Enova International, Inc. Q3 FY2023 Earnings Call

Hello and welcome to the Enova Third Quarter 2023 Conference Call. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Lindsay Savarese, Investor Relations for Enova. Please go ahead.

Thank you, Operator, and good afternoon, everyone. Enova released results for the third quarter of 2023 ended September 30, 2023, 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 Form 10-Q and current reports on Form 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, Enova reports certain financial measures that do not conform to Generally Accepted Accounting Principles. We believe these non-GAAP measures enhance the understanding of our performance. Reconciliations between these GAAP and non-GAAP measures are included in the tables found in today’s press release. As noted in our earnings release, we have posted supplemental financial information on the IR portion of our 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. I will begin with an overview of our third quarter results and then I will discuss our strategy going forward. After that, I will turn the call over to Steve Cunningham, our CFO, who will discuss our financial results and outlook in more detail. We are pleased to have produced another strong quarter with record originations and revenue driven by solid demand and stable credit. The effective execution of our team, combined with our world-class machine learning analytics and technology has allowed us to continue to do well in the current macroeconomic environment. While there’s a lot of uncertainty in the economy today, both internal and external data lead us to believe that both our consumer and small business customers are navigating it well. Inflation continues to moderate, while the labor market and wage growth continue to be very strong, and while prime and super-prime borrowers are facing higher interest expense due to the increase in the Fed funds rate, we have not raised our pricing. As a result, we generated more than $1 billion in originations for the eighth straight quarter driven by growth in both our consumer and small business products, even as we balance growth and credit during this uncertain economic environment. Originations grew 13% sequentially to over $1.2 billion as we were moderately more aggressive with originations during the third quarter, especially in our consumer businesses where Q3 consumer originations were up 19% sequentially. We also generated strong revenue growth with revenue of $551 million equating to 21% year-over-year and 10% sequential growth, adjusted EBITDA increased 5% year-over-year but was down 5% sequentially and adjusted EPS was down 14% year-over-year and 13% sequentially, lagging our expectations for the quarter. There were two primary drivers underlying the lower-than-expected EPS in Q3. First, as I mentioned, we continued to lean into the solid demand and good credit metrics with increased marketing spend and our marketing activities continue to be efficient with marketing at 21% of revenue compared to 22% of revenue in Q3 of last year. While marketing as a percentage of revenue declined year-over-year, it was slightly elevated compared to our expectations. Given the stronger-than-anticipated consumer demand we were seeing during Q3, we made the decision to increase our marketing spend to capture this demand at attractive unit economics. Marketing spend is one of the levers we use intra-quarter and we do so on a daily and weekly basis. As is evident from the strong origination growth we generated in the quarter, this was largely successful. However, much of the origination growth came late in the quarter, resulting in us incurring the additional marketing expense, but not generating much incremental revenue in the period to offset. However, these additional loans should drive additional revenue and income over the next few quarters. The second driver of the lower than expected profitability in Q3 was continued credit normalization in our SMB portfolio. Let me be clear, credit performance in that portfolio as a whole remains good. However, as I mentioned, in each of the last two quarters, we did see slightly higher than expected default rates from the second half of 2022 vintages. As you would expect, our underwriting models adjusted based on this data and vintages since January of this year are back in line with our expectations. But since there is a nine-month to 12-month emergence period for charge-offs in our small business products, charge-offs from those second half 2022 vintages were at their peak in Q3 of this year. We expected this and included it in our forecast, but we are just off a bit in the timing as we thought a bit more would come in early Q4 and not late Q3. The upside of this is that we now expect lower SMB charge-offs in Q4, particularly given that early stage delinquencies and vintages in this portfolio this year are well below those we saw in the late 2022 vintages. I also think that it’s important to point out that while charge-offs from those 2022 SMB vintages were higher than our expectations, those vintages still generated solid returns on equity above our cost of capital. So to be clear, Enova overall is in great shape and we are feeling good about Q4 and next year. Our strong growth and solid credit metrics position us well for future success. We just misforecasted these two items this quarter. We have been very consistent with our forecasting, guidance and results over the last several years, and we believe this quarter will prove to be an aberration. In addition, we continue to demonstrate the importance of having a diversified portfolio. As we discussed in the past, this diversification enables us to lean into products with the strongest unit economics, while also providing resilience to our balanced approach to growth. In the third quarter, our small business products represented 61% of our total portfolio and consumer was 39%, roughly in line with Q3 of last year. Outside of our core products, we are now producing very strong growth in Brazil after a few years of adapting to changes in the banking regulations there. In Q3, we generated record originations which were almost 300% higher than Q3 of last year. While still a small business for us, we are excited about the potential for this business going forward. Before I wrap up, I’d like to spend a few moments talking about our progress in unlocking shareholder value. We have been very thoughtful about building a strong balance sheet and ended the quarter with nearly $1 billion in excess liquidity, which we believe gives us significant flexibility to accomplish this. As I mentioned on our earnings call last quarter, when we were looking at a number of possible alternatives, given the current economic environment and high interest rates, our near-term focus is to return capital to our shareholders through opportunistic stock buybacks. As Steve will discuss in more detail, we are pleased to have successfully completed the consent solicitation on our 2025 senior notes, which increased the amount of stock we are permitted to buy back under the terms of those notes. Following the successful consent solicitation, our Board of Directors has authorized a new $300 million share repurchase program, which is the largest in our history and equates to approximately 20% of our outstanding shares at current prices. Overall, we believe these actions will help us close the disconnect between our business fundamentals and our current valuation. Looking ahead, we remain committed to repurchasing shares and bonds, but also continue to explore additional options to further unlock shareholder value. In sum, our flexible online-only business model, nimble machine learning-powered credit risk management capabilities, diversified product offerings, and solid balance sheet position us well to continue to drive profitable growth, effectively manage risk, and further unlock shareholder value. With that, I would 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 will be happy to answer any questions you may have.

Thank you, David, and good afternoon, everyone. We delivered another solid quarter of financial results, driven by record levels of quarterly originations and revenue. Our diversified product offerings, machine learning risk management algorithms, and our strong balance sheet continue to allow us to nimbly lean into market opportunities to drive growth with strong unit economics while maintaining solid profit margins. Turning to our third quarter results. Total company revenue increased 21% in the third quarter of 2022 to a record $551 million. The year-over-year increase in revenue was driven by the growth of total company combined loan and finance receivables balances, which on an amortized basis increased 15% from the end of the third quarter of 2022 to $3.1 billion. Total company originations this quarter rose to a record $1.3 billion. Small business revenue increased 13% from the third quarter of 2022 to $195 million as small business receivables on an amortized basis ended the quarter at $1.9 billion, which were 17% higher than the end of the third quarter of last year as small business originations totaled $783 million. Revenue from our consumer businesses increased 26% in the third quarter of 2022 to $348 million. Consumer receivables on an amortized basis ended the third quarter at $1.2 billion or 14% higher than the end of the third quarter of 2022. As David mentioned last quarter, with the consumer demand and credit performance for scheme, especially in our line of credit products, we continue to be moderately more aggressive with consumer originations this quarter, which grew 19% sequentially and 21% from the third quarter of 2022 to $479 million. Consumer line of credit products comprised 74% of total quarter consumer originations and grew 21% sequentially and 82% from the third quarter of 2022. Looking ahead to the fourth quarter, we expect total company revenue to grow between 5% and 7% sequentially, resulting in revenue growth for the full year of 2023 compared to 2022 in excess of 20%. 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. Credit remained solid in the quarter, resulting in a consolidated net revenue margin of 58% in the third quarter, which was generally in line with our expectations of around 60%. In addition, expectations for lifetime credit losses, which are reflected by changes in fair value premiums for our portfolios, remain stable for the consumer portfolio and improved slightly for the small business portfolio, resulting in a 2-percentage-point increase in our consolidated company fair value ratio to 114%. As we have discussed in previous quarters, quarter-to-quarter net charge-off rates, delinquency rates, and net revenue margins for our portfolios are heavily influenced by the seasoning of origination vintages along their expected loss curves. As a result, these metrics may temporarily fall above or below typical ranges as we have seen for both our consumer and small business portfolios over the past year. It will be influenced by sequential changes in the growth and mix of originations arising from our typical origination seasonality, as well as our balanced approach to growth in this macro environment. The total company ratio of net charge-offs as a percentage of average combined loan and finance receivables for the third quarter was 9.4%, compared to 7.6% last quarter and 8.4% in the third quarter of 2022. The net charge-off ratio for the consumer portfolio increased sequentially, settling at more typical levels from the low and unsustainable levels last quarter and was below the rate for the third quarter of 2022. Sequential and year-over-year changes in the net charge-off ratio for the small business portfolio were driven by the continued seasoning of that portfolio over the past year, as David discussed in his remarks. Importantly, the consolidated portfolio delinquency rate at September 30th was relatively stable, reflecting a continued solid outlook of future credit performance. The percentage of total portfolio receivables past due 30 days or more was 7.9% at September 30th, compared to 7.7% at June 30th, driven by an increase in consumer delinquencies to more typical levels, offset by a decline in small business delinquencies. Looking ahead, as recent vintages season along their expected loss curves and small business net charge-offs move lower, we expect the total company net revenue margin for the fourth quarter of 2023 to be between 55% and 58%. Future net revenue margin expectations will depend upon portfolio payment performance and the timing, and mix of originations growth. Now turning to expenses. Third quarter operating costs were driven by efficient marketing activity, supporting our strong sequential growth, the continued leverage inherent in our online-only model, and thoughtful expense management. Total operating expenses for the third quarter, including marketing, were $206 million or 37% of revenue, compared to $184 million or 40% of revenue in the third quarter of 2022. As David noted, third quarter marketing spend remained efficient, is in the higher end of our expected range, and drove an acceleration in originations, especially later in the quarter. Marketing costs increased to $117 million or 21% of revenue, compared to $101 million or 22% of revenue in the third quarter of 2022. We expect marketing expenses as a percentage of revenue to range in the low 20% for the fourth quarter, but will depend upon the growth and mix of originations. Operations and technology expenses for the third quarter increased to $52 million or 9% of revenue, compared to $46 million or 10% of revenue in the third quarter of 2022, driven by growth in receivables and originations over the past year. Given the significant variable component of this expense category, sequential increases in O&T costs should be expected in an environment where originations and receivables are growing. It should be around 9% of total revenue. Our fixed costs continue to reflect our focus on operating efficiency and thoughtful expense management. General and administrative expenses for the third quarter increased only slightly to $38 million or 7% of revenue and $37 million or 8% of revenue in the third quarter of 2022. While there may be slight variations from quarter to quarter, we expect G&A expenses as a percentage of revenue of around 7% in the fourth quarter. Our solid balance sheet and ample liquidity gives us the financial flexibility to successfully navigate a variety of operating environments and has allowed us to deliver on our commitment to driving long-term shareholder value through continued investments in our business, as well as share repurchases and the open market purchases and retirement of our senior notes. We ended the third quarter with just under $1 billion of liquidity including $204 million of cash and marketable securities and $748 million of available capacity on facilities. The stable credit performance of our portfolio continues to allow us to attract new, cost-effective funding. Last week, we increased the capacity of our secured corporate revolver by $75 million to $515 million with no change in terms. During the third quarter, we acquired 693,000 shares at a cost of approximately $36 million. The recent bondholder approval of our request for additional share repurchase capacity under our 2025 senior note indenture and our confidence in the continued strength of our business relative to our current valuation. Our Board authorized a new $300 million share repurchase program that will expire at the end of 2024. The new authorization replaces our existing authorization and following the retirement of our 2024 senior notes, will allow us to create even more meaningful opportunities to drive value for our shareholders. During the quarter, we also opportunistically purchased an additional $10 million of our 2024 senior unsecured notes in the open market. We had $170 million remaining of the 2024 senior notes at September 30th. We will likely retire all remaining 2024 senior notes by early 2024. Our cost of funds for the third quarter was stable sequentially at 8.3% or approximately 180 basis points higher than the third quarter of 2022, primarily due to increases in SOFR over the same time period. We expect our cost of funds to remain at a similar level in the near term, but will depend primarily upon changes in SOFR. And finally, we continued to deliver solid profitability this quarter with an adjusted EBITDA margin of 22%. Adjusted earnings, a non-GAAP measure, was $48 million or $1.50 per diluted share, compared to $57 million or $1.74 per diluted share in the third quarter of last year. As David mentioned earlier, our adjusted EPS was lower than expected for the quarter, largely due to our decision to lean into solid demand and good credit metrics with increased marketing during the quarter and the continued credit normalization in our small business portfolio. To wrap up, let me summarize our fourth quarter expectations. We expect revenue to grow between 5% and 7%, as we continue to focus on an origination strategy that balances growth and risk against the current macro environment. This should lead to continued stable credit, resulting in a total company net revenue margin between 55% and 58%. In addition, we expect marketing expenses as a percentage of revenue to be in the low 20%, O&T costs of around 9% of revenue, and G&A costs of around 7% of revenue. These expectations should lead to sequential adjusted EPS growth of 10% to 20% in the fourth quarter. Our fourth quarter expectations will depend upon customer payment rates and the level, timing, and mix of originations growth. Our third quarter results continued to demonstrate the ability of our team to deliver record levels of growth in revenue while maintaining solid credit and profit margins. Our strong financial position, diversified product offerings, flexible balance sheet, competitive position, and new opportunities to return meaningful capital to our shareholders are all well positioned to deliver on our commitment to driving long-term shareholder value. With that, we would be happy to take your questions.

Thank you. Today's first question comes from David Scharf with JMP Securities. Please go ahead.

Hi. Good afternoon. Thanks for taking my questions. A couple of things I wanted to drill down in. First, not sure if I have ever asked this before, but do credit trends in the small business asset class ever historically serve as sort of a leading indicator for consumer? I am just thinking about if the local dry cleaning chain is running into problems that might mean they have to lay off people six months or 12 months later. Is there any correlation between the two segments in that regard?

I mean, it’s not as correlated, it’s not super correlated, but to the extent there is correlation, it’s the other way around. So if the consumer falls on their face, small businesses are in big trouble.

Okay. Could we…

And we saw that during COVID, but if the consumer is still spending and doing well, the small businesses tend to be a big beneficiary of that incremental spend. We have talked about this before. The consumer has like somewhat fixed spending they have to do. They got to pay their mortgage or rent. They got to pay for their car, their phone, their electricity, their power, the gas like those all go to big companies…

Great.

... the big businesses. The incremental spend, do I take the dog to get its nails groomed? Do I go out to dinner one extra time? Those tend to be more small business. So, yeah, like I said, if anything, it’s the other way around. If you see the consumer really, really starting to struggle, small businesses are likely to come next.

Okay. Got it. And just drilling down a little bit into the guidance, and I recognize it’s a lot of variable. It’s hard to nail it perfectly. The net revenue outlook, it seems to be trending a little more towards the lower end of that 55 to 65 normalized kind of range. It’s obviously below 60 for the fourth quarter. Given that it sounded like some of your expected losses in SMB were actually more front-end loaded in the third quarter. Is this just a reflection of a bigger mix of new borrowers? So can you just give a little help on kind of what’s behind maybe this seems like a little bit of a reduction in the fourth quarter net revenue…

Yeah. I mean it’s a good question and I talked a little bit about it just to set up in the commentary where in our portfolio and then at the consolidated level, as we are navigating the seasonality that we have in some of our portfolios or just some of the balance that we have been talking about, which can exacerbate some of that seasonality from period to period. You can see us move around in the range. That doesn’t mean that credit quality is worsening and so I will just tell you like we can land in our typical ranges for consumer and for small business. So small business we talked about should improve quarter over quarter. I would expect it to be in our typical sort of more normal 4% to 5% range and with consumer relatively stable. The seasonality that we have seen over the past couple of quarters and that we expect going into Q4 is going to be the difference. So if you take a look at the fair value of the portfolio, that’s a little bit better indicator of what we are seeing in terms of the lifetime expectations after you consider the charge-offs and the remaining delinquency stocks and what we think the overall performance of the portfolio will be as it’s tracking along its expected loss curve.

Got it. Last question, I suppose it's about the bigger picture regarding the elevated demand and how you're addressing that through marketing. Considering the current uncertainties and the situation for many consumers, where unemployment isn't likely to improve, are you concerned about potentially losing market share if you don't invest heavily in attracting borrowers? Once they move on, will you have another chance to engage them? I'm trying to understand your broader macro perspective, especially since Enova seems to be more optimistic about customer acquisition compared to others in the market who are pulling back.

Yeah. Look, I mean, it’s a balance. We want to get every customer we can, but we don’t want to be too aggressive and either spend too much to acquire those customers or build a portfolio of bad loans and so that’s the balance that we have managed super well over the last 10 years or so. We are comfortable pulling back when we need to because the flip side is way worse. It’s better to lose some customers than to find yourself with a portfolio that’s not looking so good. And given that the relatively short nature of especially, well, even small business loans, both of them, the relatively short nature and especially on the consumer side where people aren’t always borrowing. They are coming in and out of the market based on credit needs, one-time expenses, dislocations between their income and expenses that we have the opportunity to get those customers back in over time if we miss them the first time. So it’s something we have gotten very good at over time and have learned that it’s better to be a little bit more conservative than more aggressive in most market environments.

Got it. Great. Thanks so much guys.

Yeah. Thanks, David.

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

Good afternoon. Thank you. Sticking with the credit theme, could you discuss payment rates, payment behaviors, and borrowing behaviors? Additionally, is there something in the SMB category mix that may have contributed to the temporary increase in losses and your confidence that they will decline in the fourth quarter?

Let me provide an overview, and Steve will add some numbers shortly. To clarify, we closely monitor payment rates daily, weekly, and monthly. The loans experiencing higher charge-off rates mostly originated in the latter part of 2022. We are tracking payment rates by vintage for all loans issued this year, and the data shows that every vintage this year is performing below last year's vintages. The payment curves resemble a broad fan, indicating improvement, with each month this year performing better than the previous one. We wonder if the changes came from the mix, product adjustments, or competitive factors. We may have been too aggressive with our originations in the last few months of 2022. For small business products, the loss emergence period is around nine months. We anticipated this but slightly misjudged the timing; the impacts in Q3 occurred sooner than expected. If we weren't a public company, we might not have been concerned about the timing shift. However, we are happy with the credit performance of loans originated in the past nine months, which gives us confidence moving into Q4 and beyond. Additionally, even some loans with higher-than-expected charge-off rates are still generating positive returns on equity, albeit not as high as we initially anticipated. We believe we will quickly return to our target levels based on the defaults in the loans we've issued this year.

Yeah. John, let me add a couple of things to think about as well. I mean if you look at the quarterly metrics and I have talked about this before, you kind of have to look at those in combination with our fair values, which give a better view of the overall expectation of how we expect the portfolio to perform. So there can be some variability quarter-to-quarter. You can see our loss rate ticked up a touch above the 5% for the quarter for the reasons we talked about. Delinquencies came down and as we look out, the fair values of the portfolio actually ticked up a bit, which is reflecting the fact that a very large amount of the portfolio now consists of those vintages that David mentioned that are from early this year onward. So we expect that we are going to settle in at a more typical range from here as we have been adjusting, and obviously, we will continue to adjust where we see uncertainty. But I think that’s how you should think about from here how the credit quality should play out for the SMB both.

Okay. That’s very helpful. I appreciate that. And then maybe talk about kind of your, a big buyback, I think, that obviously, that will be appreciated by the shareholders. Maybe do you have some sort of, is this going to be opportunistic, or do you have a kind of cadence you are thinking about or some combination thereof?

So I think our Board authorized the program to run through the end of next year and I think we will be looking very seriously at how we have typically done in the past of using that authorization to opportunistically take shares out of the market. As you know, John, there’s a number of different ways you can go about doing that. But I think overall, our plan is, once we have the 2024 senior notes retired, we will be very active in terms of trying to repurchase more actively than we have historically in the market.

Yeah. Okay. So, you're focusing on marketing and growth, especially in consumer. I have two main questions about that. First, is part of this due to the increased opportunities because others in the segment are pulling back? Second, are you primarily using the same marketing channels, or have there been any changes in how you allocate your marketing budget?

No. Nothing meaningful. No.

And then what about the competitive environment, is that enabling this more proactive?

I believe the competitive landscape remains quite stable, as we have discussed for some time. There is nothing new happening on the small business front. We have observed that some competitors are facing liquidity issues, and a few have shifted their focus more towards the prime sector in small business. On the consumer side, there are also no new players entering the market, with many pulling back and reevaluating their strategies. Overall, I would characterize the competitive environment on both fronts as quite stable.

All right. Thanks very much guys.

Yeah.

Thank you. The next question comes from Vincent Caintic with Stephens. Please go ahead.

Hey. Good afternoon. Thanks for taking my questions. First one on the marketing spend this quarter. First, just wondering in terms of the opportunities you are seeing, is it sort of more on the consumer side, more than the SMB, or fairly equal, like what opportunities are you seeing for marketing spend? And then the direction of that marketing spend, is it sort of like direct mail or lead generation or already anything specific there? Thank you.

I think we identified opportunities in both small business and consumer sectors. During the first half of the year, we took a more cautious approach to our originations, which likely allowed us to notice more opportunities as we entered Q3. On the consumer side, we have been increasingly aggressive throughout the year due to strong demand and stable credit conditions. In Q3, we observed robust consumer activity supported by high employment rates, rising wages, and the typical seasonal uptick associated with the end of summer and back-to-school shopping. This demand-driven environment on the consumer side was significant. Regarding our marketing strategy, we have improved our balance in marketing efforts over the past several years. For the subprime consumer segment, traditional lead providers form part of our business but no longer dominate as they did in the past. We utilize a mix of direct mail and TV advertising, capitalizing on our scale to effectively engage consumers through these channels. For small businesses, many leads still come through the wholesale channel via ISOs, but our direct channel, which is growing rapidly, employs similar strategies as our consumer marketing, including TV, direct mail, and digital ads. Our experience in the consumer market has significantly contributed to the swift expansion of our direct channel for small businesses.

Okay. Great. Yeah. Certainly been seeing more advertisements on CNBC lately.

Good. That’s great. That’s great. Yeah.

It’s effective and very effective. In terms of marketing, there are many opportunities. You also have that large share repurchase authorization. Could you remind us about the opportunities and how you decide between allocating more capital towards loan growth opportunities versus your stock buybacks?

Sure. First of all, we are not limited by capital, so we can pursue all options. When considering our firm's value based on our performance and outlook, we can be as aggressive as legally allowed every day. We have used a method for many years, and I expect we will at least continue with a larger repurchase program. There may also be other opportunities for a more substantial buyback program. The important point is that we can keep growing our business while providing significant returns to shareholders and achieving good internal rates of return on all our investments.

Okay. Great. And last one from me, Steve, on the fair values continue to increase, which I presume means that the risk-adjusted margins and the loans you are putting in continue to improve. I am just wondering, since I get the investor questions, just what’s built into that, the level of conservatism and the opportunities in terms of the ROEs that you are now able to generate in new originations?

Yeah. So we don’t, I mean, as you can imagine, Vincent, we are not building in levels of conservatism in our fair value marks. We are trying to give the best view of the value of the portfolios based on the credit quality and a few other things that matter less than credit quality. But at the end of the day, it’s about what we think the lifetime credit performance of those portfolios is going to look like and discount it back. Obviously, with the short duration discounting doesn’t matter as much. So I think the ROE hurdle rates that we have built in, that’s kind of where they start to show up a little bit, because the cash flows of the portfolios, the richer they become on a net basis. So more cash flow for a given level of loss will get you a higher fair value, all things being equal. So again, you can have some variations, as I have talked about now for many quarters in your quarterly metrics from quarter-to-quarter, but our fair values have been fairly stable ticking up over time, reflecting that higher ROE hurdle and the stability and credit that we have been pointing to now for some time.

Great. Very helpful. Thank you.

Thank you. The next question comes from John Rowan with Janney. Please go ahead.

Good afternoon, guys.

Hey, John.

Just one quick question for me. Is this the environment you considered when you decided to implement fair value accounting? Others are pulling back, and while you didn't meet earnings expectations due to increased marketing expenditures, you avoided the need to create allowances for an uneven growth rate. Is this where the advantage of fair value lies, allowing you to pursue all these additional customers who are not receiving offers from other lenders that may be retreating for credit reasons or because they would need to establish allowances? I'm just trying to think this through a bit.

Yeah. I mean, I think you have really seen over the last two years as the books built back up following COVID. As the business is doing well, as we are growing and putting on good loans, the financial statements look good because of fair value. And I’d say we have the Great Recession again and the book was bad, the financial statements would look bad and that’s what we would want everyone to see as opposed to under the old incurred method, when the business looked crappy and originations were slowing, all of a sudden, you were making a lot of money by releasing provisions, which never made a ton of sense to us. So, yeah, we have been happy that we can really accelerate our originations over the last couple of years coming out of COVID and had financial statements that reflected the positive trends of the business.

Okay. All right. Thank you.

Yeah. Thank you.

Thank you, John.

Thank you. This concludes our question-and-answer session. I would now like to hand the call back to David Fisher for closing remarks.

Thanks everyone for joining our call today. We appreciate you taking your time and we look forward to speaking with you again next quarter. Have a good evening.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.