Q1 2021 Enova International Inc Earnings Call
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Good day and welcome.
On international first quarter, 2020, One earnings conference call.
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I'd now like to turn the conference over to Lindsay Savarese Investor Relations for you know for International. Please go ahead.
Thank you.
And good afternoon, everyone and Nova released results for the first quarter of 2021 and at March 31st 2020. One. This afternoon. After the market close if you did not receive a copy of our earnings press release, you may obtain it from Investor Relations section of our website at IR Dot and Nova Dot.
Com.
With me on today's call are David Fisher, Chief Executive Officer, and Steve Cunningham, Chief Financial Officer.
This call is being webcast and will be archived on the Investor Relations section of our website.
Before I turn the call over to David I'd like to note that today's discussion will contain forward looking statements and as such is subject to risks and uncertainties.
Actual results may differ materially as a result from various important risk factors, including those discussed and our earnings press release and on our annual report on form 10-K quarterly reports on form 10-Q, and current reports on forms 8-K. Please.
Please note that any forward looking statements.
Oh that are made 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 and over reports certain financial measures that you outperformed the 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.
I have noted on 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 thank you for joining our call today.
I'll provide an overview of our first quarter results and then I will discuss our strategy and outlook for the remainder of 2021.
After that I'll turn the call over to Steve Cunningham, our CFO, who will discuss our financial results and outlook in more detail.
We started the year with a solid first quarter. Despite the ongoing pandemic our topline results for in line with our expectations and we delivered record first quarter profitability, driven by solid credit performance and proving origination and disciplined expense management.
Revenue and the first quarter decreased 2% sequentially, reflecting reflecting typical Q1 seasonality and 28% year over year.
Adjusted EBITDA rose, 278% year over year to $137 million and adjusted EPS increased more than eight times to $2 27, both first quarter Records.
Following a reacceleration during Q4 originations were down 5% sequentially, mostly due to typical first quarter seasonality, but they increased 7% year over year and Q1, as we ramped up marketing activities late in the quarter and response to improving macroeconomic factors, including the aggressive.
Rollout of the COVID-19 vaccines.
As a result originations from new customers increased to 33% of total originations up from 28% and Q4 of 2020.
Notably we are seeing continued strong payment performance for new customers.
Yeah.
While Q1 is typically a seasonally slow quarter for originations as I just mentioned, we did see some additional softness on the consumer side for business and from the combination of stimulus payments and tax return.
And on the small business side, we saw similar impacts from P. P. P.
However, despite these headwinds we were able to maintain consistent originations from our strong growth in Q4 and.
And importantly, based on what we're seeing today, we do not believe that stimulus will be an impediment to our future growth.
As we've mentioned our analysis of prior stimulus showed a marked improvement and credit and collections performance followed by a quick rebound and demand when the stimulus and it.
And we're seeing similar dynamics now.
And stimulus payments tax returns and PPP are winding down and Q2.
And you've seen and encouraging acceleration and originations recently.
We believe this demonstrates that consumers will continue to need access to credit and that these need should increase as the pandemic eases.
And as the economy opens back up we believe that consumers will raise their spending potentially to elevated levels.
For increased activity and pent up demand.
And as they do they all need access to credit for support any temporary dislocations between their income and their expenses.
Since those consumers and then paying down debt during COVID-19 their personal balance sheet should be in a position, where we can successfully lent to them.
We saw the same dynamics following the financial crisis, which led to strong origination growth and 2010 and 2011.
And on the small business side and the economy emerges from the pandemic. We believe small businesses will be a huge beneficiary of the pent up consumer demand and I just mentioned.
Today much of consumer spending is at large businesses, such as grocery and big box stores utilities streaming entertainment and Amazon.
But as the economy reopens and consumers will likely increase their spending at small businesses like hair, salons, and gyms and local retailers and restaurants.
Many of these businesses have used up their savings trying to survive the pandemic and will need to access credit to rebuild inventory rehire employees and other reopening activities.
This can lead to a large surge and demand that we are ready to fill.
As a result, we continue to believe that it is and an excellent time to and increasing our focus on F&B and London.
Yeah.
Looking ahead, while there remains uncertainty related to COVID-19 based on what we're seeing today, we expect growth and originations to continue for the foreseeable future.
For example, recent economic data appears very positive for our business.
U S retail sales jumped nine 8% and March from the prior month.
And with.
Vaccinations and reopening spurred a burst of shopping.
And another sign of economic recovery Jobless claims dropped sharply last week to 576000, new low since the onset of the pandemic.
Yeah.
And the first quarter small business products represented 55% of our portfolio, while consumers accounted for 45%.
We think consumer line of credit products represented 27% of our consumer portfolio and installment products accounted for 71% and short term loans represented just 2%.
With small business now over 50% of our portfolio. We are pleased with our small business offerings as originations continued to be strong.
Our SMB originations increased 11% sequentially to $322 million and total revenue from our SMB products increased 17% sequentially and more than tripled year over year to $76 million.
We believe we are continuing to take share and SMB market with a diversified portfolio across a wide range of industries Stakes product types loan sizes and prices.
From an operational perspective, the integration of on deck is largely complete our three SMB products are working together as a single business and we're on track to deliver more and the forecasted $50 million of annual cost synergies primarily from eliminated duplicative resources.
As well as $15 million and run rate net revenue synergies.
We will achieve all of these synergies this year with upside in future years from longer dated projects like data center consolidation real estate cross selling and further integration of our advanced analytics and machine learning into on deck.
We also continue to expect that the transaction will be accretive in 'twenty, and 'twenty, one and generate EPS accretion and more than 40% in 2020 two.
And as we discussed last quarter, while we originally thought that on decks legacy portfolio would have very little value. We now expect to receive over $200 million of total cash from the acquired portfolio net AR securitization repayments.
Yeah.
Before I wrap up I want to spend a few minutes on our recent acquisition of Pangaea Universal Holdings for.
For those of you that are not familiar with Pangea day, our Chicago based payments platform operating mobile international money transfer services.
They've helped the underbanked seamlessly completely millions of transfers over the last 10 years.
And she is mission is to make money transfer secure simple and affordable.
Revolutionize the customer experience and this growing market as consumers increasingly choose online money transfer solutions instead of relying on brick and mortar storefronts.
And she is mobile App allows users to transfer money quickly and seamlessly from the U S to 40 countries.
Their focus has primarily been on Latin America, and Asia, which the World Bank estimates to be a combined 71 billion dollar per year market and outflows from the U S.
With the acquisition of Pangea, we gained a product and a segment of the market, we know well under banked Americans and we now have another high growth business and our portfolio.
And you will leverage and Novus online business expertise as well as our analytics and technology marketing regulatory compliance and capital markets capabilities.
Given our extensive experience managing online businesses, we believe there's a significant opportunity to bring a world class technology machine learning and artificial intelligence capabilities to Pangaea is operations.
For Pangaea is financial results are not material right now for the overall and over the business. We are excited about the opportunity to rapidly grow this business given the large addressable market.
In summary, I'm pleased with our solid start for the year and believe it sets us up well for the remainder of 2020, one and beyond.
World Class analytics have enabled us to successfully navigate challenging market conditions, and we remain focused on accelerating growth.
We continue to see very good credit and our portfolio, which gives us flexibility to lean into demand and the economy continues to improve.
We remain committed to helping hardworking people get access to fast trustworthy credit COVID-19.
COVID-19 has created uncertainty and the near term however, our experienced management team solid financial position and diverse product offerings position us well to continue to produce sustainable and profitable growth and drive shareholder value.
Now I'd like to turn the call over to Steve Cunningham, Our CFO, who will discuss the financial results and outlook in more detail and following steves remarks, we'll be happy to answer any questions that you may have Steve.
Thank you David and good afternoon, everyone.
And as David mentioned in his remarks, we continue to be encouraged by our historically strong credit quality.
Indications that the economic recovery is gaining momentum and recent signs that demand is improving.
Our resilient direct online only business model.
Nimble and machine learning powered credit risk management capabilities, and solid balance sheet have us well positioned to profit to profitably accelerate growth.
The economy recovers and originations return to pre COVID-19 levels.
Now turning to and know this first quarter result.
You will note and my comments are consolidated results when compared sequentially are as usual heavily influenced by the typical first quarter seasonality of our consumer businesses. In addition, when compared to the year ago quarter. Our consolidated results are heavily influenced by our acquisition of on deck last October.
As expected first quarter total company revenue from continuing operations of $259 million was down slightly from the fourth quarter of 2020 and declined 28% from the first quarter a year ago.
Small business revenue increased 17% sequentially and more than tripled from the same quarter a year ago, while revenue from our consumer businesses decreased 8% sequentially. Following typical first quarter seasonality and declined 46% from the first quarter of 2020.
Total company combined loan and finance receivables balances on and amortized basis were $1 $3 billion at the end of the first quarter down 4% sequentially and up 10% from the first quarter of 2020.
Total company originations for $506 million, a 7% increase from the first quarter of 2020.
And originations from new customers were 33% of total originations as our marketing continues to attract new customers.
As David noted in his remarks, we are seeing positive signs across our businesses as the effects of the recent government stimulus programs and the tax refund season are behind us and as the economic recovery seem to well positioned to accelerate.
Small business receivables on and amortized basis totaled $701 million at March 31st.
And 1% sequential increase and nearly four times higher than the end of the first quarter of 2020 and small business originations for the first quarter of $322 million rose, 11% sequentially and more than quadrupled from the first quarter a year ago.
Consumer receivables on and amortize basis ended the quarter at $572 million down 9% sequentially as is typical for the first quarter of the year due to seasonality.
And down 41% from the year ago quarter.
Reflecting on our pullback and originations with the onset of the COVID-19 pandemic.
Consumer originations for the quarter totaled $184 million 25 per cent lower sequentially, largely due to seasonality and 53% lower than the first quarter of 2020 for the reasons, David and I have previously discussed.
Through April 23rd we've seen weekly originations increased meaningfully across our consumer businesses from the lows of the first quarter when the distribution of government stimulus payments and tax refunds for peaking.
We expect total revenue for the second quarter of 2020 wanted to increase sequentially and continue to accelerate through the remainder of the year, but the level of increases and degree of acceleration will depend upon the timing level and mix of originations as we move through 2020 one.
The net revenue margin for the first quarter was 92% flat with the fourth quarter of 2020.
And it remains elevated as we continue to see strong credit quality, which increases the fair value of the portfolio.
And as you'll recall the change and the fair value line item includes two main components during the reporting period for.
First net charge offs and.
And second changes to the portfolio at fair value, resulting from updates to key valuation inputs, including future credit loss expectations prepayment assumptions and the discount rate.
I'll discuss both items and more detail.
First for the first quarter.
The total company ratio of net charge offs as a percentage of average combined loan and finance receivables was for 2%.
Down from four 7% and the fourth quarter of 2020 and.
It's significantly below the 16, 8% ratio for the first quarter of 2020.
Net charge off ratios for both consumer and small business receivables were well below year ago levels and.
Continue to demonstrate the ability of our sophisticated machine learning credit models to focus on lending to customers, who can repay their obligations through economic cycles.
Second the fair value of the consolidated portfolio as a percentage of principal increased to 101% at March 31st from 98% at December 31st.
The outlook for portfolio credit quality remains strong.
Both the consumer and small business portfolio, so and increase in the fair value premium as a percentage of principal this quarter.
The decline and delinquent receivables as a percentage of loan and finance receivables balances at the end of the quarter also reflects strong customer payment rates and the continued solid credit profile of the portfolio.
As a percentage of total portfolio receivables past due 30 days or more was seven 6% at March 31, compared.
Compared to nine 3% at the end of the fourth quarter of 2020 seven 5% at the end of the first quarter a year ago.
The percentage of small business receivables past due 30 days or more declined during the quarter for.
14, 2% at December 31st to.
Pinpoint 2% at March 31st.
The decline was driven by continued improvement and delinquency levels across all of our small business brands.
The percentage of consumer receivables past due 30 days or more with four 3% at March 31, compared to three 9% at December 31st.
At eight 4% at the end of the first quarter a year ago.
Consumer receivables delinquency levels, including early stage delinquencies remain at historically low levels.
With the noted improvement and the economic environment, we lowered the discount rates used in our fair value calculations by 100 basis points for this quarter.
We're about 20% of the increase and the discount rate that we initiated in the first quarter of 2020 to capture the uncertainty of the operating environment.
And the economic recovery continues to gain momentum, we expect continued reductions and the discount rates used in our fair value calculations over the coming quarters.
As well as reversals and downward adjustments that we've maintained and our fair value calculations over the past year to reflect the impact on near term economic uncertainty and the hot on the risk of higher than expected customer defaults.
To summarize.
The change in fair value line item is benefiting from low levels of net charge offs and an increase to the fair value of the portfolio.
Credit metrics and modeling at the end of the first quarter reflect a solid outlook for expected future credit performance.
Looking ahead, we expect and net revenue margin for the second quarter of 2021 to range between 60 and 70%.
And the economy recovers and demand and originations continued to rise and that.
Revenue margin should normalize over several quarters at around 50 to 60 per cent and.
<unk> and less seasoned loans become an increasingly larger proportion of the portfolio.
For a second quarter net revenue margin expectation and the degree and timing of future normalization and the ratio will depend upon the timing speed and mix of originations growth.
Now turning to expenses total operating expenses for the first quarter, including marketing for $108 million for 42% of revenue compared to $115 million or 44% of revenue last quarter.
And $94 million or 26% of revenue and the first quarter of 2020.
Excluding $3 million and onetime nonrecurring expenses related to the on deck acquisition.
Total operating and operating expenses for the first quarter, including marketing for <unk>.
$105 million or 40% of revenue.
And as David mentioned, the on deck integration is going well, we now expect to recognize all of the play and deal cost synergies by year end 2021 well ahead of schedule, resulting and achieving at least the full run rate of playing cost synergies and the second year post the closing of the deal.
Marketing expenses increased to $29 million for 11% of revenue and the first quarter for $28 million or 10% of revenue last quarter.
<unk> from $35 million or 10% of revenue and the first quarter of 2020.
We expect marketing spend to increase the rest of this year and going forward, we're likely range in the mid to upper teens as a percentage of revenue depending on the level of originations.
Operations and technology expenses for the first quarter totaled $36 million for 14% of revenue compared to $31 million for 12% of revenue last quarter and $31 million or 9% of revenue and the first quarter of 2020.
The sequential increase and over and T expenses was driven primarily by having a full quarter of on deck, Oh and T related expenses as well as increases and software and underwriting expenses.
The year over year increase who know and T expenses was driven primarily by the addition of on deck O N T related expenses.
Given the significant variable component of this expense category.
Sequential increases in AUM and 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 continue to realize expense synergies from the integration of the on deck acquisition.
General and administrative expenses for the fourth quarter totaled $44 million for 17% of revenue.
Compared to $57 million or 21% of revenue last quarter, and $28 million or 8% of revenue and the first quarter of 2020.
Excluding onetime nonrecurring expenses related to the on deck acquisition G.
G&A expenses declined sequentially to $41 million or 16% of revenue.
Versus $43 million or 16% of revenue last quarter.
Year over year increases and G&A costs were driven by the addition of on deck and G&A related expenses.
Looking ahead, excluding any one time items, we expect G&A to decline during 2021, as we recognized synergies beyond debt transaction and as we continue our focus on operating cost discipline.
We expect our G&A cost and the fixed cost components of Oh, and T expenses to remain slightly elevated as a percentage of revenue.
These costs should scale quickly as originations and receivables begin to return to historical levels.
Adjusted EBITDA, and non-GAAP measure decreased 8% sequentially and more than tripled from a year ago to $137 million and the first quarter for the reasons I previously discussed.
Our adjusted EBITDA margin for the quarter was 53% compared to 56% last quarter, and 10% and the first quarter of 2020.
Adjusted EBIT margin should normalize through 2020 one as a result of continued marketing investments and the aforementioned growth related normalization and net revenue margins and volume related expenses.
And as previously noted 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 return to historical levels.
Our stock based compensation expense was $5 $8 million and the first quarter, which compares to $3 $5 million and the first quarter of 2020.
The increase is related to the on deck acquisition and as I described last quarter the expense associated with a 2017 increase and the vesting period for restricted stock units.
And that's now fully reflected in the year over year comparisons.
Normalized stock based compensation expense should approximate $5 million per quarter going forward.
Our effective tax rate was 27% and the first quarter, which declined from 34% for the first quarter of 2020.
The decline from a year ago was driven primarily from the increase in operating income relative to typical non deductible expenses.
We expect our normalized effective tax rate to remain in the mid to upper 20% range.
We recognized net income from continuing operations of $76 million or $2 <unk> per diluted share and the first quarter.
Compared to $6 million for 18 cents per diluted share in the first quarter of 2020.
Adjusted earnings and non-GAAP measure increased to $82 million for $2.20 per diluted share for $9 million or 26 cents per diluted share in the first quarter of the prior year.
The trailing 12 month return on average shareholder equity using adjusted earnings increased to 45% during the quarter from 25% a year ago.
We ended the quarter with $392 million of cash and marketable securities, including $324 million and unrestricted cash and had an additional $412 million of available capacity available on $550 million domestic committed facilities.
Our debt balance at the end of the quarter includes $138 million outstanding under committed facilities.
Our cost of funds for the quarter was eight 6% versus eight 3% for the fourth quarter of 2020.
After excluding cost from accelerated discount amortization as a result of prepayments of the on debt facilities last quarter.
The increase and our cost of funds reflects the impact of relatively higher cost senior notes, representing a larger proportion of our outstanding debt is lower cost securitization debt continues to amortize.
Based on current market rates are domestic marginal cost of funds ranges from two 1% to for and a quarter percent depending on the facility utilized.
Our marginal cost of funds has improved with a new small business financing transaction, we announced this week.
On Tuesday, we price to $300 million securitization debt facility.
But on debt term loans and lines of credit.
And the rated for tranche structure has a 95% advance rate a.
2.07% blended fixed rate coupons and.
And the three year revolving period, followed by and amortization period.
Our solid balance sheet, and ample liquidity have us well positioned to support rising demand originations and receivables growth.
The economy recovers.
Due to the ongoing uncertainty and the economy, we are not providing detailed financial guidance at this time.
However, as we return to meaningful growth and originations and receivables, we expect to invest more and marketing by leveraging our machine learning driven analytics to capture increased demand and attractive unit economics.
As I've mentioned in my remarks today this should lead to some normalization and the net revenue margin growth related variable expenses and the adjusted EBITDA margin from recent levels.
Degree and timing of any normalization will depend upon the timing speed and mix of originations growth and we will.
Likely occur over several quarters as originations begin to return to for exceed pre COVID-19 levels.
We remain confident to return to pre COVID-19 originations growth will allow us to deliver meaningful and consistent top and bottom line growth as well.
Average the benefits of the scale and efficiency of our direct online only operating model, our broad and diversified consumer and small business product offerings.
Our powerful credit risk management capabilities.
And our solid balance sheet.
And with that we'd be happy to take your questions operator.
Okay.
Well now begin the question and answer.
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And if youre using a speakerphone please pick up your handset before pressing for Keith.
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At this time.
Some of our roster.
And our first question David Scharf Qi <unk>. Please go ahead.
Great. Thanks, Thanks for taking my questions.
Hey.
Two things.
First.
Obviously, we're all trying to kind of gauge the trajectory of a recovery there are a lot of unknowns.
But I'm wondering as it relates to the small business side.
And obviously for consumer it seems like dimmed.
Demand snaps back fairly quickly when stimulus runs out cash.
And you gave a little more color on.
The P P P loans and maybe.
What percentage of the existing borrowers if any you've taken any out and sort of.
And how long of a bridge maybe it provides to those borrowers.
And just.
I guess put it into context relative to consumer stimulus you know is it a little longer.
Dampening effect on demand or do you expect small business to bounce back as quickly as consumer.
Yes, David Good question from the prior round of PPP, we saw demand bounce back actually very quickly I think a lot of these small businesses or deepen our hull and P. P. D. Certainly helps but it's you know, it's mostly for payroll and it doesn't go much beyond that in terms of.
Rents are building up inventory and those kinds of things so.
The key for small businesses as I've mentioned and my comments is the economy continue to open up which you know theres a lot of encouraging a lot of encouraging signs as I was I also battens and although I also mentioned states continue to open up more and more and allowing retail businesses are small businesses too.
Open up further and I think that's going to be the biggest driver, especially now that P. P. P is largely is large and won't wound down and these businesses have.
<unk> and operating at full capacity, they nap and fully stocked up they have deferred maintenance that deferred rent and.
And as the economy improves and consumers began shopping at the small businesses again, and they're gonna need to ramp up quickly and.
We think is going to kind of spur a pretty strong demand for credit.
Got it got it no no it was and it's certainly probably the best asset class to be tethered to right now.
And then just as a follow up shifting to consumer.
And I know.
David commented about marketing spend.
So eventually I guess working its way back to sort of that mid to upper teens.
<unk> ratio to revenue.
I'm just wondering as you think about.
Customer acquisition strategies.
<unk> from the pandemic as the economy opens I know pre pandemic.
Dave when it was a very benign credit environment, you seem to have a strike.
Strike, while the iron is hot mentality in terms of.
There was a big percentage of.
Loans coming to new customers you felt like that was the time go out and you know me.
And that demand.
Is there any chance or is there any reason to.
And perhaps.
And spend.
And above trend of Mt and marketing as we emerge from the pandemic since there is going to be just such a rush.
Yeah.
And a pretty good environment credit wise.
Yeah, I think that's almost that's exactly our sentiment actually David we think there is going to be a rush for demand and we think it's a great time for us to be able to fill that demand and actually take share.
And so we're not going to be afraid to spend you know maybe a teen EBIT more heavily than you know we have and the past a little bit earlier and now you know a super well that you know we're very disciplined with respect to you know all of our spend including marketing spend and that's not changing where and I can go out and do any.
And crazy, but if you know there's a range of spend we can get comfortable with we'll probably be on the the the higher and and look and it's not working we can pull back very quickly the spend isn't long dated it's something we can adjust.
Day to day week to week, but I.
I think all and will be a little bit more on.
The higher end of our comfortable range.
Because we do think demands and new bounce back we wanted to take share and we're on such a good credit environment and you've seen how strong credit continues to be.
That unit.
The economics are really strong, which allows us to spend a little bit more and they are incredibly high net revenue margin. This quarter, even with 33 are getting up to 33% new customer so.
And that certainly gives us the ability to lean and a little debt more heavily and a little bit earlier on the marketing spend.
Got it great. Thank you.
Yep.
Yeah.
The next question comes from John Hecht of Jefferies. Please go ahead.
Afternoon, guys, thanks very much.
And some of this is I guess, you talked about the difference in and kind of recovering demand between small business consumer, but where do you guys see the portfolio in terms of mix over the next few quarters and any any meaningful changes there based on either kind of where you see opportunity and or where the momentum is.
Yeah, So I think we see opportunity and bolts and we expect them both to rebound over the next.
The months and quarters and as I mentioned and my comments, we think they should go somewhat hand in hand, as the consumer gets out there and start spending again small businesses. We think is a place that's likely to be and outsized beneficiary of that kind of new consumer spending and they've been doing they're spending at large businesses that hasn't waned that much.
During.
The last 12 months of the pandemic, but the small business spanning cat you know it is what's good bad debt. So again, we think that you can get largely goes hand.
And in hand.
We don't so we don't expect any.
Huge change in mix over the next you know over the next couple of quarters. You know obviously, it can fluctuate from month to month and quarter to quarter.
Small business has been a little bit steadier over the last quarter or so so maybe there's an opportunity for a consumer.
Consumer to come.
Come back a little bit faster, but we're talking around the margin now we actually expect to see good momentum and both sides of the business.
<unk>.
Okay and then there was this discussion about the marketing spend as a percentage of revenues and I'm wondering at the cost the cash level.
And you're changing kind of the mix of marketing any changes that you expect with customer acquisition costs. Given the fact that you know other lenders are kind of trying to build their book as well.
Yeah. So I think in terms of mix I think we're leaning a little bit more heavily on direct marketing as opposed to partners and we think this is a nice opportunity.
And it's something we've been working out for last five plus years is taking more control over our own destiny and we've been successful at it. We think this isn't that nice opportunity to go even deeper and deeper there.
So you'll see I think and mix will skew a little bit more towards the direct versus partner channels, which will benefit a benefit us and long term. So it's something we're excited about and then in terms of CAC like I said, you know maybe slightly on the higher end, but you know again nothing nothing outrageous unit economics are higher now so we do have the <unk>.
Ability to lean in on the on the cash without.
You know getting out search side of our return thresholds, so again, maybe a little bit higher and a little bit earlier, but.
Again as I said before we've always been very disciplined on the expense side bets.
And that's not going to change.
Great. Thanks, guys.
Yeah. Thanks Shannon.
Yeah.
Once again, if you would like.
I'll ask a question. Please press Star then one.
And the next question will come from John Rowan of Janney. Please go ahead.
Good afternoon guys.
Hey, Jonathan for Jonathan just really sure I understand that the guidance for G&A expenses and lower in 2020, one versus the 141 million and you spent in 2020 is that correct.
Yeah, well I'm really talking about how to think about the absolute dollars and as we move forward from here right. So with the combination of synergies recognition.
And our own cost discipline, you and you should expect those absolute dollars ticked down.
You know through the rest of this year.
And as we expect some return of growth as we move through the year, you'll see those come down as a percentage of revenue from where they are today.
Okay. So they come down in absolute dollars and as a percentage of revenue throughout the year.
Right with you know again, we're expecting that that growth is going to start to return.
Moved through the year.
And then all of that the on deck synergies that that all that run rate is fully recognized by the end of the year, we shouldn't expect any more decreases and G&A into 2022, and so that sounds about right and it could there could be.
Beyond our remember we.
We talked about $50 million of synergies from on index 2019 expense base.
And as David and I, both mentioned, we expect to to overachieve on that and.
And then we expect there will be some longer tailed type items like real estate and data center rationalization that that could spill into the second year, but we think we will be at least $50 million.
Run rate by the time, we enter into 2020 two.
Okay, and then I'm not sure if you guys have ever disclosed this but if you have and just say so have you given I mean, you framed up exactly how much exposure you guys have for the bank partner model.
If you want to.
And you say it.
Exposure and for more meaning and what percentage of what percentage of your loans are issued through banks or you know a percentage of revenue I'm. Just if you have a disclosure that's fine I just wanted to ask in case you have you are disclosing it we have not disclosed that level of detail around the bank partnership.
Okay alright, thank you.
Yeah.
The next question comes from Vincent.
And of Stephens. Please go ahead.
Hey, Thanks, Good afternoon, guys first question.
He is on the competitive environment I know, it's still tough.
It's tough to generate receivables here, but and some of the the consumer asset classes.
It would be tougher.
It seems like even with some limited growth potential that some people are chasing.
Chase and receivables and limited growth areas, but I'm just wondering maybe.
And if the competition and your spaces.
Do you see much competition is that a disciplined and as we come out of this.
And if I might be for a less competitive rate.
Yeah.
Yeah sure good question on the consumer side.
Hum.
The competition seems it seems normal ish I think look I think some of the online guys are trying to lean in harder to you now.
Reaccelerate their lending, but the storefronts have just been decimated.
A lot of them are and central business districts people aren't traveling there now a lot of them have shut down, especially the mom and pops are the mom and pop storefronts.
So that that segment of the competition is largely gone and will probably never come back and any meaningful level. So that's certainly helped on the consumer side and will likely continue to help going for it on the small business side early in the pandemic, many and a small business lenders suffered from very bad losses at <unk>.
He used to pen 10, or 12 have gone out of business and.
And a couple of large ones and one of our largest competitors a cabbage got bought by American Express and is no longer a lending and the same type of interest rates for lending at the same customer base. So I would say competition on the small business side, it's probably.
And even lighter today than on on the consumer side, it's been had a more meaningful drop and competition on the small business side than on the consumer side.
Okay.
Okay. That's very helpful. Thank you and you're one of the for you to have good insights into both the consumer behavior and to us.
Small business your competitor what cabbage.
Was talking about so their consumers or maybe some recovery.
<unk> spending, but does and the small business, maybe is even better and so I'm just kind of wondering and from your sense.
Are you seeing I guess relative between consumer and small business, just one areas seem to be closer to <unk>.
Our recovery.
And then the other is it sort of Hussein. Thank you sure yeah like I said before I think they largely go hand in hand as the consumer starts spending the small businesses are going to be the beneficiary I think the spending on the consumer side is starting.
And we just haven't seen as much and the benefit because of the last round of stimulus and.
And and tax return season, and so I think the small businesses are beginning to respond to that spending and by doing some spending to spending on their own.
And so you know as we're moving to the next.
Months and months and quarters.
Largely largely going hand in hand, I had a guess which was going to you know which was going to accelerate faster and might say small business, but again, we're on we're on the margins here I think they like they largely move together as the economy opens up.
Yeah.
Okay, Great. That's all I had thanks very much.
Yes. Thank you for you.
Yeah.
This concludes our question and answer session.
To turn the conference back over to David Fisher for any closing remarks.
Yes.
Thanks, everyone for joining our call today, we appreciate your time and we look forward to talking to you again next quarter and have good evening.
The conference has now concluded. Thank you for attending today's presentation and you may now.
I'll disconnect.
[music].
Yeah.