Q3 2024 Earnings Summary
- Robust Growth Momentum: The management highlighted consistent and strong growth drivers, with Q3 originations and revenue expanding by over 20% year-over-year, supported by seasonality and a favorable macroeconomic environment.
- Strong Operating Leverage: The discussion emphasized that most expenses (like marketing and variable O&T costs) scale with originations, while fixed costs such as G&A remain relatively stable, allowing EPS to grow faster than revenue.
- Competitive Advantage and Sustainability: Executives noted a landscape with few aggressive competitors and highlighted sustainable advantages such as diversified product offerings and advanced machine learning risk management, positioning the company well for long-term profitability.
- Slower Growth Potential: Executives acknowledged that the company is not growing as aggressively as it potentially could—opting for a more conservative unit economics approach—which might limit upside and raise concerns about future growth acceleration (e.g., cautious growth targets noted in the Q&A).
- Credit Quality Concerns: While charge-offs decreased, there were indications of rising delinquency rates in the consumer portfolio driven by a mix shift toward cash net business. This dynamic may signal underlying credit quality issues that could worsen over time (as discussed in the Q&A).
- Competitive Threats: Although current competition is minimal, remarks suggested that new entrants could emerge quickly in this market given low barriers to entry and rapid development of underwriting models. This potential shift in the competitive landscape might pressure margins and impede growth (as noted in discussions about competitive positioning).
-
Operating Leverage
Q: How efficient are operating expenses with growth?
A: Management highlighted that a significant portion of costs—such as marketing being entirely variable and about 70% of O&T costs variable—helps leverage growth effectively while fixed G&A expenses decline relative to revenue, driving stronger EPS performance. -
Funding Costs
Q: What is the base funding cost expectation?
A: They expect funding costs to remain around the 10.5%-11% range for Q4, with a trend toward the lower end as growth continues, reflecting efficient funding management. -
Originations Growth
Q: What drives strong sequential originations growth?
A: Management pointed to the combination of seasonality and a favorable macroeconomic environment, supporting over 20% year-over-year growth in originations for Q4. -
Product Mix
Q: Why does SMB grow faster than consumer?
A: The SMB product, being a newer offering since 2021, is growing more rapidly compared to the more mature consumer segment, which tends to have moderated growth. -
Competitive Landscape
Q: What is the outlook on competition in the market?
A: They see a weak competitive landscape with few aggressive entrants, comfortably maintaining strong market share. -
Delinquency Rate
Q: Why are consumer loan delinquencies up?
A: The increase is due to a mix shift toward their cash net business, although overall charge-offs remain lower, demonstrating robust underlying unit economics. -
Future Outlook
Q: Will the growth momentum continue into 2025?
A: Management expects to sustain momentum in originations and overall growth barring any material changes in the operating environment. -
Consumer Credit Trends
Q: How will increased consumer delinquencies trend?
A: While sequential delinquencies typically rise, the 1+ delinquency rate for consumers actually declined year-over-year, reflecting effective risk management in light of mix shifts. -
Recurring Customers
Q: Any change in new vs recurring customers?
A: There has been a consistent customer behavior with no notable change between new and returning customers.