Enova International, Inc. Q2 FY2025 Earnings Call

Good afternoon, and welcome to the Enova International Second Quarter 2025 Earnings Conference Call. 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 second quarter 2025 ended 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 of 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, 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 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 Enova, 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 Enova. In my new role, I will 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. I've committed to stay in this role for a minimum of 2 years. Steve Cunningham, our CFO, will replace me as CEO concurrent with my transition to Executive Chairman on January 1. And Scott Cornelis, 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 Enova through its next phase of growth. Steve's 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 Enova'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 Enova team for their hard work over the years. I've never been more excited about Enova's future. If I weren'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 in 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. SMB revenue increased 30% year-over-year and 7% sequentially to a record $326 million, and our consumer revenue increased to $428 million, 17% higher than a year ago and 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 nonprime 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 nonprime 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 in 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 the 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 backbook 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 Ocrolus, 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 nonbank 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 on 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 position 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.

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 Enova'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 Enova as Executive Chairman of the Board on the strategic direction of the company, and I look forward to continuing 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 to $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 amortized 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. Small business credit performance remained strong. Sequentially and compared to the second quarter of 2024, the 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 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. 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 vintages 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 vintages 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 2 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 origination 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 O&T costs should be expected in an environment where originations and receivables are growing and 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 continue 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 and marketable securities and $712 million of available capacity on debt facilities. Our cost of funds declined to 8.8%, 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 NetCredit 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. While 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 remains strong and gives 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. 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 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. 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.

Our first question today comes from Moshe Orenbuch with TD Cowen.

Congratulations, David, Steve, and Scott. To start, could you elaborate on the comments you both made about the consumer portfolio? What gives you the confidence that the issues observed at the beginning of the quarter are not ongoing? Also, how does this influence originations and loan growth in the latter half of 2025?

Yes, absolutely. First, I want to clarify that we have five consumer products, and this issue was related to just one of them, which is not our largest product. This doesn't even include our small business segment, highlighting the benefits of our diversified business. We probably spent more time addressing this in our remarks than necessary because we anticipated questions about the higher delinquency rates in our consumer portfolio. We decided to address it directly. The defaults we observed were slightly elevated but still within our return on equity (ROE) targets, albeit at the low end. These defaults were at the upper range of what we consider acceptable. As we typically do, we made necessary adjustments by tightening our credit models, reducing originations, and credit returned to expected levels, which is standard procedure for us. When we see that credit is performing too well or our repayment rates are low, we also expand to capture more volume when opportunities arise. This usually balances out with other products performing better than expected, so we don't need to discuss it. This quarter, most of our other consumer products performed as anticipated, while this particular product lagged slightly. We addressed it early in the quarter, and credit has since normalized. Even after pulling back on this product, we still achieved strong year-over-year origination growth in the consumer segment, and our consolidated results were even better with the excellent performance of the small business portfolio. So, this isn’t a significant concern for us; these situations occur regularly. We're just proactively addressing inquiries about the elevated delinquency rates in our consumer portfolio.

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, and you've 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 think about the level of certainty or uncertainty, I guess, in the minds of your customers?

Yes. The small business segment has experienced a series of strong quarters. Internally, we didn’t specifically identify any extraordinary efforts; it felt effortless, almost like we were running downhill. Credit quality has remained very stable, especially after we experienced a minor credit issue in the third quarter of 2023 that quickly resolved. We’ve seen about six or seven consecutive quarters of solid credit performance. With strong credit and a competitive edge, achieving origination growth has felt almost effortless; we simply allowed the business to thrive. Looking ahead, we have confidence in the consumer side because we've addressed relevant issues, and we are equally confident in the small business side due to its consistent stability. This performance has been steady day after day, week after week, month after month.

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

I appreciate the proactive discussion on the delinquency fluctuations. Just curious, David, I think last quarter, you may have specifically mentioned about taking more market share in the CashNet product, which I believe is the highest APR. Is that the one of the 5 products that you're referring to?

We have two subprime products, LOC and installment, and two near-prime products, LOC and installment. These are distinctly different offerings, especially on the near-prime side. Additionally, we operate in Brazil, which is a separate market. As I mentioned, these products are all solid, and we are optimistic about their long-term performance. We have a good grasp on managing credit for each of them and hold strong competitive positions across the board. However, we expect to see some fluctuations over time since they do not behave identically. Each product targets slightly different market segments and utilizes varied credit models and marketing strategies. While these products work in conjunction, they do not all perform uniformly. This variation was evident in the current quarter.

Understood. And then I'll echo Moshe's comments in terms of congratulating everyone on the leadership transition. It's almost compulsory on these calls to 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.

The business is very stable, and if it weren't, I wouldn't be making this change now. I have a significant stake in the future of Enova, more than anyone else. I wouldn't make this transition if I didn't believe it was the right time or that Steve was the right person to succeed me. We've collaborated for nine years and have a strong relationship, rarely disagreeing. This is a great opportunity to ensure Enova's future is entrusted to someone who truly deserves it.

The next question is from Bill Ryan with Seaport Research Partners.

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 looked 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 can maybe provide some insight on that.

Yes, Bill, this is Steve. The results were primarily influenced by slightly lower expectations and origination volumes in the consumer segment, which in turn led to reduced marketing efforts in that area. However, this was balanced out by strong performance in the small business sector. Overall, the ratio was a bit better than we initially anticipated, though it remained within the expected range due to the growth in small businesses.

Okay. And just a quick follow-up on the consumer portfolio. 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 expect that maybe to bump back up over the next couple of quarters to trend line?

No. That was really more about the fluctuations in the ratio as we take opportunities with the products that David mentioned, since they each operate within slightly different APR ranges. Therefore, I expect the ratio to remain around 115 to 120 for the remainder of the year.

The next question is from John Hecht with Jefferies.

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. But thinking about marketing channels that you've been using, any change to 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, at a high level, we're in the exact same marketing channels we were in 10 years ago. But as 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 10 years ago, we were running a lot of national TV. 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. So that all plays into what we do super well, right? Because we develop models that the more data-focused that we're looking at, the easier it is for us. So 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 I mean, this is sort of a mishmash of questions, but you've got private credits influencing the capital markets or funding ability within consumer finance. Spreads are at all-time lows. So obviously, the liquidity and the funding component of the market is very constructive. And interest rates have come down a little bit, may come down a little bit more. So Steve, just thinking about that set of opportunities for you and your balance sheet positioning, how does that change or does that impact the way you think about the next several quarters in terms of funding and balance sheet management?

Yes, the credit markets have been pretty favorable. And you saw last week, we actually had a second-generation facility against our NetCredit 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 for 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.

The next question is from Vincent Caintic with BTIG.

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, 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?

Yes, 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 originations 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. It's not like we're a single-digit grower. We're north of 20% grower even being balanced. And I think just the inherent risk in any economy and certainly with a bit more of uncertainty we've seen over the last couple of years, almost 5 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 certainly, you know we don't have to get into the long valuation discussion right now. When you look at our PEG ratio well below 0.5 and then closer to 0.3 on forward earnings, there's a little bit of a disincentive there to grow faster as well. Again, that doesn't mean we're going to retrench and we'll be growing at single digits or low teens. That's not our intent at all. But it does reinforce our belief that being balanced is a smart place to be, and we don't need to be flooring it at the moment.

I would like to follow up on some of the earlier questions regarding the dip in the second quarter. The reason for the inquiries seems to be whether there’s something we should be monitoring. Perhaps it was simply a macro trend; for instance, earlier in the quarter, we had tariffs, and I’m uncertain if that had any impact. You mentioned one product, but are there any specific customer segments we should keep an eye on in the future? It's possible that this dip affects the addressable market, and any insights you could provide on categorizing this would be appreciated.

Yes, that's a great question. We believe the answer is no, almost categorically no. While it can happen under certain circumstances, such as changes in our marketing approach, product positioning, or competitive dynamics, any temporary setbacks can be adjusted for effectively. If we were facing widespread issues across consumers, our discussion would reflect that. Similarly, if we hadn't managed the credit concerns swiftly at the beginning of the quarter, our perspective would also change. Since the challenges are confined to one product and we've quickly regained alignment, this situation was not significant from an operational standpoint. We felt it was important to address because we anticipated questions about the slightly increased delinquency rates in the consumer segment. Overall, we are very optimistic about the performance of our consumer products as we move into the latter half of the year.

The next question is from Kyle Joseph with Stephens.

Let me echo congratulations on the transition. And just to follow up on Johnny's question earlier. It sounds like from a macro perspective, demand is really strong for both SMB and consumer. But piggybacking on his question, can you give us a sense for the competitive environment and how that differs between consumer and SMB? Just David, earlier you referenced that SMB is almost easy, or like sliding downhill at this point. And 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 want to get a sense for the competitive dynamics there.

Some of this is cyclical, and the competitive dynamics can change over time. About a year and a half ago, we were experiencing strong consumer demand while small businesses were recovering from a credit issue in 2023. Now, we see a reverse trend. The advantage of having a diversified business is that different areas can support one another. On the small business side, competitive dynamics are more stable with fewer players in the market, which makes brand recognition more important. Our strong position in small business contributes to this stability. In contrast, the consumer market has many more competitors and is more fragmented, so if a few become aggressive for a quarter or two, it can create challenges. However, history shows that such aggression often leads to problems for competitors, resulting in a favorable position for us in subsequent quarters. We are confident in our competitive standing for both products. These dynamics will continue to shift, but as we look to the latter half of the year, our consumer business is performing exceptionally well. It is larger, stronger, our technology has improved, our predictive models are more effective, and we do not see any new competitive threats that worry us.

The next question is from John Rowan with Janney.

I'll also add my congratulations as well. I have two quick questions. Steve, should we discuss whether the heightened DQs impacted the fair value marks at all?

The fair value marks have remained quite stable. Sometimes, the metrics we report, like the 30-plus delinquencies and net charge-offs, can be affected by numerator and denominator issues and mix changes. However, fair value looks more at the unit economic decisions we make and lifetime expectations. Both portfolios have shown significant stability over the past two years, which is reflected in the fair value. We continue to anticipate stability in the credit outlook. On the consumer side and for small businesses, we've previously mentioned our expected ranges each quarter. For small businesses, we typically expect net charge-offs to fall in the 4.5% to 5% range, where we've remained for quite some time. Consumer results vary seasonally; for the second quarter, I expect the ratio to be around 13% to 15%, while in Q4, it should be between 15% and 17%. Historically, the first and third quarters usually fall in between those figures. These ranges are acceptable, and moving through them does not hinder our ability to achieve solid results. This serves as a reminder to consider the quarterly metrics in light of how we make decisions and how fair value calculations function.

Okay. Fair enough. And just 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.

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

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 has now concluded. Thank you for attending today's presentation. You may now disconnect.