Q2 2025 Enova International Inc Earnings Call
Good afternoon and welcome to the Anova International second quarter 2025 earnings conference call.
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Lindsay: I would now like to turn the conference over to Lindsay. Severe investor relations for Anova. Please go ahead.
Lindsay: Thank you, operator and good afternoon everyone. Anova release results for the second quarter 2025 and in June 30th, 2025 this afternoon after market close.
Lindsay: 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 Irene nova.com.
With me on today's call are David Fischer, chief executive officer and Steve Cunningham Chief Financial Officer.
This call is being webcast and will be archived on the investor relations section of our website.
Speaker 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, 10K.
Speaker Change: Quarterly reports on forms 10 q and current reports on forms 8K.
Speaker Change: Please note that any 4 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 us, gaap reporting manova reports certain Financial measures that do not conform to generally accepted accounting principles.
Speaker Change: We believe these non-gaap measures enhance the understanding of our performance.
Speaker Change: Reconciliations 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 the supplemental financial information on the IR portion of our website.
David: 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. Before we jump into our quarterly earnings discussion. I want to take a moment to touch on the upcoming leadership changes that we've announced this afternoon,
David: After over 12 years serving as a chairman and CEO of Lenova. I've decided that now is the time to transition into the role of executive chairman effective, January, 1 2026,
David: With a full support of the board. This move was thoroughly thoughtfully and deliberately planned as part of the company's disciplined and measured long-term leadership transition planning.
David: And I'm confident that it's the right decision for the future of Anova.
David: In my new role, I'll continue to lead the board. Providing strategic advice to the company facilitating, a seamless transition. And ensuring that we continue our mission of helping hardworking. People get access to fast and trustworthy credit.
David: I've committed to stay in this role for minimum of 2 years. Steve Cunningham, our CFO will replace me as CEO concurrent with my transition to Executive chairman on January 1st.
Speaker Change: And Scott, Cornelius, our Treasurer will succeed, Steve as CFO.
Speaker Change: Having worked closely with both Steve and Scott over many years, I'm confident that they are the right leaders to see Anova through its next phase of growth. These leadership and execution have been critical to our success and performance consistency.
Speaker Change: Is deep understanding of the company's culture processes and strategy combined with this outstanding leadership Acumen. Operational excellence and Decades of financial services experience. Make him an ideal candidate to build on our momentum and position the company for continued. Success. And Scott has been instrumental in transforming and Nova's Financial profile.
Speaker Change: Leveraging his deep Financial expertise to optimize capital structure and enhance. Liquidity refine our role Frameworks and support the company's strategic growth initiatives.
Speaker Change: I'd like to congratulate Steve anscott on their new roles and thank the entire Anova team for their hard work over the years.
Speaker Change: I've never been more excited about a Nova future.
Speaker Change: If I wasn't, we wouldn't be making this transition now.
Speaker Change: We have an incredibly deep team, a strong Foundation, A time-tested playbook, and industry-leading products.
Speaker Change: All clear, signs that we have a lot of success ahead of us.
Speaker Change: Now, turning to our quarterly quarterly results.
Speaker Change: And the second quarter. We once again, leverage the strengths of our team, the breadth of our product offerings, our flexible online, only business model
and the sophistication of our machine learning models to deliver solid revenue and profitable growth.
Speaker Change: Driven by strong demand and stable credit.
Speaker Change: For the fifth quarter in a row, we generate a greater than 20% year-over-year growth and revenue originations and adjusted eps.
Speaker Change: Second quarter, originations increase 28% year-over-year and 4% sequentially to 1.8 billion dollars.
The strong origination growth. Produced a 20% year-over-year. Increase.
Speaker Change: and our combined loan and finance receivables to a record, 4.3 billion,
Speaker Change: Small business products represented 65% of the portfolio and consumer was 35%.
Revenue, increased 22% year-over-year and 2% sequentially to 764 million in the second quarter.
Speaker Change: SMB Revenue increased 30% year-over-year and 7%. Sequentially to a record 326 million.
and our consumer Revenue, increased 428 million 17% higher, than a year ago, basically fat flat sequentially, often unexpectedly, strong, q1, as we discussed last quarter,
Speaker Change: Driven by the operating leverage inherent in our online, only business.
Speaker Change: Growth in EPF again, outpaced, origination and revenue growth.
Speaker Change: Adjusted EPS increased, 48% year-over-year primarily as a result of efficient marketing and a lower cost of funds, combined with our growth.
Speaker Change: Marketing expense was 19% of our total revenue slightly below our expectations and compared to 19% in Q2 of 2024.
Speaker Change: Credit quality continues to be solid across portfolio.
Speaker Change: The Consolidated net charge off ratio for the quarter to climb to 8.1% from 8.6% last quarter and 7.7% in Q2 of last year.
Speaker Change: Overall our consumer customer base remains on solid, footing driven by healthy wage and job growth and low levels of unemployment.
Speaker Change: As you may have seen the US economy, added 147,000 jobs in June, well above the forecast.
Speaker Change: While the unemployment rate fell to 4.1%.
Speaker Change: And hourly wages continued to rise.
Speaker Change: these data points, continue to highlight ongoing resilience in the labor market,
Speaker Change: While the labor market remains strong.
Speaker Change: It's important to note that we have carefully, designed our business to operate and succeed in any environment.
We serve 9, non Prime borrowers, many of whom regularly face, and come volatility.
Speaker Change: And are experienced in managing variabilities, and their finances.
Speaker Change: Because of this recessions or Market downturns tend to have less of an impact on our non-prime customers than on Prime Borrowers.
Speaker Change: and as we've discussed before,
Speaker Change: Our unit economics framework combined with our sophisticated technology and analytics are designed to assess risk and real time.
Speaker Change: With a short duration and payment frequency of our products providing rapid feedback.
Speaker Change: This says, enabled us to consistently deliver strong growth in margins.
while driving shareholder value whether facing significant macroeconomic shocks, like the Great Recession,
Speaker Change: Coid or Rising inflation as we experienced in 2023.
Speaker Change: Are these more typical seasonal and cyclical variations, and demand and sentiment?
Speaker Change: In Q2 of this year while the overall economy remains solid, we did observe some of these minor cyclical fluctuations. I just mentioned particularly in our consumer book early in the quarter,
This was likely in response to the uncertainty around the impacts of tariffs on the job market and inflation.
Speaker Change: This lets a slightly elevated default metrics from new customers.
Speaker Change: In response, we quickly tighten our credit models to slow originations.
Speaker Change: With the combination of The Sassy back. We get from the design of our products, our sophisticated models, and our world-class team.
Speaker Change: We routinely make these types of adjustments to ensure our originations are meeting our credit and our role targets.
Speaker Change: For Q2, this is my consumer. Originations were slightly softer than we anticipated, but still reflected Healthy Growth.
Speaker Change: And combined with the benefits of our Diversified business.
Speaker Change: We're able to generate almost 30% Consolidated, origination growth.
Speaker Change: Along with strong profitability.
Speaker Change: And looking forward performance in our bakbuk remain strong. And because we adjust it so quickly, we do not anticipate any significant impact to our consumer business in the upcoming quarters.
Speaker Change: As we know from our years of experience, it is normal to see short-term fluctuations in demand and credit and anyone product or customer segments.
Speaker Change: Highlighting, the importance of the diversification in our business.
Speaker Change: Which gives us the flexibility to shift resources between consumer and SMB as macro conditions dictate.
Speaker Change: This is unique in our industry and we believe critical to delivering long-term consistent growth and stable results.
Speaker Change: Our SMB business had another very strong quarter as we continue to benefit from from our leading brand presence.
Speaker Change: Scale and low levels of competition.
Speaker Change: Resulting in solid demand and credit across the portfolio.
Speaker Change: Originations for SMB were a record. 1.2 billion in Q2 marking the fourth quarter over a billion dollars.
Speaker Change: Insights from internal and external sources reflects solid underlying trends for small businesses.
Speaker Change: and conjunction with Acuras, we released a sixth iteration of our small business cash flow Trend report in May
Speaker Change: This offers key insights into the state of small, businesses and highlights ongoing Trends, observed over the past year.
Speaker Change: Consistent with previous findings, the survey found that small businesses feel increasingly optimistic about future growth.
Speaker Change: As over 90% of small business owners are expecting moderate to significant growth over the next year.
Speaker Change: In addition, 76% of small businesses. Now, preferred non-dependent lenders for their speed and convenience and all-time high, according to the survey.
Speaker Change: These findings highlight continued optimism among small businesses, which is a key driver of economic growth and job creation.
Speaker Change: access to Capital is crucial as a vest and growth opportunities, manage cash, flow needs and whether unexpected challenges
Speaker Change: and we believe our differentiated Solutions position us exceptionally well to continue to meet these demands.
Speaker Change: In addition, our SMB, portfolio continues to be well Diversified across a wide range of Industries geographies loan sizes, product types.
And price levels.
Speaker Change: As I mentioned on our last call, we continue to expect that terrorists will not have a sub substantial impact to our portfolio. Largely due to the diversity size and industries of our Borrowers.
Speaker Change: Before I wrap up, I'd like to spend a few moments to discuss our strategy and outlook for the remainder of 2025 and Beyond.
Even I share a common Vision that are focused growth strategy continues to be the right path forward for the company.
Speaker Change: We remain committed to prudently managing the business to produce sustainable and profitable growth.
And we believe our Diversified business drawing competitive position, world-class team advanced technology and analytics platform.
Speaker Change: position is very well for the remainder of the year, and Beyond
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 Steve's remarks will be happy to answer any questions. You may have.
Steve: Thank you, David and good afternoon, everyone.
Steve: I'd like to start by thanking David Fischer for his exceptional leadership and guidance over the years.
His vision and dedication have not only shaped the trajectory of our business. But also a Nova's culture of Excellence collaboration and Innovation. And I'm thrilled to have the opportunity to become CEO in January and build upon the standard of Excellence that David has established at our company.
Steve: I know he'll continue to be a valuable resource to me and the rest of the Nova as executive chairman of the board on the Strategic direction of the company. And I look forward to continue to work closely with them.
I'd also like to Echo David's sentiment. I've never been more excited about what lies ahead. We have an incredible team, a diversified business strong, competitive position, and world-class risk, management and Technology.
Steve: We'll continue to execute our Focus growth strategy to produce sustainable and profitable growth while delivering on our commitment to driving long-term shareholder value and our mission of helping hardworking. People get access to fast, trustworthy credit.
I'm also pleased to have Scott assume the CFO role in January.
Steve: Many of you have gotten to know, Scott over the years and is David noted.
Steve: He's been an important part of transforming the financial profile of our business.
Steve: I'm confident he will thrive in his new role while continuing to build on the momentum, we've created together.
Steve: Now, turning to our second quarter results, total company revenue of 764 million, increased 22% from the second quarter of 2024. Exceeding, our expectations, and driven by 20% year-over-year growth in total company, combined loan and finance receivables, balances, on an advertised basis.
Steve: Total company originations during the second quarter Rose 28% from the second quarter of 2024 to 1.8 billion dollars.
Revenue from small business lending increased 30% from the second quarter of 2024. The 326 million a small business receivables on an advertised basis ended the quarter at 2.8, billion dollars or 22% higher than the end of the second quarter of 2024.
Steve: Small business originations Rose 35% year-over-year to 1.2 billion dollars.
Steve: Revenue from our consumer businesses. Increased 17% from the second quarter of 2024.
to 428 million as consumer receivables on an advertised basis into the second quarter at 1.5 billion dollars or 17% higher than the end of the second quarter of 2024,
Steve: Consumer originations grew 15% from the second quarter of 2024.
Steve: 564 million.
Steve: But the third quarter of 2025, we expect total company Revenue to be more than 15% higher than the third quarter of 2024.
Steve: This expectation will depend upon the level timing and mix of originations growth during the quarter.
Steve: Now, turning to credit, which is the most significant driver of net, revenue and portfolio of fair value.
Our consolidated credit performance continues to demonstrate that our Diversified product offerings and discipline around our Unity economics enables consistent results across different operating environments.
Steve: The Consolidated, net revenue margin of 58% for the second quarter was in line with our expectations and reflects continued solid credit performance.
Speaker Change: The Consolidated net charge off ratio. For the second quarter was 8.1% a 50 basis, point Improvement, sequentially and slightly higher than the second quarter of 2024, primarily from the year-over-year, trends and consumer. Net charge offs as David discussed
Speaker Change: The quintile and year-over-year Improvement in the Consolidated, 30 plus de delinquency rate as well as the stability in the Consolidated portfolio of fair value. Premium,
Speaker Change: Reflect expectations for stable future Consolidated, portfolio, credit performance.
Speaker Change: Small business credit performance remains strong.
Sequentially and compared to the second quarter of 2024.
Speaker Change: And that charge operatio that Revenue margin, fair value, premium and 30, plus delinquency rate all flat reflect continued and expected, stable, credit performance.
Speaker Change: Consumer Credit also remains solid consumer, net revenue margin for the second quarter was 50%, flat sequentially and in the same range we have seen over the past 2 years.
Speaker Change: the consumer net charge off ratio declined, sequentially 70 basis points to 14 and a half percent following, our typical seasonality
Speaker Change: Remained within our historical ranges.
This is David, noted was influenced by some minor fluctuations and consumer. New customer performance early in the quarter, along with our adjustments to originations. As part of our normal credit risk management process,
as we've discussed in the past quarter to quarter net charge, off rates, delinquency rates and net revenue. Margins for our portfolios.
Speaker Change: Are heavily influenced by the seasoning of origination vintages along their expected loss curves.
Speaker Change: Sequential changes in the growth in mix of origination as well as our balanced approach to growth across varying macro environments.
Speaker Change: This is why we have a range of expected credit metrics. You should anticipate that we will have results through these ranges over time.
It's important to understand that with the results, anywhere in these ranges and even temporarily above or below.
Speaker Change: we are still able to produce solid returns as we did this quarter,
our unique economics, decisioning framework, considers the lifetime return on Equity of our product managers and incorporates, not just the level of credit risk,
Speaker Change: Pricing for the risk being taken.
Speaker Change: the risk return profile is reflected in the level and trend of our fair value premiums,
Speaker Change: At the end of the second quarter, the fair value premium on our Consumer Portfolio. Remained consistent with levels of reserved over the past 2 years.
Speaker Change: Indicating a stable risk return profile and strong underlying unit economics for our consumer portfolio.
Speaker Change: Looking ahead. We expect the total company, net revenue, margins for the third quarter of 2025 to be in the range of 55 to 60%.
Speaker Change: This expectation will depend upon portfolio payment performance and the level timing in mix of originations growth during the quarter.
Speaker Change: Now turning to expenses, total operating expenses for the second quarter, including marketing, where 32% of Revenue compared to 34% of Revenue. In the second quarter of 2024,
Speaker Change: as we continue to see the benefits of our efficient marketing activities,
Speaker Change: The Leverage inherent in our online. Only model in thoughtful expense management.
Speaker Change: Our marketing spend continues to be efficient, driving strong originations growth and was in line with our guidance range, for the quarter.
Speaker Change: Marketing costs, as a percentage of Revenue were 19% flat compared to the second quarter of 2024.
Speaker Change: we expect marketing expenses to be around, 20% of revenue, for this third quarter, but will depend upon the growth and mix of originations
operations and Technology expenses which are driven by growth and receivables and originations declined to 8% of revenue. For the second quarter for 64 million compared to 9% of Revenue, or 55 million in the second quarter of 2024.
Speaker Change: Given the significant variable component of this expense category. The quentel increase in costs should be expected in an environment where originations and receivables are growing.
Speaker Change: It should be around 8 and a half percent of total revenue.
Speaker Change: Our fixed costs continue to scale, as we focus on operating efficiency and thoughtful expense management.
Speaker Change: General and administrative expenses for the second quarter, increased to 41 million or 5% of Revenue.
Speaker Change: Versus 40 million dollars or 6% of Revenue in the second quarter of 2024.
While there may be slight, variations from quarter to quarter, we expect GNA expenses in the near term should be around 5.5% of total revenue.
Speaker Change: We continue to deliver solid profitability and strong Returns on Equity this quarter.
Speaker Change: Compared to the second quarter of 2024 adjusted EPs and non-gaap measure increased 46% to 3.23 cents per diluted share. Delivering an annualized, second quarter return on Equity of 28%.
Speaker Change: We ended the second quarter with 1.1 billion dollars of liquidity, including 388 million of cash and marketable securities 712 million of available capacity on debt facilities.
Speaker Change: Our cost of funds to 8.8% or 15 basis points, slower sequentially.
Speaker Change: primarily as a result of strong execution on recent financing transactions,
Speaker Change: Continuing our track record of strong Capital, markets execution, and solid credit performance.
Last week, we closed a new secured Warehouse to support growth in our net. Credit line of credit products.
Follow our credit performance has allowed us to expand our lender group and reduce our spreads on this new Facility by 125 basis points compared to a similar facility that closed last year.
Speaker Change: Before wrapping up with our near-term, expectations. I'd like to discuss our progress with unlocking shareholder value.
Speaker Change: We've seen improvement in our PE ratio over the past year that better reflects the strength of our business.
Speaker Change: PEG ratio on 2025 estimates was only 0.3 at the end of the second quarter.
Speaker Change: And we we remain. Well positioned to use our opportunistic, share repurchase program to continue to close, its valuation disconnect with our strong and consistent results.
Solid balance sheet and business fundamentals.
Speaker Change: During the second quarter. We acquired 574,000 shares at a cost of 54 million using nearly all of our 57 million dollars of capacity that was available under our senior, no Covenants.
Speaker Change: We started the third quarter with share repurchase capacity of approximately 60 million dollars available under our senior note Covenants.
Speaker Change: 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.
Speaker Change: To wrap up when we summarize our near-term expectations.
Speaker Change: For the third quarter, we expect Consolidated Revenue to be more than 15% higher than the third quarter of 2024 with a net revenue margin in the range of 55 to 60%.
Speaker Change: Additionally, we expect marketing expenses to be around. 20% of Revenue.
Speaker Change: Costs to be around 8 and a half percent of Revenue in GNA costs to be around 5 and a half percent of Revenue.
These expectations should lead to adjusted EPS. So, the third quarter of 2025 that is 20 to 25% higher than this third quarter of 2024
Speaker Change: For the full year. We now expect Revenue growth compared to the full year 2024 of around 20% and adjusted, EPS growth of around 30%.
Speaker Change: Our third quarter and full year 2025 expectations, will depend upon the path of the macroeconomic environment and the resulting impact on demand customer, payment rates and the level timing and mix of originations growth.
Speaker Change: Our second quarter results, reflect the strength of our Diversified product offerings, and the ability of our team to consistently deliver, strong growth revenue and profitability while maintaining solid credit.
Speaker Change: And we remain confident in our ability to generate meaningful Financial results for the remainder of 2025 and Beyond.
Speaker Change: With that. We'd be happy to take your questions, operator.
Speaker Change: We will now begin the question and answer session.
Speaker Change: to ask a question, you may press star then 1 on your telephone keypad,
Speaker Change: If you are using a speaker-phone, please pick up your handset before pressing the keys.
To withdraw your question. Please. Press star. Then 2
At this time, we will pause momentarily to assemble our roster.
Speaker Change: Our first question today comes from Moshe Orin, buck with TD Cowen, please go ahead
Moshe Orin: Great. Uh, thanks and congrats, uh, David Steve Scott, um, maybe to kind of just start a little bit on, uh, uh, the credit side of things, the comments that David both both you David and, and Steve made, uh, about the consumer portfolio. Could you maybe flesh that out a little bit more? Like, what is it? That, you know, now gives you the confidence that whatever issues you saw at the beginning. Uh, you know, the beginning of the quarter are not, you know, persistent and how does that reflect itself in the, you know, in, in originations, you know, kind of loan growth in the back half of 2025,
Moshe Orin: Sure, absolutely. So first of all, you know what, I think 1 thing to clarify is we uh essentially have 5 consumer products. This was 1 of the 5. So this wasn't even broad-based across our Consumer. Portfolio was in is in 1 1 of our 5 products and that not the biggest product. So and that doesn't even count the small business side of of the house. So um, again the the advantage of having a diversified business and like
We probably would you know like we probably spent more time on it. The script that we needed to. We knew somebody would ask the question because they would see the higher DQ rates and the consumer book. Um and so we did decide to take it, take it head-on. Um but these were, you know, slightly elevated defaults. Still performing within our Roe targets. But you know, kind of at the very, very low, end of the Roe targets. I mean, that kind of defaults at the high end of tolerable defaults,
Moshe Orin: Back on originations and credit came back in line. Just like we would expect, we do it hundreds of times a year. Uh, we do it the other way as well. Credit looks too good or cpfs look too low and we expand to get more volume when when we see the opportunity. So it happens all of the time. Um, most of the time, you know, averages out with another product that, you know, is doing better than expected. And we don't, we don't need to talk about it. This quarter. Most of the other consumer products were kind of, right where they're supposed to be this 1 was a little bit worse, we dressed it early in the quarter and now credits back to normal. Um, and even with, as we, as we mentioned on the call, even with um, pulling back on that 1 product was still generated, you know, upper teens origination growth year year-over-year and obviously, in in consumer, um, and obviously even stronger, um, Consolidated with the the great results from the, um, the small business
Moshe Orin: Book. So again, this is not a big thing for us. It happens all the time. We're just trying to get ahead of the question. We knew we'd we'd get from you or others about, you know, slight slightly high elevated. DQ rates on the consumer side,
Got it. And, you know, maybe just to talk for a moment about the the small business, uh, you know, normally you do have a, a seasonal, uh low, a lower level of originations. Uh, you know, in the second quarter from the first and, you know, talked about the strong environment maybe again. Could you expand on? What you, what you saw in there, that allowed, you know, that allowed you kind of to do that in, uh, you know, and how do you sort of think about
Moshe Orin: um, you know, the level of, uh, you know, certainty or uncertainty, I guess, uh, in the uh, in the minds of, uh, you know, if you're a customers
Speaker Change: Yeah, I you know to small business just had a couple Rock Solid quarters in a row. Um I'd say internally it's not like we necessarily looked at the business and said this thing is just you know doing great. Let's lean in, let's lean in. It's just so solid. We're just it's almost like running downhill. It's not like you're trying that hard. It just kind of happens. Credit has been incredibly stable. And really, since that cute
Speaker Change: that third quarter of 2023, where we had the little credit flip that kind of resolved itself almost immediately. Um, we've had, you know, probably 6 7 quarters of just Rock Solid credit and when you have Rockefeller credit and you're a very strong competitive position. Um, yeah, my origination right, you know, generating origination growth is like I said, it's kind of like running downhill. It's not like we were trying super hard to do it.
Speaker Change: We just let the business perform the way it was performing and, um, you know, looking looking forward. Um, you know, just like we said, we have confidence in the consumer side because we address the issues. I think we have really good uh pretty, really good confidence on the small business side just because things can continue to be very, very solid. Um, this is just right down the middle of the Fairway, you know, day after day week after week, month after month.
Speaker Change: Great. Thanks very much.
Speaker Change: Yep.
The next question is from David sharf. With Citizens Capital markets, please go ahead.
Speaker Change: Great, thanks. Uh, good afternoon. Thanks for taking my questions. Um, I I I appreciate the uh, the proactive, uh, discussion on uh, on the delinquency of fluctuations. Hey, just just curious David. I think last quarter you may have
Speaker Change: Specifically mentioned about taking more market share in the CashNet product, um, which I believe is the highest April is, is that the 1 of the 5 products that, that you were referring to?
Yeah we basically have 2 subprime Products, LLC and installment um 2 near Prime Products, LLC and installment and they're they're pretty different products at. At the end of the day, they're not just like different forms of the same thing, especially in the near Prime side and then we have Brazil, um, in in a different Market. Um, so like I said it, you know, those
Speaker Change: got it understood and then um, you know, I'll Echo motion comments in terms of congratulating uh,
Um, everyone on on the leadership transition. Um, it's almost compulsory on these calls to to kind of ask, if if there's anything David you you you want to add just about maybe why why this was the right time and and and your mind in terms of uh stepping stepping aside.
Speaker Change: Yeah, well I look, I think the business is on super stable footing and if it wasn't I wouldn't be making this this change this change now. Um, I have more riding on the future of Anova than pretty much any other. If not, not, not pretty much then any other human being on the planet. Um, so I wouldn't, I wouldn't be making this change if I didn't think it was the right time and if I didn't think it was the right, the right time and Steve was the right person to take over from me. We've worked together for 9 years, we have an incredibly strong relationship.
Speaker Change: Um, we've seen not, we see eye to eye 99% of the time. And so, um, you know, great opportunity to make sure nobody's future is, uh, handed over to somebody who, who, who deserves to have that opportunity.
Speaker Change: Great, great. Thanks.
Speaker Change: Yep.
Bill Ryan: The next question is from Bill Ryan with Seaport research Partners, please go ahead.
Bill Ryan: Uh, good afternoon. I'd also like to express my, uh, congratulations to everyone. Um, a couple questions, uh, first on the marketing at, uh, obviously came in a bit better. The next expectations as a percentage of, uh, revenues as you discussed. Uh, also look good as a percentage of originations. Could you, maybe give us some idea. Was that related to channels repeat customers. Um, you know, is it the small business just being more efficient? Uh, if you could maybe provide some insight on that?
Bill Ryan: Yeah. Hey Bill, this is Steve, it was largely, you know, driven by a little bit, as David mentioned, a little bit lower origination expectation, or a little bit lower originations in consumer than we expected, which would lead to uh, you know, less marketing.
Uh, in that channel. Um some of that though was was definitely offset by the strength and small business, so you saw it be a little bit better, maybe than what we, um, that ratio of being a little bit better than what we would have thought, but um, still pretty close to the range that
Bill Ryan: That we would have expected because of the the small business growth as well.
Bill Ryan: Okay, and just a quick follow-up on the consumer portfolio. Uh, the yield was down a little bit quarter over quarter. I think it's about 250 basis points, was that related to some of the credit adjustments that were made at the beginning of the quarter. And do you kind of expect that maybe to bump back up over the next couple quarters to uh, trend line?
Speaker Change: No. I mean that was really more, you'll see that ratio can move around a little bit. Um, as we're opportunistic across those products that David mentioned because they all play in slightly different APR ranges.
Speaker Change: Um, so I think you're you're probably going to see it. Probably hang around the 115 to 120, as you look out, the rest of the year is what I would expect to
to see there. Okay.
Speaker Change: Thank you.
Speaker Change: You bet.
Speaker Change: The next question is from John hex, was it? Uh Jeffrey. Please go ahead.
Hey, how you guys? Thanks very much, and, um, uh, congratulations to all of you guys. Uh, this is exciting for the company and, uh, wish you all the best in the new roles and look forward to working with you. Scott. Um, uh, I just just, just a couple of questions that most of mine actually just were recently asked and answered. But, you know, thinking about marketing channels that you've been using any, any change of that? Um, I know you've, you've been more active, um, on these small business stuff within, uh, on TV. But anything to think about, uh, productivity,
Speaker Change: Marketing channels and anything. You're learning over time, especially as AI is being developed.
Speaker Change: A day is figuring out which types of programming work. The work, the best.
Speaker Change: That's really amazing for us and our and be able to plug that all into our algorithms and, you know, um, become more and more efficient with marketing. So that's, that's the big change and it's incremental, but it happens every single quarter, every single quarter, we find new opportunities, to use technology to our advantage through, in a marketing channels.
Okay. And then, you know, I mean thinking, I mean, this is sort of a mishmash of questions but like you've got the private credits, influencing the capital markets are funding, you know, ability within Consumer Finance, um, you know, spreads are at all time low. So obviously the liquidity and the funding component of the market is very constructive, um, and uh, you know, interest rates, you know, have come down a little bit, may come down a little bit more. So, Steve, you know, just thinking about, you know, that set of opportunities for you and your balance sheet, positioning, you know, how, how does that change or does that impact kind of the way you think about, you know, the next several quarters, um, in terms of funding and balance sheet management,
Speaker Change: Yeah. I mean the the credit markets have been uh, pretty favorable and you saw uh last week, we actually uh had a second generation uh, uh, facility against our net credit line of credit business, which saw some pretty uh, significant decrease.
And spreads. So I think as we always do um Scott and his team will continue to be opportunistic on you know, making sure we are raising the right level of liquidity at the right time. Um and balancing that with, with what we need.
Speaker Change: So I think right now the the markets are pretty favorable. We're not counting on rate cuts. Um, our Outlook doesn't assume that there's going to be any rate cuts the rest of this year.
So I think we're we're pretty well positioned on the balance sheet and the performance of the portfolio's have us you know really good spot to execute when we need to Across the the different channels we play in.
Speaker Change: Great. Thank you guys very much.
Speaker Change: Thanks.
Speaker Change: again, if you have a question, please press star then 1
Speaker Change: The next question is from Vincent kantik. With btig. Please go ahead.
Hey good afternoon. Thanks for taking my questions and also want to put my congratulations David. It's been a pleasure uh working with you and then uh for Steve and Scott look forward to continuing another relationship. Um so first question just you spoke very favorably about the macro Trends and SMB and then also uh, you know, talking positively about consumer other than the uh the little blip you had in the second quarter. And I guess with all that um you know macro positivity just wondering how you think that translates directly you know into the originations growth or Revenue growth because it seems like regardless of the
Speaker Change: Environment. Uh, you do tend to do well. Um, so I'm wondering if I should we should be reading into anything in terms of the macro Trends, kind of turbocharging, uh, any of the growth and then maybe alternatively, are there any macro trends that you're watching and and weary about thank you.
Speaker Change: Yeah sure. Um and it's it's a really good question look, as we've been talking about for probably coming out a year now, uh, we think even with the solid macro Trends, it's a good time to be balanced between origination growth and and risk. And I guess that's easy to say when you're generating the kind of growth that we're generating while being balanced, not like you know we're a single digit, you know, grower or north to 20% grower, even being balanced. And um, you know, I think just the inherent risk in any economy and certainly with the bit more of uncertainty we've seen over the last, you know, couple years, almost 5 years actually since Co. But there's no reason to be, um, you know, overly aggressive when we can grow as much as we're growing while being balanced and you know certainly and you know we don't have to get into the long valuation of discussion right now. You know when you look at you know our PEG ratio you know well well below 0.5 and the closer to 0.3 and and foreign earnings you know it's there's there's a little bit of a disincentive there to grow to grow.
Speaker Change: Faster as well. Um, again, that doesn't mean we're going to retrench, you know. And and you know, be growing at, you know, a single digits or or low teens that that's not our intent at all. But it, it does kind of reinforce our beliefs that being balanced as a smart place to be. And we don't, you know, we don't need to be flooring. It um, you know, at the moment
Speaker Change: Okay, that's very helpful. Thank you. Um, and then a follow-up kind of on the the line of some of the questions earlier just about the, the blip. Um, in the second quarter, I think the people reason people are asking is just, you know, if there's something that we should be watching and maybe it was just I don't know if there's just a macro Trend like
Kind of you mentioned 1 product, but if there's any kind of particular customer set that we should be watching for just in a future that maybe like, you know, with the blip, it kind of takes out, um, a little bit of the addressable Market or, or something that we should be watching. So just, you know, if there's anything you could help in terms of of categorizing, that, that would be helpful.
Speaker Change: Yeah, no, really good. Clarification question, actually. I would say no and almost like categorically. No. Um, it it just like it can happen, right? I mean, it's a Confluence of events that you know, that we Market differently, the products are positioned slightly differently. The competitive Dynamics.
Speaker Change: Can be different and like you know, all the things can move against you for a short period of time and then you adjust and recalibrate and get back on track. And if we saw kind of broad-based,
Speaker Change: um,
Issues across consumer I you know, we'd be talking about it very differently and if we weren't able to address the credit issues, we had um, you know, quickly and early in the quarter. We'd be talking about a very differently as well. But being isolated to 1 product us being able to bring it back in line extremely quickly. Again, internally operationally this was amount event and um, again, as I mentioned, the only reason we spent, you know, the time on it and and our prepared remarks because we know we'd get, you know questions, once you guys dug into the numbers about, you know, the kind of the slightly higher, DQ rates and then the consumer books. So um, no I think we're we're feeling really good, um, early about all of our consumer products, you know, headed in
Into the back half of the year.
Speaker Change: Okay, great. Uh, very helpful. Thank you.
Joseph: The next question is from Kyle. Joseph with Stevens, please go ahead.
Kyle Joseph: Hey, uh, good afternoon guys. Uh, let me Echo. Congratulations, uh, on the transition. Um,
On on Johnny's question earlier, you know it sounds like from a macro perspective demand is really strong for both SMB and consumer but kind of piggybacking on his question. Can you kind of give us a sense for kind of the competitive environment and how that, uh,
Kyle Joseph: How that differs between consumer and and SMB just David earlier, you referenced kind of that. SMB is almost easy or like sliding downhill at this point. And I, and I, I, I don't doubt that from your perspective. I'm it's it's a hard business. But once you are where you are, I'm sure it's relatively easy but just kind of want to get a sense for the, uh, the competitive, uh, Dynamics there.
Kyle Joseph: Yeah, I mean, look it some of this is cyclical and some of it, you know, like um the competitive dynamics of a flow about a year and a half ago, we would not have been saying the same thing consumer was, you know, rocking a rolling and, you know, uh, possibly we're kind of recovering from that little credit blip and and, and 2023. Um, you know, so now you see a little bit of the opposite Dynamic and that's the great thing about having a diversified business that can they can play off each, they can play off each other. Uh, I would say that the competitive Dynamics on the small
Kyle Joseph: Business side are more stable, there's fewer players, we know who they are, brand matters, more, um, and you know, so that, you know, that, that super strong position, we have an SMB. I think helps with the stability that, on the consumer side, there's many, many more players, it's much more fragmented. And so, you know, if a couple of them, get aggressive for a quarter or 2, um, you know, that that can be a little bit of a headwind, but as we've seen, you know, over time that tends to result in, you know, issues for our competitors over time and, you know, they end up pulling back and ends up being a Tailwind in in future quarters. So, um, we still feel great about our competitive position on on both products and, you know, they'll, they'll EB and flow over time. And, um, you know, again, as we look into the back, half of the year, we look at our, you know, our consumer business looks as good as it is has ever looked. Um, it's bigger, it's stronger, the technology is better, the models. Uh, are more predictive
Kyle Joseph: And you know kind of nothing new on the competitive front. That would uh that would concern us
Kyle Joseph: got it. That's it for me. Thanks for taking my question.
Kyle Joseph: Yep. Thanks.
Once again, if you have a question, please press star then 1.
Kyle Joseph: The next question is from John Rowan with Jenny, please go ahead.
John Rowan: Good afternoon, guys. I'll also add my congratulations as well. Um, I guess it's 2 really quick questions. Um, can you Steve uh, should we talk about whether or not the heightened DQ's affected? The fair value marks at all?
John Rowan: um whereas the fair value is really looking at um a lot more like at the unity economic decisions that we make right lifetime expectations and so
Um, it they both both portfolios, reflect a lot of stability and have for now, you know, over the past 2 years. So,
John Rowan: Those are all incorporated into the fair value.
John Rowan: Um for sure. And you can see that we continue to expect there to be a lot of stability.
John Rowan: Um, in the credit, in the credit Outlook, I, I would just add, you know, in the consumer side and on the small business side, we've talked historically about ranges, um, that we expect every quarter. You know, SMB, we typically would expect net charge offs, every quarter to be in the 4 and a half to 5% range. Uh, we've been there for a long time,
John Rowan: Consumer is a bit more seasonal. Um I would expect a second quarter ratio which tends to be a bit more of the trough seasonally to be in the 13-year range in Q4. I would expect it to be 15 to 17% and you can go back and look historically.
John Rowan: um, and the, the first and third quarters tend to be somewhere in between, uh, those are all perfectly acceptable and sometimes we've been below sometimes, we've been a little bit above and I think you can see
John Rowan: Um, it doesn't impact moving through those ranges does not impact the the overall ability to drive, you know, strong results. So, just just a little reminder on how to think about the the quarterly metrics within the context of
John Rowan: the way we think about making decisions and the way, the fair value calculations work,
Speaker Change: Okay, fair enough and just last question for me. Uh, can you remind us how much of your debt is floating rate and what the rate sensitivity is? I know your guidance doesn't have any rate Cuts in it, but um obviously there's still a possibility of that.
Yeah, it's about it's been about 50% floating uh for a while. And it's it's really most sensitive to uh Sofer.
Speaker Change: Okay.
Speaker Change: All right. Thank you.
Yeah.
Speaker Change: This concludes our question and answer session. I would like to turn the conference back over to David Fischer for any closing remarks.
Uh, thanks everybody. Uh, for joining our call today. We really appreciate your congratulatory remarks, uh, you'll have me on this call for the next next couple of quarters. So I'm not going away anytime soon, uh, before Steve takes over next year. So thanks again and have a good rest of your day.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect