Q4 2022 Enova International Inc Earnings Call
Good day, and welcome to the Nova International fourth quarter and full year 2022 earnings Conference call. All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by E Mail.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on attached on phone to withdraw your question. Please press Star then two.
Please note this event is being recorded.
I would now like to turn the conference over to Lindsey <unk> director of Investor Relations for anyway. Please go ahead.
Afternoon after market close.
If you did not receive a copy of our earnings press release, you may obtain it from the Investor Relations section of our website at IR Dot 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 are subject to risks and uncertainties actual results may differ materially as a result from various important risk factors.
Those discussed in our earnings press release and in our annual report on Form 10-K quarterly reports on forms 10-Q, and current reports on forms 8-K.
Please note that any forward looking 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.
In addition to U S GAAP reporting Andover reports certain financial measures that do not conform to generally accepted accounting principles.
We believe these non-GAAP measures enhance the understanding of our performance.
Reconciliations between these GAAP and non-GAAP measures are included in the tables found in today's press release.
As noted in our earnings release, we have posted supplemental financial information on the IR portion of our web site.
And with that I'd like to turn the call over to David.
Thanks, and good afternoon, everyone. I appreciate you joining our call today I'll start with an overview of our fourth quarter and full year results and then I'll discuss our strategy and outlook for 2023 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 once again produced a strong quarter capping a great year for Nova with solid revenue and profitable growth combined with stable credit across both our SMB and consumer businesses are.
Our talented team diversified product offerings and powerful machine learning credit risk management capabilities have enabled us to successfully navigate through the uncertain macroeconomic backdrop.
Revenue in the fourth quarter increased 34% year over year, and 7% sequentially to $486 million.
Adjusted EBITDA increased 18% year over year, and 4% sequentially to $120 million.
And adjusted EPS increased 9% year over year, and 1% sequentially to $1.76.
Similar to Q3, the growth came from our SMB business as well as our consumer line of credit product.
These results are driven by our ability to effectively manage credit through the current market environment.
Net charge offs were eight 8% in the fourth quarter, which is slightly higher than Q3, as we continue to add a large number of new customers, which were 42% of total originations.
That being said net charge offs remain well below pre COVID-19 levels up 15, 6% in Q4 of 2019 and 16, 1% in Q4 of 2018 from a combination of mix shift and good credit management.
Our analytics team is continuously refined a machine learning powered model that had been the foundation of our ability to successfully manage credit risk.
And as we discussed on our last earnings call, we increased our ROA targets across all of our products during the back half of 2022.
With higher ROE targets remain in place and we continue to deemphasize our longer term near prime installment loan limiting our duration risk and allowing.
I guess to adapt more quickly in an uncertain macroeconomic environment.
Given our continued focused on shorter maturity products in line with our expectations the percentage of consumer installment loans in our portfolio a decrease in the fourth quarter and within consumer line of credit products significantly increased as a percent of total consumer loans.
While we have a more conservative approach to originations and our balanced approach to growth at risk customer demand remains strong.
As a result, we have maintained strong origination volume total.
Total company originations increased 9% year over year and were down only 3% sequentially.
And we still generated substantial growth for the year with combined loan and finance receivables, increasing 46% year over year to a record $2 $9 billion.
Looking back on 2022 and more broadly to the past five years, we are proud of our world class execution that has delivered sustained strong results with both meaningful growth and meaningful returns.
And just five years, we've more than doubled our annual revenue tripled our adjusted EBITDA and our adjusted EPS has grown more than six times.
A lot has happened over the last five years and the market environment continues to rapidly change.
But we've demonstrated that we are exceptional operators with an ability to adapt in any environment.
That is rooted in our focused growth strategy.
We've also demonstrated that we can maintain a strong balance sheet, which currently has over $700 million in liquidity, even with difficult capital market.
The results of these efforts has been industry, leading performance for Nova.
Over the last five years, we've transformed the business in a number of ways. We have been laser focused on offering products with the features customers walked through our flexible online model, which is preferred by borrowers.
This has enabled us to grow our share of the non prime credit market.
As part of this transformation, we have diversified almost every aspect of the business, including our revenue streams marketing channels bonding capacity and more.
The diversification has been very intentional that's contributed to our growth, while decreasing our macro and regulatory risk.
Despite those results were trading at only five five times 2023 consensus earnings estimates, while EPS grew at a CAGR of almost 50% over the last five years.
Accordingly, we're going to increase our focus on unlocking significant more value for our stockholders.
Our confidence in the value of our company as it related not only to the consistency of our performance over the past several years, but also the growing contribution for large and market, leading small business lending franchise.
Our F&B business has a diversified portfolio across a wide range of industries.
[laughter] product type loan sizes and prices.
Today small business products represent more than 60% of our total portfolio up from 10% in 2017.
And from 2019 to toward 2022, the contribution of small business to total company EBITDA has increased from 6% to approximately 60%.
Our SMB business is generated the significant growth at attractive unit economics.
As with our consumer businesses, we target Roe of over 30% and EBITDA margins north of 20%.
Even with the significant growth over the last couple of years, we are still a very small percentage of our addressable market, leaving ample room for future growth.
Despite this demonstrated success in SMB lending the implied multiple on our valuation is similar to other non prime consumer only lenders well.
Commercial lending.
If there is such as equipment leasing and business development companies are currently valued at significantly higher multiples of 2023 earnings.
Even with the modest application of these valuation differences, we believe there is meaningful upside to our current share price.
Before I turn the call over to Steve I'd like to take a few moments to discuss our outlook and strategy for 2023.
Well in this environment, we will remain focused on a balanced approach to growth and risk.
Well, it's hard to predict how the macro backdrop plays out this year.
In any event, we believe that we have the right strategy in place to continue our success and help hardworking people get access to fast trustworthy credit.
As Steve will discuss in more detail based on what we're seeing in the current market environment, We expect growth on both our top and bottom line in 2023 compared to 2022.
Our F&B business, we will continue to analyze real time cash flows as well as external data monitor industry that are more prone to recession.
While there may be pockets of challenging credit given our diversified portfolio and strong brand presence coupled with continued strong demand and low levels of competition. We believe we are well positioned to grow that business further.
For our consumer business, we know that non prime customers are familiar with living paycheck to paycheck and are adept at managing very abilities and their cash flows.
In some ways our customers are always in a recession and so we believe that recessions have less of an impact on our customers than on prime borrowers.
This is especially true when employment and wages remained high as we are currently experiencing.
Okay.
Finally, I want to wrap up by giving a big thanks to the amazing team, we have built I don't know about.
A collaborative work environment challenging development opportunities and industry, leading benefits, helping over ranked among the computer places best places to work for the 10th consecutive year in a row.
We believe that having diverse perspectives creates the best answers.
I would now like to turn the call over to Steve who will discuss our financial results and outlook in more detail and following steves remarks, we'd be happy to answer any questions that you may have.
Thank you David and good afternoon, everyone.
Pleased to report another quarter of solid top and bottom line financial performance in line with our expectation.
But in a difficult macro environment during 2022.
We produced record originations and delivered record revenue.
We ended the year with the largest portfolio in our history.
Our ample liquidity strong capitalization and solid returns on equity also enabled us to repurchase nearly $140 million of our shares.
As David noted our diversified product offerings have allowed us to adapt and pivot in this uncertain macroeconomic environment.
To support the resiliency of our portfolio, while continuing to deliver solid financial results.
Turning to our fourth quarter results total company revenue rose 7% sequentially.
It increased 34% from the fourth quarter of 2000 $21 million to $486 million.
The increase in revenue was driven by the growth of total company combined loan and finance receivables balances, which.
On an amortized basis were $2 $9 billion at the end of the fourth quarter.
8% sequentially and 46% higher than the fourth quarter of 2021.
As David noted total company originations for the fourth quarter totaled $1.2 billion down.
Total company origination trends were influenced by our increased emphasis during the second half of 2022 when originating shorter duration smaller dollar consumer line of credit consumer products are.
By reducing exposure to longer duration and larger dollar near prime consumer installment loans.
Discuss this more in a moment.
In light of the customer demand that David mentioned.
Marketing activities continue to effectively attract new customers across our products with the originations from new customers during the quarter remaining strong at 42% of total origination.
We expect originations from new customers will remain above historical averages is our consumer mix continues to shift towards lines of credit.
Small business revenue increased 12% sequentially and 67% from the fourth quarter of the prior year to $193 million, a small business receivables growth continued to be strong.
Small business receivables on an amortized basis totaled $1 $8 billion at December 31st.
13% sequential increase.
77% higher than the end of the fourth quarter of 2021.
Small business originations increased 42% from the prior year quarter to $826 million.
Revenue from our consumer businesses increased 3% sequentially and 18% from the fourth quarter of 2021.
$286 million as consumer receivables on an amortized basis.
We ended the fourth quarter at $1 $1 billion.
Sequentially and 12% higher than the ended the fourth quarter of 2020 one.
Consumer originations of $336 million were lower sequentially and compared to the prior year quarter.
The lower growth in our consumer portfolio was influenced by our increased emphasis during the second half of 2022.
When originating more consumer line of credit products.
As a result consumer line of credit receivables grew 18% sequentially and 43% from the end of last year.
Your line of credit originations grew 13% sequentially.
30% from the fourth quarter of 2021.
Consumer demand for these products is strong and this mix shift supports our ability to adapt more quickly in an uncertain macroeconomic environment.
Looking ahead, we expect total company revenue for the first quarter to be flat sequentially, because we expect some first quarter seasonality.
To maintain our balanced approach to growth that we've been executing for the past year.
This expectation for revenue next quarter will depend on the level timing and mix of originations growth during the first quarter.
Now turning to credit the net revenue margin for the fourth quarter of 60%.
Our expected range.
Credit quality, which is the most significant driver of net revenue and portfolio of fair value.
Continues to perform in line with our expectations at $4 $5 billion of loans originated during 2020 to continue to season.
Fourth quarter net revenue and credit metrics for the total company reflect the continued seasoning and normalization of our growing small business portfolio.
The aforementioned deliberate mix shifts within the consumer portfolio.
The total company ratio of net charge offs as a percentage of average combined loan and finance receivables for the fourth quarter.
Eight 8%.
Compared to eight 4% last quarter.
And the percentage of total portfolio receivables past due 30 days or more six 7% at December 31st.
Baird to five 6% at the end of last quarter.
With the meaningful growth in our small business portfolio this year.
Continue to see credit metrics for the portfolio moving to more normal levels unsustainably low levels, we experienced during 2021.
In early 2022.
Along with a corresponding move in the small business net revenue margin toward a more typical level ranging from the low 60 percents to the low 70%.
Our credit outlook for our small business portfolio as reflected by the fair value premium as a percentage of principal.
Continued to reflect the stable outlook for lifetime portfolio with credit losses at the end of the year.
And increased the percentage point from the end of last quarter to 109%.
Similar to what we observed with our consumer portfolio during 2022.
Our small business portfolios performance credit metrics continue to settle at more typical arrangements it.
There could be some quarter to quarter variability, including temporarily falling below or above typical ranges for the net revenue margin.
This can be especially evident in this uncertain macroeconomic environment, where we could have slight quarter to quarter variations in growth and performance.
We highlighted in our earnings call last quarter that we increased our ROE targets across our portfolio, including small business.
This was to ensure we had additional cushion and the profitability profile of our loans.
To protect against potential credit variability in the market environments like we are in now.
So even if net revenue margin is lower than expected for a short period of time.
We are still likely to generate positive returns on those portfolios.
Now turning to consumer performance and credit metrics for our consumer portfolio are reflecting the aforementioned shift toward a line of credit.
Consistent with that shift we've seen an increase in the fair value of our consumer portfolio as a percentage of principal during the second half of 2022.
<unk> three percentage points this quarter, reflecting a solid outlook for the lifetime credit losses versus original expectations.
As a result of the aforementioned trends in our small business and consumer portfolios. The fair value of the consolidated portfolio as a percentage of principal incur.
Increased by nearly two percentage points this quarter to 110%.
Looking ahead, the small business credit continuing to settle at more typical levels and consumer credit remaining relatively stable.
We expect the total company net revenue margin for the first quarter of 2023 to be in the range of 55% to 60%.
This future net revenue margin expectation will depend upon portfolio payment performance.
The level timing and mix of originations growth.
Now turning to expenses.
Our operating cost this quarter continue to reflect the leverage inherent in our online model.
<unk> expense management.
Total operating expenses for the fourth quarter, including marketing for $176 million or 36% of revenue.
<unk> to $187 million or 52% of revenue in the fourth quarter of 2021.
Our marketing activities remain effective and efficient with total marketing spend this quarter of $97 million or 20% of revenue.
<unk> to $108 million, but 30% of revenue in the fourth quarter of 2020 one.
Looking forward, we expect marketing expenses as a percentage of revenue to be around 20% in the near term.
It depends upon the growth and mix of originations, especially from new customers.
With growth in receivables and origination during 2022 operations and technology expenses for the fourth quarter increased to $45 million or 9% of revenue.
To $39 million or 11% of revenue in the fourth quarter of 2021.
Given the significant variable component of this expense category.
Rental increases that nobody T cost should be expected in an environment, where originations and receivables are growing it.
It should range between nine and 10% of revenue.
Our fixed cost continued to reflect our focus on operating efficiency and thoughtful expense management.
General and administrative expenses for the fourth quarter declined to $35 million or 7% of revenue.
From $41 million or 11% of revenue in the fourth quarter 2021.
While there may be slight variations from quarter to quarter.
G&A expenses as a percentage of revenue of around 8% in the near term.
We recognized adjusted earnings a non-GAAP measure of $57 million or $1.76 per diluted share compared to $1.61 per diluted share in the fourth quarter of the prior year.
Our solid balance sheet and ample liquidity.
It gives us the financial flexibility to successfully navigate a range of operating environment and it has allowed us to deliver on our commitment to long term shareholder value through both continued investments in our business as.
As well as share repurchases.
We ended the fourth quarter with 720 $29 million of liquidity.
<unk> $196 million of cash and marketable securities.
$533 million of available capacity on facilities.
Solid credit performance of our portfolios continues to be reflected in our capital markets activity.
In addition to closing a new $125 million facility to finance that credit installment loans in October that we discussed on our last call.
During the fourth quarter, we also successfully renewed or amended $463 million of existing facilities secured by on Dec receivables to either extend maturities or increase advance rates with favorable pricing.
Despite the 425 basis point increase in the term super rate during 2022.
Our cost of funds for the fourth quarter was 7% up only 50 basis points from the fourth quarter of 2021.
Demonstrating our confidence in the continued strength of our business relative to our current valuation.
During the fourth quarter, we acquired 525000 shares at a cost of approximately $19 million.
At December 31, we.
We had $158 million remaining under our authorized share repurchase programs.
Now turning to our expectations for the full year of 2023.
In a macroeconomic environment that is largely the same as when we exited 2022.
We would expect originations for the full year 2023 to grow between 10 and 15%.
Maintain our focus on an origination strategy that balances growth and risk.
The resulting growth in receivables stable credit.
Continued operating leverage should result in full year 2023 gross.
With revenue and adjusted EPS that is faster than expected originations growth.
Our expectations for 2020 three will depend upon the macroeconomic environment and the resulting impact on demand customer payment rates and the level timing and mix of originations growth.
Finally to summarize our first quarter outlook, we expect revenue to be flat sequentially, primarily as a result of typical first quarter seasonality combined with our continued focus on origination strategy.
Balances growth in risk against the current macroeconomic environment.
And we expect the total company net revenue margin in the range of 55% to 60%.
With continued normalization of our small business portfolio and stable consumer credit.
In addition, we expect marketing expenses to total approximately 20% of revenue.
<unk> O N T costs between nine and 10% of revenue and G&A costs of around 8% of revenue.
These expectations should lead to an adjusted EBIT margin in the 20% to 25% range.
Slightly lower adjusted EPS compared to the first quarter of 2022, primarily due to the Verizon sofa.
Our first quarter expectations will depend upon customer payment rates.
The timing and mix of originations growth.
We enter 2023 with financial flexibility and we remain focused on delivering solid financial results, while striking a prudent balance between growth and risk.
We're confident that the demonstrated ability of our talented team has us well positioned to quickly adapt to the evolving macro environment.
With that we'd be happy to take your questions operator.
Yeah.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw. Your question. Please press Star then two at this time we will.
Pause momentarily to assemble our roster.
The first question comes from.
David Scharf that G. M. P. Please go ahead.
Hi, good afternoon, and thanks for taking my questions again.
Hey, David.
I was kind of planning on an opening with it.
Expected question about kind of the macro and credit environment, and so forth but.
Yeah, I got diverted by your comment about increased focus on unlocking more value for shareholders and.
Obviously, there's a usual.
List that people have in terms of kind of the tools that are available and the company has been a fairly aggressive repurchase of shares in the past.
I'm wondering I mean is there anything you want to expand on that and that statement is it is it more of just a kind of a general.
Comment or is there a specific action plan above and beyond just continuing to deliver the kind of results you have.
Yeah sure David Good question, and probably worth us clarifying a bit I mean look we're not we're not going to come out with a laundry list of stuff, we're going to work on for a whole variety of reasons, but it's more than just lip service. It's a concerted effort here, we got people dedicated.
To the effort.
Yeah, just had so much success in the business.
You know really over the last decade, but certainly over the last five years or so in the business suggests a completely different business than it was a handful of years ago.
Given both the consistency and the diversification.
Quality of our balance sheet, we're still trading at roughly the same multiples and that just doesn't make a lot of first of all so you know our job. In addition to continuing to operate the business well as to unlock some of that value. So yeah definitely more than what lip service I'm not going to give a list, but certainly a concerted effort here.
No understood.
The frustration is understood as well.
Maybe just one follow up.
Question.
I guess with regard regarding product focus.
As it relates to kind of the ROE.
Targeting.
And.
The I guess de emphasizing the kind of near prime installment product.
Is that something that's a permanent shift in should be something we should think about as kind of the longer term profile of the business or is this just.
You know in relation to you know the macro environment.
As you saw on the ground just kind of wondering like are there certain things, we should be keeping an eye on that would signal the company reaccelerate ing that product as well in the future.
No. It's really just situational it's a it's a great product we built a great business are around them, we're still originating way up we haven't by any means turned it off with just the emphasize that.
To focus more on shorter term shorter term slightly smaller dollar alone is it just gave us more visibility and more flexibility in the uncertain macro background economic environment I think is.
We see the economy, improving and are on an upswing you will you know that.
I think all things equal you'll see our emphasis on that product increase.
Because it was very successful with great with great returns and great profitability. So yeah that purely situation all given the macroeconomic environment.
Okay, and I apologize just squeeze in one last one just wanted to clarify Steve's comments during the day.
<unk> presentation.
Did I hear correctly that for the full year, obviously, a lot of variables, but revenue and adjusted EPS.
Would be expected to grow on a year over year basis in excess.
Of the 10% to 15% range that was provided for originations.
That's correct, David that's our that's our view as we sit here today.
Got it got it thank you very much.
Yeah. Thanks, David.
The next question comes from John Hecht with Jefferies. Please go ahead.
Afternoon, guys and appreciate all the guidance I'm.
Real quick on that Steve you you said the.
Words, you've for the near term when you gave a few guidance factors around you know some of the expenses and so forth when your senior to them or is that just referring to the first quarter or is that more of kind of just.
Kind of a base case throughout the year.
You stated it.
Yeah, I mean for the most part as I wrapped up at the end there are I clarified that its primarily focused on the first quarter.
So aside from what David just asked.
Most of my guidance was related to first quarter expectations as we've been providing a quarter forward General view you know for a while now okay.
Okay. That's helpful and then.
I guess, a little follow on for David's questions. Just as you emphasize more the line of credit product given your focus what should we think about the.
Overall yields and so forth kind of the mix of that matter.
ROA drivers in the consumer book as you kind of emphasized that product over the course of the year.
Yeah, I mean, I think you've seen a little bit of a if you see in our supplement yields ticked up just a little bit which is what we said last quarter. When we were asked about it you might see a bit of a change but not at a return to kind of where we were last year and I think that's going to hold true. So.
I think you know you're going to continue to see strong risk adjusted.
Cash flows as you've seen in the fair value marks on the consumer book as we make these adjustments and that's a reflection of the performance as well as the.
Cushions that we're building related to our ROE to give us flexibility.
Yeah, I think the only thing I would add is they are always on that product are very strong.
So I think that's why you're seeing.
This strong fair value marks at the higher yields over time.
And with that mix shift, you'll see slightly higher charge offs than.
And then you would've with installment product, but given the higher yields and higher fair value marks and the higher or at least that the returns on the product are very very strong. So yes, if we see slightly higher charge offs in the consumer book.
It is likely to be largely mix related.
Okay, and then last question just because.
We've heard like in the small business that certain industries are doing well certain industries have been challenged I guess tied to inflation.
Or obviously selling through that kind of variability with pretty consistent results. So I'm wondering as you've kind of tightened or refined in that segment are there different subsectors that you cannot you been emphasizing and send that you'd been shying away from them or any any color you can give us on that.
Sure. So I think one reason, we're able to manage this wells, we've got way out in front of it and this is not all in the last quarter or two initiatives really started with COVID-19 and its been continuing continually ever sense. So yeah, we look at industry and we break it down it's really 100 different industries.
If you had kind of high level.
Brush.
Restaurants, we continue to be cautious with although they're doing very very well now. So we're certainly hasn't abandoned that space at all but it's a place we're watching out for trucking as a as a mask that whole industries, having problems from supply chain issues affecting their loads, but also their ability to fix their trucks fuel.
Prices.
Just a whole bunch of factors trucking and AR is really problematic right now so.
Then stay we've stayed out of that space for many many quarters now and then.
Residential construction is a place that we have continued continue to deemphasize really over the last year.
Your that that market is not doing particularly well. So those are a few of the highlights theres. Many many more that have different risk ratings in our portfolio.
So that we're shying away for emphasize into different different degrees on the flip side. There's there's industries that are doing really really well right now so.
You know they get varying risk degrees, there continually upgraded but update it but those are a couple of examples of ones that we are staying pretty far away from.
Great I appreciate the color and congrats on a solid five years.
Alright, Thanks, a lot.
The next question comes from John Rowan with Janney. Please go ahead.
Good afternoon guys.
Hum.
Just again I'm going to ask for a clarification on guidance I shouldn't be sure. What you said first quarter earnings per share of adjusted earnings per share.
So are down slightly year over year in the first quarter as did I hear that correctly.
Yeah that was the expectation we set in and really it's largely related to you know the interest expense.
Mentioned, the Verizon Sofa.
Compared to where we were a year ago.
But again I'd point, you back to a slight decrease.
No that's fine.
And obviously you know the the the net revenue margin guidance that you gave for the first quarter is slightly lower than you know what had been kind of communicated through 'twenty 'twenty. Two right. It was you know you had 55% to 65% in the first quarter here are supposed to be between 55 and 60. So it takes off that top end a little bit.
Is the I mean, it's the first quarter is supposed to be lower than the other quarters. You know is 65 still a doable number I know you gave some puts and takes and how it can be below or above you know kind of the historical ranges going forward is there just more variability in that number going forward is that you know maybe due to the fair value marks I'm just trying to get my head around you know.
If that's kind of a historical 55% to 65% still a inappropriate right going forward.
It is in that you know the 55 to 65 is intended to be when youre in sort of a normalized environment.
Think of a pre COVID-19 environment, where you're sort of clicking along not really in an environment like we're in right now where we're pivoting and adapting and you may have some variability from you know from quarter to quarter. So you'll be we'll still be within that range, but there might be a little bit more variability quarter to quarter between the two products and on a consolidated.
Level, but we think.
You know who will still hang in that 55 to 65 at a consolidated level.
And then just last question for me you. Obviously, you noted strong consumer demand for your products.
I'm wondering how closely you're watching you know what the CFPB is doing in their credit card market I'm. Obviously, the credit card Act you know I covered this space when the credit card Act was an active and I remember you know certainly kind of a windfall of consumer demand.
Because of what the initial acted I'm wondering if you know what the CFPB is trying to do with late fees could usher in a new wave of consumer demand for you know are the smaller ticket items that people are.
We're not getting kind of the in store credit for anymore. If that that fee is in fact reduced as sharply as they they proposed this morning. That's it for me. Thank you.
Yeah, no. It's a great question and certainly something we'd start thinking about as well.
We yeah, we've definitely seen when credit is limited in other parts of the market that benefits it benefits us whether it's from a competitive basis or a regulatory basis.
Our our products you know are ones consumer small at their solid they'd been in the markets for a long time, we don't charge those kind of a lot of those kinds of fees that are getting a lot of that attention. So we'll keep an eye on it but tightening or elimination of credit and other areas of the economy.
Has been beneficial to us in the past.
Okay. Thank you.
Thank you John .
As a reminder, if you have a question. Please press star then one to be joined into the queue.
The next question comes from Vincent <unk> with Stephens. Please go ahead.
Thanks for taking my questions just following up on the SMB question earlier.
So just wondering if you could take us through sort of your expectations for S. B. If you were to go through a mild recession. So I know on the.
On the consumer side, the consumer as you pointed out.
Kind of is very adept at managing is kind of in a recession.
Most of the time I'm just wondering if you could.
Expand on the small business side.
What is the small.
Small business.
Our customer.
I'm kind of thinking or worrying about right now and then as we go through the cycle, how does that behavior typically change. Thank you.
Yeah no great. Great question, we are being very conservative with our small business lending.
Right now there's a tremendous amount of demand I think both the demand for businesses, who need money coming out of Covid still but also from a lack of competition and a reduction of competition. So there's a tremendous amount of net demand. We're filling a very small portion of it is we are trying to remain.
But very very conservative with respect to our originations. So we can manage through any turmoil in any economy and that's really our our approach to it I think we're on the consumer side.
You tend to have a lot of people act similarly kind of all at the same time.
We have a very large book.
That's kind of how you manage through it very high.
Spreads on the small business side, our focus is really on diversification diversification across states across industries across product types and across kind of the credit spectrum.
And we think that diversification is really what provides protection in a recessionary environment for us, especially in an environment that looks like the one we're likely to be in for the next six months to a year, where it's more where it's more choppy.
So you have a giant into the economy like you did in 2008 or 2009, you likely until pain across across all those spectrums, but as we've just seen over the last six to 12 months. You know there are some industries that are doing well you know for a couple of quarters and some of them are doing worse and then you know then that then that rotates and having that strong diversification.
<unk> has allowed us to.
Managed through that variability of the last couple of years without too much difficulty. So that's.
That's kind of our approach.
Our thought process going forward. This doesn't look like a recession, that's going to bring down all kinds of businesses all at once and so that diversification effort.
Having portfolio limits across states across loan types across industries. We think is really is going to allow us to continue to manage a strong a strong book through this period.
Okay, great. Thank you for that and following up.
On the spot small business again, so you pointed out that your share is low as a percentage of the overall market.
Even though you've grown so well so if you kind of play out.
How you plan to expand it maybe it takes share from that.
Is that.
Sort of competitors pulling back maybe in a recessionary environment, while you're able to underwrite better or is there a <unk>.
Alex expansion or just sort of thinking how you can expand on that on the Tam opportunity versus your competitors. Thank you.
Yeah. Another great question so.
We're not being Super aggressive, we're taking share right now because we don't want to be too aggressive with their lending, but we continue to build out products.
Hum and expand the types of opportunities we can offer to small businesses and we'll continue to do that over time, so that as we do get aggressive hopefully in the next more aggressive over the next six to 12 months, we can take our industry, leading position combine that with the new.
Products that we can offer customers and will be even in a more dominant position. So we're gaining share just by that just by the fact that competitors are pulling back even more due to credit concerns or lack of lack of capital and we're fine with that.
But we're not trying to maximize our market share.
Right now because we do want to make sure that we're being smart smart about credit, but continuing to build in the background. So that when we do get more aggressive we're really well positioned.
Great very helpful. Thanks, so much yeah.
Yep.
This concludes our question and answer session I would like to turn the conference back over to David Fisher for any closing closing remarks.
Alright, we appreciate everyone joining us today and your questions and we look forward to talking to you again next quarter have a great evening.
The conference has now concluded. Thank you for attending today's presentation you may all now disconnect.
[music].