Q4 2021 Enova International Inc Earnings Call
[music].
Speaker 1: Good day and welcome to the Innova International Force Quarter 2021 Ernie's conference call. All participants will be in a listen only mode. Should you need assistance, please signal conference specialists by pressing the start key followed by zero. After today's presentation, there will be an opportunity to ask questions.
Good day and welcome to the Nova International.
Fourth quarter 2021 earnings conference call, all participants will be in a listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions to ask a question. You May Press Star then one on your telephone keypad and to withdraw your question.
Speaker 2: To ask a question, you may press star than one on your telephone keypad. And to withdraw your question, please press star than two. Please note, this event is being recorded. I would now like to turn the conference over to Miss Cassidy Fuller. Please go ahead, ma'am. Thank you, operator, and good afternoon, everyone. Another release result for the fourth quarter and full year 2021 ended December 31, 2021, this afternoon after the market closed.
Please press Star then two please note. This event is being recorded I would now like to turn the conference over to MS. Cassidy folder. Please go ahead ma'am. Thank.
Thank you operator, and good afternoon, everyone.
And never released results for the fourth quarter and full year 2021, and December 31, 2021. This afternoon after the market class.
Speaker 2: 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.innovus.com.
If you did not receive a copy of our earnings press release, you may obtain it from the Investor Relations section of our website IR dot.
Dot com.
Speaker 2: With me and today's call, our David Fisher, Chief Executive Officer, and Steve Cunningham, Chief Financial Officer. This call is being broadcast and will be archived on the Investor Relations section of our website.
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.
Speaker 2: Before I turn the call over to David, I'd like to note that today's discussion will contain four looking statements and as such, it's subject to risks and uncertainties.
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.
Speaker 2: Actual results may differ materially as a result from various important risk factors, including those discussed in our earnings press release in our annual report on form 10K, quarterly reports on form 10Q and current reports on form 8K.
Actual results may differ materially as a result from various important factors, including those discussed in our earnings press release and our annual report on Form 10-K quarterly reports on Form 10-Q .
Current reports on form 8-K.
Speaker 2: Please note that any four of the statements 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.
Please note that any forward looking statements 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.
Speaker 2: In addition to US gap reporting, I never 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. Refinsulations between gap and non- GAAP measures are included in the tables found in today's press release.
In addition to U S GAAP reporting and never 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 GAAP and non-GAAP measures are included in the tables found in today's press release.
Speaker 2: 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.
As noted in our earnings release, we have posted supplemental financial information on the IR portion of our website.
I would like to turn the call over to David.
Speaker 1: Good afternoon everyone. Thanks for joining our call today. I will first provide an overview of our fourth quarter and full year results. And I will discuss our strategy and outlook for 2022. After that, I'll turn the call over to Steve Cunningham, our CFO , will discuss our financial results and outlook in more detail.
Good afternoon, everyone. Thanks for joining our call today I will first provide an overview of our fourth quarter and full year results, then I'll discuss our strategy and outlook for 2022 after that I'll turn the call over to Steve Cunningham, Our CFO , who will discuss our financial results and outlook in more detail.
Speaker 1: Looking back on 2021, our strong results demonstrated the power of an experienced and talented team, combined with world-class machine learning, powered analytical and risk management capability.
Looking back on 2021, our strong results demonstrated the power of an experienced and talented team combined with world class machine learning powered analytical and risk management capabilities.
Speaker 1: We skillfully navigated a complex and rapidly changing market environment, quickly accelerating our originations as the economy recovered and helping our customers get access to fast trustworthy credit.
We skillfully navigated a complex and rapidly changing market environment quickly accelerating our originations as the economy recovered and helping our customers get access to fast trustworthy credit.
Speaker 1: At the same time, we kept a close eye on credit performance, which has remained much better than pre-pandemic level.
At the same time, we kept a close eye on credit performance, which has remained much better than pre pandemic levels.
Speaker 1: As a result, total company originations doubled year-a-year to $1 billion, and total company combined loan and finance receivables increased by 48% to $2 billion.
As a result total company originations doubled year over year to $1 billion in total company combined loan and finance receivables increased by 48% to $2 billion.
Speaker 1: This growth in our portfolio provides an over a lot of moments of heading into 2022. And we believe we are extremely well positioned to continue taking advantage of the improving economy and improving consumer and SMB demand.
This growth in our peripheral portfolio provides a lot of momentum heading into 2022, and we believe we are extremely well positioned to continue taking advantage of the improving economy and improving consumer and SMB demand.
Speaker 1: As we anticipated, during the fourth quarter, we saw demand increase with particularly strong growth in our near prime and SMB business.
As we anticipated during the fourth quarter, we saw demand increase with particularly strong growth in our near Prime and SMB businesses.
Speaker 1: As I just mentioned, credit quality remains solid across all of our products, including reef advantages, which continue to form better than pre-pandemic love.
As I, just mentioned credit quality remains solid across all of our products, including recent vintages, which continue to perform better than pre pandemic levels.
Speaker 1: Given these dynamics, we continue to be aggressive with our marketing, resulting in marketing spend as a presenter revenue of just under 30%.
Given these dynamics, we continue to be aggressive with our marketing, resulting in marketing spend as a percentage of revenue of just under 30%.
Speaker 1: While marketing spend is higher than pre-COVID levels, a portion of that increase is due to our switch to fair value accounting where no marketing costs are deferred. Steve will provide a little bit more detail.
Our marketing spend is higher than pre COVID-19 levels, a portion of that increase is due to our switch to fair value accounting.
No marketing costs are deferred.
Steve will provide a little bit more detail on this impact later.
Speaker 1: But more importantly, at these levels of spend are expected unit economics on our recent vignages remain well above our targets at our current customer acquisition cost and with the strong credit metrics in our portfolio.
But more importantly at these levels of spend are expected unit economics on a recent vintages remained well above our targets at our current customer acquisition cost.
With the strong credit metrics in our portfolio.
Speaker 1: But as always, we will keep a close eye on these metrics as we continue to grow the portfolio as we are committed to producing sustainable and profitable growth over the long-
But as always we will keep a close eye on these metrics as we continue to grow the portfolio as we are committed to producing sustainable and profitable growth over the long term.
Speaker 1: Fourth quarter originations were up 100% from the fourth quarter of last year and increased 25% to last quarter. Our third consecutive quarter with greater than 20% sequential origination growth.
Fourth quarter originations were up 100% from the fourth quarter of last year and increased 25% for last quarter, our third consecutive quarter with greater than 20% sequential originations growth.
Speaker 1: Importantly, originations from new customers were 46% of total originations. The highest since our first year in business, and up from 43% and 2% and 2% and 2% in 2% for our last year.
Importantly, originations from new customers were 46% of total originations the highest since our first year of business and up from 43% in Q3 and 28% in Q4 of last year.
Speaker 1: The large number of new customers over the last several quarters is exciting to see as provides a big tailwind as those customers return for additional credit over time.
The large number of new customers over the last several quarters is exciting to see as it provides a big tailwind as those customers return for additional credit over time.
Speaker 1: As a result of the strong origination growth, revenue in the fourth quarter increased 38% year over year and 14% sequentially to $364 million.
As a result of the strong origination growth revenue in the fourth quarter increased 38% year over year, and 14% sequentially to $364 million.
Speaker 1: And benefiting from the strong credit performance, we also produce solid bottom line results with a Giacidiveda of $101 million and a GiacidiPS of $1.61.
And benefiting from the strong credit performance. We also produced solid bottom line results with adjusted EBITDA of $101 million and adjusted EPS of $1 61 sites.
Speaker 1: Over the last several years, we've been emphasizing the importance of having a diversified portfolio.
Over the last several years, we've been emphasizing the importance of having a diversified portfolio.
Speaker 1: In the fourth quarter, small business products are presented 52% of our portfolio, while consumer products accounted for 48%.
In the fourth quarter small business products represented 52% of our portfolio.
While consumer products accounted for 48%.
Speaker 1: Within consumer, line of credit products represent a 31% and sell them products accounted for 67%. And short-term loans represented just 2%.
Within consumer line of credit products represented 31% and summer products accounted for 67% and short term loans represented just 2%.
Speaker 1: As is evident by these numbers, our acquisition of on-debt continues to be divin-ed.
As is evidenced by these numbers our acquisition of <unk> that continues to pay dividend.
Speaker 1: SMB Q4 originations were 26% higher than Q3 and 99% higher than a year ago, as it was enabled to effectively leverage the strong on-deck brand and expertise.
<unk> Q4 originations were 26% higher than Q3 at 99% higher than a year ago as we've been able to effectively leverage the strong on deck brand and expertise.
The diversification of our portfolio has been very intentional.
Speaker 1: The mix between consumer and small business will fluctuate over time based on both macroeconomic factors as well as seasonality. And we do not have specific targets for the mix between consumer and small business funding.
The mix between consumer and small business will fluctuate over time based on both macroeconomic factors.
As well as seasonality and we do not have specific targets for the mix between consumer and small business lending.
Speaker 1: Instead, our strategies to optimize that mix based on the competitive and economic environment to maximize our unit economics and the returns we can generate on our invested capital while providing a track to product to the consumer and small business marketplace that allow us to capture additional shares.
Instead, our strategy is to optimize that mix based on the competitive and economic environment to maximize our unit economics and the returns we can generate on our invested capital, while providing attractive products to the consumer and small business marketplace that allow us to capture additional share.
Speaker 1: Thanks to the skillful execution of our team during the last two years since the pandemic began. We believe we are continuing to take care in both the SMB and consumer markets with our diversified product offerings and customer-friendly online only model.
Thanks to the skillful execution of our team during the last two years since the pandemic began we believe we are continuing to take share in both the SMB and consumer market with our diversified product offerings and customer friendly online only model.
Speaker 1: As the economy continues its recovery, we are seeing consumers increasing their spend, which is driving demand for credit.
As the economy continues its recovery, we are seeing consumers, increasing their spend which is driving demand for credit and.
Speaker 1: In addition, as we have been predicting, small businesses have been beneficiaries of pent up consumer demand and the resulting increase in spend.
In addition, as we have been predicting small businesses have been beneficiaries of pent up consumer demand and the resulting increase in spending.
Speaker 1: We are encouraged by these dynamics heading into 2022 and believe our strong execution in 2021, not only generated great results, but also gives us strong momentum.
We are encouraged by these dynamics heading into 2022 and believe our strong execution in 2021.
Not only generated great results, but also gives us strong momentum.
Speaker 1: And, encouragingly, we are not currently seeing any major impacts from the most recent spike in COVID case.
And encouragingly, we are not currently seeing any major impacts from the most recent spike in Covid cases.
Speaker 1: That thing said, our highly flexible online only business model gives us the ability to quickly adapt to changes in market conditions. We will of course continue to monitor the trends and market environment close.
That being said our highly flexible online only business model gives us the ability to quickly adapt to changes in market conditions, and we will of course continue to monitor the trends and market environment closely.
Speaker 1: In particular, while we're keeping an eye on inflation, we do not think we'll have a significant impact on either demand or credit. At the moment, wages are rising at a slightly slower rate than overall inflation. This provides our customers additional capital to repay our loans. However, at the same time, spending is increasing, which provides the fuel for additional demand.
In particular, while we're keeping an eye on inflation, we do not think it will have a significant impact on either demand or credit.
At the moment wages are rising at a slightly slower rate than overall inflation. This provides our customers additional capital to repay our loans.
At the same time spending is increasing which provides the fuel for additional demand.
Speaker 1: and given the spread in our average EPRs over our cost of capital, small increases in the fed fund rate will not have a meaningful impact on our profitability.
And given the spreads and our average <unk> over our cost of capital small increases in the fed funds rate will not have a meaningful impact on our profitability.
Speaker 1: In summary, our businesses come a long way in the last several years and as evidenced by our recent stock buybacks, we are confident that we have the right products and the right team to adapt to changing market environments and capture additional shares.
In summary, our business has come a long way in the last several years and as evidenced by our recent stock buybacks. We are confident that we have the right products and the right team to adapt to changing market environment and capture additional share.
Speaker 1: Now, I would like to turn the call over to Steve Cunningham, our CFO . We'll discuss our financial results and outlook in more detail. And following Steve's remarks, we'll be happy to answer any questions that you may have. Steve. Thank you, Dave.
Now I would like to turn the call over to Steve Cunningham, Our CFO will discuss our financial results and outlook in more detail and following steves remarks, we'll be happy to answer any questions that you may have.
Keith.
Thank you David and good afternoon, everyone.
Speaker 3: If David mentioned in his remarks, he finished 2021 with strong results in great momentum as fourth quarter and full year 2021, total company originations, originations from new customers, indigestivables, and revenue were all the largest and among the most diverse in our company's history.
As David mentioned in his remarks, we finished 2021 with strong results and great momentum as fourth quarter and full year 2021, total company originations originations from new customers.
Ending receivables and revenue were all of the largest and among the most diverse in our company's history.
Speaker 3: Our diversified product offerings, scalable online only business model, machine learning powered risk management and analytical capabilities, combined with our solid balance sheet, have us well positioned to continue this momentum into 2022 and beyond to consistently generate profitable growth.
Our diversified product offerings scalable online only business model.
<unk> learning powered risk management, and analytical capabilities combined with our solid balance sheet.
Is well positioned to continue this momentum into 2022 and beyond to consistently generate profitable growth.
Turning to <unk> fourth quarter results total company revenue for the fourth quarter rose, 14% sequentially, 38% from the fourth quarter of 2000 $20 million to $364 million.
Speaker 3: Total company revenue for the fourth quarter rose 14% sequiturally, with 38% from the fourth quarter of 2020 to 364 million dollars.
Speaker 3: Revenue was driven by the continued acceleration and growth of total company combined loan and financial receivables balance.
Revenue was driven by the continued acceleration in growth of total company combined loan and finance receivables balances, which on an amortized basis with $2 billion at the end of the fourth quarter up 18% sequentially and up 48% compared to the fourth quarter of the prior year.
Speaker 3: which on an amortite basis were $2 billion at the end of the fourth quarter, about 18% sequentially, and up 48% compared to the fourth quarter of the prior year.
Speaker 3: Total company originations rose 25% sequentially to $1.1 billion and doubled from the fourth quarter of 2020.
Total company originations rose, 25% sequentially to $1 $1 billion and doubled from the fourth quarter of 2020.
Speaker 3: Originations from new customers once again set a record totaling 46% of total originations as our accelerated marketing activities remain highly effective.
Originations from new customers once again set a record totaling 46% of total originations as our accelerated marketing activities remained highly effective.
Speaker 3: Small business revenue increased 14% sequentially and 79% from the fourth quarter of the prior year when we closed the on deck acquisition.
Small business revenue increased 14% sequentially and 79% from the fourth quarter of the prior year when we closed the <unk> acquisition.
Speaker 3: Small business receivables on an amortized basis totaled $1 billion at December 31st, 15% sequential increase, and 47% higher than the end of the fourth quarter of 2020, as small business origination increased 26% sequentially to $580 million.
Small business receivables on an amortized basis totaled $1 billion at December 31.
15% sequential increase in.
47% higher than the end of the fourth quarter of 2020, and small business originations increased 26% sequentially to $580 million.
Speaker 3: Revenue from our consumer businesses increased 13% sequentially in 24% from the fourth quarter of 2020.
Revenue from our consumer businesses increased 13% sequentially and 24% from the fourth quarter of 2020.
Speaker 3: Consumer receivables on an amortized basis ended the year at $941 million.
Consumer receivables on an amortized basis ended the year at $941 million.
Speaker 3: of 20% sequentially and 50% higher than the fourth quarter of 2020. As consumer originations increase 24% sequentially to $490 million.
Up 20% sequentially and 50% higher than the fourth quarter of 2020.
Consumer originations increased 24% sequentially.
$490 million.
Speaker 3: Looking ahead, we expect revenue to follow our typical quarterly season hour.
Looking ahead, we expect revenue to follow our typical quarterly seasonality.
Speaker 3: The net revenue margin for the fourth quarter was 77%.
The net revenue margin for the fourth quarter, 77%.
Speaker 3: Unchanged from the third quarter as credit quality, which is the most significant driver of portfolio fair value, remains solid.
Unchanged from the third quarter as credit quality, which is the most significant driver of portfolio of fair value remained solid.
Speaker 3: The change in the fair value line item included two main components that charge off and changes to the portfolio's fair value, resulting from updates to key valuation.
The change in the fair value line item included two main components net charge offs and changes to the portfolio at fair value, resulting from updates to key valuation inputs, including future credit loss expectations prepayment assumptions.
Speaker 3: future credit loss expectations, repayment assumptions, and the discount rate.
And the discount rate.
I'll discuss both items in more detail.
Speaker 3: First, the total company ratio of net charge-offs as a percentage of average combined loan and financial seatables for the 4.4 was 6.7%.
First total company ratio of net charge offs as a percentage of average combined loan and finance receivables for the fourth quarter six 7%.
Speaker 3: up from 4.2% last quarter and up from 4.7% in the fourth quarter of 2020. It's still well below the pre-pandemic rate of 15.6% during the fourth quarter of 2019.
Up from four 2% last quarter and up from four 7% in the fourth quarter of 2020.
But still well below the pre pandemic rate of 15, 6% during the fourth quarter of 2019.
Speaker 3: Credit performance across our recent consumer and small business finishes continues to perform in line or better than our expectations.
Credit performance across our recent consumer and small business vintages continues to perform in line or better than our expectation.
Speaker 3: As we've noted in previous quarters, with accelerating originations growth, and newer, less seasons receivables, comprising a larger proportion of our portfolio.
As we've noted in previous quarters with accelerating originations growth in newer less seasoned receivables comprising a larger proportion of our portfolio.
Speaker 3: We expect total company credit metrics to trim toward more typical historical levels as newer origination vignages. Track along their expected loss curves.
We expect total company credit metrics to trend toward more typical historical levels as newer origination vintages.
<unk> alone there expected loss curves over time.
Speaker 3: that being said, credit is still performing better than pre-pandemic, including our most recent vintage of the New Cup.
That being said credit is still performing better than pre pandemic, including our most recent vintages with new customers.
Speaker 3: The fourth quarter net charge operation for small business receivables.
The fourth quarter net charge off ratio for small business receivables with 80 basis points.
Speaker 3: to the previous quarter, but well below the prior year ratio of 3.9% as we continue to see strong credit performance across all of our small business brands.
Which was flat to the previous quarter, but well below the prior year ratio of three 9% as we continue to see strong credit performance across all of our small business brand.
Speaker 3: with the acceleration and consumer origination during 2021, especially from new customers, we expected some credit normalization in the Consumer Portfolio from unsustainably low-level.
With the acceleration in consumer originations during 2021, especially from new customers, we expected some credit normalization in the consumer portfolio from unsustainably low levels.
Speaker 3: The consumer net charge operation for the fourth quarter increased to 13.3% from 8.1% last quarter and 5.5% in the prior year quarter.
The consumer net charge off ratio for the fourth quarter increased to 13, 3% from eight 1% last quarter and five 5% in the prior year quarter.
Speaker 3: The ratio remains well below the pre-pandemic rate of 17.2% that we reported for the fourth quarter of 2019.
The ratio remains well below the pre pandemic rate of 17, 2% that we reported for the fourth quarter of 2019.
Speaker 3: As I previously mentioned, net charge operates for both our subprime and near-prime consumer businesses, where within our expectations.
As I previously mentioned net charge off rates for both our subprime and near Prime consumer businesses were within our expectation.
Speaker 3: These expectations are key inputs into our Unid economic framework that has allowed us to consistently deliver solid margins, strong returns on shareholder equity.
Expectations are key inputs into our unit economics framework that has allowed us to consistently deliver solid margins and strong returns on shareholder equity.
Speaker 3: A fair value of the consolidated portfolio and the percentage of principal was 105% at December 31st.
The fair value of the consolidated portfolio as a percentage of principal was 105% at December 31.
Speaker 3: up from 103% on September 30th.
Up from 103% on September 30.
Speaker 3: The improvement in the fair value of consolidated portfolio resulted from an improved credit outlook and a reduction in discount rate.
The improvement in the fair value of the consolidated portfolio.
<unk> from an improved credit outlook and a reduction in discount rates.
Speaker 3: The fair value of the small business portfolio as a percentage of principal increased to 106% at December 31st. From 104% at September 30th, and the credit outlook for the portfolio continues to improve.
The fair value of the small business portfolio as a percentage of principal increased to 106% December 31.
From 104% at September 30.
The credit outlook for the portfolio continues to improve.
Speaker 3: The fair value of the consumer portfolio as a percentage of principal was steady at 103% on December 31st and continues to reflect the solid credit profile, even though loans to new customers had temporarily become a larger proportion of the consumer portfolio.
The fair value of the consumer portfolio as a percentage of principal was steady at 103% from December 31.
Continues to reflect a solid credit profile, even though loans to new customers have temporarily become a larger proportion of the consumer portfolio.
Speaker 3: The relatively low and steady level of the linkant receivables as a percentage of loan and finance receivable balances at the end of the quarter also roofed like strong customer payment rates and the continued solid credit profile of the portfolio.
The relatively low and steady level of delinquent receivables as a percentage of loan and finance receivable balances at the end of the quarter.
Also reflects strong customer payment rates.
Continued solid credit profile of the portfolio.
Speaker 3: The percentage of total portfolio receivables past 30 days or more was 5.3% at the sum to 31.
The percentage of total portfolio receivables past due 30 days or more was five 3% at December 31.
Speaker 3: down slightly from 5.5% at the end of the third quarter and lower than the 9.3% ratio at the end of the fourth quarter a year ago.
Down slightly from five 5% at the end of the third quarter and lower than the nine 3% ratio at the end of the fourth quarter a year ago.
Speaker 3: The percentage of small business receivables passed through 30 days or more declined during the quarter to 4.3% of December 31st, from 5.1% at September 30th.
The percentage of small business receivables past due 30 days or more declined during the quarter to four 3% December 31 from five 1% at September 30.
Speaker 3: The decline was driven by continued improvement in delinquency levels, and strong payment and recovery rates across all of our small business brands.
The decline was driven by continued improvement in delinquency levels and strong payment in recovery rates across all of our small business brand.
Speaker 3: As small visit the Lake Lake E-Rate, continue to transport more normal historical levels.
<unk> business delinquency rates continue to trend towards more normal historical levels.
Speaker 3: The percentage of consumer receivables passed to 30 days or more was 6.3% at December 31st, compared to 5.9% at September 30th.
The percentage of consumer receivables past due 30 days or more.
With six 3% at December 31, compared to five 9% at September 30.
Speaker 3: 3.9% at the end of the fourth quarter of 2020.
And three 9% at the end of the fourth quarter of 2020.
Speaker 3: with the recent sequential acceleration and consumer origination.
With the recent sequential acceleration in consumer origination.
Speaker 3: especially from new customers. Some normalization and consumer delinquencies would expect it from the unsustainably low levels recently observed.
Especially from new customers some normalization in consumer delinquencies was expected from the unsustainable unsustainably low levels recently observed.
Speaker 3: In addition to future credit loss expectations, every quarter we also evaluate discount rates and other key valuation assumptions used in our fair value model.
In addition to future credit loss expectations every quarter, we also evaluate discount rates and other key valuation assumptions used in our fair value models.
Speaker 3: And the result of this analysis to the fourth quarter, we reduced the discount rates used in the fair value calculation.
As a result of this analysis for the fourth quarter, we reduced the discount rates used in the fair value calculation to incorporate observed market information and the continued improvement in the economic environment.
Speaker 3: to incorporate observed market information and continued improvement in the economic.
Speaker 3: If the operating environment continues to stabilize during 2022, we would expect additional reversions of other downward adjustments that we made to the fair value calculations at the peak of the COVID pandemic.
If the operating environment continues to stabilize during 2022.
We would expect additional reversals of other downward adjustments that we've made to the fair value calculations at the peak of the Covid pandemic.
Speaker 3: To summarize, the change in fair value line item is quarter. This driven by strong growth and origination. It will look at low levels of net charge off.
To summarize the change in fair value line item. This quarter was driven by strong growth in originations relatively low levels of net charge offs.
Speaker 3: lower discount rates, and credit metrics and modeling at the end of the fourth quarter, they continue to reflect a solid outlook for expected future credit performance for our rapidly growing portfolio.
Our discount rates and credit metrics and modeling at the end of the fourth quarter that continued to reflect the solid outlook for expected future credit performance for a rapidly growing portfolio.
Speaker 3: Looking ahead, we expect the net revenue margin for the first quarter of 2022 to range between 65 and 70%.
Looking ahead, we expect the net revenue margin for the first quarter of 2022 to range between 65, 70%.
Speaker 3: the economy recovers, and demand and originations continue to rise, the net revenue margins should begin to normalize over the next several quarters and stabilize in a range of 55 to 65 percent, as less season loans become an increasingly larger proportion of the portfolio.
As the economy recovers and demand and originations continue to rise.
The net revenue margin should begin to normalize over the next several quarters and stabilize in a range of 55% to 65%.
It's less seasoned loans become an increasingly larger proportion of the portfolio.
Speaker 3: Our future net revenue margin expectations and the degree in timing of future normalization and the ratio will depend upon the timing speed and mix of originations growth.
Our future net revenue margin expectations, and the degree and timing of future normalization in the ratio will depend upon the timing speed and mix of originations growth.
Speaker 3: Now turning to expenses, our operating expenses this quarter reflect are accelerate marking the activities and the continued scaling of our fixed cost.
Now turning to expenses, our operating expenses this quarter reflect our accelerated marketing activities.
And the continued scaling of our fixed costs.
Speaker 3: Femal operating expenses for the fourth quarter, including marketing, but $187 million or 52% of revenues.
Total operating expenses for the fourth quarter, including marketing.
For $187 million or <unk>, 52% of revenue.
Speaker 3: compared to $115 million for 44% of revenue in the fourth quarter 2020.
Compared to $115 million or 44% of revenue in the fourth quarter 2020.
Speaker 3: Marketing expenses increased to $108 million or 30% of revenue in the fourth quarter, from $28 million or 10% of revenue in the fourth quarter of 2020.
Marketing expenses increased to $108 million or 30% of revenue in the fourth quarter.
$28 million or 10% of revenue in the fourth quarter of 2020.
Speaker 3: With the strong unity economics received from new originations, we captured rising consumer demand, the meaningfully increased originations during the fourth quarter. Did an increasing proportion from Newcastle?
With the strong unit economics were seeing from new originations captured rising consumer demand to meaningfully increase origination during the fourth quarter.
With an increasing proportion from new customers.
As a reminder, under fair value accounting, we recognize marketing expenses in the period. They are incurred instead of deferring a portion and recognizing them over the life of alone as we did prior to 2020.
And as many in the industry still do.
Speaker 3: As a result, in periods of strong growth, marketing expenses as a percentage of revenue will be higher when compared to reporting periods prior to 2020.
As a result in periods of strong growth marketing expenses as a percentage of revenue will be higher when compared to reporting periods prior to 2020.
Speaker 3: For example, we would have deferred about 45% of our marketing spend during the fourth quarter of 2021. Had we been following our accounting practices prior to the adoption?
For example, we.
We would have deferred about 45% of our marketing spend during the fourth quarter of 2021 had we'd been following our accounting practices prior to the adoption of fair value.
Speaker 3: Looking forward, we expect marketing expenses as a percentage of revenue to be approximately 20% for the first quarter of 2022.
Looking forward, we expect marketing expenses as a percentage of revenue to be approximately 20% for the first quarter of 2022.
Speaker 3: to be slightly higher for the remainder of the year, but will depend upon growth and origination, especially for Newcastle.
And to be slightly higher for the remainder of the year, but will depend upon growth in originations, especially from new customers.
Speaker 3: Operations and technology expenses for the fourth quarter total $39 million or 11% of revenue compared to 31 million dollars or 12% of revenue in the fourth quarter of 2020
Operations and technology expenses for the fourth quarter totaled $39 million or 11% of revenue compared to $31 million or 12% of revenue in the fourth quarter of 2020.
Speaker 3: Given the significant variable component of this expense category, sequential increases in O and T costs should be expected in an environment where originations are accelerating, and receivables are growing and should range between 10 and 12% of revenue.
Given the significant variable component of this expense category sequential increases in <unk> costs should be expected in an environment, where originations are accelerating.
Receivables are growing and should range between 10 and 12% of revenue.
Speaker 3: General and administrative expenses for the fourth quarter told 41 million dollars or 11% of revenue compared to 57 million dollars or 21% of revenue in the fourth quarter of 2020.
General and administrative expenses for the fourth quarter totaled $41 million or 11% of revenue compared to $57 million or 21% of revenue in the fourth quarter of 2020.
Speaker 3: Excluding one time cost related to a lease termination.
Excluding one time cost related to a lease termination.
Speaker 3: G and A expenses would have told $37 million for 10% of revenue.
<unk> expenses would have totaled $37 million or 10% of revenue.
Speaker 3: As a reminder, there were 13 million dollars of one-time expenses associated with the on-deck acquisition in the fourth quarter of 2020.
As a reminder, there were $13 million of one time expenses associated with the <unk> acquisition in the fourth quarter of 2020.
Speaker 3: While there may be slight variations from quarter to quarter, we expect G&A expenses as a percentage of revenue to trim below 10% as we move through 2022 that these expenses scale with growth.
While there may be slight variations from quarter to quarter, we expect G&A expenses as a percentage of revenue to trend below 10% as we move through 2022 these expenses scale with growth.
Speaker 3: Adjusted evita, a non-gab measure, was $101 million in the fourth quarter, flat sequentially, and down 32% from the year ago quarter for the reasons I previously discussed.
Adjusted EBITDA, a non-GAAP measure was $101 million in the fourth quarter flat sequentially.
And down 32% from the year ago quarter for the reasons I previously discussed.
Speaker 3: Our adjusted EBITDA margin for the quarter was 28%, compared to 31% last quarter, and 56% in the fourth quarter of 2020.
Our adjusted EBIT margin for the quarter was 28% compared to 31% last quarter.
56% in the fourth quarter of 2020.
Speaker 3: We expect that adjusted EBITM margins will likely see some slight declines in the coming quarters before stabilizing, primarily as a result of the aforementioned normalization in that revenue market.
We expect that adjusted EBIT margins will likely see some slight declines in the coming quarters before stabilizing primarily as a result of the aforementioned normalization and net revenue margin.
Speaker 3: previously noted, the degree in timing of any changes to the Adjusted E bit in margin will depend on the timing, speed, and max of originations growth.
As previously noted the degree and timing of any changes to the adjusted EBIT margin will depend upon the timing speed and mix of originations growth.
Speaker 3: Our stock-based compensation expense was $5.1 million in the Ford quarter, which compares to $7.2 million in the Ford quarter of 2020.
Our stock based compensation expense was $5 $1 million in the fourth quarter, which compares to $7 $2 million in the fourth quarter of 2020.
Speaker 3: The decrease was related to expenses associated with the closing of the on-deck acquisition during the full quarter of 2020.
The decrease was related to expenses associated with the closing of the <unk> acquisition during the fourth quarter of 2020.
Speaker 3: We expect normalized stock based compensation extent should approximate $5 million per quarter going forward.
We expect normalized stock based compensation expense should approximate $5 million per quarter going forward.
Speaker 3: Our effective tax rate was 20% in the fourth quarter, which increased from 10% in the fourth quarter of 2020.
Our effective tax rate was 20% in the fourth quarter, which increased from 10% in the fourth quarter of 2020.
Speaker 3: The increase was primarily from a one-time reduction in taxable income related to the on-deck acquisition that lowered the effective tax rate in the prior year quarter.
The increase was primarily from a one time reduction in taxable income related to the <unk> acquisition.
Lower the effective tax rate in the prior year quarter.
Speaker 3: We expect our normalized effective tax rate to be in the mid to upper 20% rate.
We expect our normalized effective tax rate to be in the mid to upper 20% range.
Speaker 3: We recognize net income from continuing operation of $49 million, $1.30 per due per due to the limited share in the fourth quarter, compared to $231 million or $6.47 per due to the limited share in the fourth quarter of 2020.
We recognized net income from continuing operations of $49 million or $1 30 per diluted share in the fourth quarter.
Compared to $231 million or $6 47.
The diluted share in the fourth quarter of 2020.
Speaker 3: Adjusted earnings a non-gap measure decreased to $60 million for $1.61 per diluted chair from $85 million or $2.39 per diluted chair in the fourth quarter of the prior year.
Adjusted earnings a non-GAAP measure decreased to $60 million from $1 61 per diluted share from.
From $85 million or $2 39 per diluted share in the fourth quarter of the prior year.
Speaker 3: The trailing 12-month return on average shareholder equity, using adjusted earnings, was 27% during the quarter compared to 42% a year ago.
The trailing 12 month return on average shareholder equity using adjusted earnings was 27% during the quarter compared to 42% a year ago.
Speaker 3: We ended the fourth quarter with $242 million in cash and marketable securities, including $165 million.
We ended the fourth quarter with $242 million of cash and marketable securities, including $165 million in unrestricted cash.
Speaker 3: and had an additional $488 million of available capacity.
And had an additional $488 million of available capacity.
Speaker 3: on 938 million dollars of domestic committed facility.
<unk> thousand $938 million of domestic committed facilities.
Speaker 3: Our debt balance at the end of the quarter includes $449 million outstanding under committed to the civil.
Our debt balance at the end of the quarter includes $449 million outstanding under committed facilities.
Speaker 3: As we announced during November , we continue to expand our liquidity and lender relationships during the quarter. With the addition of a new two-year, $150 million revolving warehouse, the JP Morgan to support small business.
As we announced during November we continued to expand our liquidity and lender relationships during the quarter.
With the addition of a new two year $150 million revolving warehouse with J P. Morgan to support small business group.
Speaker 3: Our cost of funds for the fourth quarter was 6.5% versus 8.3% for the fourth quarter of 2020. After adjusting for one-time costs related to the closing of the on-deck acquisition in the prior year quarter.
Our cost of funds for the fourth quarter was six 5% versus eight 3% for the fourth quarter of 2020.
After adjusting for onetime costs related to the closing of the <unk> acquisition in the prior year quarter.
Speaker 3: The decline in our cost of funds reflects the impact of completed financing transactions over the past year that have lowered our marginal cost of funds.
The decline in our cost of funds reflects the impact of completed financing transactions over the past year that have lowered our marginal cost of funds.
Speaker 3: demonstrating our confidence and the continued strength of our business relative to our current valuation.
Demonstrating our confidence in the continued strength of our business relative to our current valuation during.
Speaker 3: During the fourth quarter, we acquired approximately two and a half million shares at a cost of approximately $9.96 million.
During the fourth quarter, we acquired approximately $2 5 million shares at a cost of approximately $9 $96 million.
Speaker 3: At December 31st, we had $63 million remaining under our $150 million share repurchased program.
At December 31, we had $63 million remaining under our $150 million share repurchase program.
Speaker 3: Our solid balance sheet and ample liquidity give us the flexibility to continue to deliver on our commitment to long-term shareholder value.
Our solid balance sheet and ample liquidity give us the flexibility to continue to deliver on our commitment to long term shareholder value.
Speaker 3: through both shared purchases and investments in our business to drive meaningful, sustainable, and profitable growth.
Through both share repurchases and investments in our business to drive meaningful sustainable and profitable growth.
Speaker 3: summarize my earlier comments with the return of customer demand and meaningful growth in the
Summarize my earlier comments with the return of customer demand and meaningful growth in originations and receivables.
Speaker 3: We expect the net revenue margin to range between 65 and 70% next quarter and to normalize on a range of 55 to 65% over time.
We expect the net revenue margin to range between 65% to 70% next quarter and to normalize in the range of 55% to 65% over time.
Speaker 3: In addition, we expect marketing expenses to approximate 20% of revenue next quarter, and to be slightly higher as a percentage of revenue for the remainder of the year, and anticipate continued scaling of our fixed costs.
In addition, we expect marketing expenses to approximate 20% of revenue next quarter.
Slightly higher as a percentage of revenue for the remainder of the year and anticipate.
A continued scaling of our fixed costs.
Speaker 3: This should lead to some slight normalization in the adjusted EBIT margins from recent levels.
This should lead to some slight normalization and the adjusted EBIT margins from recent levels.
Speaker 3: The degree and timing of these expected trends in any normalization will depend upon the timing, speed, and mix of originations growth.
The degree and timing of these expected trends and any normalization will depend upon the timing speed and.
The mix of originations growth.
Speaker 3: Adjust the DPS in 2022 should benefit from strong receivables growth, solid even a margin, a falling cost of funds, and a declining share count. With quarterly year-to-year increases expected to resume in the second half of 2022.
Adjusted EPS in 2022 should benefit from strong receivables growth solid EBIT margins.
All in cost of funds and the declining share count with.
With quarterly year over year increases expected to resume in the second half of 2022.
Speaker 3: In closing, I'd like to provide a reminder regarding the impact of fair value account.
In closing I'd like to provide a reminder, regarding the impact of fair value accounting.
Speaker 3: Fair value aligned more closely with how we view the business, especially since our marginal decision making process is anchored in unit economics.
Fair value aligns more closely with how we view the business, especially since our marginal decision, making process is anchored in unit economics that rely on risk based pricing and discounted cash flow method methodologies that are also utilized and fair value modeling.
Speaker 3: that rely on risk-based pricing and discounting cashflow methodologies that are also utilized in fair value model.
Speaker 3: As a result, our financial performance in the fair value should be generally more positively correlated to portfolio growth than for reporting periods prior to adoption in 2020, or if we had adopted cease.
As a result.
Our financial performance in the fair value should be generally more positively correlated to portfolio growth and for reporting periods prior to adoption in 2020.
Or if we had adopted seasonal.
Speaker 3: We are well positioned to deliver meaningful and consistent top and bottom line growth. As we leverage the benefits, the scale and efficiency of our direct online only operating model.
Okay.
We are well positioned to deliver meaningful and consistent top and bottom line growth as we leverage the benefits of scale and efficiency of our direct online only operating model.
Speaker 3: a broad and diversified consumer and small business product offering.
Our broad and diversified consumer and small business product offerings.
Speaker 3: from machine learning powered credit risk management capabilities and our solid balance sheet. And with that, we'd be happy to take your questions. Operator.
A machine learning powered credit risk management capabilities, and our solid balance sheet.
And with that we'd be happy to take your questions operator.
Thank you we will now begin the question and answer session.
Speaker 1: To ask a question, you may press Star than one on your telephone keypad. If you're using a speaker phone, please pick up your handset before pressing the keys. And to withdraw your question, please press Star than two. And at this time, we'll pause momentarily to assemble our rost.
To ask a question you May press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys and to withdraw. Your question. Please press Star then two and at this time, we will pause momentarily to assemble our roster.
Speaker 1: And the first question will come from David Sharf with JMP. Please go ahead.
And the first question will come from David Scharf with JMP. Please go ahead.
Speaker 4: Good afternoon and thanks for taking my questions.
Hi, good afternoon.
Thanks for taking my questions.
Speaker 4: Hey, David, you know, I'm wondering, obviously the demand has...
Hey, David.
I'm wondering.
Obviously the demand is.
For both asset classes consumer and SMB.
Speaker 4: really picked up. You know, I guess my question is, given that so many of the various metrics that we're just guided to, you know.
Has really picked up.
I guess my question is given that so many of the various metrics that were just guided to.
Margins loss rates net revenue margin and so forth are dependent on origination volume.
Speaker 4: Are you comfortable giving us any kind of, if not explicit guidance, just prove?
Are you comfortable giving us any kind of.
If not explicit guidance just parameters for how we ought to think about origination volume this year.
Speaker 4: starting with kinda that 1.1 billion in Q4. Is it jumping off point?
Or maybe in the.
Starting with kind of that $1 1 billion in Q4 as a jumping off point.
Because it would certainly help kind of frame.
The earnings power and velocity of the business.
Speaker 1: Yeah, I mean, the reason why we don't give specific guidance on originations is it's dependent on somebody macroeconomic factors that we just don't control. So it's just a guess. Shot in the door.
Yes.
The reason why we don't give specific guidance on originations is it dependent on somebody background macroeconomic.
Macroeconomic factors that we just don't control. So it's just a guess shot in the dark.
Speaker 1: But we feel confident about good originations group in 2022. We ended 2021 with a lot of momentum. It's only one month into the year, but January started the year much stronger than we expected. January is usually a pretty weak month.
But we feel confident about good originations growth in 2022.
We ended 2021 with a lot of momentum.
The only one month ended the year, but January has started the year much stronger than we expected January is usually a pretty weak month.
Speaker 1: both on consumer S and B and that wasn't the case at all this year. So look, we're not going to see the 20% percent sequential quarterly growth that we saw through during the last three quarters. That's obviously an unsustainable rate. But we feel really good about the ability to continue to grow rigidations at a healthy pace.
Both on consumer SMB and that wasn't the case at all this year so.
Look we're not going to see the 20% sequential quarterly growth that we saw during the <unk>.
Last three quarters, that's obviously an unsustainable rate.
But we feel really good about the ability to continue to grow originations at a healthy pace.
Speaker 4: Maybe just to follow up, shifting to kind of just the asset mix.
Got it.
And maybe just a follow up shifting to.
Kind of just.
The asset mix.
Is.
Yes.
Or are you seeing small business demand.
Speaker 4: kind of outpacing consumer demand at this point. Is there anything on there, Ryzen?
Kind of outpacing <unk>.
<unk> demand at this point.
Is there anything on the horizon.
Speaker 4: kind of result in sort of the mix shift or reverting back in terms.
Kind of result in sort of the mix shift.
<unk> back in terms of balances.
Speaker 4: And one of the reasons I'm asking is, you know, obviously as we think about loss rates, you know, that mixes so critical and, you know, the loss rates for the SMB product are running. Yeah.
And one of the reasons I'm asking is obviously as we think about loss rates.
That mix is so critical and.
The loss rates for the SMB product run out at a really low levels.
Kind of if you can maybe.
Frame the origination outlook in terms of asset class.
Speaker 1: Yeah, again, I mean, it's as I said in my comments, we don't have specific targets. It's based largely on where we think we can get the highest returns with our capital.
Yes, again I mean, it's.
As I said in my comments, we don't have specific targets.
This largely on where we think we can get.
Highest returns with our capital.
Speaker 1: SMB isn't necessarily outpatient consumer, consumer that, you know, as you dig in a little deep on our numbers, had a very strong fourth quarter. And the SMB did as well, but I actually think SM, I think, you know, there were pretty close in terms of growth rate. One had higher origination growth, the other had higher portfolio growth rates. So they were pretty close.
F&B isn't necessarily outpacing consumer consumer.
As you dig into all deepened our numbers had a very strong fourth quarter in F&B did as well, but I actually think as some I think they were pretty close in terms of growth rate one had higher origination growth. The other had higher portfolio growth rate. So they were pretty close.
Speaker 1: Thank you for. And look, the mix will likely vary somewhat over time, but we don't expect any dramatic shifts.
In Q4.
And look at the mix will likely vary somewhat over time, but we don't expect any dramatic shifts.
Speaker 1: going forward unless, again, something happens, you know, significant from a macroeconomic perspective. And, you know, to your point about it affecting loss, you know, loss rate, yeah, they do have very different loss rates.
Going forward unless again something happens significant from a macroeconomic perspective.
Your point about it affecting loss loss rates, yes, they do have very different loss rates, but they are kind of bottom line profitability. The EBITDA margins rose on the two products are actually not very different and we did that on purpose. When we have unit economic targets.
Speaker 1: But there are kind of bottom line profitability that you did on margins, ROEs, on the two products are actually not very different. And we do that on purpose. When we have unit economic targets.
Speaker 1: You know, we don't set them, you know, very different based on the products. You know, we want similar returns on our invested capital. So, you know, the bottom line results aren't affected as much by the mixture.
We don't set a very different based on.
On the products and how we want similar returns.
The capital so the bottom line results arent affected as much by the mix shift.
Speaker 4: Hey, you know, I probably just made maybe one quick, quick one for Steve, just, just, just let the fear value mark.
Got it got it I.
I apologize maybe one quick quick one for Steve just said the fair value Mark.
Speaker 4: How sensitive is the fair value calculation that discount rate to the rising rate?
And sort of another 2% increase.
How sensitive is the fair value calculation that discount rate to kind of the rising rate environment that we're in now.
Speaker 3: Well, I think it'll have some impact.
Well I think I think it will have some impact.
Speaker 3: David on base rates, but a lot of discount rates for us really depend on credit spreads, which have been holding in pretty well or actually coming in. So I'm not sure you'll see a dramatic change. If there's a move in the underlying rate environment, but something will continue to update on as we need to. Got it. All right.
David on base rates, but a lot of the discount rates for us really depend on credit spreads, which had been holding in pretty well are actually coming in so.
Im not sure Youll see a dramatic change there.
A move in the in the underlying rate environment, but it's something we'll.
Continue to update on as we need to.
Got it alright, thanks very much.
Yes, Thanks, David.
Speaker 1: The next question will come from John Rowan with Janine. Please go ahead.
The next question will come from John Rowan with Janney. Please go ahead.
Good afternoon, guys, Hey, Jon.
Speaker 5: I'm trying to just wrap my head around the guidance on gross profit margin. It seems like we're talking about a number, at least in the midpoint of the range, it's slightly above kind of the mid 50% number that you'd been guiding to previously. I just wanna make sure that I'm kind of interpreting the guidance correctly.
I'm trying to just wrap my head around the guidance on gross profit margin. It seems like we're talking about a number or at least at the midpoint of the range or slightly above kind of the mid 50% number that you'd been guiding to previously I want to make sure that I'm kind of interpreting the guidance correctly.
Speaker 3: Yeah, John , we, um, we didn't us it up just the best crumb.
Yes, John .
We did nudge it up just a bit from.
Speaker 3: normalize level that we've been talking about for a few quarters. I think there's a couple of reasons.
The normalized level that we've been talking about for a few quarters I think there's a couple of reasons.
Speaker 3: There's a little bit of variation across our different product grouping, small business, near prime and sub prime.
There's a little bit of variation across our.
Different product groupings small business.
Prime and subprime I.
Speaker 3: I think also it's really the first big growth quarter we've had if you think about it since we adopted fair value. So I think we've gotten a better handle on as we move into 2022, a better...
I think also it's really the first big growth quarter. We've had if you think about it since we adopted fair value. So I think we've gotten a better handle on.
As we move into 2022, a better handle on.
Speaker 3: What does that normalize level look like now that we've got a very different company than when we went into the COVID and then the fair value.
What is that normalized level look like now that we've got.
A very different company.
We went into the Covid and the fair value.
Speaker 3: the fair value transition. So I think it just reflects a better refined outlook on where we think we'll end up landing in that range. And right now, we think it's 55 to 65 is our more normalized range at a consolidated level.
But fair value transition. So I think it just reflects a better refined outlook on where we think we'll.
We ended up landing in that range right.
Right now we think it's 55 to 65.
More normalized range at a consolidated level.
Speaker 5: Okay, you gave guidance on the O&T cost relative to revenue from a mistake and that was 10 to 12%. You have a GNA number, but I did not get that written down. Can you repeat that?
You gave guidance on the OMG costs relative to revenue from our mistake and that was 10% to 12% you gave a G&A number but I did not get that written down can you repeat that.
Speaker 3: Sure, I basically said we would expect that to continue to scale if we move through 2022 and likely trim down up a low 10%.
Sure I basically said, we would expect that to continue to scale as we move through 2022 and likely trend down below 10%.
Okay.
Speaker 5: And then just last for me, you know, there was obviously the CFPB action that you announced last quarter at any updates on that.
Sure.
And then just last for me.
Obviously, the CFPB action that you announced last quarter any updates on that.
Speaker 1: No, I mean we continue to make progress and have good counter stations with them. You know, it's been indicated by the last quarter we fully expect this is something we'll be able to...
No I mean, we continue to make progress and have good conversations with them as we indicated last quarter. We fully expect this is something that we'll be able to.
Speaker 1: You know, work out with them without any major impact given kind of our cooperativeness, a relatively small impact on customers and the fact that this was largely self-reported and has already been remediated. So, you know, CFBB takes their time, and we're okay with that, but you know, we expect over time to be resolved that effect really. Okay.
Work out with them without any major impact given.
Kind of our cooperative Miss.
Relatively small impact on customers.
And the fact that this was largely self reported and has already been remediated.
The CFPB take takes their time.
We're okay with that but we expect over time it will be resolved satisfactorily.
Thank you.
Yes.
Speaker 1: Again, if you have a question, please press star then one. Our next question will come from Vincent Caintick with Stevens. Please go ahead.
Yeah.
Again, if you have a question. Please press Star then one our next question will come from Vincent <unk> with Stephens. Please go ahead.
Speaker 6: Hey, thanks. Good afternoon. Thanks for taking my questions. First question on marketing.
Hey, Thanks, good afternoon, thanks for taking my questions.
First question on marketing.
Speaker 6: So you had really good results for originations in both products. Interesting here from other companies and other fintechs talking about maybe marketing challenges or customer acquisition cost challenges, but it seems like yours. That's been doing a good job.
So you had really.
Good results for originations on both products, it's interesting to hear from other companies and other.
Other fintech is talking about.
Maybe marketing challenges or customer acquisition cost challenges, but it seems like yours.
Speaker 6: So if you can maybe talk about what you're seeing in marketing competition there and how your strategy is with marketing, we're able to generate such good origination volume. So fish.
Good job.
So if you could maybe talk about what youre seeing in marketing.
Competition, there and how your strategy is with marketing, where we're able to generate such good origination.
Volume so efficiently.
Speaker 1: Yeah, I think a lot of it has to do with kind of our diversified approach to marketing. We use a number of different channels or fairly agnostic to, you know, which one we're stressing. It depends on where we think we're seeing the returns. And so, for example, and Q4 TV.
Yes, I think a lot of it has to do with kind of our diversified approach to marketing where he has a number of different channels, we're fairly agnostic to which one we're stressing it depends on where we think where we're seeing the returns and so for example in Q4 TV.
Speaker 1: was quite extensive for, you know, whole variety of macroeconomic reasons, including holidays, who, you know, were able to back down on TV, but kind of up direct mail and digital. Q1, when TV is all the scent a lot cheaper, we were able to ramp up TV. And I think that, you know, in part, is a reason for a very strong start to, through 2022.
It was quite expensive.
For a variety of macroeconomic reasons, including that including holiday. So we're able to back down on TV, but kind of up direct mail and digital.
Q1, when television is all of a sudden a lot cheaper, we're able to ramp up TV and I think that yeah.
In part.
The reason for a very strong start to 2022.
Speaker 1: We've also been doing this a long time, so we've been marketing to these customer bases.
I've been doing this a long time, so we've had.
Market is this marketing into these customer bases.
Speaker 1: You know, for over 16 years on the consumer side and you know, February 8th on the small business side, we just have a lot of experience at it.
For over 16 years on the consumer side in seven or eight years on the small business side. So we just have a lot of experience at it team's doing a terrific job and yes, we have not felt.
Speaker 1: teams doing a terrific job and we've not felt some of those issues that we've heard as well. We're really not seeing them at all.
Some of those issues that yeah, we've heard as well, we're really not seeing them at all.
Yeah.
Speaker 6: Okay, great. Thank you. And then next question, just about the fair values. Appreciate the detail on the.
Okay, great. Thank you.
And then next question just.
About the fair values I appreciate the detail on the.
Speaker 6: where the fair values are marked at. I was wondering, you know, you had strong credit performance.
Where were the fair values are marked that I was wondering.
<unk> had strong credit performance.
Speaker 6: for the past couple of quarters, when you think about where we are in terms of fair value marks and the discount rates and so on versus.
<unk>.
For the past couple of quarters. When you think about where we are in terms of fair value marks and the discount rates and so on versus.
Speaker 6: Maybe a normalized level, just wondering how much, I guess how much a root there is left before you think we're at a kind of a normalized level.
Maybe a normalized level just wondering how much I guess, how much room. There is left before you think we're at a.
Kind of a normalized level.
Speaker 3: Yeah, so I think you think back to the beginning of fair value, which was January 1st, 2020, we were a bit more of a consumer centric portfolio at that time, but we went in the fair value and we announced it to the 107 with our regional market. So we're still below where we
Okay.
Yes, So I think if you think back to the beginning of fair value, which was.
January one 2020, we were a bit more of a consumer centric portfolio at that time, but we went into fair value.
<unk>.
107 was our original Mark.
So we're still below where we are.
Speaker 3: you know, where we were back in those days in a sort of a full growth economy with sort of more normalized credit. So we probably have a few points.
Where we were back in those days and a sort of before.
Our full growth economy was sort of more normalized credit so.
We probably have.
A few points.
Speaker 3: A room to go. Some of that obviously is going to depend on mix, it's timing, and all those qualifications that I mentioned in my comment. So, but this is not, today where we are today, it's not a normalized level. and we are going to be talking about normal level.
Room to go and some of that obviously is going to depend on mix and timing and all of those.
All of those qualifications that I mentioned in my comments, so but this is not today, where we are today is not a normalized level.
Okay understood great. Thanks very much.
Speaker 7: The next question will come from John Heft with Jeffries. Please go ahead.
The next question will come from John Hecht with Jefferies. Please go ahead.
Speaker 8: Afternoon guys, thanks very much for taking my questions.
Afternoon, guys. Thanks, very much for taking my questions.
Speaker 8: you know i guess we talked about can't for well that's a cadence but the expectations for the normalizing credit
I guess, we talked about.
The kind of cadence for.
So the cadence, but the expectations for the normalizing credit.
Speaker 8: You maybe can you talk about a small business credit has been so strong. How do we think about that relative to consumer or is it pretty correlated in terms of the normalization there?
You may be can you talk about small business credit has been so strong how do we think about that relative to consumer or is it pretty correlated in terms of the the normalization there.
Speaker 3: I mean, I think what you're going to see is you seem consumer start to normalize a little bit more quickly. And I think you're seeing the lengthensies continue to come down on the small business portfolio of all to more normal levels. And at some point that will start to, you know, as we add, continue to add new advantages and new customers.
I think I mean, I think what youre going to see as you've seen consumer.
Starts to.
Normalized a little bit more quickly and I think youre seeing delinquencies continue to come down on the small business portfolio overall to more normal levels.
And at some point that will start to as we add continue to add new vintages and new customers, you'll start to see that begin to normalize to more normal historical levels.
Speaker 3: You'll start to see that begin to normalize to more normal historical levels. That's how we make our marginal decisions, that's how we look at our advantages.
How we make our marginal decisions that's how we look at our vintages.
Speaker 3: and our unity dynamics around those images. So I think there are a little out of sequence, I think consumers starting to get here just a little bit quicker, just mainly because there's probably a little younger.
And our unit economics around those vintages.
So I think there are there are a little out of sequence I think consumers are starting to.
To get there just a little bit quicker just mainly because there is probably.
Speaker 3: Portfolio there temporarily, but eventually you'll see the portfolio as we continue to grow.
A little younger.
Portfolio they are temporarily but eventually youll see the portfolio as we continue to grow.
Speaker 3: At these rates, we continue to grow those rates. You'll see those those those start to look a bit more like pre-COVID to to link when seeing charted off levels across the two groups.
At these rates, we continue to grow at those rates, you'll see those start to look a bit more like pre COVID-19 delinquency and charge off levels across the two groupings.
Speaker 8: Okay. And then you guys have, I mean, just we've been getting all sorts of commentary on tax refunds this year, the influences.
Okay.
And then you guys have I mean.
Just we've been getting all sorts of commentary on tax refunds. This year the influence of the child tax credit and the timing and this and that.
Speaker 8: child tax credit and the timing and this and that. Do you guys have a kind of, I guess, a firm opinion about how they may change and what that might do to seasonality for the first quarter relative to normally, well, relative to past years?
Do you guys have a kind of I guess a firm opinion about how they may change and what that might do to seasonality for the first quarter relative to normally relative to past years.
Speaker 1: Yeah, I think a firm opinion might be a little strong because we're all going through this for the first time. But our, you know, best guess or educated guess is that it'll kind of mute the Q1 seasonality for what we've seen historically because tax returns are likely to be smaller. And maybe that's part of what we're seeing in January as well as consumers anticipating that.
Yes, I think our firm opinion might be a little strong because we're all going through this for the first time.
Our.
Best guess are educated guess is that it will kind of mute the Q1 seasonality.
From what we've seen historically because tax returns are likely to be smaller.
And maybe that's part of what we're seeing in January as well as consumers anticipating that.
Speaker 1: with their tax returns and leading to higher levels, higher levels of borrowing to start the year. But it'll probably be another month to six weeks before we really have strong visibility on that. And I guess another second question will be, what is the impact? We'll get into the summer when we usually see a pickup in the originations after the...
With their tax returns and leading to higher levels of higher levels of borrowings to start the year, but.
It will probably be another month to six weeks before we really have.
And our strong visibility on that and I guess, the second question will be.
What is the impact as we get into the summer when we usually see a tick up in originations after the.
Speaker 1: after tax season, will that be different this year? So it's a little hard to guess, but overall our view is that it'll have mute seasonality a little bit, which from our perspective is great.
After tax season.
Will that be different this year. So it's a little it's a little hard to guess, but overall our view our view is it will have.
Seasonality, a little bit which from our perspective, it's great. It's much easier from an operational perspective not to have the big drop off in Q1, and then be sitting around waiting for volume to pick up and they are sometimes not even until June . So we're hopeful that's what will happen.
Speaker 1: you're from an operational perspective and that to have the big drop off in Q1 and then be sitting around kind of waiting.
Speaker 1: for volume to pick up and may or sometimes not even for June . So we hope that's what will happen. Good time so far, but having gone through this in the first time, it's certainly not something where 100% confident in.
Good signs so far but having gone through this in the first time, it's certainly not something we're 100% confidence.
Speaker 8: Okay, and then, you know, last one is, you know, just because, you know, I know these are growing in smaller platforms, but paying with Pagaya and then maybe what's going on in Latin America just any update on those business lines.
Okay.
And then last one is.
Just because I know these are growing in smaller platforms, but paying <unk> and then maybe what's going on in Latin America, just any update on those.
Business lines.
Speaker 1: Sure. Yeah, Brazil's doing well.
Sure Yes.
Brazil is doing well.
Speaker 1: We were waiting for kind of last year kind of a revamping of how their banking system works with electronic debiting and that kind of went through and it's allowed us to get more aggressive with growing that business again. So still super small and, you know, that was providing a lot of detail on this point. But, you know, we knew optimism in Brazil with how it's operating at the moment.
We were waiting for kind of last year kind of a revamping of how their banking system works with electronic dabbling in that kind of went through and that's allowed us to get more aggressive with growing that business again, so it's still super small.
We're providing a lot of detail on at this point, but.
Renewed optimism in Brazil, with how it's operating at the moment.
Speaker 1: And, uh, Pangaea obviously did tiny tiny little business, but off to a great start actually with us just in the first six months.
Pangaea, obviously tiny tiny little business, but off to a great start actually with US just in the first six months I mean super Super high growth rates, but off of a tiny base. So.
Speaker 1: super, super high growth rates, but off a tiny day. So again, a long time until, you know, could be meaningful to an OVM, you know, we're at which point we spend more time talking about it, but off to a really, really nice start. We're kind of pleased with that business so far. Great. Thanks.
A long time until it can be meaningful to an album.
We spent more time talking about it but after a really really nice start we're kind of pleased with that business. So far.
Great. Thanks, very much guys.
Yes.
Speaker 7: This concludes our question and answer session. I would like to turn the conference back over to Mr. David Fisher for any closing remarks. Please go ahead.
This concludes our question and answer session I would like to turn the conference back over to Mr. David Fisher for any closing remarks. Please go ahead.
Speaker 1: Thanks everybody for joining us today. We appreciate you taking your time and we look forward to speaking with you again next quarter. Have good evening.
Thanks, everybody for joining us today. We appreciate you taking your time and we look forward to speaking with you again next quarter have a good evening.
Speaker 7: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker 9: The Qu.
[music].
Yes.
[music].