Earnings

Enova's Marketing Bill Jumps 56% To $229.7 Million As Delinquencies Hit 8.0%

The lender's third-quarter expenses grew 39.1% against 25.7% revenue growth, while cheaper securitized funding took the edge off higher interest costs.

Matteo Parrino Jonathan Ponciano

Matteo Parrino, Jonathan Ponciano

— 3 min read
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Enova's Marketing Bill Jumps 56% To $229.7 Million As Delinquencies Hit 8.0%

Enova International, which runs online lending businesses for consumers and small businesses, spent $229.7 million on marketing in the third quarter, up from $147.4 million a year earlier. Total operating expenses rose 39.1% against revenue growth of 25.7%, and loans more than 30 days delinquent reached 8.0% of the combined receivable balance, according to the company's 10-Q filed Thursday.

Costs outrunning revenue

Revenue climbed to $1,009.2 million from $802.7 million, and net income rose 33.6% to $107.3 million, or $4.06 a diluted share. Total operating expenses reached $367.2 million from $263.9 million.

The gap widened from the prior quarter. The second-quarter 10-Q showed operating expenses up 28.6% against revenue up 21.6%.

Enova attributes the marketing increase to higher online advertising aimed at rising demand for consumer and small business loans, plus higher commissions on small business originations. The company's earnings release described the quarter as exceeding its expectations, with revenue topping $1 billion for the first time.

Delinquencies climb, with caveats

Loans more than 30 days late stood at 8.0% at September 30, against 7.5% at June 30 and 7.2% a year earlier. Consumer net charge-offs rose to 15.1% of average balances from 12.8% last quarter, though they were 16.1% a year ago.

Enova calls the sequential consumer rise consistent with its normal seasonal pattern. Small business delinquencies of 7.8% sit inside a range of 6.2% to 8.8% the company cites for the prior three years.

The company, which serves people and small businesses with bank accounts but limited access to bank credit, carries every loan at fair value. Credit expectations therefore hit revenue directly through the change in fair value line, which was $394.8 million this quarter. Loans were valued at 116.1% of principal on a combined basis, up from 115.5% a year earlier.

Cheaper funding, no near-term maturities

Interest expense still rose 19.0% to $103.5 million as average debt grew, but the weighted average rate fell to 7.97% from 8.61%. A September small business loan securitization raised $500.0 million, and its top-tier Class A notes carry a 5.61% rate.

Enova says it has no recourse debt maturing until December 2028 and had $817.4 million of aggregate funding capacity at September 30.

The company also ended its planned purchase of Grasshopper Bancorp, the parent of Grasshopper Bank, after withdrawing its regulatory applications on September 14. Under an October 16 termination agreement, Enova paid Grasshopper $4.0 million in cash, and neither side owes the other anything further. Market value stood at $4.5 billion in market data from Thursday.

Enova's credit metrics will face their next test once the seasonal peak passes, with delinquencies at 8.0% the figure to compare against.

Sources

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