Q4 2024 Enova International Inc Earnings Call
[music]
Thank You.
Good afternoon, and welcome to the Inova International 4th Quarter 2024 Earnings Conference Call.
All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.
After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your telephone keypad. To withdraw your question, please press star, then 2.
Please note, this event is being recorded.
Speaker Change: I would now like to turn the conference over to Cassidy Patterson, Investor Relations. Please go ahead.
Cassidy Patterson: Thank you, Operator, and good afternoon, everyone. ANOVA release results for the fourth quarter and full year, 2024, ended December 31st, 2024, this afternoon after the market closed.
Cassidy Patterson: 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.anova.com.
Cassidy Patterson: 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.
Cassidy Patterson: 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.
Cassidy Patterson: Actual results may differ materially as a result from these various important risk factors, including those discussed in our earnings press release and in our annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Forms 8-K.
Cassidy Patterson: 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.
Cassidy Patterson: In addition to U.S. GAAP reporting, ANOVA reports certain financial measures that do not conform to generally accepted accounting principles.
Cassidy Patterson: We believe these non-GAAP measures enhance the understanding of our performance.
Cassidy Patterson: Reconciliations between these GAP and non-GAP measures are included in the tables found in today's press release.
Cassidy Patterson: As noted in our earnings release, we have posted supplemental financial information on the IR portion of our website.
David Fisher: 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.
David Fisher: We're pleased to end a strong year with another solid quarter.
David Fisher: Our quarter results were in line or better than our expectations, with over 20% growth in revenue, originations, adjusted EBITDA, and adjusted EPS, as compared to 2023.
David Fisher: all driven by solid growth across our portfolio and stable credit.
David Fisher: 2024 was Inova's best year yet, resulting in record levels of revenue, originations, and EPS.
David Fisher: Our skilled team, world-class technology, proprietary machine learning algorithms, and diversified product offerings have enabled us to achieve a 20-year history of profitably lending through a variety of credit cycles.
David Fisher: Fourth quarter originations increased 20% year-over-year and 6% sequentially to 1.7 billion dollars.
David Fisher: As a result of the strong origination growth, our combined loan and finance receivables increased 21% year-over-year to a record $4 billion.
David Fisher: Consistent with recent quarters, small business products represented 62% of the total portfolio and consumer was 38%.
David Fisher: As we expected, origination growth moderated from the 25% plus growth we generated in the first nine months of the year due to our continued focus on balancing risk and growth.
David Fisher: as well as the typical year-over-year comparison from very strong originations growth in the fourth quarter of 2023.
David Fisher: As we discussed last quarter, we are disciplined in this balanced approach that is grounded in our extremely sophisticated unit economics framework.
David Fisher: And so while we could certainly be growing Originations faster, given our strong competitive position and stable credit,
David Fisher: We believe our current approach positions the business well for long-term success.
David Fisher: It is also important to remember that our online-only business model generates significant operating leverage, and combined with our commitment to repurchasing our stock, we continue to expect EPS growth to outpace origination growth, as Steve will discuss in more detail.
David Fisher: We generated revenue of $730 million in the quarter, an increase of 25% year-over-year and 6% sequentially.
David Fisher: Profitability metrics grew even faster driven by our strong operating leverage and diligent credit management.
Adjusted EBITDA increased 34% year-over-year and adjusted EPS increased 43%
David Fisher: Once again, our diversified portfolio and efficient marketing were the underpinnings of this growth.
David Fisher: S&B revenue increased 36% year-over-year and 6% sequentially to a record 286 million dollars while consumer revenue increased 19% year-over-year and 6% sequentially to a record 434 million dollars
David Fisher: Marketing spent just 21% of our total revenue in line with our expectations and with Q4 of 2023.
David Fisher: As I mentioned, credit quality remains good across the portfolio due to the stability and strength we have seen in the performance of our customers.
David Fisher: The consolidated net charge-off ratio for the quarter declined slightly from the fourth quarter of 2023, as we saw improvements in that ratio in both our consumer and small businesses.
despite significant growth in both of those portfolios.
David Fisher: Demand and credit in our consumer business continues to be driven by jobs and wage growth.
Speaker Change: Our target customers are those who traditional lenders view as too risky and too difficult to underwrite, leading them to be underserved by mainstream financial institutions.
Speaker Change: Due to our highly experienced team and proprietary improvement technology in analytics, we've been very successful serving this large segment of the market.
Speaker Change: and the macroeconomic environment continues to be favorable for this group.
Speaker Change: The latest jobs report showed a strong finish to the year, with unemployment ticking down slightly from 4.2% in November to 4.1% in December, highlighting the economy's resilience.
Speaker Change: December also recorded the largest monthly jobs gain of the year, indicating that the U.S. economy remains strong.
Speaker Change: Further, the strength in the labor market is concentrated in our target customers demographic as wage gains on average have exceeded inflation.
Speaker Change: Turning to our S&B business, we had our second quarter in a row of over one billion dollars in originations, driven by continued consumer spending and optimism about the current economy from small businesses.
Thank you. Thank you. Thank you.
Speaker Change: In conjunction with Acrolis, in November we released the fourth iteration of our Small Business Cash Flow Trend Report, which offers key insights into small business cash flow trends, inflation challenges, and growth opportunities.
Speaker Change: Consistent with previous findings, the survey found that small businesses feel increasingly optimistic about future growth as over 90% of small business owners are expecting moderate to significant growth over the next six months.
Speaker Change: This latest report also shows a meaningful shift in where small businesses are first seeking capital, as nearly 75% of small business owners reported bypassing traditional banks in favor of alternative lenders like Inova.
Speaker Change: Supporting our own findings, the National Federation of Independent Business announced that its Small Business Optimism Index increased 3.4 points to 105.1 in December, marking the second month in a row above the 51-year average of 98 and the highest reading since October of 2018.
Speaker Change: Before I wrap up, I'd like to take a few moments to discuss our strategy and outlook for 2025 and beyond.
Speaker Change: We're encouraged by the strong momentum and good credit performance across our portfolio.
Speaker Change: As I just mentioned, based on internal and external data, both our consumer and small business customers are on solid footing as they continue to benefit from job growth, low unemployment rates, easing inflation, and rising real wages.
Speaker Change: And while it's still very early in the year, we're off to a great start with strong origination volumes across all of our products.
Speaker Change: Over our 20-year company history, we've demonstrated a track record of consistent possible lending through cycles with proven unit economics.
Speaker Change: We are pleased to have delivered a strong end to a strong year in 2024.
supported by a constructive macroeconomic and operating backdrop.
which provides sound momentum and positions us well for 2025.
Speaker Change: That said, we remain mindful of the potential for changes in the macro environment.
Speaker Change: But we believe our business is resilient across a wide range of economic conditions. We're committed to a balanced strategy of generating meaningful growth while carefully managing risk.
Speaker Change: Finally, I want to extend a big thanks for the amazing team we have built at Inova.
Speaker Change: Our performance in 2024 was made possible by the hard work and determination of this world-class team, leading us to be ranked among Computer World's Best Places to Work in IT for the 12th year in a row.
Speaker Change: With that, I would like to turn the call over to Steve Cunningham, our CFO, who will discuss our financial results and outlook in more detail. And following Steve's remarks, we'll be happy to answer any questions you may have.
Peace.
Steve Cunningham: Thank you, David. And good afternoon, everyone. We're pleased to close 2024 with financial results that once again met or exceeded our expectations.
Steve Cunningham: Our strong financial performance in the fourth quarter and the full year 2024 continues to demonstrate how the powerful combination of our diversified product offerings
Steve Cunningham: scalable operating model, world-class risk management capabilities, and balance sheet flexibility allow us to consistently deliver strong top and bottom line results.
Steve Cunningham: increased 20% from the end of the fourth quarter of 2023.
Steve Cunningham: Total company originations during the fourth quarter rose 20% from the fourth quarter of 2023 to just over $1.7 billion.
Steve Cunningham: Revenue from small business lending increased 36% from the fourth quarter of 2023 to $286 million as small business receivables on an amortized basis ended the quarter at $2.5 billion, or 21% higher than the end of the fourth quarter of 2023.
Small business originations rose 20% year-over-year to $1.1 billion.
Steve Cunningham: Revenue from our consumer businesses increased 19% from the fourth quarter of 2023 to $434 million if consumer receivables on an amortized basis
Steve Cunningham: ended the fourth quarter at 1.5 billion dollars or 19% higher than the end of the fourth quarter of 2023.
Steve Cunningham: Consumer originations grew 21% from the fourth quarter of 2023 to $602 million.
Steve Cunningham: For the first quarter of 2025, we expect total company revenue to be flat to slightly higher sequentially.
resulting in year-over-year revenue growth of around 20 percent.
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 a seasonal pattern, peaking in the fourth quarter and reaching their lowest point during the second quarter.
Steve Cunningham: The consolidated net revenue margin of 57% for the fourth quarter was in line with our expectations and reflects continued strong credit performance.
Steve Cunningham: The consolidated net charge-off ratio for the fourth quarter declined 80 basis points from the fourth quarter of 2023 to 8.9%.
Steve Cunningham: With the net charge-off ratios for the consumer and small business portfolios both experiencing meaningful year-over-year decreases.
Steve Cunningham: Expectations for our future credit performance remain stable as reflected by the sequential and year-over-year improvement in the consolidated 30-plus-day delinquency rate, as well as the stability in the consolidated portfolio fair value premium.
Thank you.
Steve Cunningham: Looking ahead, we expect the total company net revenue margin for the first quarter of 2025 to be flat sequentially as the impact of lower sequential consolidated originations from the aforementioned expected consumer seasonality is offset by sequential improvement and the consolidated net charge-off rate we typically see in the first quarter.
Steve Cunningham: This expectation will depend upon portfolio payment performance and the level, timing, and mix of originations growth during the first quarter.
Now turning to expenses.
Steve Cunningham: Total operating expenses for the fourth quarter, including marketing, were 34% of revenue compared to 37% of revenue in the fourth quarter of 2023, 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: Fourth quarter marketing spend continued to efficiently drive growth and was in line with our expectations.
Steve Cunningham: Marketing costs increased to 151 million dollars or 21% of revenue compared to 122 million dollars or 21% of revenue in the fourth quarter of 2023.
Steve Cunningham: With the seasonality we typically experience during the first quarter of the year, we expect marketing expenses as a percentage of revenue to range in the upper teens for the first quarter and will depend upon the growth and mix of originations.
Steve Cunningham: Operations and technology expenses for the fourth quarter increased to $58 million, or 8% of revenue, compared to $47 million, or 8% of revenue in the fourth quarter of 2023, driven by growth in receivables and originations over the past year.
Steve Cunningham: Given the significant variable component of this expense category, sequential increases in O&T costs should be expected in an environment where originations and receivables are growing. It should be around eight and a half percent of total revenue.
Steve Cunningham: Our fixed costs continue to scale as we focus on operating efficiency and thoughtful expense management.
Steve Cunningham: General administrative expenses for the fourth quarter increased to $38 million, or 5% of revenue.
Steve Cunningham: excluding one-time items, G&A expenses in the fourth quarter of 2023 totaled $34 million or 6% of revenue.
Steve Cunningham: While 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 remain strong and give us the financial flexibility to successfully navigate a range of operating environments while delivering on our commitment to drive long-term shareholder value through both continued investments in our business and share repurchases.
Steve Cunningham: During the fourth quarter, we acquired 525,000 shares at a cost of $51 million. And we started 2025 with share repurchase capacity of approximately $65 million available under our senior no covenants.
Steve Cunningham: We're pleased by the increase in our valuation during 2024, which better recognizes the ability of our differentiated business model to deliver consistently strong financial results.
Steve Cunningham: With that said, we still believe there is more value inherent in our business given our expectations for 2025 adjusted EPS growth.
which I'll discuss in a moment.
Steve Cunningham: and the PEG ratio based on current analyst estimates for 2025 and 2026.
Steve Cunningham: Given this opportunity, we remain committed to opportunistic stock buybacks as our primary vehicle to unlock shareholder value.
Steve Cunningham: And we are very well positioned to do so as we ended the fourth quarter with $1.3 billion of liquidity, including $326 million of cash and marketable securities and $944 million of available capacity on debt facilities.
Steve Cunningham: Our cost of funds for the fourth quarter was 9.1 percent, or 43 basis points lower than the third quarter, primarily as a result of the Federal Reserve's 100 basis point reduction in the Fed funds rate over the past several months.
as well as strong execution on recent financing transactions.
Steve Cunningham: We expect some continued reduction in our cost of funds during 2025, but the level will depend upon the pace of additional rate cuts by the Fed, if any. Credit spreads on new financing transactions.
Steve Cunningham: funding mix, and the level, timing, and mix of originations growth.
Steve Cunningham: Even with no additional rate cuts by the Fed, we expect our cost of funds for the full year 2025 to decline approximately 50 basis points from the full year 2024 rate of 9.3%.
Steve Cunningham: which would result in interest expense as a percentage of revenue for the full year 2025 of around 10 to 10 and a quarter percent.
Our effective tax rate for the fourth quarter was 18%.
Steve Cunningham: The sequential decline was driven by a decrease in our uncertain tax position reserve and related interest.
Steve Cunningham: tax benefits resulting from share price increases on stock options exercised during the fourth quarter in favorable state rate changes.
Steve Cunningham: While there may be variations from quarter to quarter, we expect our normalized annual effective tax rate to remain in the mid-20% range.
Finally, we continue to deliver solid profitability this quarter.
Steve Cunningham: Compared to the fourth quarter of 2023, adjusted EBITDA, a non-gap measure, increased 34% to $174 million, and adjusted EPS, a non-gap measure, increased 43% to $2.61 per diluted share.
Steve Cunningham: To wrap up, let me summarize our first quarter and full year 2025 expectations.
Steve Cunningham: For the first quarter, we expect revenue to follow our typical seasonality and to be flat to slightly higher sequentially.
Steve Cunningham: Seasonally lower originations are expected to offset improvement in the net charge-off rate, resulting in little change to the net revenue margins sequentially.
Steve Cunningham: In addition, we expect marketing expenses as a percentage of revenue to be in the upper teens.
Steve Cunningham: O&T costs of around eight and a half percent of revenue.
and GNA costs around 6% of revenue.
Steve Cunningham: Interest expense as a percentage of revenue is expected to be around ten and a half percent.
Steve Cunningham: With a more normalized tax rate, these expectations should lead to adjusted EPS for the first quarter of 2025, but it's about 5% higher sequentially.
Steve Cunningham: Our first quarter expectations will depend upon customer payment rates and the level, timing, and mix of originations growth.
Steve Cunningham: Now turning to our expectations for the full year of 2025.
Steve Cunningham: assuming a stable macroeconomic environment with no material changes in the unemployment situation.
Steve Cunningham: in a largely unchanged interest rate environment, we would expect growth in originations for the full year 2025 compared to the full year of 2024 to increase by around 15%.
Steve Cunningham: The resulting growth in receivables with stable credit, continued operating leverage, and a reduced cost of funds.
Steve Cunningham: should result in full year 2025 growth for revenue that is slightly faster than origination.
and adjusted EPS growth of around 25 percent.
Steve Cunningham: Our expectations for 2025 will depend upon the macroeconomic environment and the resulting impact on demand, customer payment rates, and the level, timing, and mix of originations growth.
Steve Cunningham: In closing, we're proud of what we achieved during 2024, and it started 2025 on a solid financial footing with a constructive macroeconomic environment.
Steve Cunningham: We remain confident in our ability to generate meaningful financial results by leveraging our differentiated business model and balance sheet strength to meet customer needs while creating significant value for our shareholders.
Steve Cunningham: And with that, we'd be happy to take your questions, operator.
We will now begin the question and answer session.
Steve Cunningham: To ask a question, you may press star then 1 on your telephone keypad.
To withdraw your question, please press star then 2.
Steve Cunningham: At this time, we will pause momentarily to assemble our roster.
Speaker Change: The first question is from Moshi Orenbuk with T.D. Cowan. Please go ahead.
Moshi Orenbuk: Great, thanks Dave and Steve. Could you talk a little bit about kind of the competitive environment in in both consumer and small business and how you're seeing it, any changes, feels like?
Moshi Orenbuk: Some lenders are coming back on the consumer side. I'm not sure if that's in your market or around it You just give us a little bit there
Speaker Change: Yeah sure, I think as you can see from the very strong origination growth in Q4 that there certainly hasn't been any negative impacts from competition and as I mentioned
Speaker Change: In my prepared remarks, we've also had a very strong start to Q1 with January originations.
Speaker Change: You know, you do see people kind of poking in and out, both on the consumer side and small business side, but they tend to be smaller, the impacts tend to be small, and they tend to be fleeting. We have not seen kind of a sustained competitive push.
Speaker Change: on either the consumer or small business side in a very, very long time. And again, I think evidence, you know, by our ability to take, you know, really significant volume in Q4 kind of shows that to be the case.
Okay, thanks. And maybe... Okay.
Speaker Change: A couple of the other lenders in non-prime, most of, I think they're probably more credit card but still, have talked about a little less seasonality.
Speaker Change: in the business. Is that something that you've seen or you know it because it sounded like you're you're looking for you know typical seasonal patterns from the standpoint of you know originations repayments and credit.
Speaker Change: anything that's changed you know since in the last year or two?
Steve Cunningham: Hey Moshe, this is Steve. You know, I think as I said in my remarks I think we expect to see
Steve Cunningham: to typical seasonality as we move through Q1. You can see that, you know, particularly in Q4,
Steve Cunningham: On the consumer side, you can see that the timing of that move around month to month, depending on the timing of certain holidays, but you have tended to see that happen pretty consistently. And with Q1 coming online,
Steve Cunningham: Some of that could carry over a little bit into January, but you typically see it fall off fairly quickly as you move into the post-holiday and tax refund season. So I think from our point of view, the seasonality that we've seen over time, it still holds.
Great. Thanks so much.
Speaker Change: The next question is from David Scharf with JMP. Please go ahead.
Speaker Change: Thanks. Thanks for taking my questions. David, maybe just following up on some of the...
sort of top-down sentiment commentary you provided.
Speaker Change: Regarding the sort of consistent comment that you could grow faster, but...
Speaker Change: know it's not in the best interest. As you think about the consumer, you know,
Speaker Change: are you seeing any signs of what you would call a healthier consumer versus a year ago or rather
Speaker Change: Are you sitting on a loan book that has better consumers because you tighten credit? Just trying to get a sense as you kind of gauge the macro environment, whether it's just sort of stable and reflecting the credit actions you've taken over the last couple of years, or if in fact there are any indicators out there that...
you know.
are some green flags that say, you know what, maybe...
Maybe we will loosen the credit box a little.
Thank you.
Speaker Change: We see the consumers that we target kind of more globally being very strong.
Speaker Change: We think that segment of the population continues to benefit from a very strong labor market and rising wages.
Speaker Change: and in that environment, that's a very conducive environment for us.
Speaker Change: In terms of the overall portfolio, I think we were actually a little light on risk a year ago, and we added a bit of risk during the year, not a ton, and most of it actually in the first half of the year, and then kind of maintained in the second half of the year.
Speaker Change: So, as you kind of play that forward through 2025, I would not expect kind of major changes in the performance of the portfolio, because as you know, our consumer book is very short-term.
Speaker Change: and Nature, so most of that additional risk you would have seen by the end of 2024. So overall, we feel really good about the book that we've already originated, but also the continued health.
of
Speaker Change: The kind of non-prime consumer which makes us feel good about the performance of the book going forward, but also our ability to originate
Speaker Change: Small business side, I would say if anything we feel better about the health of small businesses across across the country
Speaker Change: I think they have had one more year to build strength kind of following the pandemic and following the high inflationary years of kind of, you know, kind of 22, early 23. And so we're feeling also very good about kind of the general health of small businesses.
Speaker Change: Got it. That's so helpful, Culler. And on the SMB side, boy, this may be real early.
But based on either just maybe informal chatter or surveys
Speaker Change: and or the vertical, you know, the industry mix of who you lend to. Do you anticipate any impact from just all of the noise around tariffs impacting the demand for your credit?
Speaker Change: I mean, yeah, it certainly could, it depends how large the kind of macro impacts are. But you know, there's businesses that will benefit from the tariff and businesses that will...
you know, get hurt from the terrorists.
Speaker Change: And we have an extremely diversified small business loan book, as we discussed before. And so, you know, we largely think that will balance out. We don't – there's not any concentrations in our loan book, say, you know, from wholesalers, for example, that we'd be maybe more nervous about.
Speaker Change: So, yeah, too early to know for sure. Obviously, no one knows, you know, how big or impactful tariffs will be, but, you know, we've certainly spent plenty of time thinking about it and don't have any particular areas of concern.
Speaker Change: Got it. And then, you know, just lastly, I'm going to re-ask maybe Moshe's question on competition, just to make sure I'm clear. You know, obviously there's been a lot of...
Speaker Change: private credit flowing into the personal loan market in the last 18 months. But that's more of the near prime, sort of high teens APR up into the maybe one main.
Speaker Change: 30% range. Has there been any new private capital flowing into your tier of lines of credit personal loans, your credit tiers?
Speaker Change: I mean we have the same competitors we had five years ago and you know I think our growth rates just been much higher than theirs and so we're you know kind of as relative to their size we're much bigger than them than we were five years ago we were already bigger than them so
Speaker Change: You know, we haven't seen it. I think it's, you know, the...
Speaker Change: debt markets have been good lately so I think maybe some of our competitors have had a little easier time accessing them but we have to and that's certainly what helped fuel our growth over the last couple years.
Got it. Great. Thanks so much.
Yep.
Speaker Change: Again, if you have a question, please press star then 1. The next question comes from John Hecht with Jeffries. Please go ahead.
John Hecht: Afternoon guys. Thanks for taking the questions. Congratulations on another strong year of growth.
John Hecht: First question is just, you know, maybe we haven't talked about this as much as kind of recently, is the mix of new and recurring customers.
John Hecht: in both portfolios, the small business portfolio and the consumer portfolio. And I know sometimes you give an update and sometimes you don't, but I'm wondering, you know, has that generally over the past year, has that shifted? And as you look to 2025,
John Hecht: Where do you see the better opportunity to contribute to growth? Is it lean into new customers or to harvest the recurring customer?
Hey, John.
John Hecht: So one reason we don't talk much about the new customer mix anymore is because it's just been remarkably stable for such a long period of time.
John Hecht: for quite some time, so there's really not much to say about it like when we were...
John Hecht: growing back pre-COVID. It was a little different story. When you think about going forward, I think, you know, we'll continue our focus on attracting new customers into our franchise, you know, with our unit economics approach and our efficient marketing approach that we've
John Hecht: that we've always taken, and obviously we've built a lot of new customers over the years and we'll be focused on continuing to serve those returning customers. So I don't see a big...
John Hecht: shift in the new returning customer mix as you look out you know over time plus or minus around 40 is probably what it will be for for some time.
Okay, and then a second question is, Steve, you mentioned...
John Hecht: some cost of capital savings this year. And I think that's in spite of, I guess assuming, is it no rate cuts or just one rate cut? And then beyond that, maybe remind us the sensitivity around rates.
Speaker Change: you know maybe so for each extra 25 basis point rate reduction what would that present to potential EPS upside you know as it's settled in?
Speaker Change: Yeah, well, I was just giving you an example in my commentary that if the Fed did not cut again, 2025's cost of funds would come down about 50 basis points.
in our guidance.
Speaker Change: We've assumed that there's one cut, so I think, you know, we're below where the market would think it would be, but we think there's a cut at some point later.
Speaker Change: in 2025. And the rule of thumb, just giving our floating rate mix, which is just under 50% of our total interest-bearing liabilities.
Speaker Change: So, just on the floating rate piece alone, every 25 basis points of SOFR reduction would lead to 10 cents of EPS accretion.
Speaker Change: 12 months after that cut happened. So it's an annualized figure. So every quarter point is about 10 cents of EPS over a year.
Okay? Super helpful. Thanks very much.
Thank you.
Speaker Change: The next question is from Vincent Kantic with BTIG. Please go ahead.
Speaker Change: Hey, good afternoon. Thanks for taking my questions and great results.
Speaker Change: First, I wanted to go back to the small business and consumer discussion. You sound very optimistic on both sides.
Speaker Change: My SMB and consumer and so I just want to dig into that a little bit
Speaker Change: and talk about the relative strength between the two businesses when you're thinking about 2025. So, for example,
Speaker Change: And then specifically on S&B, you talked about a lot of optimism there and the business is feeling optimistic. Maybe you could give us some color in what they're borrowing to invest for and in particular your comment about they're bypassing traditional banks. Just wondering what you're seeing there. Thank you.
Speaker Change: So let me take the, you know, in terms of like what we see.
Thank you.
Speaker Change: out through time. So I don't expect that we're gonna see a big shift in the mix between consumer and in our 15% guide between consumer and small business.
Speaker Change: We'll continue to see S&B at around 60% of the portfolio, a little bit over, but maybe a slow grind towards that.
Speaker Change: But as you know, we're kind of indifferent to that with the way our unit economics in our decisioning work we go where We can generate acceptable returns and serve as many customers as we can
Speaker Change: So that's kind of what you should expect when you think about that growth for 2025. And I think then the second question you're asking is about the use cases. Is that right, Vincent? Yeah, that's exactly it.
Speaker Change: yeah I mean I don't I think the the use cases across
Vincent Kantic: and there's a we've got a lot of those listed in our investor deck But it can be any number of depending on the industries that we're serving can be any number of things But we don't think that use cases across the portfolios is going to change in 2025
Speaker Change: Okay, that's great. Thank you. And then I'm switching gears to expenses going forward.
Speaker Change: And especially that it just seems like you have very good efficiency going going forward and I know you gave
you know, the Revenue Guides for 2025, and then...
Speaker Change: the UPS guide so we can back into expenses, but it does seem like your marketing efficiency was really good for the growth you had in Originations.
and then actually the O&T and G&A.
Speaker Change: expenses were better than guidance for the fourth quarter of 2024. So I'm just wondering as you're achieving this growth rate, maybe exiting 2025, should we be expecting like better and better efficiency through the course of the year and then basically entering into 2026? Thank you.
Speaker Change: Yeah, it's a great question. So I think when you think about our fixed costs, our G&A costs, you will continue to see us bring, as percent of revenue, that will continue to scale.
Speaker Change: You typically see in the first quarter of the year, you'll see it be a little more flat to how we exited the year, just because of the timing of merit increases on our workforce, and that'll show up in both ONC and GNA.
Speaker Change: But as you move through the year and exit 2025, you would expect...
Speaker Change: ONT and GNA costs as a percent of revenue to be lower than where they were in Q4 of 2024, just because of the growth and scale of the business.
Speaker Change: In marketing, you know, we tend to talk about marketing as a percent of revenue, but it's really originations.
Speaker Change: that drive the marketing costs. So it'll still, we would still expect it over a year to be around plus or minus 20% of revenue.
Speaker Change: And there could be a slow grind over time to a little bit lower. But again, we lean in and out of that as we see opportunity. So that's why we tend to say around 20%, a little lower in the first quarter, a little higher in the fourth quarter, and then ranging in between during the year.
Okay, great. That's very helpful. Thank you.
Yep.
Speaker Change: The next question is from Kyle Joseph with Stevens. Please go ahead.
Kyle Joseph: Hey, good afternoon. Thanks for taking my questions. I appreciate all the color you gave on first quarter.
Kyle Joseph: and 25Guide. But, you know, as we enter the first quarter, just kind of walk us through, I know it's early, but any kind of what you're seeing on tax refunds and remind us of any sort of differences in terms of tax refund impacts on consumer versus small business.
and potential implications for guidance. Thanks.
Speaker Change: Yeah, I think it's a little early for the refund season. I mean, we would expect, there hasn't probably been like a typical.
Speaker Change: refund season in a long time. It happens over a period of time typically in Q1 and we would expect that to happen again. It's considered in our
Speaker Change: guide and the seasonality for the consumer business. And we don't expect there to be any difference on our S&B business as well from this year's tax season. So that's all sort of incorporated in our first quarter guide. We don't expect any surprises as it relates to tax refunds.
Speaker Change: Understood. That's it for me. Congrats on a good quarter, good year. Thanks guys.
Thanks guys.
Speaker Change: The next question is from John Rowan with Janney. Please go ahead.
Good evening, guys.
Speaker Change: I assume we're still kind of episodic with repurchases throughout 2025, is that correct?
Speaker Change: Yeah, I mean I'll let Steven give you the specific number.
Speaker Change: on the repurchase authorization. I think we're happy directionally. We're not satisfied with where it is and we still think...
Speaker Change: The stock is undervalued. If you just look at our growth rate over the years relative to our PE ratio, you know, the the PEG ratio is well under one. It's closer to a half.
Speaker Change: So we think there's still lots of opportunity in the stock price, which is why we continue to buy back stock. We talk about buying it back opportunistically. That doesn't mean we're only buying it back when there's big drops. It means we buy more back.
Speaker Change: when there's drops in the stock price. But we are regularly buying back stock because we do think that there's significant long-term value still there.
Okay, Steve do you have the repurchase authorization left?
Speaker Change: Yeah, we have plenty. We have around $200 million left of the $300 million for the rest of the year. So, I mean, the authorization, you know, if we were
Speaker Change: Again, we are limited for the most part to 75% of gap net income each quarter.
Speaker Change: You know, if we felt like it was a real opportunity and we had the earnings capacity, our board, I'm sure, would listen to our suggestions for reauthorization, as they've done really since 2017.
Speaker Change: And then just last question, obviously there was a shift in posture from the CFPB with a new acting director and pausing all new roles. And I know, I don't think there's any major roles that are kind of directly impacting your business right now, but is there anything that you're watching that, you know.
Speaker Change: If it doesn't get passed or gets delayed, etc., it could have any impact on your business down the line.
Speaker Change: Yeah, I mean there's two. One is 1071, the small business disclosure rule. It's not a big deal for us. We don't kind of care one way or the other. It's just a little bit of work.
Speaker Change: I would rather not have to keep doing. And then there's the payment provisions of the small dollar rule that were to go into effect in March.
Speaker Change: Again, it kind of limits you to two debits without a reauthorization. It's not that different than our current practices today. So, we do not anticipate a significant impact from that at all.
Speaker Change: But certainly some work to implement and some work to commit to, you know, tweak our algorithms to deal with the new provisions.
Speaker Change: you know, if those don't happen, not necessarily a major positive benefit, but just gives our teams more opportunity to focus on, you know, kind of growth in other areas. All right. Thank you.
Thank you.
Speaker Change: I appreciate everyone joining our call today and we look forward to speaking with you again next quarter. Thanks and have a good evening.