Q3 2024 Enova International Inc Earnings Call
Good day and welcome to the another international third quarter 'twenty 'twenty four earnings conference call all participants will be in listen only mode.
Hello.
With that person psyche, followed by <unk>.
Yeah.
After todays presentation, there will be an opportunity to ask questions.
That's a question you May press Star then one on your telephone keypad to withdraw your question. Please press Star then two please note. This event is being recorded.
Speaker Change: I would now like to turn the conference over to Kathy.
Kathy: Investor Relations. Please go ahead, thank you operator, and good afternoon everyone.
Kathy: <unk> released results for the third quarter 'twenty 'twenty four and at September 30th 2024. This afternoon after the market class.
Kathy: 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.
Speaker Change: With me on today's call are David Fisher, Chief Executive Officer, and Steve Cunningham, Chief Financial Officer.
Speaker Change: This call is being webcast and we archived on the Investor Relations section of our website.
Speaker Change: 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 Change: Actual results may differ materially as a result from various important risk factors, including 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.
Speaker Change: 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.
Speaker Change: In addition to U S GAAP reporting.
Speaker Change: Certain financial measures that do not conform to generally accepted accounting principles.
Speaker Change: Believes these non-GAAP measures enhance the understanding of our performance.
Speaker Change: Conciliation between these GAAP and non-GAAP measures are included in the tables found in today's press release.
Speaker Change: As noted in our earnings release, we have posted supplemental financial information on the IR portion of our website with that I'd like to turn the call over to David.
David Fisher: Thanks, and good afternoon, everyone. I appreciate you joining our call today I'll.
David Fisher: I'll begin with an overview of our third quarter results and then I'll discuss our outlook going forward after that I'll turn the call over to Steve Cunningham, Our CFO, who will discuss our financial results and outlook in more detail.
David Fisher: We're pleased to have produced another strong quarter with a record originations and revenue driven by stable credit and solid growth across the portfolio.
David Fisher: Our experienced team World class machine learning algorithms and technology.
David Fisher: Diversified product offerings have enabled us to maintain strong performance as swiftly adapt to changing macroeconomic conditions.
David Fisher: As a result, we can change reiterated annual growth above 25% and revenue originations adjusted EBITDA and adjusted EPS in the quarter.
David Fisher: In Q3 originations increased 28% year over year, and 15% sequentially to $1 $6 billion.
David Fisher: Notably for the first time in our history, we originated over $1 billion in small business loans up 30.
David Fisher: 33% year over year and 14% sequentially.
David Fisher: While consumer originations increased to a record $569 million.
David Fisher: 19% year over year and 16% sequentially.
David Fisher: As a result, our combined loan and finance receivables increased 23% year over year to a record $3 $8 billion.
David Fisher: Small business products represented 62% of the portfolio and consumer was 38%.
David Fisher: We generated revenue of $690 million in the quarter, an increase of 25% year over year and 10% sequentially.
David Fisher: Our profitability metrics grew even faster capitalizing on our strong operating leverage and diligent credit management and cost efficiency.
David Fisher: Adjusted EBITDA increased 42% year over year, and adjusted EPS increased 63%.
David Fisher: Our growth continues to be driven by our diversified portfolio and efficient marketing.
David Fisher: SMB revenue increased 38% year over year, and 7% sequentially to a record $269 million well.
While our consumer revenue increased 18% year over year, and 12% sequentially to a record $411 million.
David Fisher: Marketing expense was 20% of our total revenue in line with our expectations and down slightly compared to Q3 of last year.
David Fisher: As I mentioned credit quality remains strong across our entire portfolio and we are encouraged by the solid results. We reported this year across the portfolio combined with the stability and strength, we have seen in the performance of our customers.
David Fisher: Total company net charge offs as a percentage of average combined loan and finance receivables decreased to eight 4% in Q3 compared to nine 4% in the third quarter of last year.
David Fisher: We've built a long track record of generating strong growth with consistent credit across the very economic conditions and.
David Fisher: We believe the current macroeconomic environment is conducive for us to continue generating these results.
While commentators continue to offer differing opinions on the health of the macroeconomic environment.
David Fisher: Our data demonstrates that both our consumer and small business customers are performing well.
David Fisher: From a monetary policy perspective, the fed now seems committed to lowering rates over the next couple of years and as Steve will discuss this creates a significant tailwind for further net income and EPS growth.
David Fisher: As we've discussed previously demand in credit in our consumer business, driven largely by jobs and wage growth.
The latest jobs report once again demonstrated that the labor market remains strong.
David Fisher: Driven by the largest monthly increase in employment in 12 months combined with increasing wages.
David Fisher: Further the strength in the labor market is concentrated in the same demographic as our target customers.
David Fisher: As you know we focus on customers, who are underserved by mainstream financial institutions, they view them as too risky and too difficult to underwrite well.
While our experience and superior analytics have enabled us to excel in this segment of the market and we have demonstrated that these customers can be very predictable with higher yields relative to prime customers.
David Fisher: And providing more margin for fluctuations in credit performance.
David Fisher: On the SMB side as I mentioned, we had a first quarter of over $1 billion in originations.
David Fisher: The main drivers of this growth of our consumer spending and confidence for small business owners in this current economy.
David Fisher: In conjunction with Acura lists we recently released the third iteration of our small business cash flow trend report, which offers key insights into small business cash flow trends.
David Fisher: Inflation challenges and growth opportunities.
David Fisher: In line with previous findings our research shows that small businesses feel increasingly optimistic over the next 12 months as they successfully navigate challenges like inflation and cash flow management.
David Fisher: The survey also found that small businesses are becoming less reliant on traditional financial services, such as banks as nearly 75% of small businesses.
David Fisher: Alternative lenders as their primary funding option.
David Fisher: And supporting our own research the National Federation of independent businesses announced that its small business optimism index climbed one point to $91 five in September the highest level in almost a year.
David Fisher: Okay.
David Fisher: Before closing I would like to take a moment to discuss our progress in unlocking shareholder value.
David Fisher: For the past couple of years, we have emphasized the disconnect between our valuation and our strong and consistent results solid balance sheet and business fundamentals.
David Fisher: Reflecting our continued strong results we were pleased to have seen our valuation increase this year, reflecting the strength of our business.
That being said, we are producing over 25% year over year growth across all key financial metrics.
David Fisher: Yet our p/e ratio on 2025, less and that's it's only 8.2 times, resulting in a payout ratio of only 0.4 as of the end of Q3.
David Fisher: As Steve will discuss in the fourth quarter, which were almost a third of the way through we expect to again generate year over year growth in originations revenue and EPS in excess of 20%.
David Fisher: Given this disconnect we remain committed to opportunistic stock buybacks as our primary vehicle to unlock shareholder value.
David Fisher: And we are very well positioned to do so.
Built a solid balance sheet as evidenced by the nearly $1 $2 billion of liquidity at the end of Q3.
David Fisher: Additionally, we extended the maturities on our senior debt from 2025 to 2029 through our recent issuance of $500 million of senior unsecured notes.
David Fisher: These actions easily support the new $300 million share repurchase program, we announced in August while also providing ample capital for growth and originations.
David Fisher: Overall, we are pleased to have delivered another strong quarter with solid results across our business. We're confident in our ability to continue to generate meaningful growth supported by stable credit and significant operating leverage both this year and beyond.
David Fisher: Our diversified product offerings World class machine learning risk management algorithms and nimble online only model continuing to meet our customers' needs.
And both internal and external data demonstrate that our customers remain on solid footing.
David Fisher: That being said, we are mindful that the macroeconomic environment can change and so we're staying committed to our balanced approach to growing our business while managing risk.
David Fisher: We've discussed this balanced approach is grounded in our extremely sophisticated unit economics framework.
David Fisher: And so and so while we could certainly be growing faster given our strong competitive position and stable credit.
David Fisher: We believe we are positioned well for long term success.
Speaker Change: With that I'd like to turn the call over to Steve who will discuss our financial results and outlook in more detail and following steves remarks, we'll be happy to answer any questions you may have.
David Fisher: Sure.
Steve Cunningham: Thank you David and good afternoon, everyone. Our financial performance. This quarter reflects the solid footing of our consumer and small business customers.
Steve Cunningham: The powerful combination of our diversified product offerings scalable operating model World class risk management capabilities and balance sheet flexibility.
The result is our continued ability to deliver strong top and bottom line results that are in line or better than our expectations.
Steve Cunningham: Turning to our third quarter results total company revenue of $690 million increased 25% from the third quarter of 2023.
Steve Cunningham: Total company combined loan and finance receivables on an amortized basis.
Steve Cunningham: Increased 23% from the end of the third quarter of last year $3 8 billion at September 30th.
Steve Cunningham: Total company originations during the third quarter rose, 28% from the third quarter of 2023.
Steve Cunningham: Just over one $6 billion.
Steve Cunningham: Revenue from small business lending increased 38% from the third quarter of 2000 $23 million to $269 million, a small business receivables on an amortized basis ended the quarter at $2 $4 billion or 27% higher in the end of the third quarter of last year.
Small business originations rose, 33% year over year, and as David noted exceeded $1 billion in a quarter for the first time in company history.
Steve Cunningham: Revenue from our consumer businesses increased 18% from the third quarter of 2000 $23 million to $411 million as consumer receivables on an amortized basis.
Steve Cunningham: We ended the third quarter at $1 4 billion or 18% higher than the end of the third quarter of 2023.
Steve Cunningham: Consumer originations grew 19% from the third quarter of 2000 $23 million to $569 million.
Steve Cunningham: For the fourth quarter, we expect total company revenue to increase around 5% sequentially.
Steve Cunningham: Resulting in year over year growth in fourth quarter consolidated revenue in excess of 20%.
Steve Cunningham: This expectation will depend upon the level timing and mix of originations growth during the quarter.
Steve Cunningham: Now turning to credit, which is the most significant driver of net revenue and portfolio fair value.
Steve Cunningham: As a reminder, consumer credit losses, typically follow the sequential pattern of portfolio growth through the year.
Steve Cunningham: Peaking in the fourth quarter and reaching their lowest point during the second quarter.
Steve Cunningham: The consolidated net revenue margin of 58% for the third quarter was at the upper end of our expectations to reflect strong credit trends.
Steve Cunningham: Credit metrics in the third quarter reflected our typical consumer seasonality.
Steve Cunningham: Solid small business performance, while improving from a year ago.
Steve Cunningham: The total company ratio of net charge offs as a percentage of average combined loan and finance receivables increased sequentially to eight 4% from seven 7% last quarter, but declined from nine 4% during the third quarter of 2023.
Steve Cunningham: As the third quarter net charge off ratios for both the small business and consumer portfolios were lower compared to a year ago.
Steve Cunningham: As discussed on our first quarter call, we identified opportunities within our SMB business.
Steve Cunningham: We believed would support continued strong growth with improved unit economics.
Steve Cunningham: We continue to see the benefits of this strategy in the third quarter as small business originations growth was strong.
Steve Cunningham: All business revenue yield continue to move higher sequentially.
Steve Cunningham: In the small business quarterly net charge off ratio remained on the low end of our expected range.
Steve Cunningham: Expectations for our future credit performance remained stable at the consolidated consumer and small business fair value premiums were all largely unchanged from last quarter.
Steve Cunningham: Looking ahead, the aforementioned typical consumer credit seasonality and stable small business credit performance during the fourth quarter.
Steve Cunningham: Did result in a total company net revenue margin for the fourth quarter of 2024 in the range of 55% to 58%.
This expectation will depend upon portfolio payment performance and the level of timing and mix of originations growth during the fourth quarter.
Steve Cunningham: Now turning to expenses.
Steve Cunningham: Total operating expenses for the third quarter, including marketing were 34% of revenue compared to 37% of revenue in the third quarter of 2023.
Steve Cunningham: As we continue to see the benefits of our efficient marketing activities the leverage inherent in our online only model and thoughtful expense management.
Steve Cunningham: Third quarter marketing spend remained efficient and was in line with our expectations marketing costs increased to $141 million or 20% of revenue compared to $117 million or 21% of revenue in the third quarter of 2023.
Steve Cunningham: We expect marketing expenses will continue to be around 20% of revenues for the fourth quarter.
Steve Cunningham: Will depend upon the growth and mix of originations.
Steve Cunningham: Operations and technology expenses for the third quarter increased to $57 million or 8% of revenue compared to $52 million or 9% of revenue in the third quarter of 2023.
Steve Cunningham: Driven by growth in receivables in originations over the past year.
Steve Cunningham: Given the significant variable component of this expense category.
Steve Cunningham: Which will increase as another T cost should be expected in an environment, where originations and receivables are growing share.
Steve Cunningham: Range between eight and 9% of total revenue.
Steve Cunningham: Our fixed costs continue to reflect our focus on operating efficiency and thoughtful expense management.
Steve Cunningham: General and administrative expenses for the third quarter increased to $39 million or 6% of revenue from $38 million or 7% of revenue in the third quarter of 2023.
Steve Cunningham: Well, there may be slight variations from quarter to quarter, we expect G&A expenses in the near term will be around 6% of total revenue.
Steve Cunningham: Our balance sheet and liquidity position remains strong and gives us the financial flexibility to successfully navigate a range of operating environments while.
Steve Cunningham: While delivering on our commitment to drive long term shareholder value through both continued investments in our business and share repurchases.
We ended the quarter with $1 $2 billion of liquidity, including $262 million of cash and marketable securities a.
Steve Cunningham: $925 million of available capacity on debt facilities.
Steve Cunningham: Our stable financial and credit performance has allowed us to consistently access funding from a diversified group of lenders and fixed income investors.
Steve Cunningham: Since our last earnings call, we completed five financing transactions totaling $2 $1 billion.
Steve Cunningham: <unk> $1 $2 billion of new proceeds with efficient cost effective terms.
Steve Cunningham: Issuances included an unsecured senior note.
All business term securitization, the renewal and upsides of a warehouse secured by small business receivables there.
Steve Cunningham: Renewal, an upsize or a warehouse secured by consumer installment receivables.
And the upsize of our secured corporate revolver.
During the third quarter, we acquired 309000 shares at a cost of $23 million.
Steve Cunningham: When we started the fourth quarter with share repurchase capacity of approximately $68 million available under our senior note covenants.
Steve Cunningham: Our cost of funds for the third quarter was nine 6% or 24 basis points higher than the second quarter.
Steve Cunningham: The federal Reserve's recent 50 basis point reduction in the fed funds rate and expectations for continued reductions over the near term.
Steve Cunningham: We expect that our quarterly cost of funds is likely peaked.
Steve Cunningham: Additionally, the impact of expected lower market rates in the future.
Steve Cunningham: Longer term tailwind for Novus profitability.
Steve Cunningham: Given the mix of our fixed and floating rate debt. We expect every 25 basis point reduction in sofa to result in a benefit to adjusted EPS.
Steve Cunningham: <unk> 10 cents over the 12 months following a rate reduction.
Steve Cunningham: During the quarter, we recorded a onetime non cash and non operational impairment charge of $17 million related to the write off of our interest in the company to which during 2021, we contributed the net assets of Amdocs legacy platform as a service business, formerly known as <unk>.
Steve Cunningham: Finally, we continue to deliver solid profitability this quarter, adjusted EBITDA and non-GAAP measure increased 42% from a year ago to $172 million.
Steve Cunningham: Adjusted EPS and non-GAAP measure increased 63% from a year ago to $2.45 per diluted share.
Steve Cunningham: To wrap up let me summarize our near term expectations.
Steve Cunningham: For the fourth quarter of 2024.
Steve Cunningham: We would expect consolidated revenue to increase around 5% sequentially.
Steve Cunningham: More than 20% compared to the fourth quarter of 2023 with a net revenue margin between 55 and 58%.
Steve Cunningham: Additionally, we expect marketing and G&A expenses to be around 20% and 6% of revenue respectively.
Though with T costs of 8% to 9% of revenue.
Steve Cunningham: These expectations should result in an increase in adjusted EPS of 25% or more compared to the fourth quarter of 2023.
Our expectations for the remainder of this year will depend upon the macroeconomic environment and the resulting impact on demand customer payment rates and the level of timing and mix of originations growth.
Steve Cunningham: We remain confident in our ability to generate meaningful financial results for the remainder of 2024 and beyond as we as we leverage our diversified product offerings World class machine learning risk management algorithms and nimble online only model to continue to meet customer needs, while creating significant value for our shareholders.
Steve Cunningham: In addition, our solid balance sheet should provide a tailwind to our future profitability in a falling rate environment.
Steve Cunningham: Enabling our ability to efficiently fund growth and supporting our ability to return significant capital to shareholders through share repurchases.
Steve Cunningham: And with that we'd be happy to take your questions operator.
Speaker Change: We will now begin the question answer session to ask a question you May Press Star then one on your telephone keypad.
Okay Speakerphone, please pick up a handful of asking a question.
Speaker Change: And then final question Hikmet Jackson, you would like to withdraw your question. Please press Star then two.
Your first question comes from Murphy Orenbuch.
Murphy Orenbuch: Great. Thanks, I guess can you Steve can you talk a little bit about how you're thinking about.
Speaker Change: You mentioned that you can see this as kind of continuing into 2025 like this strong environment for originations on both sides of the business.
Speaker Change: How do you think about like what makes what makes it change for either better or worse are there any competitive changes or you know you start to talk about that a little bit.
Speaker Change: Yeah sure, we Didnt really address 2025, specifically in our in our commentary, but I think our view is we have some momentum as we're obviously with our Q4 guide we expect some of that momentum to continue.
Speaker Change: And barring a change in the operating environment, as you mentioned or something materially changing.
Speaker Change: We should be able to continue.
Speaker Change: Our momentum into 2025, but we'll obviously talk a bit more about that on our next call.
But we will be watching for.
Speaker Change: David has mentioned in the past, we're not growing as quickly as we could we are being very thoughtful.
Speaker Change: That gives us a lot of flexibility to be able to navigate changes to either a macro environment or a more competitive environment, but we also feel very good about our competitive position as we've talked about now for many quarters.
Speaker Change: Given our diversified product set online only scale in our in our balance sheet. So we feel today, we definitely have some momentum, but we'll we'll give more color here in a few months.
Got it.
Speaker Change: Just a follow up on the consumer kind of credit front.
Speaker Change: You know the charge offs in the quarter. You had noted we're kind of down on a year on year basis, but delinquencies were up and you know the the charge offs being down obviously, you know kind of a good sign.
Speaker Change: Many other lenders are seeing you know its tough for consumers to kind of get out of.
Speaker Change: Delinquency once they're in it can you talk a little bit about you know.
Speaker Change: How this quarters.
Speaker Change: The delinquency rates going to be reflected as you go forward and what do you know what it says about our you know.
Speaker Change: The the you know the.
Speaker Change: Portfolio performance.
Speaker Change: Yeah sure so the.
Speaker Change: The consumer delinquency rate typically increasing sequentially. If you go back and look over time between Q2, and Q3, which it did this quarter as well.
Speaker Change: Year over year, the comparisons a little different because we have had a slight mix shift.
Speaker Change: We had some strong demand from our cash in that business with great unit economics that over the past couple of quarters.
Speaker Change: We met that demand, which allowed that business to grow a little bit faster than net credit in.
Speaker Change: And that mix shift will create a little bit of a dynamic.
Speaker Change: In the delinquency ratio, but I will tell you, even though we don't disclose our one plus.
Speaker Change: Delinquency rate the one plus rate for consumer actually was down year over year.
Speaker Change: Really reflecting that mix shift and additional context. The fair value premium is also reflecting the fact that the unit economics framework for us the risk adjusted cash flows are.
Speaker Change: Alright, incorporating that additional risk from the mix shift that I, just mentioned with the flat fair value premium quarter over quarter.
Speaker Change: Got it thanks very much you.
Speaker Change: You bet.
Speaker Change: Your next question comes from David Scharf with citizen sample.
David Scharf: Great. Good afternoon, thanks for taking my questions.
Speaker Change: He wanted to.
David Scharf: Wanted to dig in a little little more just in terms of the product mix and specifically you know I think Steven David you. Both had commented youre not growing as fast as you could.
David Scharf: And not to diminish the impressive.
David Scharf: Impressive growth in consumer.
David Scharf: SMB is growing materially faster recently and I'm wondering you know.
Speaker Change: Hey, if you could just provide a little more color on maybe what what differences you are seeing that is driving such a stronger growth in origination volumes.
Amongst small businesses versus consumer and B, you know circling back to your comment about not growing as fast as you could is that.
Applicable to both products or is that mostly a commentary about the consumer.
Speaker Change: Yeah, David Good question.
Speaker Change: Well, it's mostly a factor it's just a less mature product like in the consumer space with some very very mature products that are growing so fast as fast we have some less mature products that are among our fastest growing products on the consumer side, but that's balanced out with.
Some products have been around for a very very long time.
And so that kind of that levels off the growth rate a little bit on the consumer side, where small business. It's much newer space overall and certainly much newer newer for us and it was really only been aggressive in that space since kind of 2021.
Speaker Change: So I think that explains a little bit of the difference in growth rates, we're not seeing anything materially different in the overall markets and I think the competitive environment is pretty weak.
Speaker Change: On both on both sides.
Speaker Change: Terms of could be growing faster, that's definitely are applicable to both consumer and small business and you know as you know from our conversations in the past what what that means is we just increase our internal unit economic targets. What's your focus on ROE is and just.
Speaker Change: Make our businesses.
Speaker Change: Tried to achieve higher targets than maybe you.
Speaker Change: It's necessary kind of from a purely academic standpoint in terms of kind of the balance sheet of the business. So.
Speaker Change: But we just think that's the right risk reward balance today.
Speaker Change: Given that we are growing very quickly our balance sheet intensive business.
Speaker Change: And as we said, we don't think higher growth rates are priced into the stock in anyway. So.
Speaker Change: So we're comfortable taking a little bit more cushion in those unit economic targets and growing.
Speaker Change: Slower than we could have otherwise, albeit still at very very attractive growth rate.
Speaker Change: Got it no that's.
Speaker Change: Great color and to the extent you only get rewarded for growing so fast.
Speaker Change: No need to push the envelope I guess maybe.
Speaker Change: Maybe just one quick follow up on funding.
Steve Cunningham: Steve I appreciate it.
Steve Cunningham: The sensitivity analysis.
Steve Cunningham: On the 25 BP change in sofa.
Steve Cunningham: You would also I believe the last quarter or so provided some outlook about how to think about funding costs in the context of percent of revenue I think last time. It was 10.5% to 11% is that changing much in your mind, what should be kind of a.
Steve Cunningham: Base case, we look at.
Speaker Change: Yeah, I mean, I think for the fourth quarter that range is probably still applicable, but you'll start to see us.
Speaker Change: Move again, depending on how much we grow but we should be moving towards the lower end of that range. You know as you moved through the quarter.
Speaker Change: And you know as we get through the rest of the year I will provide a more wholesome view on next year, depending on where we are with the outlook for rates at that time.
Speaker Change: Great. Thanks, so much.
Speaker Change: You bet.
Speaker Change: Your next question comes from John Hecht with Jefferies.
John Hecht: Good evening guys.
John Hecht: Congratulations on another great quarter.
Speaker Change: Thank you.
John Hecht: Most of my questions have been.
John Hecht: Asked and answered.
John Hecht: One of them is that right.
Speaker Change: David You did you did cite generally speaking just weaker competition.
Speaker Change: And I think you've been in that environment, where you guys.
Speaker Change: Right.
Speaker Change: Have allowed you to have a.
Speaker Change: It.
Speaker Change: Describe it as a weaker market, but maybe it's just a market that you are stronger in.
Speaker Change: But I'm wondering what like what would your outlook be for that is there an environment, where you think competition would come back.
Speaker Change: What which product or segment would it be in or do you feel more that you've just youre building more sustainable advantages over time.
Speaker Change: Yeah, I think that is a good clarification.
It's not like we have a lot of competitors and we're just not seeing them being particularly aggressive we don't have a lot of strong competitors parity and this isn't an industry, where they can just kind of come.
Speaker Change: How about the woodwork, just kind of starting new business today and be a strong competitor three or six months down. The road. These are businesses that obviously have tremendous start startup costs.
Speaker Change: Lots of time to build underwriting models and get it dialed in businesses generate tremendous losses in their first five to 10 years in business in the space. So you know.
Speaker Change: You got a long runway of seeing new competitors kind of trying to come into the space and Theres just not a lot right now in either small business or.
Speaker Change: Or the consumer side that doesn't mean, there aren't any we're not delusional about any fact.
Speaker Change: Yeah, No. We very we have a huge program to track what's going up on in terms of competition on both both sides of both businesses, but.
Speaker Change: We're not we're not seeing anything new in you know we have very good market share relative to the competitors that are out there and certainly no sign of any meaningful changes on the competitive front.
Speaker Change: Okay that's super.
Speaker Change: Helpful. And then I guess as a related follow up just given that backdrop.
Speaker Change: With respect to the characteristics of the originations obviously, we know the mix of SMB versus consumer but is there anything that.
That is worth calling out with respect to new versus recurring mix changes or.
Characteristics of the small SMB categories or is it pretty consistent.
Speaker Change: No John this it's been pretty consistent we haven't seen a material change in our new versus returning customers across either of the portfolios.
John Hecht: Alright, Thank you guys very much.
Speaker Change: That's right.
Speaker Change: Once again, if you wish to ask a question. Please press star one on your telephone.
Speaker Change: Your next question comes from John Dillon with <unk>.
Good afternoon guys.
Speaker Change: Hey, Jonathan.
John Dillon: Sorry, if this was asked already but was there a reason why a CSO loan balances went up so sharply sequentially.
Speaker Change: I mean, those tend to be very specific to geographic region. So you will have time to time see where we might have demand or opportunities that.
Speaker Change: Lineup with that unit unit economics framework that you will see that occur, but it usually is not something that persists for a long period of time, it's usually pretty level.
Speaker Change: Okay, and then I just want to make sure you know.
Speaker Change: I'm hearing you guys correctly, you were talking about obviously, you're talking about stable credit, but obviously the charge off rate in consumer was up you know what.
Speaker Change: Eight 7% versus seven 8% last year can you just talk to that and whether or not you know that has anything to do with the increase in the CSO loan balances just kind of talk me through you know that increase in the charge offs specifically in the consumer book.
Speaker Change: Yeah, I think that number you're referencing John is 30, plus delinquency net charge offs, all right yeah, right right now year over year.
Speaker Change: So as I mentioned the three men.
Speaker Change: And its ago, that's largely related to mix.
Speaker Change: And I had mentioned that we had seen some opportunities over the past couple of quarters with cash net versus net credit.
Speaker Change: And given the.
Speaker Change: The credit profile of that business, you would see delinquencies at a higher rate because theres a little bit of mix shift going on there a CSO is largely in cash net so yeah that could contribute to it.
Speaker Change: But as I mentioned.
Speaker Change: Fair value premiums are relatively flat quarter over quarter, which again is is the the view of discounted risk adjusted cash flow and consumer so.
Speaker Change: It's tracking with our unit economics, and our one plus delinquency for consumer.
Speaker Change: Actually down year over year.
Speaker Change: Okay alright, thank you.
Speaker Change: You bet.
Speaker Change: Our next question comes from come from Atlantic with BPI.
Speaker Change: Hi, good afternoon, Thanks for taking my question.
Speaker Change: First for David and it's kind of a follow up on that maybe first question about the originations.
Speaker Change: The growth rate, especially sequentially, it's pretty impressive after what was also a strong second quarter.
Speaker Change: Just trying to maybe parse out maybe what could be driving that because it seems like maybe the macros. Okay. That's what the consumer is feeling a bit more confidence.
Speaker Change: And then Conversely, your underwriting standards still seems pretty tight so I'm just wondering if maybe.
Speaker Change: You know as you're thinking about.
Speaker Change: Fourth quarter and beyond do you expect this kind of strong growth and acceleration to continue and does anything need to change or or say, particularly positive in order to achieve that level of growth.
Speaker Change: Yeah.
Speaker Change: So if you look at sequentially certainly I think it's a combination of two factors one is seasonality, we almost always see good growth in Q3 versus Q2.
Speaker Change: But the second is that conducive macroeconomic environment I think it's a environment where.
Speaker Change: Customers consumers and small businesses are comfortable borrowing money, if they need to but have.
Speaker Change: Good enough for us is that they can pull back which makes it easy for us to lend to them. So I think it's really a combination of those two factors and as we look at Q4, and then Steve or guided to slightly lower year over year origination growth rates in Q4, but still north of 20%, So still very very strong and <unk>.
Speaker Change: As we're sitting here almost a third of the way through the quarter, we feel very very good about containing those 20 plus percent growth rate.
Speaker Change: Okay, Great. That's Super helpful. And then for Steve you always appreciate the detailed fourth quarter guidance.
Speaker Change: So that's we're thinking medium chairman with them the growth rates, you're achieving in the originations and revenue.
Speaker Change: Kind of wondering as you're thinking about.
Speaker Change: Senses.
Speaker Change: How operationally efficient, Canada business be some sort of thinking that as you're growing.
Speaker Change: Fixed expenses.
Speaker Change:
Speaker Change: Yeah. It should be growing faster is there anything you can do to maybe help us understand how much operating leverage business.
Speaker Change: Thank you.
Yeah.
Speaker Change: Yeah, well I think if you look over the past couple of years, you've seen that operating leverage in action.
Speaker Change: Obviously marketing is entirely variable R.
Speaker Change: Our O N T car.
Speaker Change: About 70% of those costs are variable. So there is some operating leverage as you continue to grow but it's much more slow compared to.
Speaker Change: Our general and administrative expenses, which are all fixed.
Speaker Change: So you've seen.
The G&A expenses as a percent of revenue come down.
Speaker Change: You know a fair amount over the past couple of years.
Speaker Change: There's no reason to think that we wouldn't continue to see some operating leverage in.
Speaker Change: In those expense categories as we move through time and continue to grow that's really just how are our expense philosophy works, we do spend money those expenses do grow year over year, but they grow at a much slower rate relative to.
Speaker Change: To revenue and that's that's how we run the.
Speaker Change: The business. So you should expect there could be some opportunities as we move.
Speaker Change: Through time from here as well.
Speaker Change: Okay, great. Thanks, so much.
Speaker Change: Thank you that does conclude our question format from past one at that conference for today. Thank you for attending today's presentation, you know that disconnect.
Speaker Change: Okay.
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