mentioned, we're pleased to report another quarter of financial performance with top and Bottomline results once again, either meeting or exceeding our expectations.
As David mentioned, we're pleased to report another quarter of financial performance with top and Bottomline results once again, either meeting or exceeding our expectations.
As David mentioned, we're pleased to report another quarter of financial performance with top and Bottomline results once again, either meeting or exceeding our expectations.
Third quarter results demonstrate our continued ability to deliver meaningful receivables revenue and profit growth.
Our breadth of product offerings operational execution best in class analytics, and solid balance sheet have been key to our ability to meet or exceed our investor guidance for 16 consecutive quarters.
As David mentioned in his remarks, we intend to exit the UK market in wind down or operations there.
In conjunction with the exit we anticipate recording a onetime after tax charge of approximately $74 million in the fourth quarter.
Which is comprised of one time cash charges of approximately $43 million and noncash charges of approximately $31 million that are primarily related to the write off of the remaining net assets associated with the operations of the UK business.
In the quarterly supplement supplemental financial information posted on our Investor Relations website. Today, we've provided selected historical financial results for Inova, excluding the operations of our UK business.
In my remarks today historical information includes the UK operations, but any guidance on future results exclude the UK in any one time charges related to the exit unless otherwise noted.
Total company third quarter, 2019 revenue increased 12% to $330 million at the midpoint of our guidance range of $320 million to $340 million.
On a constant currency basis revenue increased 13% year over year.
Revenue growth was driven by a 17% year over year increase in total company combined loan in finance receivables balances, which grew to $1.2 billion.
Installment loans in line of credit products continued to drive the <unk> the growth in total company loans in finance receivables balances, which grew 15% in 55% year over year, respectively installment loans receivables purchase agreements in line of credit products now comprise more than 95% of our total portfolio.
And 89% of our total revenue.
Domestic revenue increased 20% on a year over year basis in 18% sequentially to $301 million in the third quarter.
Domestic revenue accounted for 91% of our total revenue in the quarter.
Revenue growth in our domestic operations was driven by strong demand and a 25% year over year increase domestic combined loan in finance receivables balances.
As David mentioned, our international results for the third quarter were driven by our focus on reaching resolution on the future of our UK business and the continued adjustment of our Brazilian operation to address new deboning practices in that market.
As a result of these actions compared to the year ago quarter International revenue decreased 33% or 29% on a constant currency basis to $29 million and total international loans decreased 37% or 33% on a constant currency basis to $78 million.
Our third quarter gross profit margin for the total company increased to 40% compared to 44% in the third quarter of last year.
Solid credit quality and portfolio mix for the main drivers of our gross margin improvement as net charge offs as a percent of average combine alone in finance receivables decreased in the third quarter to 13.4% from 13.8% in the prior year quarter.
At the end of the third quarter, the allowance and liability for losses for the consolidated company as percentage of combined gross loan and financing receivables was 14.5 per cent compared to 15.1 person in the third quarter of last year as we expect a continuation of recent solid credit trends.
Our strong analytics are driving stable and predictable credit performance, allowing us to deliver strong growth from both new and existing customers with attractive unit economics.
As David mentioned originations from new customers across all of our businesses were 38% of the total during the quarter the highest quarterly proportion we've seen since our first year of operation and up from 31% a year ago and 35% last quarter.
For the full year, we continue to expect our consolidated gross profit margin to be in the range of 45% to 55%.
As we've mentioned in the past, we typically see gross profit margin in the upper end of our guidance range. During the first half of the year as we experienced seasonally lower growth followed by sequential declines during the second half of the year as we move into our seasonally higher growth period.
In addition to seasonality or gross profit margin will also be influenced by credit performance.
The mix of new versus returning customers and originations in the mix of loans and financings in the portfolio.
Our domestic gross profit margin was 46% in the third quarter up from 43% in this third quarter of last year in sequentially lower due to our normal seasonality from 52% in the second quarter of this year.
Our international gross profit margin was 65% of the third quarter up from 51% in the prior year quarter and up from 46% in the second quarter of 2019 as the aforementioned actions in the UK in Brazil reduced international origination sequentially and from the prior year quarter.
During the third quarter of 2019, total operating expenses, including marketing were $100 million or 30% of revenue compared to $89 million or 30% of revenue in the third quarter of 2018.
We continue to see efficiency in our marketing spend.
Marketing expenses in the third quarter were $37 million or 11% of revenue compared to $36 million or 12% of revenue in the third quarter of 2018.
As is typical of our seasonality, we expect marketing spend will increase in absolute terms sequentially and year over year in the fourth quarter, and we will range from a low to mid teens as a percent of revenue.
Operations, and technology expenses totaled $34 million or 10% of revenue in the third quarter compared to $28 million or 10% of revenue in the third quarter of 2018 and were higher primarily from ongoing expenses associated with complaints in the UK as well as volume related variable expenses.
We expect operations and technology cost to moderate for the remainder of 29 team in range between seven and 8% of revenue.
General and administrative expenses were $29 million or 9% of revenue in the third quarter compared to $24 million or 8% of revenue in the third quarter of the prior year.
Were higher primarily from personnel related expenses legal costs and consulting fees.
We expect absolute gionee costs to remain relatively flat for the remainder of 29 team in range between eight and 9% of revenue.
Adjusted EBITDA non-GAAP measure rose, 39% year over year to $62 million in the third quarter, driven by strong growth and stable credit.
Our adjusted EBITDA margin increased to 19% from 15% in the third quarter of the prior year.
Our stock based compensation expense was $3.4 million in the third quarter, which compares to $2.9 million in the third quarter of 2018.
Our effective tax rate was 25% in the third quarter compared to a tax benefit in the third quarter of 2018.
The prior year quarter included deductions associated with the timing of certain federal income tax elections.
We continue to expect our ongoing normalized effective tax rate to be in the mid 20 percents range.
Net income increased 77% to $27 million or 78 cents per diluted share in the third quarter from net income of 15 million or 43 cents per diluted share in this third quarter of 2018.
Adjusted earnings and non-GAAP measure increased 83% to $30 million or 86% 86 cents per diluted share from $16 million or 46 cents per diluted share in the third quarter the prior year.
The trailing 12 month return on average shareholder equity using adjusted earnings increased to 30% during the third quarter from 26% a year ago.
We continue to generate strong operational cash flow and ended the quarter with a solid liquidity position.
During the quarter cash flows from operations totaled $191 million and we ended the quarter with unrestricted cash and cash equivalents of $70 million in total debt of $874 million.
Our debt balance at the ended the quarter includes $184 million outstanding under our $350 million of combined installment loan securitization facilities and $25 million outstanding under what are under our 125 million dollar corporate revolver.
As we announced earlier this month, we completed our second net credit term asset backed securitization, a 200 million dollar transaction.
Which enhances our cost of funds liquidity capacity to fund net credit loan originations.
Further demonstrates our ability to successfully accessed the capital markets and diversify our funding sources.
The three class transaction saw significant investor demand and high levels of Oversubscription.
The improved our advance rates price with a weighted average fixed cost of 5.61% and was allocated to 17 investors.
Our cost of funds for the third quarter declined 8.5%, a 135 basis point decline from the same quarter a year ago is we continue to recognize the cost benefits of transactions completed over the past two years.
The cost of funds improvement contributed approximately $3 million a pretax operating income this quarter.
[noise] today, we also announced that our board of directors has authorized the new share repurchase program totaling $75 million that expires December 30, Onest 2020.
The new program replaces the prior authorization a $50 million.
Year to date through October 22nd.
We acquired 310000 shares at a cost of $6.44 million under the previous share repurchase program.
The new share the <unk>, the new share repurchase plan will give us additional flexibility for continuing to deliver on our commitment to creating value for our shareholders.
Looking forward our outlook for the fourth quarter and the full year 2019 for revenue adjusted EBITDA and adjusted EPS exclude our UK operations in any related onetime charges.
In addition, our outlook reflects an expectation of stable credit.
Continued recent growth trends for domestic receivables, including faster relative growth in consumer and small business installment Rpj Atlanta credit products as well as continued growth in the mix of new customers and originations.
We also expect operating leverage and lower funding costs to increase year over year, EBITDA margins and earnings per share for the remainder of the year.
Finally, our guidance assumes no significant impacts to our businesses from regulatory changes.
As noted in our earnings release for the fourth quarter of 2019, excluding UK operations and related onetime charges as a result to the planned exit.
We expect total revenue of 329 million to $344 million adjusted EBITDA of $68 million to $78 million in adjusted earnings per share of 94 cents to a dollar and 15 so.
GAAP diluted loss per share for the fourth quarter of 2019, which includes the UK operations and related onetime exit charges.
Spec to be negative 70 cents to negative 49 cents.
Our outlook for the full year also exclude UK operations and related one time charges for the full year as a result of the planned exit.
For comparability, we're also providing the previous outlook for the full year 2019 total revenue adjusted EBITDA and adjusted earnings per share excluding UK operation.
For the full year 2019, we expect total revenue of $1.158 billion to $1.173 billion.
His previous guidance of 1.14 or 5 billion to $1.185 billion.
Adjusted EBITDA of 278 million to $288 million versus previous guidance of $273 million to $293 million.
In adjusted earnings per share at $4.13 to $4 in 34 cents versus previous guidance of $4 to $4, a 44 cents per share.
GAAP diluted earnings per share for the full year 2019, which includes the UK operations and related one time exit charges is expected to be $1.82 cents to $2 in three cents versus.
Versus previous guidance of $3 in 13 cents to $3.57 per share.
As we look forward to 2020, we believe actors diversified product offerings will provide meaningful growth as we allocate our resources to where we see the greatest opportunities.
We expect our trajectory of topline growth to continue into next year.
We will continue to leverage our analytics scale and flexible financing to drive growth in EBITDA and EPS faster than revenue growth.
We look forward to updating you with more details on our outlook for 2020 during our fourth quarter conference call early next year.
And with that we'd be happy to take your questions operator.
Thank you we'll now begin the question answer session to ask a question you My press the star. Okay. Then one on a touch time fine.
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If at any time your question has been addressed and she would like to withdraw. Your question. Please press Star then say Oh.
At this time, we'll pause momentarily to assemble a rostov.
Your first question comes from.
John Rowan Johnny go ahead. Please.
Afternoon, guys.
Hey, John Hi, Josh I'm I, just want to make sure I understood. Some of the guidance points and just understand kind of how we take out the.
The UK business. So the way I'm kind of reading is roughly 60, some odd million dollars of earning assets is that sounds about right I'm looking at the financial supplement to generate that figure.
Yeah, I mean, I think John if you look at the financial supplement.
You can see the you know the historical selected information for you'd over with and without the UK. So obviously the delta that is.
Yep.
Yep.
And then there's 20.
$20 million of operating Spencer in the quarter for international how much of that is UK and how much of that do we strip out from each of the consolidated income statement lines.
Yeah. So I think what the guidance I gave you for each of the lines marketing operations, the technology and GSK has the percent of revenue range. Excluding the UK. The biggest change you'll you'll see the biggest changes in in the operations and technology line.
Okay. So you said marketing mid teens and operation in technology, if I'm honest amateurish I had it right written down correctly, 70% of revenue and then Gionee was 89% correct.
That's right.
Okay and can you discuss I'm just moving on from you could you discuss a little bit how you're going to be providing you know underwriting services to banks that are going to continue providing installment loans in California, what is that product look like.
Yeah, So banks operate nationally in originate in California will provide marketing and underwriting for the banks, who then originate the loans.
Okay, but we're still talking about.
Bonds that are in excess of 36% in California, correct with <unk> for that underwriting product that youre going to be providing.
Yeah kind of right around 30, 30, 536% antibody.
Okay. All right. Thank you I'll hop back into queue.
For the questions. Okay. Thanks, John .
Thank you. Your next question comes from Vincent Kendrick Steven Go ahead. Please.
Hey, Thanks, and good afternoon, I guess two broad questions. So first on exiting the UK. So now.
Five cylinders instead of six cylinder says they're going to be another six cylinder or should we expect other like actions like more buybacks.
I think likely both.
So yes, you as Steve mentioned, our board authorized a significant increase to our buyback up to 75 million.
Which is great is flexibility to be a proactive going out into the market, where we see opportunities and the Soc [noise].
But there's always been plenty of great ideas floating around inova that we purposely tamp down because we thought or platelets fall with six businesses now that we're down to five I do think that provides us an opportunity and resources to potentially explore one or more of those other opportunities that have bubbled up over the years.
[noise], Okay, Great and then second question. So on the bank partnerships and just wondering if you could update us on.
The appetite on the discussions you've had and maybe one.
When we can expect to maybe here about a one or more of a partnerships. Thanks.
I mean, the appetite sounds great. We have one won a contract signed and working on a working on others. So you know we think it's I'm going to be good opportunity for us going forward.
Okay, great. Thank you.
Thank you. Your next question comes from John Hecht Jefferies Go ahead. Please.
Thanks, guys and.
Sounds like John Rowan's names that Johnny if I heard that right [laughter], but you're still job [laughter], though them big via this okay. That's good.
Anyway. So a couple of a couple of things is new customers at the highest percent yet you know your I know, you're you're guiding my marketing consistent with prior guidance, but marketing has taken a step down relative to last year in terms of percentage to revenue.
He is this just are you work in certain channels more productively is this a reflection of the competitive markets. You know questioning how are you still attracting a lot of new customers, while the that marketing levels going down.
You know, we tried to be conservative with how aggressively we ramp up marketing spend but what we've seen really over the last two years. It's every time, we leaned into marketing and spend more dollars. It in some ways becomes more efficient not less.
Which is a great problem to have probably won't continue forever, but we still have room to spend meaningfully more as a percentage of revenue and still have attractive economics. So we don't want to be silly and go out and spend it all at once and potentially not only spend too much of a percentage of revenue, but maybe attract unprofitable alone.
Loans or the wrong types of loans. So we're going to continue to increase that cautiously, but we do think there's the opportunity to continue to spend more over time across a variety of channels direct mail continues to do well TV has been a strong channel for us this year as well as our online indirect channels.
Okay, and then with respect to credit clearly, it's stable and you know it results came in well in line with what we expected in your guidance, but the installment portfolio, we saw credit improving pretty markedly design a credit there was a slight migration is that more of a function of.
Of the seasoning of those toward <unk> total portfolios or different standards of underwriting or how do I think about that different yeah. The different trajectory is there and we saw something I can't remember the exact number about a 45 or 46% increase in line of credit originations I mean, that's what the leading to that that that's what's leading to the little tick up there.
There is just the strong strong growth I mean, it's completely natural and is that portfolio see seasons.
We expect really good credit performance, where it everywhere fine with the credit performance, where it is but they are expected to continue to improve overtime. Certainly is a growth rate comes down from that very high level.
Okay that makes kind of sense and last question.
Steve any any commentary on c. sole or any any way, we should be thinking about that as we kind of.
Head toward that implementation.
Yeah, John So, we're making great progress toward our adoption of the of the new long life of loan loss accounting requirements that become effective January one.
I think you guys know that the Fas visa, allowing both Cecil as well as well as fair value as options for compliance.
You know given that this this adoption has no impact on cash flow or how we make marginal investment decisions I.
I think you should expect it will be adopting an accounting policies for.
For compliance that best captures the economics of our business.
But I would just say, regardless, we expect implementation impacts to be manageable for both the balance sheet and the piano.
Okay. So what will I assume will get good guidance on that next quarter. Then in terms that is hurdle. If that's okay, alright, guys. Thanks very much.
Thank you just from Wonder if he would like to register for a question. Please press Star then one on Neal fine.
Your next question comes from David Schuff, J.P., It sorry, J M pay Securities go ahead. Please.
Great. Thank thank you thanks for taking my questions Oh.
Well a lot to unpack this quarter.
<unk> David endorse Steve.
You know as it relates to the UK exit I want to make sure I interpret the guidance correctly, because obviously I mean, it's it seems like.
You're raising the full year earnings outlook, when excluding the UK and.
You know roughly speaking, even ignoring kind of the drilling down into what the earning assets are in the like if I just look at the year to date operating loss internationally. It was like 16, and a half million I realize there's some Brazil in there, but you know if I annualize. It it's 22 million, maybe there's some more coming out of the corporate services segment, but.
That seems to be the amount by which your EBITDA guidance went up.
Is that a way to frame things that.
I'm pulling it <unk> that were effectively pulling out 2020 5 million of operating loss pretax and that the.
Remaining core guidance for the year is.
Pretty much unchanged from last quarter.
Yes, that's right I mean, I think what we were trying to do given that was going to be a little bit of apples and oranges. If we just.
Gave her guidance without the UK.
Just to give you a bit of that pro forma imply guidance from last quarter right. So it it would have had.
Our actual performance as well as what we expected for the remainder of the year and I think the takeaway. If you just look at the midpoint of the guidance. We're basically affirming maybe just slightly increasing but very close to where we expected which is consistent with the performance of third quarter overall.
Got it yeah. That's that's what it seem like no just wanted to make sure and then.
Switching gears, maybe echoing.
John Hex question.
There was such dramatic growth in the line of credit product.
And.
Obviously, a you know just based on you know the the allowance levels and losses. It seems you know it's a little different credit profile. Then then.
Installment, which has so much near prime I'm just wondering.
It is is that something that's.
You know.
Typically.
Baked into your marketing strategy is it just consumer choice it seems to be a.
Pretty big console concentration and rebalancing if you will have the type alone and I'm wondering if you have any thoughts on what's driving the demand for that product six then.
Yeah, I think there's a couple of things I mean, we.
Learned a couple of years ago that customers really prefer the line of credit product over either a single pay product or even in most cases, a subprime installment loan product and self continued to look for opportunities to roll out those products in various states, including getting some states authorized specific line of credit products, where they weren't previously.
Available and so that's been a great success story for us over the past two two and half years.
In that number also for total company wide originations in line of credit is also small one of our two small business products.
Which has also had a is a line of credit product and that's had over 100% year over year growth as well. So small businesses like consumers also seem to really appreciate the small business product and has been very successful for us this year.
Got it and I know, it's something we don't see with just the end of period balances you disclose but can you give us a sense for I guess, what the open to borrow is I mean like like how much if at any point in time like September Thirtyth.
Just curious how much has actually been drawn.
In aggregate on those lines versus what your borrowers proof for into whether that's a pretty stable figure each quarter.
Oh, it is pretty stable, it's actually very stable, it's something we track, we don't disclose that exactly but I would I would not.
It's really more like a life it's more.
It's not really like a credit card or more likely or like a corporate revolver customers tend to take a draw upfront that usually less than the total amount that they are authorized for.
And then start making repayments of maybe take some of the additional draws over time. So were 10, we don't tend to see very low utilization you low utilization like you would see unlike the corporate line of credit like our line of credit.
Facility, where we tend not very low utilization.
But it's also not like the subprime credit card, where people tend to get up to 100% and then just stay there forever. So tends to be in between those two with really the initial draw being the large proportion of that.
Got it <unk> just last question more more strategically.
Maybe a different.
Intuitive twist on the questions regarding California.
Just given all of your analytical capabilities and you've been lending online pretty much longer than than anyone.
Is there anything in this up 36% market.
May start to look appealing.
To you or the risk adjusted returns and the competition just not as attractive.
I would say two things one in terms of direct lending in the sub 36 market no. Okay. A clear now things have too big of a cost of capital advantage for us sub 36, and it's not us and there's a lot of competition down there. So it's not where we want to be in terms of analytics I think.
Our analytics or go to work really well there, but we have nowhere near the advantage, we do and the subprime space, where we have and near Prime space, where deep deep experience underwriting near prime and subprime customers is much harder and so our and our better analytics capabilities provide much much bigger advantage that in prime customers were underwriting is frankly.
Much easier.
No no <unk> makes sense, hey, if a sneak one more in and I know, you're not giving 2020 guidance, yet, but you called out a few times.
The level of new customer acquisition has been rising despite keeping marketing.
Spend.
Pretty pretty level or not not increasing at the same rate.
I mean.
You know what.
That that the that mid low to mid teens percentage of revenue.
Steve is that something I know, that's the guidance, but is that something that you specifically sort of target.
As a goal in your operating model I'm trying to get a sense for looking out a year.
You know where incremental operating leverage surface is the most and whether.
Marketing is one of those areas no marketing you know, we really are focused on getting that level of marketing into that range and solidly into that range. The operating leverage is really going to arise from DNA in the fixed pieces of of operations and technology not marketing.
Got it.
My first Netcredit commercial on television yesterday, so I assume obesity anymore right.
Hi, Thanks.
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Okay.
This concludes my question answer session I would like to turn the conference back to David Fischer. So yeah, it's the closing remarks.
Thanks, everybody for joining our call today, we very much appreciate it didn't look forward to speaking with you again next quarter.
Yeah.
Thank you see the conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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