Q4 2020 Enova International Inc Earnings Call
Good afternoon, and welcome to be another international fourth quarter and full year 2020 earnings conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions.
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Please note. This event is being recorded I would now like to turn the conference over to Monica Gould Investor Relations for Nova. Please go ahead.
Yeah.
Thank you operator, and good afternoon, everyone and over released results for the fourth quarter and full year 'twenty 'twenty ended December 31, 'twenty 'twenty. 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 Dot and Nova Dotcom.
With me on today's call are David Fisher, Chief Executive Officer for Nova and Steve Cunningham, Chief Financial Officer of Inova.
This call is being webcast and will be archived on the Investor Relations section of the day Novas website.
Before I turn the call over to David I'd like to note that today's discussion will contain forward looking statements.
And as such are subject to risks and uncertainties.
Please note that any forward looking statements are made on this call her 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 and Nova reports certain financial measures that do not conform to generally accepted accounting principles. We believe these non-GAAP measures enhance the understanding of our performance reconciliations between these GAAP and non-GAAP measures are included in the tables found in today's press release.
As noted in our earnings release, we have posted supplemental financial information on the IR portion of our website.
And with that I'd like to turn the call over to David.
Good afternoon, everyone. Thanks for joining our call today first I'll provide an overview of our fourth quarter and full year results that I'll discuss our strategy and outlook for 2021 and after that I'll turn the call over to Steve Cunningham, Our CFO, who will discuss our financial results and outlook in more detail.
The adaptability of our sophisticated technology driven on my business was evident in Q4, as we quickly reaccelerate it originations, while continuing to produce strong credit metrics, even as COVID-19 pandemic persists that.
Total revenue in the fourth quarter increased nearly 30% sequentially to $264 million, while declining only <unk> 24 per cent year over year. Despite our significant pull back on originations from March to July in response to Covid.
We also delivered yet another quarter of record profitability adjust.
Adjusted EBITDA rose, 126% year over year to a record $149 million and adjusted EPS grew 160 per cent to two to $2 39.
Our performance navigating a difficult operating environment throughout 2020 would not have been possible without our experienced and talented team.
Their hard work combined with the ability of our sophisticated machine learning analytics and they.
Hold us to quickly adapt to the changing environment pulling back on originations early in the crisis, and then driving a strong recovery and growth in the second half of the year.
The result was that for the full year total revenue declined just eight per cent to $1 1 billion, while adjusted EBITDA Rose 51 per cent to $415 million and adjusted EPS grew 78 per cent to a record $7.26.
As we discussed the last two quarters, a prudent approach to originations early in the pandemic led to a contraction in our loan portfolio during Q2 and Q3.
However, our ability to quickly accelerate originations during Q4 supported by the strong unit economics, we'd been seeing led to the first expansion in our loan portfolio. Since the pandemic began with growth both on a legacy loan book and in the on deck book.
In the fourth quarter, our book increased 87% sequentially and 4% from the fourth quarter of last year.
Small business products represented 52 per cent of our portfolio in Q4.
While consumer accounted for 48 per cent.
Within consumer line of credit products represented 29 per cent of her consumer portfolio and sell more products accounted for 69%.
In short term loans represented just two per cent.
Fourth quarter originations more than quadrupled sequentially, well down 18% from a year ago.
The wife comparison third quarter originations were down 77 per cent from the third quarter of last year, demonstrating how our nimble online business and rapidly adjusting analytics was to quickly adjust the business to changing market environments.
Another positive trend in Q4 was the increase in originations from new customers to <unk> 28 per cent of total originations up from 11% in Q3.
As we continue accelerating originations, we expect that the proportion of new customers will continue to increase over the next several quarters given the demand we are currently seeing.
We close 2020 with month over month growth on revenue.
Our in originations for the first time since the pandemic began.
And while it's difficult to make forward looking predictions given the ongoing impacts from Covid based on what we're seeing today, we expect growth on our origination to continue for the foreseeable future.
On the consumer side of our business taking into account typical Q1 seasonality and despite persistent elevated unemployment we've had a solid start to 'twenty 'twenty one following on the strong sequential growth in originations we produced in Q4.
As the economy opens back up we continue to believe that consumers will increase their spending potentially at elevated levels.
As there will be pent up demand.
And as they do they will need access to credit to support any temporary dislocations between their income and their expenses.
Because those customers have been paying down debt during COVID-19 their personal balance sheets should be enough. This is from where we can successfully led to them.
Saw the same dynamics following the financial crisis, which led to strong origination growth in 2010 and 2011.
We are also mindful of any potential impacts from additional stimulus.
But based on what we saw from the last round, we do not anticipate it being an impediment to our growth.
Our analysis of the prior stimulus showed a marked improvement in credit and collections performance with little impact to customer demand.
On the small business side with the closing of the on deck acquisition. We are excited to add a world class brand.
Great products and a talented team to a novus diversified businesses.
Our combined SMB products originated over $120 million in December alone up 26% from November.
In addition, we're not seeing much effect from P. P. P. As originations have remained strong so far in 'twenty and 'twenty one.
So needless to say we are very pleased so far with you on that acquisition.
And as we view the economic landscape. We continue to believe that is an excellent time to be increasing our focus on SMB lending.
As the economy emerges from the pandemic, we believe small businesses will be a huge beneficiary of the pent up consumer demand I just mentioned.
Today much of consumer spending is at large businesses, such as grocery stores Big box stores utilities streaming entertainment and Amazon of course.
But as the economy reopens consumers will likely increase their spending at small businesses like hair salons, Jim's local retailers and restaurants.
Many of these small businesses have used up their savings trying to survive the pandemic.
And they will need access to credit to rebuild inventory rehire employees et cetera.
This could lead to a huge surge in demand that we are ready to sell.
The integration of on deck is also going well and we are on track to deliver the forecasted $50 million in annual cost synergies, primarily from eliminated duplicative resources as well as $50 million on run rate revenue synergies.
We also continue to expect that the transaction will be accretive this year and generate EPS accretion of more than 40% when synergies are fully realized in 2022.
Possibly more as it now appears that our purchase price is even more attractive than we believed at the time, we announced the deal.
As a reminder, we paid $160 million per on deck and the mix of stock and cash.
Benefiting from the strong credit performance of the legacy on that portfolio. We're now expecting the value of their portfolio to be much higher than we modeled when we completed the deal.
We originally thought that the legacy portfolio would have very little residual value.
We've already realized over $15 million from residual cash payments alone since the closing and we now expect to receive at least $200 million of total cash on the acquired portfolio, that's a securitization repayments.
In addition, it is likely that we will look to monetize our interest in O D ex on that Canada and on deck, Australia, allowing us to focus on the core U S. F N b lending business further reducing our net investment in on deck.
Well <unk> has been able to sign some high profile bank clients divesting over the ex will allow for more efficient use of capital as the business has over 70 employees.
Less than $10 million on revenue.
Yeah, Australia, and Canadian businesses are viable businesses on their respective markets, but are small compared to index U S operations and are unlikely to have a significant impact on the Nova as overall growth.
In addition on Dec only have partial ownership of those two businesses.
In summary, we are very pleased with our strong fourth quarter and full year performance.
World Class analytics enabled us to successfully navigate an unusual year on the strength of our business enabled us to further diversify with the opportunistic acquisition of on deck.
Having successfully navigated twenty-twenty, our focus is squarely on accelerating growth in 'twenty and 'twenty one.
We have good momentum after an encouraging Q4 and start to 2021.
And we're continuing to see very good credit in our portfolio, which gives us flexibility to further increase volume as the economy improves.
We remain committed to helping hard working people get access to fast trustworthy credit.
Covid has created uncertainty in the near term however, our solid financial position and diverse product offerings position us well to continue to produce sustainable and profitable growth and drive shareholder value.
With that I'll turn the call over to Steve to provide more details on our financial performance and outlook and following steves remarks, we'd be happy to answer any questions that you may have.
Yeah.
Thank you David and good afternoon, everyone.
As David mentioned in his remarks, we're encouraged by the sequential growth in originations receivables and revenue and the continued solid credit quality of the portfolio as we enter 2020.
The resiliency of our direct online only business model the strength of our powerful credit risk management capabilities, driven by our world class analytics and technology and our solid balance sheet.
Have given us the flexibility to not only manage through this challenging economic environment, but also to opportunistically from products and capabilities as we prepare for economic recovery.
With the closing of the on deck acquisition during the fourth quarter. We were pleased to add a talented team operating capability and product diversification that further enhance our ability to serve our customers to drive growth.
Shareholder value.
One reporting note before I discuss our results.
Closing of the on deck acquisition during October.
This quarter, we are changing product groupings for ongoing reporting and on earning supplement to two new categories consumer loans, and finance receivable and small business loans and finance receivables.
Actual results for on deck. Since October 13th are included in our fourth quarter and full year 2020 results in the earnings supplement.
But not in historical periods prior to the fourth quarter of 2020.
Now turning to <unk> fourth quarter results.
Total company revenue from continuing operations increased 29% sequentially to $264 million is the on deck acquisition drove sequential growth in small business revenues and.
And revenue from our consumer businesses grew 2% sequentially. The first sequential increase in revenue since the Covid pandemic began.
The addition of on deck and sequential growth in receivables from legacy and other businesses increased total company combined loan and finance receivables balances on an amortized basis to $1 $3 billion at the end of the fourth quarter.
Up 87% from the third quarter and up 4% from the fourth quarter of 2019.
Excluding $597 million of on deck receivables at December 31st.
Total company combined loan and finance receivables balances on an amortized basis rose, 2% sequentially with increases in both consumer and small business receivables.
As David discussed receivables growth was driven by increases in originations during the fourth quarter.
Total company originations were $536 million during the fourth quarter, nearly four times third quarter originations and only 18% lower than the fourth quarter of 2019.
Fourth quarter originations from Novus legacy businesses more than doubled from the third quarter with growth from every brand.
Originations in the on deck brand grew 82% sequentially originations.
Originations from new customers from the total company with 28 per cent of total originations during the fourth quarter as we ramped up marketing to attract new customers.
We're encouraged by the steady increase in monthly origination levels across all of our products through the end of the year.
As we move into the traditional quarterly seasonal low point for originations on our consumer lending businesses. We expect total revenue for the first quarter of 'twenty 'twenty, one to be flat compared to fourth quarter levels before accelerating through the remainder of the year.
But it will depend upon the timing level and mix of originations as we move through 'twenty and 'twenty one.
The net revenue margin for the fourth quarter was 92%.
Up from 89% for the third quarter of 2020 and remains elevated as we continue to have strong credit quality, which increases the fair value of the portfolio.
As you as you'll recall the change in the fair value line item includes two main components.
First.
Net charge offs during the reporting period.
Changes to the portfolio at fair value during the reporting period, resulting from updates to key valuation inputs, including future credit loss expectations prepayment assumptions and the discount rate.
I'll discuss both of these items in more detail.
First for the fourth quarter. The total company ratio of net charge offs as a percentage of average combined loan and finance receivables was four 7%.
Flat to the third quarter of 2020 significantly below the $15 six per cent ratio in the fourth quarter of 2019.
Net charge off ratios for both consumer and small business receivables were well below typical fourth quarter levels, demonstrating the ability of our sophisticated credit models to focus on lending to customers, who can repay their obligations. Despite the challenging economic environment.
Second the fair value of the consolidated portfolio as a percentage of principal decreased to 98 per cent.
At December 31st from 106% ex U.
At September 30th.
This was solely a result of the on deck acquisition is the outlook for portfolio credit quality remains strong.
The initial fair value of the on deck portfolio with the transactions closing in October. It was 85 per cent of principal resulting in a fair value at that time for an over the entire consolidated portfolio, including on day of approximately 95 per cent of principal.
Improved future credit loss expectations in our small business portfolio with the primary driver of the increase from the fair value of the consolidated portfolio from approximately 95 per cent of principle at the closing of the on deck transaction on October 13th.
To 98 per cent of principal at December 31st.
The stability in delinquent receivables as a percentage of loan and finance receivable balances at the end of the quarter reflects strong customer payment rates and the continued solid credit profile of the portfolio.
Excluding on deck the percentage of total portfolio receivables past due 30 days or more was $4. One per cent of December 31, compared to three 7% at the end of the third quarter and six 7% at the end of the fourth quarter a year ago.
The percentage of on deck receivables past due 30 days or more declined during the quarter from 23, 2% at closing to 15, 6% at December 31st.
In addition, just this.
Delinquency ratio at year end for Endo as legacy small business brand was flat to third quarter levels.
The percentage of consumer receivables past due 30 days or more was three 9% at December 31, compared to three five per cent at September 30th.
Seven 4% at the end of the fourth quarter a year ago.
Consumer receivable delinquency levels, including early stage delinquencies remain at historically low levels.
To summarize the change in fair value line items benefiting from low levels of net charge offs and a slight increase to the fair value of the portfolio is credit metrics and modeling at the end of the fourth quarter reflect the solid outlook for expected future credit performance.
Even with a significant increase in originations, especially from new customers.
In order to reflect the uncertainty in the economic environment could present, an increased risk of customer defaults.
Our fair value calculations for the fourth quarter continue to include downward adjustments at level similar to the previous three quarters.
In addition, the discount rate used in the fair value calculations remained unchanged and at the high end of our ranges.
Looking ahead, we expect the net revenue margin for the first quarter of 2021 to range between 60, and 70 per cent a significant fourth quarter origination season.
As the economy recovers and demand and originations continue to rise.
The net revenue margin should normalize at around 50% to 60% is newer and less seasoned loans become an increasingly larger proportion of the portfolio.
The degree and timing of that normalization will depend upon the timing speed and mix of originations growth will likely occur over several quarters as originations begin to return to historical levels.
Turning to expenses as we expected and discussed last quarter total non marketing operating expenses were temporarily elevated this quarter from the on deck acquisition ahead of implementation of cost synergies from the transaction over the coming quarters.
Fourth quarter operating expenses also include $13 million on one time nonrecurring expenses related to the on deck acquisition.
As David mentioned the on deck integration is going well and we are on track to recognize deal cost synergies faster than our original expectations.
We expect to realize $46 million of annual cost synergies from index 2019 full year operating expense base by year end 'twenty 'twenty one.
Which should result in achieving 88 per cent of our planned deal cost synergies in year two of the deal versus our original 75% expectation.
The rationalization of most corporate support functions and related infrastructure is largely complete and planned steps to eliminate duplicate operating and technology costs as well as to goodbye and business operations will follow during the rest of 2021.
We still expect all remaining cost synergies to be fully phased in by the end of 'twenty and 'twenty two.
Excluding onetime nonrecurring expenses related to the on deck acquisition total operating expenses for the fourth quarter, including marketing for $102 million or 39 per cent of revenue compared to $83 million or 20% 24 per cent of revenue in the fourth quarter of 2019.
Yeah.
As expected we saw on marketing expenses increased to $28 million or <unk> 10 per cent of revenue in the fourth quarter.
From $5 million or two per cent of revenue in the third quarter, but down from $36 million were 10 per cent of revenue in the fourth quarter of 2019.
We expect marketing spend will likely remain at roughly 10% of revenue in the first quarter, but will depend upon the level of originations.
Operations and technology expenses for the fourth quarter totaled 31 million.
We're 12 per cent of revenue compared to $23 million or seven per cent of revenue in the fourth quarter 2019.
The increase was driven primarily by the addition of $12 million of on deck moving T related expenses.
Given the significant variable component of this expense category sequential increases in O N T cost should be expected in an environment, where originations are accelerating and receivables are growing.
We expect that this will be offset to some degree as we realized expense synergies from the integration of beyond Tech acquisition.
Excluding the $13 million of one time expenses associated with the on deck acquisition.
General and administrative expenses for the fourth quarter totaled $43 million or 16% of revenue compared to $25 million or seven per cent of revenue in the fourth quarter of 2019.
The increase was driven by the addition of on deck G&A related expenses.
Looking ahead, excluding any one time items, we expect G&A expense to decline during 2021, as we recognized synergies would be on deck transaction.
And as we continue our focus on operating cost discipline.
Adjusted EBITDA, a non-GAAP measure increased 9% sequentially and more than doubled from a year ago to $149 million in the fourth quarter for the reasons I previously discussed.
Our adjusted EBIT margin for the quarter was 56%.
Paired to 19% in the fourth quarter of the prior year and 67 per cent in the prior quarter.
Adjusted EBITDA margins should begin to normalize during the first quarter of 2021 from the record levels seen during the second half of 2020 as a result of the continued marketing investments.
And the aforementioned growth related normalization and net revenue margins and volume related expenses.
As previously noted the degree and timing of any normalization will depend upon the timing speed and mix of originations growth.
Will likely occur over several quarters as originations begin to return to historical levels.
Our stock based compensation expense was $7 $2 million on the fourth quarter, which compares to $2 $2 million in the fourth quarter of 2019.
The increase is related to the on deck acquisition and as I described last quarter expense associated with the 2017 increase and the vesting period for restricted stock units is now fully reflected in year over year comparisons.
Normalized stock based compensation expense should approximate $5 million per quarter going forward.
Our effective tax rate was 10% in the fourth quarter, which declined from 26 per cent for the fourth quarter of 2019.
The decrease resulted from the $164 million bargain purchase gain recognized this quarter related to the acquisition of on deck not being subject to taxation.
We expect our normalized effective tax rate to remain in the mid to upper 20 per cent range.
We recognized net income from continuing operations of $231 million or $6.47 per diluted share in the fourth quarter compared to $30 million or <unk> 87 cents per diluted share in the fourth quarter of 2019.
Adjusted earnings a non-GAAP measure increased to $85 million or $2.39 per diluted share from $31 million or <unk> 92 cents per diluted share in the fourth quarter of the prior year.
The trailing 12 month return on average shareholder equity using adjusted earnings increased to 42% during the quarter from 37 per cent fear ago.
Our net cash flow from operations for the fourth quarter totaled $118 million as we continue to see strong customer payment rates.
We ended the fourth quarter was $388 million of cash and marketable securities, including $317 million in unrestricted cash.
And had an additional $453 million of available capacity on our corporate revolver and other domestic committed facilities.
Our debt balance at the end of the quarter includes $332 million outstanding under our $776 million.
Combined installment loans and small businesses through securitization facilities.
We had no borrowings outstanding under our $125 million corporate revolver.
On December 24th we renewed and extended a $100 million committed asset backed revolving debt facility with truest.
To support growth and liquidity for on the ex term loans.
The facility has a cost of one month, LIBOR plus 250 basis points.
Final maturity of December 2023.
Our cost of funds for the fourth quarter was 10 five per cent.
Interest expense for the fourth quarter included $5 $6 million noncash costs from accelerating discount amortization.
As a result of prepayments of on deck facilities during the quarter.
Excluding these additional discount amortization costs, our cost of funds would have been eight 3% for the fourth quarter.
We continue to believe our cash position available facility capacity and operating cash flow will provide us with significant runway before needing to raise new external funding.
Even when we returned to levels of originations experienced in recent years.
Due to the ongoing uncertainty in the economy, we are not providing detailed financial guidance at this time.
However, as we resume meaningful growth in originations and receivable, we expect to invest more in marketing by leveraging our machine learning driven analytics to capture increased demand attractive unit economics.
As I've mentioned in my remarks today this should lead to some normalization in the net revenue margin growth related variable expenses and the adjusted EBIT margin from levels, we have seen during the second half of 2020.
The degree and timing of any normalization will depend upon the timing speed and mix of originations growth and will likely occur over several quarters as originations began to return to or exceed pre COVID-19 levels.
We are confident that returned to pre COVID-19 originations growth will allow us to deliver meaningful and consistent top and bottom line growth as we leverage the benefits of the scale and efficiency of our direct online operating model, our broad and diversified consumer and small business product offerings.
From a powerful credit risk management capabilities, driven by our world class analytics and technology.
And our solid balance sheet.
And with that we'd be happy to take your questions operator.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the king.
Draw from the question queue. Please press Star then two.
The first question is from David Scharf JMP. Please go ahead.
Thank you and good afternoon.
Thanks for taking my questions.
I guess, it's been a bit of a high level question on.
On the market you know this is the fourth.
Well its fourth earnings call since the onset of the pandemic and.
You know I, it's I know, it's become somewhat of a cliche word and analysts as supposed to ask you about stimulus and did you see any change in patterns. Following the latest checks and we've got some more.
But look imminent, but you know in the longer run it really doesn't tell us much about the business.
So, but what I am wondering.
You know David you talked a lot about machine learning and analytics.
If you're underwriting models learned anything over the last year.
That tells you.
The thing about.
When we emerge on the other side of this pandemic if perhaps your target market is larger or these are people that.
Maybe you could borrow more in a more normalized environment or in contrast is the last 12 months. Just so unusual that you can't really draw any conclusions on I'm just wondering if there's been anything about.
This better than expected credit performance across all consumer asset classes from all lenders.
Net of taught your models anything other than people respond positively to stimulus.
Yeah. So I mean, there's a bunch of questions embedded in there, but let me start kind of at the higher level on yet to the low at the lowest level I think first of all there's absolutely nothing we've seen and I don't think there's any reason to believe that Covid has in any way has fundamentally changed your market. So if you fast forward whatever period of time you want.
When did the teacher kind of post post pandemic absolutely no reason to believe the market in general has changed.
The economy should get relatively back to normal share may look a teeny bit different but nothing that should meaningfully changed the market for non prime and non prime credit so.
You know when you're thinking about the future of the business.
I view this as a temporary a temporary dislocation not any kind of long term dislocation.
In terms of stimulus you touched on that I made I think.
I did make the point in my remarks is that from the prior similar as what we saw is not a huge impact on demand, but a huge benefit to credit.
So we don't expect anything materially different with the current round of stimulus.
Finally, with respect to our analytics models, they've learned a tremendous amount and you know look there's big cycles over time, but theyre small cycles, you know Eric.
All the time state by state or region by region City by City, and you know how customers rebound to stresses to.
To their income is something that our models are now know how to do much better now we again the models.
Almost all of our models on our machine learning. So there's learnings happening extremely quickly, which is great for us and it's things that they'll be able to lean back on when they see patterns of the model see patterns that are similar to the ones. We saw during COVID-19, even if it's a much smaller amplitude.
The dislocations, we've seen over the past nine months.
Okay I got it no no that's helpful and just to be clear I mean.
It was kind of speculating more on if the market is.
Surely better on a long term interest based on the fact that models have been learning over this past year it sounds like.
You know it may be.
On quick follow up.
No.
Completely understand the.
Lack of guidance commentary as well as Steve's comments about normalization taking place over time.
You know based on the you know the.
Small business originations it looked like in kind of day exhibits. It was about 290 million close to $300 million in the quarter I know that on deck pre pandemic it sort of been in the 550 to 650 per quarter range.
Would you be willing to speculate on how long it would take to get back to those levels for for the small business product or is there still just too much uncertainty.
I mean, I think there's there's just way too much uncertainty to be able to answer that right. I mean, you know or does the vaccine work great in the economy opens up sooner or is there a new strain of the COVID-19.
On a virus that requires lockdowns during the summer I mean, there's just there's no way there's no way to know, but I think there's a couple of trends that are super encouraging for us I mean, we saw great sequential growth as we talked about throughout the call book.
I think I mentioned, we did about $120 million of originations in small business and just December alone, which is which is great showing really strong growth there.
Commented that December started off fairly strong in mid January 2021 started off strongly on the on consumer side, which is great even though.
There were some increasing lockdowns in you know kind of in the in December and into January, but we didn't see a big hit from that.
Which was also encouraging and we are confident both on the small business side, where we've seen a bunch of competitors go out of business using average got get bought but also on the consumer side. We are very confident we have taken share through this pandemic and we think a lot of that is permanent as you know about them.
Market normalizes.
And.
Or demand, both consumer and small business increases.
We think we have a lot of share in the market that we don't think has shrunk.
And so we think we're really well positioned as this pandemic winds down.
Got it thanks, Thanks, a lot David.
Yeah.
Again, if you have a question. Please press Star then one the next question comes from John Hecht of Jefferies. Please go ahead.
Afternoon, guys.
The comments and congratulations on a on a successful.
Successful year and successful acquisition.
You guys talked about your REIT regrowing, the kind of mix of new customers this quarter.
I guess it was the question would be you.
Assume well I guess is there any difference the characteristics and how you're underwriting the new customers now.
Relative to pre pandemic environment and is the opportunity to get new customers now a reflection of the competition.
And anyway.
Yeah book.
Great Great question, I would say in terms of how you're thinking about the credit models generally I think they're kind of opened up to levels that we saw pre pandemic because its credit customer credit performance has been so good.
On that a lot of the restrictions we put on the models you know as the pandemic was on unfolding in the spring have largely been removed I would say, especially for some of our lower interest rate on high higher dollar amount products. We do still have some extra verification going on kind of post post credit model.
You know and that will likely continue.
As you know unemployment claims and jobless rates remained somewhat elevated.
So were you know that that is kind of a layer added on top of the credit models, but generally generally pretty wide open in.
In terms of competition like like I, just mentioned, we do think we've taken share and so we think what we're our view of what's happening in the marketplace is that our volumes are down less than demand is down which which is encouraging.
Yes, it our volumes are obviously still down significantly year over here, but again as I mentioned everything we see tells us that as temporary we don't nothing from our.
Our customer research from what we're seeing in applications.
From surveys tells us that either are the small business market or the consumer markets are going to be any smaller post pandemic than they were when they were pre pandemic. So the fact that we've taken share now, which we think is sustainable even if the pandemic ads is a very encouraging for us.
And are you seeing that in both the consumer and small business category.
From what Youre amax buying cabbage, you guys consolidating on deck.
Is there more opportunity in either one of those or is it fairly balanced growth.
I definitely think it's easier to see on the small business side, but we do think it's there in the consumer side as well obviously the bomb pause the brick and mortars are on the on the consumer side not doing well at all and so we do think long term we have a structural advantage there that's what led to us to grab that.
Market share and we will continue post pandemic, but yeah, probably a bit more pronounced on the on the small business side, where just the businesses was more.
More consolidated pre pre pandemic and there's been I think more dislocations during the pandemic there.
Okay, and then David fully appreciate your commentary that you.
The near term is a little bit cloudy, but over you'd think things will get back to normal over the longer term.
And not have changed much.
It just is there you know.
If we get there when we get there what do you is there do you guys have a anticipation for the mix between consumer and small business or is that.
Something youre deterrent, you'll determine over time.
I think but not only would we determined that based on the returns are but I think sometimes the markets well determined on I think there'll be periods, where small business is for various reasons stronger and sometimes where consumers smaller on a stronger brother are their seasonality is different so obviously will change throughout the year, obviously on the consumer side Q1.
Is significantly.
Slower than Q4 on the consumer side and that's less so on the small business side, but from what we're seeing small businesses. It can be a very large portion of our overall mix going forward.
Every reason to believe it could be at least half of originations.
If not more and then you know kind of over the next few years, we'll see how the markets on pool, but obviously, a large opportunities for us in both of those spaces.
Great. Thank you guys very much.
Yeah.
Yes.
Oh I'm sorry, we have a question from John Rowan of Janney. Please go ahead.
Hey, guys, Hey, Steve can you maybe give us an idea I know you said <unk> you know the gross profit margin could be as high as 70 per cent.
Just give us maybe an idea of how fast I mean, we work down to that mid 50 range I know you'd love to kind of open but it just it makes it a very big difference on the numbers, whether or not we get there.
No. If we're looking at that as a realistic pin for the back half of the year or if you know that's really an optimistic goal for 2022.
Thanks for the question, Jon So I think beyond sort of Q1, it really will depend on as we said you know how quickly the economy recovers and demand on origination sort of get back to that pre COVID-19 level.
So just trying to give you some sense that when you start to see that growth return, it's not going to happen overnight, it's going to take several quarters, even when you do get back to.
Some level of growth that looks familiar.
And that's why we're not providing very specific guidance beyond you know some line items for Q1, but hopefully that helps you sort of understand as you start to see that it'll start to to line up towards that longer term 50 to 60 that we guided to.
And then as far as the cost synergies.
I'm, sorry, you're right.
Yeah, John W have one thing to that just in terms of you know, while we don't know the timing.
Because we don't know the pace of the recovery it could be it is.
Possibly realistic for the back half of the year, if you get a quarter or two of the kind of growth we saw in Q4.
Kinda Thirtyish percent sequential growth you know upper twenty's to low, 30%, new new customer mix.
It can get back to that kind of mid mid mid fifties on margin pretty quickly.
And then the you know the cost synergies that you're referencing are we going to see most of that coming out of the G&A line.
Because it sounds like the other lines are going to stay kind of at the <unk> run rate.
Yeah, well most of our premium on a dresser.
Most of our fixed costs genre G&A, if you'll remember operations to technology roughly 70% of that is variable. So the answer is yes, you should see most of that come out of the G&A in some some of the smaller components of O N T.
Okay. Thank you very much.
Okay.
This concludes our question and answer session I would like to turn the conference back over to David Fisher for closing remarks.
Great. Thank you operator, and thanks, everyone for joining our call. This quarter. We appreciate your time and appreciate your questions and look forward to catching up again next quarter have a good evening.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.