Enova Discussed Its Q3 Performance, Its View on the Small Business Loan Market

Enova originated $783M in small business loans in Q3, which is up from $770M in Q1 and $712M in Q2. Overall company profitability was slightly down but mainly because they increased marketing spend later in the quarter in which there was not enough time to also experience the corresponding revenue increase.

Enova also recorded some slightly higher-than-expected chargeoffs that came from their 2nd half 2022 smb loan 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,” said Enova CEO David Fisher on the earnings call. “But since there is a 9 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.”

Given the current interest rate environment, the call drew out some insightful information about the small business loan market. Bullet points below:

• “…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.” – Fisher
• “I think the competitive environment is still pretty benign, like we’ve been talking about for a while. Nothing new on the small business side. I think we’ve seen, as we talked about, competitors struggle with liquidity, also a couple move more towards the prime space in SMB.” – Fisher
• “On the small business side, still a lot coming through the wholesale channel through ISOs, but we continue to grow our direct channel. It’s a very fast-growing channel for us” – Fisher
• “So if the consumer falls on their face, small businesses are in big trouble. 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.” – Fisher
• “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.” – Fisher
• “Inflation continues to moderate, while the labor market and wage growth continue to be very strong.” – Fisher
• “To be clear, Enova overall is in great shape, and we’re feeling good about Q4 and next year.” – Fisher

Enova Originated $770M in Small Business Loans in Q1

Enova originated $770M in small business loans in Q1, according to the latest earnings report. The company posted an overall impressive net income of $51M to boot.

“We delivered another quarter of solid top- and bottom-line results, with our balanced approach to growth enabling us to successfully navigate the current macroeconomic backdrop,” said David Fisher, Enova’s CEO, in an official statement.

SMB credit products now makeup 65% of Enova’s portfolio, up from 56% last year.

“Given our strong brand presence, minimal competition and diverse portfolio, we continue to see a long runway ahead to drive meaningful volume,” Fisher said.

Although the company’s eye is still on growth they are being intentionally conservative given the macroeconomic conditions.

“…with the good credit metrics and entering a more seasonably attractive time of year, that gives us incentive to accelerate originations a bit, which I also mentioned on the call,” said Fisher. “And those could push up the metrics a bit because, it’s important to remember, there’s 2 ways of accelerating originations. You can open up your credit model and bring in more lower credit quality customers or you can spend more per customer and attract more higher credit quality customers. And we vary those tactics based on what we’re seeing in our data each and every day. And we’re twisting those dials each and every day to adjust marketing spend and adjust where our credit metrics are.”

Enova CEO: We’re seeing competitors pull back on originations

Enova’s small business loan originations hit $807M in Q3, according to the company’s latest quarterly earnings report. That’s up significantly from Q2’s total of $679M.

Despite the nation’s economic headwinds, the company said that credit quality across their portfolio remained solid and that SMB originations would continue to grow as a percentage of Enova’s overall business thanks to “strong demand and strong unit economics.”

“On the competitive side, we are seeing both consumer and SMB competitors pull back meaningfully on originations as they struggle to manage both credit and their loan portfolios and access to capital, problems that we are not experiencing,” said Enova CEO David Fisher. “Demand has also remained strong for our SMB products. Small business government stimulus has been exhausted, and we believe that we’re seeing additional tailwinds as banks have tightened credit, resulting in high credit quality borrowers who may have otherwise gone to a bank coming to us.”

Fisher attributed Enova’s unique ability to manage the economic circumstances to “deep experience, sophisticated and proven machine-learning-driven analytics, diversified product offerings, strong balance sheet and [a] world class team.”

Notably, Enova has also been emphasizing its shorter-term products and paying attention to segments of the SMB market likely to cause trouble.

“Construction has been a place where we really started backing away from three or four quarters ago, which was a great decision in hindsight,” Fisher said. “Trucking has been a complete mess. That whole industry is just messed up between fuel prices and supply chain issues, both affecting ability to repair your trucks and also keeping trucks full. I mean, that industry is just a complete mess. So we backed away from trucking very early this year as well.”

Enova Doubles Small Business Loan Originations YOY

Enova’s small business lending arm, powered mostly by OnDeck, originated $659M in Q1 of 2022. That was more than double the volume over the same period in 2021 and up 14% sequentially from Q4 2021. Overall, Enova reported a Q1 net income of $52M.

“The first quarter net charge-off ratio for small business receivables was 1.9%, up from 80 basis points last quarter, but below the prior year ratio of 2.6% and below pre-pandemic periods as we continue to see strong payment performance across all of our small business products,” said Enova CFO Steven Cunningham during the quarterly earnings call.

Company CEO David Fisher said that Enova felt really good about its market position in the small business lending space and considered itself the largest player in the non-prime sector of it overall. “We are not feeling APR pressure in our small business products,” Fisher said when asked if competitive forces might drive the company’s loan prices down. He attributed the company’s rapid originations growth to both an increase in marketing spend and an increase in customer awareness that they can access capital quickly online.

“…small businesses have a pretty strong appetite for growth, but also for kind of more traditional non-bank small business lenders,” Fisher said. “I think kind of the online approach with kind of the speed and the ease and the transparency is really appealing to businesses.”