- Revenue: $378 million, up 25% over the same period in 2023.
- Loan Originations: $827 million, up 24% compared to $667 million in Q2 2023.
- Organic Loan Growth: $286 million during the quarter.
- Loan Portfolio: $4.14 billion, up 29%.
- Automotive Financing Originations: Over $140 million for the third quarter in a row, up 79% year over year.
- Home Equity Lending Volume: Up 55% year over year.
- Weighted Average Interest Rate: Reduced to 29.5%, down from 30.1% in Q2 last year.
- Total Portfolio Yield: 34.9%.
- Net Charge-Off Rate: 9.3%, within the target range of 8%-10% for fiscal 2024.
- Loan Loss Provision Rate: Reduced to 7.31% from 7.38% in the prior quarter.
- Efficiency Ratio: Improved to 26.9%, down from 31.2% in Q2 2023.
- Operating Expenses as a Percentage of Revenue: 10.1%, down from 11% in the prior year.
- Adjusted Operating Income: $153 million, up 34% from $114 million in Q2 2023.
- Adjusted Operating Margin: 40.5%, up from 37.7% in Q2 2023.
- Adjusted Net Income: $71.3 million, up 27% from $56 million in the prior year.
- Adjusted Diluted Earnings Per Share: $4.10, up 25% from $3.28 in Q2 last year.
- Adjusted Return on Equity: 25.4%, up from 24.2% in the same period last year.
- Free Cash Flow from Operations: $93 million in the quarter, with trailing 12 months exceeding $389 million.
- Quarterly Dividend: $1.17 per share, payable on October 11, 2024.
Release Date: August 09, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Record originations and loan book growth, with loan originations reaching $827 million, up 24% year-over-year.
- Total revenue for the quarter was a record $378 million, up 25% compared to the same period in 2023.
- The company added over $450 million of debt funding capacity, solidifying its position in the market.
- The efficiency ratio improved to a record 26.9%, a reduction of 430 basis points from the previous year.
- Adjusted net income reached a record $71.3 million, up 27% from the prior year.
Negative Points
- The delinquency rate ticked up, and the value of loans in the Stage 3 bucket increased significantly.
- The annualized net charge-off rate was 9.3%, which is on the higher end of the target range of 8% to 10%.
- The company had to tighten collection policies and underwriting requirements due to economic pressures.
- The weighted average interest rate charged to customers reduced slightly, impacting overall yield.
- The upcoming CEO transition may introduce some uncertainty, although continuity is expected with the outgoing CEO remaining on the Board.
Q & A Highlights
Q: The loss rate was stable in the quarter, but the delinquency rate ticked up and the value of loans in the Stage 3 bucket increased. Can you explain this dynamic regarding the arrears rates in the quarter?
A: Jason Mullins, President, Chief Executive Officer, Director: The increase in delinquency is partly due to the growth in secured loans, which have a longer charge-off cycle. Additionally, some economic pressure has affected certain customer segments. We have also tightened our collection policies, which has impacted delinquency rates. Despite this, we are confident that the net charge-off rate will remain stable.
Q: With policy rates coming down, do you anticipate adjusting your pricing strategy?
A: Jason Mullins, President, Chief Executive Officer, Director: We are generally comfortable with our current pricing strategy due to the forthcoming reduction in the interest rate cap. We will maintain our current pricing to manage the impact of the rate cap effectively.
Q: Can you elaborate on the further credit enhancements you plan to implement in the third quarter?
A: Jason Mullins, President, Chief Executive Officer, Director: We are making various adjustments, including raising credit floors and reducing the amount of credit extended. Jason Appel, Chief Risk Officer, added that they are introducing new bankruptcy and insolvency models to better manage unexpected insolvencies.
Q: How much of the increase in non-current receivables is driven by a weakening consumer versus a mix shift towards secured loans?
A: Jason Mullins, President, Chief Executive Officer, Director: Approximately 5-10% of the increase is due to the secured loan mix, about a quarter to one-third is due to macroeconomic factors, and the remaining two-thirds is due to changes in our collection policies.
Q: What were the most challenging aspects of assuming the CEO role, and how will this experience help in choosing the right successor?
A: Jason Mullins, President, Chief Executive Officer, Director: The most challenging aspect was learning the CEO role itself. The new CEO will likely come with CEO experience but will need to learn about our specific business and culture. The strong executive team and Board will provide ample support for the new CEO.
Q: Can you provide more granularity on the delinquency rates by product line or borrowing segment?
A: Jason Mullins, President, Chief Executive Officer, Director: There is no specific concentration by product line. Our collection policies are applied uniformly across products, so the delinquency rates are proportionate to historical levels.
Q: How are borrowers adjusting to the tightened collection policies?
A: Jason Mullins, President, Chief Executive Officer, Director: We are balancing the need to give customers some flexibility while maintaining discipline. The changes in collection policies are intended to improve long-term loan performance, and so far, the adjustments are working well.
Q: What are the assumptions behind the slight increase in the loss rate guidance over the next three years?
A: Jason Mullins, President, Chief Executive Officer, Director: The assumptions include a mild to moderate recession, unemployment rising to 7%, and the impact of the rate cap. The loss rate is expected to gradually step down next year due to improved credit quality and economic conditions.
Q: Can you discuss your strategy up to and post the rate cap implementation?
A: Jason Mullins, President, Chief Executive Officer, Director: We will continue to offer higher APR loans until the rate cap is implemented. Post-implementation, we will extend incremental credit at the new 35% rate and continue business as usual for customers already below this rate.
Q: What are you doing to drive improvements in the efficiency ratio?
A: Jason Mullins, President, Chief Executive Officer, Director: Improvements are driven by natural scale, proactive cost management, and a shift in business mix towards lower-cost channels. These factors are contributing to the improved efficiency ratio.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
