Enova International, Inc.

Good afternoon, and welcome to the Inova International Second Quarter 2025 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 one on your telephone keypad. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Lindsay Savarese, Investor Relations for Inova. Please go ahead.

Thank you, Operator, and good afternoon, everyone. Inova released results for the second quarter, 2025, and did June 30, 2025, this afternoon after market close. If you did not receive a copy of our earnings press release, you may obtain it from the investor relations section of our website at ir.enova.com. With me on today's call are David Fisher, Chief Executive Officer, and Steve Cunningham, Chief Financial Officer. This call is being webcast and will be archived on the investor relations section of our website. Before I turn the call over to David, I'd like to note that today's discussion will contain forward-looking statements and, as such, is subject to risks and uncertainties. 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. Please note that any forward-looking statements that are made on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events. In addition to U.S. GAAP reporting, MANOVA reports certain financial measures that do not conform to generally accepted accounting principles. We believe these non-GAAP measures enhance the understanding of our performance. Reconciliations between these GAAP and non-GAAP measures are included in the tables found in today's press release. As noted in our earnings release, we have posted the supplemental financial information on the IR portion of our website. 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 announced this afternoon. After over 12 years serving as the Chairman and CEO of Inova, I've decided that now is the time to transition into the role of Executive Chairman, effective January 1, 2026. With the 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. And I'm confident that it's the right decision for the future of Inova. 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 credits. I've committed to stay in this role for a minimum of two years. Steve Cunningham, our CFO, will replace me as CEO concurrent with my transition to executive chairman on January 1st. And Scott Cornelius, our treasurer, will succeed Steve as CFO. In addition, Steve is joining our board of directors as of today. Having worked closely with both Steve and Scott over many years, I'm confident that they are the right leaders to see Innova through its next phase of growth. These leadership and execution have been critical to our success and performance consistency. His deep understanding of the company's culture, processes, and strategy, combined with his 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 Innova's financial profile, leveraging his deep financial expertise to optimize capital structure, enhance liquidity, refine our ROE framework, and support the company's strategic growth initiatives. I'd like to congratulate Steve and Scott on their new roles and thank the entire Inova team for their hard work over the years. I've never been more excited about Inova's future. If I wasn't, we wouldn't be making this transition now. We have an incredibly deep team, a strong foundation, a time-tested playbook, and industry-leading products, all clear signs that we have a lot of success ahead of us. Now turning to our quarterly results. In the second quarter, we once again leveraged the strength 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 driven by strong demand and stable credit. For the fifth quarter in a row, we generated greater than 20% year-over-year growth and revenue originations, and adjusted EPS. Second quarter originations increased 28% year-over-year and 4% sequentially to $1.8 billion. The strong origination growth produced a 20% year-over-year increase in our combined loan and finance receivables to a record $4.3 billion. Small business products represented 65% of this portfolio and consumer was 35%. Revenue increased 22% year-over-year and 2% sequentially to $764 million in the second quarter. S&B 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 flat sequentially off an unexpectedly strong Q1 as we discussed last quarter. Driven by the operating leverage inherent in our online-only business, growth in EPS again outpaced origination and revenue growth. Adjusted EPS increased 48% year-over-year, primarily as a result of efficient marketing and a lower cost of funds combined with our growth. Marketing expense was 19% of our total revenue, slightly below our expectations and compared to 19% in Q2 of 2024. Credit quality continues to be solid across the portfolio. The consolidated net charge-off ratio for the quarter declined to 8.1% from 8.6% last quarter and 7.7% in Q2 of last year. Overall, our consumer customer base remains on solid footing, driven by healthy wage and job growth and low levels of unemployment. As you may have seen, the U.S. economy added 147,000 jobs in June, well above the forecast, while the unemployment rate fell to 4.1%, and hourly wages continued to rise. These data points continue to highlight ongoing resilience in the labor market. While the labor market remains strong, it's important to note that we have carefully designed our business to operate and succeed in any environment. We serve nine non-prime borrowers, many of whom regularly face income volatility, and are experienced in managing variabilities in their finances. Because of this, recessions or market downturns tend to have less of an impact on our non-prime customers than on prime borrowers. And as we've discussed before, our unit economics framework, combined with our sophisticated technology and analytics, are designed to assess risk in real time with the short duration and payment frequency of our products, providing rapid feedback. This has enabled us to consistently deliver strong growth and margins while driving shareholder value, whether facing significant macroeconomic shocks like the Great Recession, COVID, or rising inflation as we experienced in 2023, or these more typical seasonal and cyclical variations in demand and sentiment. In Q2 of this year, while the overall economy remained 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. This led to slightly elevated default metrics from new customers. In response, we quickly tightened our credit models to slow originations. With the combination of fast feedback we get from the design of our products, our sophisticated models, and our world-class team, we routinely make these types of adjustments to ensure our originations are meeting our credit and ROE targets. For Q2, this meant consumer originations were slightly softer than we anticipated, but still reflected healthy growth. And combined with the benefits of our diversified business, we were able to generate almost 30% consolidated origination growth along with strong profitability. And looking forward, performance in our back book remains strong. And because we adjusted so quickly, we do not anticipate any significant impact to our consumer business in the upcoming quarters. As we know from our years of experience, it is normal to see short-term fluctuations in demand and credit in any one product or customer segment, highlighting the importance of the diversification in our business. which gives us the flexibility to shift resources between consumer and SMB as macro conditions dictate. This is unique in our industry, and we believe critical to delivering long-term, consistent growth and stable results. Our SMB business had another very strong quarter as we continued to benefit from our leading brand presence, scale, and low levels of competition. resulting in solid demand and credit across the portfolio. Originations for SMB were a record $1.2 billion in Q2, marking the fourth quarter over $1 billion. Insights from internal and external sources reflect solid underlying trends for small businesses. In conjunction with AcroList, we released the sixth iteration of our Small Business Cash Flow Trend Report in May. This offers key insights into the state of small businesses and highlights ongoing trends observed over the past year. 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 year. In addition, 76% of small businesses now prefer non-bank lenders for their speed and convenience, an all-time high according to the survey. These findings highlight continued optimism among small businesses, which is a key driver of economic growth and job creation. Access to capital is crucial as they invest in growth opportunities, manage cash flow needs, and weather unexpected challenges. And we believe our differentiated solutions position us exceptionally well to continue to meet these demands. In addition, our SMB portfolio continues to be well diversified across a wide range of industries, geographies, loan sizes, product types, and price levels. As I mentioned on our last call, we continue to expect that tariffs will not have a substantial impact to our portfolio, largely due to the diversity, size, and industries of our borrowers. 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. Steve and I share a common vision that our focused growth strategy continues to be the right path forward for the company. We remain committed to prudently managing the business to produce sustainable and profitable growth, and we believe our diversified business, strong competitive position, world-class team, advanced technology and analytics platform, positioned us 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, we'll be happy to answer any questions you may have. Steve?

Thank you, David, and good afternoon, everyone. I'd like to start by thanking David Fisher for his exceptional leadership and guidance over the years. His vision and dedication have not only shaped the trajectory of our business, but also ANOVA'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. I know he'll continue to be a valuable resource to me and the rest of ANOVA as executive chairman of the board on the strategic direction of the company, and I look forward to continue to work closely with him. 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. We'll continue to execute our focused 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. Many of you have gotten to know Scott over the years, and as David noted, he's been an important part of transforming the financial profile of our business. I'm confident he will thrive in his new role while continuing to build on the momentum we've created together. 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 amortized basis. Total company originations during the second quarter rose 28% from the second quarter of 2024 to $1.8 billion. Revenue from small business lending increased 30% from the second quarter of 2024 The $326 million as small business receivables on an amortized basis ended the quarter at $2.8 billion, or 22% higher than the end of the second quarter of 2024. Small business originations rose 35% year-over-year to $1.2 billion. Revenue from our consumer businesses increased 17% from the second quarter of 2024, to $428 million as consumer receivables on an advertised basis ended the second quarter at $1.5 billion, or 17% higher than the end of the second quarter of 2024. Consumer originations grew 15% from the second quarter of 2024 to $564 million. For the third quarter of 2025, we expect total company revenue to be more than 15% higher than the third quarter of 2024. This expectation will depend upon the level, timing, and mix of originations growth during the quarter. Now turning to credit, which is the most significant driver of net revenue and portfolio fair value. Our consolidated credit performance continues to demonstrate that our diversified product offerings and discipline around our unit economics enables consistent results across different operating environments. Consolidated net revenue margin of 58% for the second quarter was in line with our expectations and reflects continued solid credit performance. 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 in consumer net charge-offs, as David discussed. 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, reflect expectations for stable future consolidated portfolio credit performance. While business credit performance remains strong, sequentially and compared to the second quarter of 2024, A net charge-off ratio, net revenue margin, fair value premium, and 30-plus delinquency rate all reflect continued and expected stable credit performance. Consumer credit also remained solid. Consumer net revenue margin for the second quarter was 50%, flat sequentially and in the same range we have seen over the past two years. The consumer net charge-off ratio declined sequentially 70 basis points to 14.5%. following our typical seasonality. While higher than the year-ago quarter, the second quarter consumer net charge-off ratio remained within our historical ranges, and as David noted, was influenced by some minor fluctuations in 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 are heavily influenced by the seasoning of origination ventages along their expected loss curves, sequential changes in the growth and mix of originations, as well as our balanced approach to growth across varying macro environments. 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 results anywhere in these ranges, and even temporarily above or below, we are still able to produce solid returns, as we did this quarter. Our unit economics decisioning framework considers the lifetime return on equity of our product ventages and incorporates not just the level of credit risk, but the pricing for the risk being taken. The risk return profile is reflected in the level and trend of our fair value premiums. At the end of the second quarter, the fair value premium on our consumer portfolio remained consistent with levels observed over the past two years, indicating a stable risk-return profile and strong underlying unit economics for our consumer portfolio. Looking ahead, we expect the total company net revenue margin for the third quarter of 2025 to be in the range of 55 to 60%. This expectation will depend upon portfolio payment performance, and the level, timing, and mix of originations growth during the quarter. Now turning to expenses. Total operating expenses for the second quarter, including marketing, were 32% of revenue compared to 34% of revenue in the second quarter of 2024. As we continue to see the benefits of our efficient marketing activities, the leverage inherent in our online-only model, and thoughtful expense management. Our marketing spend continues to be efficient, driving strong originations growth, and was in line with our guidance range for the quarter. Marketing costs as a percentage of revenue were 19%, flat compared to the second quarter of 2024. We expect marketing expenses to be around 20% of revenue for the third quarter, but will depend upon the growth and mix of originations. Operations and technology expenses, which are driven by growth in receivables and originations, declined to 8% of revenue for the second quarter, or $64 million, compared to 9% of revenue, or $55 million, in the second quarter of 2024. Given the significant variable component of this expense category, sequential increases in ONT costs should be expected in an environment where originations and receivables are growing. It should be around 8.5% of total revenue. Our fixed costs continue to scale as we focus on operating efficiency and thoughtful expense management. General and administrative expenses for the second quarter increased to $41 million, or 5% of revenue, versus $40 million, or 6% of revenue, in the second quarter of 2024. While there may be slight variations from quarter to quarter, we expect G&A expenses in the near term should be around 5.5% of total revenue. We continued to deliver solid profitability and strong returns on equity this quarter. Compared to the second quarter of 2024, adjusted EPS, a non-GAAP measure, increased 46% to $3.23 per diluted share, delivering an annualized second quarter return on equity of 28%. We ended the second quarter with $1.1 billion of liquidity, including $388 million of cash in marketable securities, and $712 million of available capacity on debt facilities. Our cost of funds declined to 8.8 percent, or 15 basis points lower sequentially, primarily as a result of strong execution on recent financing transactions. 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 product. Solid 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. Before wrapping up with our near-term expectations, I'd like to discuss our progress with unlocking shareholder value. Consistent performance has distinguished us as a leader within the industry. But we've seen improvement in our P.E. ratio over the past year that better reflects the strength of our business. Our PEG ratio on 2025 estimates was only 0.3 at the end of the second quarter. And we remain well positioned to use our opportunistic share repurchase program to continue to close this valuation disconnect with our strong and consistent results, solid balance sheet, and business fundamentals. During the second quarter, we acquired 574,000 shares at a cost of $54 million. using nearly all of our $57 million of capacity that was available under our senior note covenants. We started the third quarter with share repurchase capacity of approximately $60 million available under our senior note covenants. 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 investment in our business and share repurchases. To wrap up, let me summarize our near-term expectations. 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%. Additionally, we expect marketing expenses to be around 20% of revenue, O&T costs to be around 8.5% of revenue, and G&A costs to be around 5.5% of revenue. These expectations should lead to adjusted EPS for the third quarter of 2025 that is 20 to 25% higher than the third quarter of 2024. For the full year, we now expect revenue growth compared to the full year of 2024 of around 20% and adjusted EPS growth of around 30%. Our third quarter and four-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. 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. and we remain confident in our ability to generate meaningful financial results for the remainder of 2025 and beyond. And with that, we'd be happy to take your questions. Operator?

We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, 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. Our first question today comes from Moshi Orenbuck with TD Cowan. Please go ahead.

Great. Thanks and congrats, David, Steve, and Scott. Maybe to kind of just start a little bit on the credit side of things, The comments that both you, David, and Steve made about the consumer portfolio, could you maybe flesh that out a little bit more? What is it that now gives you the confidence that whatever issues you saw at the beginning of the quarter are not persistent, and how does that reflect itself in origination? Yeah, sure.

Absolutely. So first of all, I think one thing to clarify is we essentially have five consumer products. This was one of the five. So this wasn't even broad based across our consumer portfolio. It was in one of our five products and not the biggest product. So that doesn't even count the small business side of the house. So again, the advantage of having a diversified business and like We probably spent more time on it in the script than we needed to. We knew somebody would ask the question because they would see the higher DQ rates in the consumer book. And so we decided to take it head on. But these were slightly elevated defaults, still performing within our ROE targets, but kind of at the very, very low end of the ROE targets, meaning kind of defaults at the high end of tolerable defaults. And like we do all the time, when we see places that need adjustments, we adjust. So we tighten the credit models, cut back on originations, and credit came back in line, just like we would expect. We do it hundreds of times a year. 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 we see the opportunity. It happens all of the time. Most of the time, it averages out with another product that is doing better than expected, and 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 one was a little bit worse. We addressed it early in the quarter, and now credit's back to normal. And even with, as we mentioned on the call, even with pulling back on that one product, We still generated, you know, upper teens, origination growth year over year, and obviously in consumer, and obviously even stronger, consolidated with the great results from the small business 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 get from you or others about, you know, slightly elevated DQ rates on the consumer side.

Got it. And maybe just to talk for a moment about the small business, normally you do have a seasonal lower level of originations in the second quarter from the first. You talked about the strong environment. Maybe, again, could you expand on what you saw in there that allowed you to do that? And how do you sort of think about the level of certainty or uncertainty, I guess, in the minds of your customers.

Yeah. Small business just had a couple rock-solid quarters in a row. 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 third quarter of 2023, where we had the little credit flip that kind of resolved itself almost immediately. We've had, you know, probably six, seven quarters of just rock solid credit. And when you have rock solid credit, and you're a very strong competitive position, yeah, the origination, 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. We just let the business perform the way it was performing. And, you know, looking forward, you know, just like we said, we have confidence in the consumer side because we address the issues. I think we have really good confidence on the small business side just Because things can continue to be very, very solid. This is just right down the middle of the fairway, you know, day after day, week after week, month after month. Thanks very much. Yep.

The next question is from David Scharf with Citizens Capital Markets. Please go ahead.

Great. Thanks. Good afternoon. Thanks for taking my questions. I appreciate the proactive discussion on the delinquency issue. fluctuations. Just curious, David, I think last quarter you may have specifically mentioned about taking more market share in the cash net product, which I believe is the highest APR. Is that the one of the five products that you're referring to?

Yeah, we basically have two subprime products, LOC and installment, two near prime products, LOC and installment. And they're pretty different products 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 in a different market. So like I said, those products, again, this is one quarter. Those products are all good products. Long-term, we're optimistic about all of them. We know how to manage credit across all of them. We have good competitive positions in all of them. But there's going to be fluctuations over time. They don't act exactly the same. They have slightly different market segments. They have different credit models. They have different marketing strategies. Obviously, they're not siloed. We work together and make sure We're bringing Brett's practice to all of them, but they don't all end up in the same place. And, you know, again, that's what we saw a little of this quarter.

Got it. Understood. And then, you know, I'll echo Moshe's comments in terms of congratulating everyone on the leadership transition. It's almost compulsory on these calls to kind of ask, If there's anything, David, you want to add just about maybe why this was the right time in your mind in terms of stepping aside?

Yeah, well, look, I think the business is on super stable footing. And if it wasn't, I wouldn't be making this change now. I have more riding on the future of Inova than pretty much 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 nine years. We have an incredibly strong relationship. Um, we see not, we see eye to eye 99% of the time. And so, um, you know, great opportunity to make sure Nova's future is, uh, handed over to somebody who, who, who deserves to have that opportunity.

Thanks. Yep. The next question is from Bill Ryan with Seaport Research Partners. Please go ahead.

Good afternoon. I'd also like to express my congratulations to everyone. A couple of questions. First, on the marketing, it obviously came in a bit better than expectations as a percentage of revenues, as you discussed. also look good as a percentage of originations. Could you maybe give us some idea, was that related to channels, repeat customers? Is it the small business just being more efficient? If you could maybe provide some insight on that.

Yeah. Hey, Bill. This is Steve. It was largely 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 less marketing in that channel. Some of that, though, was definitely offset by the strength in small business. So you saw it be a little bit better maybe than what we – that ratio being a little bit better than what we would have thought, but still pretty close to the range that we would have expected because of the small business growth as well.

Okay. And just a quick follow-up on the consumer portfolio. The yield was down a little bit quarter per 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 trendline?

No, I mean, that was really more of – you'll see that ratio can move around a little bit as we're opportunistic across those products that David mentioned because they all play in slightly different APR ranges. So I think 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 see there.

Okay. Thank you. The next question is from John Hecht with Jefferies. Please go ahead.

Hey, guys. Thanks very much. And congratulations to all of you guys. This is exciting for the company and wish you all the best in the new roles and look forward to working with you, Scott. Just a couple of questions. Most of mine actually just were recently asked and answered. Thinking about marketing channels that you've been using, any change of that? I know you've been more active on the small business stuff on TV, but anything to think about productivity on marketing channels and anything you're learning over time, especially as AI is being developed?

No, look, it continues to evolve. I mean, you know, at a high level, we're in the exact same marketing channels we were in 10 years ago. But if we think about how we actually operate in those channels and access them, it's incredibly different. And I think it all comes down to technology and the ability to be more and more targeted. So, you know, 10 years ago, we were running a lot of national TV channels. Now it's almost all digital TV where you can almost target city by city and certainly state by state and even different types of groups within those markets. That all plays into what we do super well because we develop models that the more data focused that we're looking at, the easier it is for us. National TV was never our favorite thing, but if we can target Specific states, specific groups, specific times of days, figuring out which types of programming work the best. That's really amazing for us and be able to plug that all into our algorithms and become more and more efficient with marketing. So 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 in our 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, you know, private credits influencing the capital markets or funding, you know, ability within consumer finance, you know, spreads are at all time lows. So obviously the liquidity and the funding component of the market is very constructive, you know, And, 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, how does that change or does that impact kind of the way you think about, you know, the next several quarters in terms of funding and balance sheet management?

Yeah, I mean, the credit markets have been pretty favorable. And you saw last week we actually – had a second-generation facility against our net credit line of credit business, which saw some pretty significant decrease in spreads. So I think as we always do, Scott and his team will continue to be opportunistic on making sure we are raising the right level of liquidity at the right time and balancing that with what we need. So I think right now the markets are pretty favorable. We're not counting on rate cuts. our outlook doesn't assume that there's going to be any rate cuts the rest of this year. So I think we're pretty well positioned on the balance sheet and the performance of the portfolios have us in a really good spot to execute when we need to across the different channels we play in. Great. Thank you guys very much.

Thanks. Again, if you have a question, please press star then one. The next question is from Vincent Kaintick with BTIG. Please go ahead.

Good afternoon. Thanks for taking my questions and also want to put my congratulations, David. It's been a pleasure working with you and then for Steve and Scott, look forward to continuing our relationship. So first question, you spoke very favorably about the macro trends in SMB and then also talking positively about consumer other than the little blip you had in the second quarter. And I guess with all that macro positivity, I'm just wondering how you think that translates directly into the originations growth or revenue growth, because it seems like regardless of the environment, you do tend to do well. So I'm wondering if we should be reading into anything in terms of the macro trends kind of turbocharging any of the growth. And then maybe alternatively, are there any macro trends that you're watching and wary about? Thank you.

Yeah, sure. It's a really good question. Look, as we've been talking about for probably coming out a year now, we think even with the solid macro trends, it's a good time to be balanced between origination, growth, 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. We're a single-digit grower, north of 20% grower even being balanced. I think just the inherent risk in any economy, and certainly with a bit more of uncertainty we've seen over the last couple years, almost five years actually since COVID, that there's no reason to be 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 a long valuation discussion right now. You know, when you look at, you know, our peg ratio, you know, well below 0.5 and then closer to 0.3 on forward earnings, you know, there's a little bit of a disincentive there to grow faster as well. Again, that doesn't mean we're going to retrench, you know, and, you know, be growing it, you know, single digits or low teams. That's not our intent at all. but it does kind of reinforce our belief that being balanced is a smart place to be and we don't need to be flooring it at the moment.

Okay, that's very helpful. Thank you. And then a follow-up kind of on the line of some of the questions earlier, just about the blip in the second quarter. I think the reason people are asking is just if there's something that we should be watching and maybe it was just, I don't know if there was just a macro trend like, Earlier in the quarter, we had tariffs, so I don't know if that drove anything or if there's any kind of, you mentioned one product, but if there's any kind of particular customer set that we should be watching for just in the future that maybe like, you know, with the blip, it kind of takes out a little bit of the addressable market or something that we should be watching. So just, yeah, if there's anything you could help in terms of categorizing that, that'd be helpful.

Yeah, no, really good clarification question. Actually, I would say no, and almost like categorically no. It just, like, it can happen, right? I mean, it's a confluence of events. You know, we market differently. The products are positioned slightly differently. The competitive dynamics 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 events, Issues across consumer, we'd be talking about it very differently. And if we weren't able to address the credit issues we had quickly and early in the quarter, we'd be talking about it very differently as well. But being isolated to one product, us being able to bring it back in line extremely quickly, again, internally, operationally, this was a non-event. And again, as I mentioned, the only reason we spent the time on it and our prepared remarks because we knew we'd get, you know, questions once you guys dug into the numbers about, you know, the kind of slightly higher DQ rates and then the consumer book. So, no, I think we're feeling really good really about all of our consumer products, you know, headed into the back half of the year.

Okay, great. Very helpful. Thank you.

The next question is from Kyle Joseph with Stevens. Please go ahead.

hey uh good afternoon guys uh let me echo congratulations uh on the transition um and just to follow up 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 how that differs between consumer and SMB. David, earlier you referenced that SMB is almost easier, like sledding downhill at this point. I don't doubt that from your perspective. 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 competitive dynamics there.

Yeah, I mean, look, some of this is cyclical and some of it, you know, like the competitive dynamics ebb and flow about a year and a half ago, we would not have been saying the same thing. Consumer was, you know, rocking and rolling and, you know, S&B were kind of recovering from that little credit blip in 2023. You know, so now you see a little bit of the opposite dynamic and that's the great thing about having a diversified business. They can play off each other. I would say that the competitive dynamics on the small business side are more stable. There's fewer players. We know who they are. Brand matters more. And, you know, so that, you know, that super strong position we have in S&B, I think, helps with the stability a bit. 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 two, you know, that can be a little bit of a headwind, but As we've seen over time, that tends to result in issues for our competitors over time, and they end up pulling back and it ends up being a tailwind in future quarters. We still feel great about our competitive position on both products, and they'll ebb and flow over time. Again, as we look into the back half of the year, we look at our consumer business looks as good as it has ever looked. It's bigger, it's stronger, the technology is better, the models are more predictive, and, you know, kind of nothing new on the competitive front that would concern us.

Got it. That's it for me. Thanks for taking my question.

Yep. Thanks. Once again, if you have a question, please press star then 1. The next question is from John Rowan with Jenny. Please go ahead.

Good afternoon, guys. I'll also add my congratulations as well. I guess it's two really quick questions. Can you, Steve, should we talk about whether or not the heightened DQs affected the fair value marks at all?

They've been very, the fair value marks have been very stable, right? So I think sometimes the metrics that we report, the 30 plus DQs and the The NCOs can be impacted by numerator-denominator type issues and mixed changes, all the things that I mentioned in my commentary, whereas the fair value is really looking at a lot more like at the unit economic decisionings that we make, right, lifetime expectations. And so both portfolios reflect a lot of stability and have for now, you know, over the past two years. So those are all incorporated into the fair value. for sure, and you can see that we continue to expect there to be a lot of stability in the credit outlook. I would just add, you know, on the consumer side and on the small business side, we've talked historically about ranges that we expect every quarter. You know, SMB, we typically would expect net charge-offs every quarter to be in the 4.5% to 5% range. We've been there for a long time. consumers a bit more seasonal. I would expect the second quarter ratio, which tends to be a bit more of the trough seasonally, to be in the 13% to 15% range. In Q4, I would expect it to be 15% to 17%. You can go back and look historically. And the first and third quarters tend to be somewhere in between. 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 It doesn't impact moving through those ranges. It does not impact the overall ability to drive strong results. So just a little reminder on how to think about the quarterly metrics within the context of the way we think about making decisions and the way the fair value calculations work.

Okay. Verna, last question for me. 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... Obviously, there's still a possibility of that.

It's been about 50% floating for a while, and it's really most sensitive to SOFR.

All right. Thank you.

This concludes our question and answer session. I would like to turn the conference back over to David Fisher for any closing remarks.

Thanks, everybody, for joining our call today. We really appreciate your congratulatory remarks. You'll have me on this call for the next couple of quarters, so I'm not going away anytime soon, 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.