Q3 2020 Enova International Inc Earnings Call
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I would now like to turn the conference over to Monica Gould Investor Relations for Noah. Please go ahead.
Thank you operator, and good afternoon, everyone and never released results for the third quarter of 2020 and at September Thirtyth 2020. 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 <unk>, our dot dot.
Dot com.
With me on today's call are David Fischer, Chief Executive Officer, and Steve Cunningham, Chief Financial Officer. This.
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.
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.
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.
Conciliations between these GAAP and non-GAAP measures are included in the tables on today's press release.
As noted in our earnings release, we have posted supplemental financial information on the IR portion of our website.
And with that I'd like to turn the call over to David.
Thanks, and good afternoon, everyone and thanks for joining our call today.
First I'll provide an overview of our third quarter results.
Give an update on our recent acquisition of Ondecks, which closed on October 13th.
Finally, I will discuss our strategy and I'll look for 2020 after.
After that I'll turn the call over to Steve Cunningham, our CFO, who will discuss our financial results and outlook in more detail.
Starting in March the entire and over team orchestrated quick and exceptional response to the cobot crisis.
We began seeing the benefits of this effort in Q3 as our business showed strong signs of recovery from the industry wide impacts from Cowen.
Our improving performance can be seen and the stability of our portfolio, our strong credit metrics and a re acceleration in originations.
As a result, we delivered record profitability in Q3, primarily as a result of higher net revenue margins driven by the strong credit performance.
Also due to efficient expense management.
Third quarter revenue of $205 million declined 33% year over year, but adjusted EBITDA rose, 112% to a record $136 million and adjusted EPS of $2 or 97 cents grew 223%.
Third quarter revenue decreased sequentially due to our intentional pullback in originations in response to Cohen.
We expect that trend to reverse given the substantial increase in our lending activities during the quarter.
The confidence that drove our decision to increase our originations in Q3 was the result of a number of factors.
Our successful efforts to help our customers manage through the crisis resulted in much stronger than expected portfolio performance.
In addition, we saw continued strong credit performance from new loans at the end of Q2 and into Q3.
And importantly, both a strong portfolio performance and credit metrics continue to even after government stimulus wound down in July.
We've taken a measured approach to re accelerating our one day running hundreds of tough to gauge demand.
The quality of customers and competition.
We are currently testing the reacceleration of originations in nearly every state in our lending footprint.
And in all of our marketing channels.
The data we collect from these past give us deep insights into consumer and small business borrowers.
With these insights we're able to adjust our products, our marketing and our models to address current economic conditions.
Our testing will of course be ongoing but we believe we already have a strong handle on how the pandemic impacted customer behavior.
As a result, we have been rapidly adjusting our sophisticated analytics models to steadily increase lending volumes at attractive unit economics.
While still at levels below last year, the week over week and month over month growth rates in originations have been strong across all of our products and this has continued into Q4.
It is obviously difficult to make forward looking projections, given the ongoing impacts from covance, but.
But based on what we're seeing today, we would expect growth in originations to continue for the foreseeable future even as portions of the country are experiencing high cold at levels.
Despite elevated unemployment rates, we're seeing signs of strain and the nonprime customer base.
Clearly the consumer and the economy have proved more resilient than most people would have guessed back in the spring.
The restrictions caused by cold, but have greatly reduced spending and those lower spending levels combined with the earlier government stimulus that's freed up capital for many consumers.
And in many cases these consumers have used this extra capital to pay down debt.
As he called me opens back up our belief is that consumers will start spending again potentially at elevated levels due to pent up demand.
It does they do they will need access to credit to temporarily support dislocations between their income and their expenses.
That's those customers have been paying down debt during cobot their personal balance sheet should be in a position, where we can successfully you'd want to them.
We saw the same dynamic following the financial crisis, which led to strong origination growth in 2010 and 2011 at an album.
Walter quarter originations declined 77% from year ago, they increased 56% sequentially.
And originations from new customers increased approximately 11% of total originations.
From around 7% in Q2.
This is down from 39% in Q3 of last year as expected.
And as we continue to accelerate originations, we expect that the proportion of new customers will increase over the next several quarters given the good demand. We're currently seeing.
Due to our prudent approach to originations during the pandemic our loan portfolio contracted 36% on a year over year basis from the third quarter of last year.
But this rate is slowing and the portfolio was down only 14% from the second quarter.
In the third quarter of this year installment products represented 72% of our portfolio.
Line of credit products accounted for 28%.
In short term loans accounted for under 2%.
Small business represented 12% and.
Our U.S. near Prime products represented 59% of our portfolio.
Before wrapping up I'd like to spend a couple of minutes discussing our recent acquisition of Ondecks.
As we said when we announced the deal.
This transaction brings together two complementary market leading businesses.
Ondecks proven products further enhance our product differentiation by combining a world class capabilities in consumer lending with theirs and small business.
We believe now is a great time to be increasing our presence and small business lending.
The pandemic has devastated many small businesses across the country.
The revenues are down and small business owners are digging into their savings to survive until the pandemic subsides and the economy reopens.
But when it does I believe consumers will have a significant amount of pent up demand that's small business is concerned.
But these businesses will need capital to restock their shelves sign new equipment, bringing employees back and many other critical expenses.
And we intend to be there to supply that capital through our broad range of SMB financing products.
No you know bill at Ondeck brand products and services to its SMB portfolio to create a combined business with significant scale and diverse product offerings.
Over the next several quarters, we will be finalizing our strategy on the optimal number of products and brands to best serve the needs of SMB borrowers.
These decisions will be made by running numerous tests in the marketplace to gauge the true needs of customers.
It is also encouraging that ondecks financial performance during the third quarter exceeded our expectations.
He will discuss the results in more detail.
In addition, the integration is going well so far.
And we believe we are on track to deliver that $50 million of expense synergies and.
$15 million in run rate revenue synergies.
And we continue to believe that the transaction will be accretive in the first year and generate non-GAAP earnings per share accretion of more than 40% when the synergies are fully realized.
In summary, we are pleased with our third quarter performance.
Our portfolio reflects stable and solid credit.
We ended the quarter with a very strong balance sheet and liquidity position.
This gives us the flexibility to increase lending volumes as we continue to see attractive unit economics.
As we look forward, we remain committed to helping hard working people get access to the fast trustworthy credit.
We have proven that our online only business model can rapidly adapt to changes and then we have the ability to successfully manage the business in any market condition.
Well covered has created uncertainty in the near term, our secure financial position and broad product offerings position us well to continue to produce sustainable and profitable growth.
As well as drive shareholder value.
And together and no, but that will be well positioned to further sort of sport small businesses and consumers in the wake of the pandemic.
For over 16 years, we've had a history of profitable lending through various cycles.
That's combined company, we're even better positioned due to our larger scale and more diverse offerings.
Leveraging our strong financial and operational position, we will continue to look for diversification opportunities both internally and through acquisition.
With that I'll turn the call over to Steve to provide more details on our financial performance and outlook.
Following steves remarks, well be happy to answer any questions that you may have.
<unk>.
Thank you David and good afternoon, everyone.
As David mentioned in his remarks, our record profitability. This quarter reflects the strength and adaptability of our direct online business model.
Death, and preparedness of our team and the powerful credit risk management capabilities of our world class analytics and technology.
In this challenging operating environment, we're encouraged by the strong credit performance of the portfolio.
Eddie improvement in originations growth from the low points of the second quarter and our ability to effectively manage costs.
In addition, we're excited by the closing of the Ondeck transaction and the better than expected results. We are seeing as we combine our organizations.
It is my remarks today I will provide a summary of ondecks third quarter performance.
Now turning to Inovas third quarter results total company revenue from continuing operations.
Decreased 19% sequentially to $205 million.
The decline in revenue was driven by a 14% sequential decrease in total company combined loan and finance receivables balances, which.
We ended the quarter at $707 million on an amortized cost basis as a result of our purposeful pullback in originations following the onset of the Cobi crisis.
That being said the sequential rate of decline in receivables balances in revenue slowed significantly as originations increased 56% since the second quarter to $140 million.
David mentioned, we entered the third quarter facing uncertainty with the expiration of enhanced unemployment benefits in July.
We saw credit performance continue to improve even with reduced government stimulus, we steadily ramp up originations through the quarter with total.
Originations during September 43% higher than July.
Early in the fourth quarter, we've seen originations continue to increase across all brands we.
Recent levels of total company weekly originations are the highest we've seen since mid March and are more than four times the level of the weekly low in April.
We expect total revenue for the fourth quarter of 2020, excluding on DAC to be flat to slightly lower than third quarter levels.
And will depend upon the timing and level of originations as we move through the quarter.
The net revenue margin for the third quarter was 89%.
The improvement in the net revenue margin was driven by the impact of strong credit quality on the fair value of the portfolio. Its third quarter consolidated company net charge offs delinquency rates were among the lowest in the company's history.
You'll recall the change in the fair value line item is driven mostly by changes to key valuation assumptions.
In credit loss expectations prepayment assumptions in the discount rate.
Reduce future credit loss expectations were the primary driver of valuation assumption changes to the portfolio at September Thirtyth.
Significant improvements in the credit profile of the portfolio drove sequential increases in both the fair value of the portfolio and the net revenue margin.
For the third quarter. The total company ratio of net charge offs as a percentage of average combined loan and finance receivables was 4.7%.
Year to 15.9% in the second quarter of this year and 13.4%.
Third quarter of 2019.
We have seen sequential improvement in the net charge off ratio across every brand.
Percentage of total cum total portfolio receivables past due 30 days or more declined to 3.7% at the end of the third quarter.
4.5% at the end of the second quarter and from 7% at the end of the third quarter a year ago.
We also continue to see low levels of early stage delinquencies at the end of the quarter.
Customer request for modifications remain at pre coded levels.
Percentage of the consolidated portfolio tied to customers, who have been granted modifications since day.
And those loans are performing better than expected.
September Thirtyth modified receivables totaled 8.5% of total consolidated company receivables just 3% of those loans are past due 30 days or more.
Even with the significant improvement in credit quality, you recognize that the economic environment and outlook remain uncertain.
Present increased risk of customer defaults and currently reflected in our credit metrics result reflect this risk weve maintained downward adjustments to the fair value the portfolio at levels similar to the previous two quarters.
In addition, the discount rate used in the fair value calculation was unchanged from the prior quarter and remains at the high end of our range to reflect the uncertainty in the current economic environment.
Summarized the change in fair value of the fair.
Revalue the portfolio increased a strong portfolio credit quality at the end of the third quarter improved the outlook for expected future credit performance.
This improvement was offset to some degree by downward adjustments in fair value to address future credit uncertainties arising from the current economic environment may.
May not be fully reflected in our current portfolio credit metrics.
Resolve the fair value of the portfolio increased to 106% principal at September Thirtyth.
104% at June 30.
This is the primary reason for the meaningful improvement in our net revenue margin for the third quarter.
Looking ahead, the net revenue margin should normalize at around 50% as originations accelerate in newer less seasoned loans become an increasingly larger proportion of the portfolio.
Turning to expenses total operating expenses for the third quarter, including marketing were $56 million or 27% of revenue.
Here to $82 million or 27% of revenue in the third quarter 2019.
I'll discuss in a moment third quarter operating expenses include $11 million of one time non recurring expenses.
Marketing expenses in the third quarter were $5 million or 2% of revenue compared to $35 million or 11% of revenue in the third quarter of 2019.
Lets them with the steady increase in originations through the quarter, so marketing spend increasing each month as we reopened marketing channels and expanded testing across our virtual footprint.
We expect this trend to continue into the fourth quarter and marketing expenses.
Moving on Dec will likely approach 10% of revenue.
Will be dependent upon demand and the level of originations.
Operations and technology expenses declined 15% from the year ago quarter to $18 million or 9% of revenue.
Here to $21 million or 7% of revenue in the third quarter of 2019.
Oh and T. expenses. This quarter included nearly $1 million of one time costs, mainly related to certain software and vendor expenses.
Given the significant variable component of this expense category sequential increases in that when ti costs should be expected in an environment where originations accelerate.
Eagle's returned to growth.
General and administrative expenses for the third quarter increased 23% from the year ago quarter to $34 million.
16% of revenue compared to $27 million or 9% of revenue.
In the third quarter of the prior year.
Third quarter Gionee expenses included approximately $10 million of one time expenses largely.
Largely driven by deal costs associated with the Ondecks acquisition.
Putting these onetime items.
DNA would have declined 12% from the year ago quarter well.
12% of revenue in the third quarter of 2020.
We continue to see run rate reductions in nearly every category of gionee sense, but year over year and sequentially there.
Our flexible operating model has allowed us to rapidly adjust expenses inline with changes in revenue while keeping.
Keeping intact, our capabilities that will allow us to return to growth quickly.
We expect total non marketing operating expenses to be temporarily elevated during the fourth quarter as a result of the Ondeck acquisition.
There will be additional onetime costs associated with the Ondeck integration.
Temporarily higher operating cost for the combined companies before even before we began to recognize cost synergies transaction later this year.
Adjusted EBITDA, a non-GAAP measure increased 44% sequentially and more than doubled from a year ago to $136 million in the third quarter.
For the reasons I previously discussed or.
Our adjusted EBITDA margin increased 66% from 21% in the third quarter of the prior year.
I'm, 37% in the prior quarter.
Our stock based compensation expense was $3.8 million in the third quarter, which compares to $3.4 million in the third quarter of 2019.
As I mentioned last quarter 2020 is the first year, where expense associated with a 2017, increasing the vesting period for restricted stock units.
Well, we've reflected revolt, resulting in a year over year increase.
Our effective tax rate was 9% in the third quarter, which declined from 26% for the third quarter of 2019.
Decrease was driven by a reduction in reserves for uncertain tax positions as a result of a positive resolution other recent IRS audit.
We expect our normalized effective tax rate to remain in the mid to upper 20% range.
We recognized net income from continuing operations of $94 million or $3 or nine cents per diluted share in the third quarter.
Paired to $29 million or 83 cents per diluted share in the third quarter of 2019.
Yes that earnings a non-GAAP measure increased to $90 million for $2.97 per diluted share.
$32 million or 92 cents per diluted share in the third quarter of the prior year.
Trailing 12 month return on average shareholder equity using adjusted earnings increased to 36% during the third quarter from 33% a year ago.
We ended the third quarter with $552 million in cash and marketable securities, including $490 million of unrestricted cash.
It had an additional $124 million of available capacity on our corporate revolver.
$208 million of available capacity on other committed facilities.
Net cash flow from operations for the third quarter totaled $140 million as we continue to see strong customer payment rates.
Our debt balance at the end of the quarter includes $142 million outstanding under our $350 million of combined installment loan securitization facilities.
We had no borrowings outstanding under our $125 million corporate revolver.
Our cost of funds for the third quarter was 8.4% a 16 basis point decrease from the same quarter a year ago.
We continue to believe our cash position available facility capacity and operating cash flow will provide us with a long runway of available liquidity before needing to raise new external funding.
Even when we returned to levels of originations experienced in recent years.
As has been the case for the past few quarters, we are not providing financial guidance at this time, given the ongoing economic uncertainty.
Before I wrap up let me provide a quick update on the Ondecks business.
Similar to a notice performance on.
On Dec experienced a steady upward trend in originations through the quarter, along with improving credit quality solid profitability.
Total originations for the quarter were $148 million up from $66 million during the second quarter total.
Total gross consolidated loans and finance receivables at September Thirtyth totaled $666 million.
Ondecks annualized quarterly net charge off rate for the third quarter was 23% in the 15 day plus delinquency rate improved to 27% at September Thirtyth.
40% at June Thirtyth.
Proven credit quality and lower Gionee expenses drove an increase in ondecks adjusted net income to $30 million for the third quarter.
In conclusion, we remain confident that we have the right team operating model product and liquidity to quickly reaccelerate, our business can generate long term profitable growth.
Kind of mix stabilizes loan demand recovers and we recognize the meaningful opportunities from our acquisition gone back.
And with that we'd be happy to take your questions operator.
We will now begin the question and answer session.
Ask a question. Please press Star then one on your Touchtone phone.
They're using speakerphone, please pick up your handset before pressing the keys to always try a question. Please press Star then two.
Our first question today will come from David Scharf JMP Securities.
Hi, good afternoon, thanks for taking my questions.
Yeah, just to start with I guess, [laughter], obviously digging in to.
To the credit outlook, a little more.
We've obviously been seeing early on in this reporting season, a lot of consumer lenders delivering better than expected credit but.
Never to the tune of losses coming at it maybe just 25% of what we have been looking for.
Steve I'm wondering as we think about the fair value Mark.
And in the quarter.
As you as you noted the bulk of the you know positive variance was related to the Ford credit outlook.
Is there some rough ballpark.
Ballpark can.
The holiday did loss rate that's embedded in that fair value you know high ROE calculation that we can hone in on as we think about modeling or just forecasting the next year.
So David I would just tell you to take a look at really delinquencies.
Our you know sort of a good indicator going forward and is that and we don't have a.
Necessarily specific rate that we would share with you.
But we do consider the fact that there could be more volatility in the macro environment than what our credit metrics showed today and.
And I think we have to take that into consideration so.
So the answer to your question is no. We don't have a specific charge off bearing in mind, but we do have a number of things that we look at very consistent with the.
The way we've looked at the past couple of quarters to make sure that we're considering.
The macro environment, along with the what our credit metrics are saying about future losses at the end of the core.
Yeah, I think that's right just said another way.
This.
Even with the good credit that we've seen really since April we still have some conservatism built into our fair value calculation because of the macroeconomic uncertainty.
So we didn't even go kind of as far as maybe we could have gone in a normalized environment given the credit levels. We've seen there are still a level of conservatism built into that market.
Okay, No that helps put put things into context, and then maybe as a follow up.
You know.
[laughter], reflecting on on on deck.
As well as you know your origination activity for I guess headway capital in the quarter.
Where are you.
You know what was the was the Ics you know reacceleration, albeit modest in volumes for on deck and your own small business lending were they because there are a lot of overlap.
I mean were they coming mostly from the same verticals was there any geographic concentration just trying to get a sense for.
Once again how.
You know positive we want to be shrunk [laughter] that trend can yeah. No. That's a good question I think both on and small business, but also on the consumer side. They re acceleration, it's pretty broad based both in terms of states, but also in terms of marketing channels.
I mentioned in my prepared remarks, we have basically all of our marketing channels turned on across consumer a consumer and small business and all the states turn where we more we lined all the states turned back on.
On the small business side, obviously, we're being much more cautious in industries that are impacted greater by coded so <unk> retail restaurants et cetera, I'm being much more conservative there you know kind of compare to prequel that level.
But that's that's really it it's a broad based re acceleration across states and across its cross marketing channels.
I would say on Dec is probably a little bit ahead of where we are on a andino. Besides we were a little bit more cautious and are re acceleration of our lending kind of going into the third quarter, but we are totally comfortable with that decision. If the biggest mistake, we make during all of coal.
That is waiting an extra 60 days to Reaccelerate lending, we think that's a great position great position to be and we think that extra conservatism.
Make may make sense and whats the rate that we're reaccelerating Wanda and won't hurt us much in the long term at all.
Got it okay. Thank you very much.
Yeah. Thanks, David.
Our next question will come from John Hecht with Jefferies.
Thanks, very much guys and thanks for the update all the color.
Steve I'm wondering can you tell us are you just give us a sense for that the as you see the share not like asking for guidance, but what's the proper way to think about the share count for Q 20.
Yeah. So post a transaction we have just under 36 million shares you just do the math on all about where we ended the quarter and then on the deal itself so that should be worried I'm sorry.
Okay and then.
Yeah, I think you said, 40% of the synergies recognized in year, one so I assume that's over the course of.
Yes, the simplified over the course of 2021.
What do you think the came to that or is it going to be front loaded or should we just think about that over the course of the year.
So I think you I think over the first part of the year, you're going to recognize in the first year or so you're going to recognize.
Quite a bit of it the timing will vary depending on the integration plans along the way, but there will be some things early.
Like for example, some of the public company related costs will go away pretty quickly and then no there'll be other things that sort of.
Track, along as we start to buy to integrate not just the the business that the corporate service curbs and determine what we need for the long run.
Yeah, you should see a sick significant amount of the cost synergies over the first.
12 to 15 months.
Okay.
And then you.
You guys spoke about a flat to slightly down revenue. This quarter. All that you are seeing month to month acceleration in loan demand. If you know not asking for guidance, but just thinking the math of this if that's the case, where youve nearly flattened out a quarter to quarter revenue.
Is it fair to say give you continue to increase into Q1 of next year again, not asking for guidance, but just thinking of the math should that be the trend. Then is it fair to think you would start comping positive quarter to quarter on a revenue basis in the <unk> in the quarter and over business next year.
Yeah, I mean, we can't like you said, we're not going to give that kind of Q1 guidance, which you know, giving that answer would kind of imply but.
Clearly with the <unk> the rate of Reacceleration, we're saying, which is very very strong right now <unk>, yeah, we're not going to have negative revenue quarters for long exactly when that turns around again, it's not guidance, we're giving because we can't we can't predict the future, but the rate of acceleration has been really really.
Good again across consumer and small business and across the Nova and open on back. So that the trend is is looking positive even though Q fours can be flat, but the fact that it's flat and not down certainly gives you the indication that if that if we continue that re acceleration you know the next step is up.
Yep Yep and then.
Steve you did I got the.
Originations for Ondeck, but I think I missed the revenue did you give Q3 revenues for on deck.
I did not get the revenue number I just wanted to get the the update on on a our energy.
I think you can you can generate the revenue numbers are pretty stable revenue yield quarter over the border.
And it sounded like they more than doubled originations from Q2 to Q3 approximately.
Roughly yeah.
Okay, Alright, thanks, guys.
Yep. Thank you.
Our next question will come from Vincent Caintic with Stephen.
Hey, Thanks. Good afternoon first question on the EPS or the insights and learnings you're getting from the testing of that the reacceleration.
The market and just sort of wondering if there's maybe some consumer behaviors, you're seeing change on both the consumer side in the small business side, and then, particularly if I think about the different products. You have so like are you seeing different trends between say for example that credit and a cash net.
Or anything else.
Yeah, I mean, there are some small differences, they're not they're not major we're seeing subprime come back a little bit faster.
The near Prime, which I think is what you would expect that <unk> near prime as it more more of the belly to say BOP and they have greater income so as people stopped spending money and co bid.
It's easier to kind of build savings savings quicker, but that actually for us is a terrific because you know I know, there's a kind.
Kind of a misconception that subprime is riskier than near prime because of the higher rates and higher defaults, but from a return perspective, and a lending perspective, Ross and great acceleration its actually.
Less risky because you're making smaller shorter loans allows you to test faster so that kinda <unk>.
Slight change in demand and again flight, it's not huge but that slight change in the band is actually really helpful for us.
As a as we continue with every acceleration.
On the small business side did.
The demand is surprisingly like the the make up of the demand and surprisingly similar to a year ago you would expect.
So many different to give them what the economy has been through but there's actually very very skewed, it's pretty it's pretty broad based.
Credit quality, it looks really really strong, but anything stronger I think it's the stronger businesses that are trying to borrow at this point to kind of lean into co, but not the ones that are just trying to survive. So if anything I think on the demand side, there's probably a slight improvement in credit quality and and small business.
Okay, great. Thank you [noise] Nexus or maybe if you could talk about your current portfolio and how it kind of.
I'm sort of curious how much of the credit card portfolio on a balance sheet. That's been underwritten a post cobot, So let's say post April.
And then maybe the economics, Oh, what your newly originated versus the back book on your portfolio.
Yeah, I mean, I'll get to the second part and I'll hand, it over to Steve for a for the first part so the economics of newly originated loans is looking very strong.
Oh cost for cost per funded loan is right in line with where it was pre cobot and credit quality is better. So you know that drives it really really strong.
You don't economics, Steve do you want to kind of tackle the percent the percent of the portfolio That's post cobot.
Yeah, I mean, if you just look at we've done about 200, and you know 200, plus a few 30 of originations in the second and third quarters.
He could probably make the case, maybe 25 or 30%.
Of the book Yeah.
Is it sort of sense of since covances onsite or so roughly.
Okay Gotcha. Thank you and maybe just a follow up to that went on last one from me.
But when I think about.
Some of the more prime names in my coverage they are talking about.
So there you know credit and delinquencies were good this quarter, but they're calling for 2021 or 2022 is one in a loss emergence clapping because he saw forbearance and all that that stuff up but youre case is it similar there or does or are we kind of in the belly of when you expect loss emergence it to happen so.
No.
Sort of 2021 doesn't look like.
Like we shouldn't expect a spike there.
Okay.
I think unless there's a major change to the macroeconomic environment. Most of that most of that is behind US again, we've had very low levels of forbearance over the last.
A couple of months our loan duration is much more shorter than a lot of the prime borrowers so lot of our pre covered loans well, our prime lender sorry, so a lot of our pre troubled loans will have rolled off.
That as we get into mid to late 2020, 2021. So you know we're feeling really good about it.
Portfolio heading into next year now as I mentioned in my earlier comments, we do have a level of conservatism built into our fair value.
Levels, just because of the uncertainty in the macroeconomic level more than not really because of uncertainty and what we're saying perks bat and our current portfolio I'm really across every credit metric we watch.
From kind of pre default to close the Paul it's looking very very good.
Okay, great. Thanks very much.
Yep.
If anyone has any further questions. Please press star then one to join our question queue.
Our next question will come from John growing with Janney.
Good afternoon guys.
Just again just to be clear here. When you say that revenue is going to be flat to down you're talking about I know the only revenue what I do because obviously in Fourq you you're going to report on that revenue.
Yeah, that's correct, Okay I want to make sure and then also same thing with the GNS because you said if I'm honest <unk> ex <unk> you.
You said run rate DNA revenue is down, but I would assume now that would exclude all the onetime expenses and also the gene a revenue just coming over from from on back as well correct.
That's right John I mean, I was referring to a run rate reduction sequentially and year over year through September 30, which doesn't mean, we don't back then I gave you just have a bit of color on Q4, just because of the timing of when we start to recognize synergies and the onetime deal costs that are coming through.
Okay.
Right right.
Obviously I appreciate the you know the the guidance on marketing revenue. The you say it was a you're going to go back down to like a 50% gross profit margin.
Yeah, Hey, how does that look post on DAC right. I mean, you know used to be.
You know in the high fortys you'd be above that in the low fiftys for the first half of the year below that and 40, you know 40% range I 40, mid 40% range in the back half of the year.
Is there a similar seasonality or is it.
Should we just look at 50% straight line going forward.
Yeah I.
I mean, I think when we came into the year. We we gave a range of 45 to 55, there will be some seasonality but not.
Nearly as much seasonality, we had under the incurred method of accounting and that's why roughly when you get back to sort of the normalized level and when we get to that really obviously depends on.
How quickly we can get back up the originations curve right, but you should expect that that will normalize it somewhere around 50, 50% that's really the point all.
Alright, Thank you very much.
This concludes our question and answer session I would like to turn the call back over to David Fischer for any closing remarks.
Oh, great. Thank you everyone for joining our call today, we appreciate taking your questions and we appreciate you listening in and we look forward to talking to you again next quarter have a good rusty or evening.
The conference is now concluded. Thank you for attending today's presentation you may now disconnect.