Enova International, Inc. (ENVA) Q2 2019 Earnings Report, Transcript and Summary

Good day, and welcome to the Enova International Second Quarter 2019 Earnings Conference Call and Webcast. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Monica Gould, Investor Relations for Enova. Please go ahead.

Thank you, Stan, and good afternoon, everyone. Enova released results for the second quarter ended June 30, 2019, this afternoon after the market closed. 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 based on the business environment as we currently see it, and as such, does include certain risks and uncertainties. Please refer to our press release and our SEC filings for more information on the specific risk factors that could cause our actual results to differ materially from the projections described in today's discussion. Any forward-looking statements that we make 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, we report 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 supplemental financial information on the IR portion of our website. And with that, I'd like to turn the call over to David.

Thanks, Monica. Good afternoon, everyone and thanks for joining our call today. I'm going to start by giving you a brief overview of the second quarter, and then I'll update you on our strategy. After that, I'll turn the call over to Steve Cunningham, our CFO, who will discuss our financial results and guidance in more detail. We produced another quarter of solid revenue growth, again driven by our balanced, focused growth strategy coupled with strong execution, stable credit performance and efficient marketing. This led to strong profitability with adjusted EBITDA and EPS exceeding our guidance. In fact, second quarter results marked the 15th consecutive quarter that we've delivered financial results that met or exceeded our guidance. Second quarter revenue of $286 million increased 3% over a difficult comp from a strong Q2 last year, and was primarily driven by growth in our U.S. businesses. Second quarter adjusted EBITDA increased 16% to $58 million, and adjusted EPS increased 37% to $0.81 per share as we continued to generate significant operating leverage. As there's been the case for the last couple of years, our Q2 financial performance was supported by robust new customer acquisition. During the quarter, loans to new customers represented 35% of total originations, the highest we've seen since 2004, and up from 28% in Q2 of last year. As we've mentioned in the past, these new customers expand a returning customer base and revenue potential going forward. Even with the high percentage of new customers in the quarter, gross margins were essentially flat year-over-year, evidencing the strong credit performance we are seeing. Credit quality remains good across our entire portfolio with charge-offs well in line with our expectations. Our sophisticated Colossus decision engine has allows us to effectively maintain excellent credit quality with advanced real-time decisioning that evaluates and rapidly makes credit and other determinations throughout the customer relationship, including automated decisioning regarding marketing, underwriting, customer contact and collections. Colossus currently processes more than a 100 models and over 1,000 variables. Our proprietary models are built on our more than 15 years of history, using advanced statistical methods that take into account our expertise with the millions of transactions we have processed during that time and the use of data from numerous third-party sources. We continually update our underwriting models to manage default risk and to structure loan and financing terms. We believe the sophisticated platform gives us unique visibility into current credit trends. And while we've been in upward economic cycle for 10 years now, we're not seeing any signs of credit deterioration in our portfolio that would indicate -- and nothing that would indicate that this is likely to change soon. Total company-wide originations in the quarter increased 3% compared to a strong Q2 of last year and were up 13% sequentially. And total AR was up 19% year-over-year and 9% sequentially. We believe our strong operating performance is attributable to our focus on our 6 growth businesses, namely: Our U.S. subprime business; our U.S. near-prime offering; our U.K. consumer brands; U.S. small business financing; our instalment loan business in Brazil; and Enova Decisions, our Analytics-as-a-Service business. As we have demonstrated in the past, our diversified product offerings give us the ability to focus our growth where we see the most attractive opportunity. Our domestic businesses, which include our large U.S. subprime business, NetCredit and our small business financing products were the primary growth drivers during Q2, with domestic revenue up 19% year-over-year, benefiting from a 39% year-over-year increase in line of credit revenue and a 13% increase in instalment loan and finance receivables revenue. Our large U.S. subprime consumer business generated another good quarter of growth and profitability. Originations were flat versus a strong Q2 last year, but the portfolio remains well-diversified. Over the last 5 years, single-pay products have decreased from 28% to 13% of our portfolio while line of credit has increased from 38% to 57%. The remaining 30% of our U.S. subprime business is instalment products. With our ability to develop and distribute products that are attractive to customers' changing desires and needs, we believe we are ideally positioned to grow beyond our single-digit market share in the U.S. Net credit loan balances increased 21% year-over-year to $495 million and originations increased 32%. Our U.S. near-prime products represented 46% of our total portfolio at the end of Q2, compared to 45% in Q2 of last year and remain amongst the fastest-growing products in our portfolio as we take share from incumbent brick-and-mortar lenders in this space. Our second quarter U.K. revenue decreased 18% year-over-year on a constant currency basis, primarily driven by the repositioning of our U.K. business, as we discussed in our Q1 earnings call, to focus on instalment offerings as well as us moderating originations while we and other lenders in the U.K. work to reach resolution with the regulator, the FDA, and the Financial Ombudsman Service and how to effectively resolve the rise in customer complaints to the ombudsman over the last couple of years. As discussed in Q4, we relaunched On Stride, our instalment product in the U.K., which led to instalment loan revenue increasing 14% year-over-year and 21% on a constant currency basis. Our customers like the variety of durations and the wide range of APRs that On Stride offers. And we believe this repositioning, coupled with our dominant market share, positions us well for future growth in the U.K. if a sustainable complaint framework can be established. Turning to small business. As we discussed on our last couple of calls, we are seeing strengthening of demand for our small business products at attractive unit economics, leading us to be more assertive in expanding. Our products are clearly gaining traction with customers, resulting in originations increasing 140% year-over-year, and small business now represents 12% of our book at the end of Q2. As with our consumer products, credit remains good in our small business portfolio, and we are seeing no signs of deterioration. Looking back, we've demonstrated a prudent approach to growing this business, and we remain committed to pursuing further growth to the extent unit economics are attractive. In Brazil, second quarter originations declined 18% year-over-year on a constant currency basis and increased 2% sequentially. As we discussed on our Q1 earnings call, we have intentionally slowed originations while we reconfigure our operations to deal with new debiting practices implemented by the banks in Brazil. We still continue to see a large opportunity in Brazil, given its huge population, growing middle-class and stable regulatory environment. Lastly, Enova Decisions, our real-time Analytics-as-a-Service, business continues to gain traction and provides a unique avenue for growth for Enova. Before I wrap up, I want to provide a brief regulatory update. On the Federal level, there's not much news to report regarding the CFEB, as the CFEB reconsiders the ability to repay provisions of the small-dollar rule, and the compliance date for those provisions have been -- having been extended to November 2020. In addition, there's currently a judicial stay out of Texas on the entire rule. The next hearing in the Texas case is August 2. If the stay is lifted, the payment provision of the small-dollar rule will go into effect on August 19. We do not expect the payment rules to have a significant impact on our business if they are -- if they do go into effect in August. At the State level, we closely monitor and are engaged in legislative efforts to both protect our ability to serve our customers in existing states and expand access to credit in new states. As we have discussed before, our flexible online platform can address changes in regulations to offer the products people want in a highly compliant manner. One potential change is a California bill that will cap interest rate at roughly 38% on personal loans between $2,500 and $10,000. This bill has passed the assembly and the first 2 of 3 committees in the Senate. We expect to be heard in the third committee during the last week of August and the last day for the Senate to act on this bill is September 13. We currently offer 3 products in California, a single-pay product, a subprime instalment product and a near-prime instalment product. If the bill passes in its current form, we will need to wind down our subprime instalment product in California. But this product was only about 2.5% of originations last quarter. The bill will not impact our single-pay product, and we will likely convert our near-prime product to a bank-partner program, which will allow us to continue to operate in California at similar rates to what we charge today. Throughout, we don't think that California though is the right answer for consumers who need access to credit. We also do not believe that it will have a material impact on our business. More specifically, the bill would not be effective until next year, so it will have no impact on 2019. And if we do need to wind down the subprime instalment portfolio next year, we would actually expect to see an improvement to our gross margin in 2020. In longer-term, we think our near-prime products in California could see increased demand from the elimination of subprime instalment lending as well as over 36% title lending. More broadly on the stateside, in the past few years, we've seen legislators in several states open up credit access for customers. While a few have restricted access. States including: Florida; Mississippi; New Mexico; Oklahoma; and Texas, have all introduced new bills or reaffirmed existing laws, and just a few states, including: Maryland; Ohio; and South Dakota reduced or restricted consumer access. Overall, we've supported efforts in states to change from only allowing short-term, single-payment products to offering the choice of longer-term, multi-payment products that provide consumers with flexibility and opportunity to build credit. We have identified product opportunities in several more states. But we do believe that after a fair amount of recent state legislative activities, it is likely to diminish. Overall, the flexibility of our online platform and the proprietary analytics continue to provide us with a significant advantage in adapting to changes and diversifying our products offerings. We've continued our strong path in 2019 and are raising our outlook for the year, as Steve will describe in more detail. Looking ahead, we remain focused on managing the business to balance growth with profitability. We've made a lot of progress strengthening our businesses and believe we are well-positioned to capitalize on the growth opportunities ahead of us. With that, I'll turn the call over to Steve, our CFO, who will provide more details on our financials and guidance and following his remarks, we will be happy to answer any questions that you may have. Steve?

Thank you, David. And good afternoon, everyone. I'll start by reviewing our financial and operating performance for the second quarter of 2019, and then provide our outlook and guidance for the third quarter and the full year 2019. As David mentioned, we are pleased to report another quarter with top and bottom line results above our expectations. Second quarter 2019 financial performance demonstrated our continued ability to deliver meaningful, receivables and revenue growth in combination with strong credit performance, operating leverage in a declining cost of funds. Total second quarter 2019 revenue increased 13% to $286 million, above the top end of our guidance range of $265 million to $285 million. On a constant currency basis, revenue increased 14% year-over-year. Revenue growth was driven by a 19% year-over-year increase in total company combined loan and finance receivables balances, which grew to $1.1 billion. Installment loans and line of credit products continue to drive the growth in total loans and finance receivables balances, which grew 18% and 46% year-over-year, respectively. Installment loans receivables, purchase agreements and line of credit products now comprise more than 94% of our total receivables portfolio and 87% of our total revenue, demonstrating our customers' preference for these products. Domestic revenue increased 19% on a year-over-year basis and declined slightly sequentially as is typical of our seasonality to $254 million in the second quarter. Domestic revenue accounted for 89% of our total revenue in the second quarter. Revenue growth in our domestic operations was driven by a 39% year-over-year increase in line of credit revenue and a 13% increase in instalment loan and RPA revenue. Continued strong demand for these products drove our domestic combined loan and finance receivables balances, up 23% year-over-year. International revenue decreased 21% from the year-ago quarter to $31 million, primarily due to the repositioning and management of our international businesses that David mentioned as well as from currency headwind. On a constant currency basis, international revenue decreased 16% on a year-over-year basis. Total international loans decreased 11% compared to the second quarter of last year. International instalment loan balances increased 7% year-over-year while international short-term loan balances decreased 48% year-over-year. On a constant currency basis, International loan balances decreased 8% year-over-year. Turning to gross profit margins, our second quarter gross profit margin for the total company was in the high-end of our guidance range at 51.6% and was flat to the prior year quarter. Improved year-over-year credit quality supported the strength of our gross profit margin even with the recent increase in the proportion of originations from new customers. Net charge-offs as a percentage of average combined loan and finance receivables decreased in the second quarter to 12.2% from 12.9% in the prior year quarter. We saw year-over-year declines in the net charge-off ratios for each of our 3 loan categories. As David mentioned, originations from new customers across all of our businesses were 35% of the total during the second quarter, the highest quarterly proportion we've seen since our first year of operation, and up from 28% in the second quarter of last year. Over the past 4 quarters, originations from new customers have totaled 30% of total company originations. At the end of the second quarter, the allowance and liability for losses for the consolidated company, as a percentage of combined gross loan and financing receivables, was 14.7%, which is flat sequentially and up from the year-ago quarter of 13.8%, reflecting the expected continued seasoning of new customer receivables originated in recent quarters. As we've described in the past, a higher mix of new customers in originations typically requires higher loss provisions upfront as new customers default at a higher rate than returning customers with a successful history of payment performance. For 2019, we continue to expect our consolidated gross profit margin to be in the range of 45% to 55%. We typically see gross profit margin in the upper end of our guidance range during the first half of the year, as we experience seasonally lower growth followed by sequential declines during the second half of the year as we move into our seasonally higher growth period. In addition to the seasonality, our gross profit margin will also be influenced by credit performance, the mix of new versus returning customers in originations, and the mix of loans and financings in the portfolio. Our domestic gross profit margin was 52% in the second quarter, flat to the second quarter of last year, and down sequentially from 56% in the first quarter of 2019. Our international gross profit margin was 46% in the second quarter and was in line with our expectations. This compares to 51% in the prior year quarter. The decrease in international gross profit margin from the year-ago quarter was driven primarily by the seasoning in growth of our new instalment product in the U.K. that David mentioned earlier. We continued to expect our international gross profit margin for the remainder of 2019 to be in the range of 45% to 55%. Continued cost discipline and operating leverage inherent in our scalable online model also contributed to profitability in excess of our expectations this quarter, as the revenue growth continues to meaningfully outpace nonmarketing operating expenses. During the second quarter of 2019, total operating expenses, including marketing, were $93 million or 33% of revenue compared to $85 million or 34% of revenue in the second quarter of 2018. We continue to see efficiency in our marketing spend, which declined as a percent of revenue year-over-year. Marketing expenses in the second quarter were $32 million or 11% of revenue compared to $29 million or 12% of revenue in the second quarter of 2018. We expect marketing spend will range in the low to mid-teens as a percentage of revenue for the remainder of 2019 as we enter our seasonal growth periods in the second half of the year. Operations and technology expenses totaled $32 million or 11% of revenue in the second quarter, compared to $27 million or 11% of revenue in the second quarter of 2018, and were higher primarily from volume-related variable expenses and ongoing expenses associated with complaints in the U.K. General and administrative expenses were $29 million or 10% of revenue in the second quarter compared to $28 million or 11% of revenue in the second quarter of the prior year. Strong growth, stable credit performance and cost discipline drove a 16% year-over-year increase in adjusted EBITDA, a non-GAAP measure, to $58 million in the second quarter. Our adjusted EBITDA margin was 20.1% compared to 19.6% in the second quarter of the prior year. Our stock-based compensation expense was $3.3 million in the second quarter, which compares to $2.8 million in the second quarter of 2018. Our effective tax rate was 22% in the second quarter compared to a 22.6% rate in the second quarter of 2018. We expect our ongoing normalized effective tax rate to be in the mid-20% range. Net income increased 39% to $25 million or $0.73 per diluted share in the second quarter from net income of $18 million or $0.52 per diluted share in the second quarter of 2018. Adjusted earnings, a non-GAAP measure, increased 34% to $28 million or $0.81 per diluted share from $21 million or $0.59 per diluted share in the second quarter of the prior year. The trailing 12-month return on average shareholder equity, using adjusted earnings, increased to 28% during the second quarter from 25% a year ago. We continue to generate strong operating cash flow and ended the quarter with a solid balance sheet and liquidity position. During the second quarter, cash flows from operations totaled $194 million, and we ended the quarter with unrestricted cash and cash equivalents, $66 million, total debt of $786 million. Our debt balance at the end of the quarter includes $109 million outstanding under our $350 million of combined instalment loan securitization facility, and we had no outstanding balances under our $125 million corporate revolver at the end of the second quarter. On July 8, we announced the amendment of our corporate revolver to extend the maturity to June 2022 and to improve certain terms, including the advanced rate. We continue to maintain an extended and laddered maturity structure across our term debt and instalment loan warehouse facility. Our cost of funds for the second quarter declined to 8.7%, a 150 basis point decline from the same quarter a year ago, as we recognized the cost benefits of transactions completed during 2018. The cost of funds improvement contributed $3.3 million of pretax operating income this quarter. Now I'd like to turn to our outlook for the third quarter and the full year 2019. Based on our outperformance in the quarter and recent trends, we are raising our profit guidance for the full year. Our outlook reflects an expectation of continued recent receivables gross trends, including faster relative growth, consumer and small business instalment, RPA and line of credit products and accelerated growth in the mix of new customers in originations. We also expect stable credit trends, operating leverage and funding cost to improve year-over-year EBITDA margins and earnings per share in the second half of the year. Finally, our guidance assumes no significant impacts to our businesses from regulatory changes or currency volatility. As noted in our earnings release, in the third quarter of 2019, we expect total revenue to be between $320 million and $340 million, diluted earnings per share to be between $0.62 and $0.84 per share, adjusted EBITDA to be between $55 million and $65 million, and adjusted earnings per share to be between $0.70 and $0.92 per share. For the full year 2019, we now expect total revenue to be between $1.26 billion and $1.3 billion, diluted earnings per share to be between $3.13 and $3.57 per share, adjusted EBITDA to be between $250 million and $270 million and adjusted earnings per share to be between $3.50 and $3.94 per share. As David mentioned, we continue to demonstrate strong execution on our financial goals, and we remain optimistic about our ability to generate meaningful growth and profitability in 2019 and beyond. And with that, we'd be happy to take your questions. Operator?

[Operator Instructions] The first question comes from David Scharf, JMP Securities.

So I'm going to bypass questions on California, I'm sure whoever executive is live will chime in. But I had a couple of things I wanted to ask about. One is just broadly speaking, maybe for Steve, guidance-related question. Historically, we've seen a pretty big fall-off in earnings power seasonally in the second half, particularly from Q2 to Q3. And if I just take the midpoint of your Q3 guide, there is no fall off at all. And is there anything, in particular, you would note there? Why we don't need to have as much as of the seizable drop-off? I would have thought, particularly with expanding new customer acquisition profile that pattern would at least hold. And it seems like business is so strong that it sort of declines as seasonal headwind?

Yes. So I sort of, in my remarks, tried to address that a bit. So we've seen great credit, but we've also positioned our allowance for the expectation of increased losses if you just look at the allowance for loan losses. So we are definitely expecting some uptick in the back half of the year just given the recent performance -- recent growth in new customers and originations. I would also say that we've got some businesses, like small business in NetCredit, that continue to scale very nicely. And so as a result of that, I think you'll consider -- continue to see improved year-over-year EBITDA margins compared to maybe what you saw last year. And in fact, 2018 was a great year, it's a tough comp year. So while we've seen some nice growth, it will be hard to sort of deliver on top of those growth rates that we saw and that's a bit of why we expect great growth and great new customer growth, but you also know how that sort of impacts overall margins and profitability for us. So that's sort of all baked in, in my remarks, tried to address some of that sort of across-the-board.

Got it. Now it's helpful. And just as a follow-up, the drop in short-term loan balances, both sequentially and near term, I mean, I know it's not a deliberate strategy to reduce that product as a percentage of the overall bid. But it was pretty abrupt, is that mostly the U.K. pullback? Or is it just less demand or a deliberate shift in the U.S. as well?

It's definitely both. With the launch of the instalment product -- with the relaunch of the On Stride and instalment in U.K. , it was definitely shifted away from the single-pay product, but the U.S., we launched 2 more LOC states. We only have a few single-pay states left in the U.S. It's really becoming a fairly insignificant portion of our overall business.

Right. Got it. And then lastly, I'm sorry, kind of, a regular quarterly question. In terms of potential CECL adoption, I'm just wondering without trying pining on any particular numbers as far as reserving. Can you talk about -- I believe you reserve generally for about 90 days of coverage within LOC and instalment. If you give us a sense for what the average duration is -- days in the subprime portfolio?

Yes, I mean, it hasn't really changed, it continues to be relatively short. And in fact, most of the losses in terms of loss recognition, the emergence is pretty quick. So in our subprime business, you usually see a majority of your losses in the first 90 days. But we don't actually disclose overall duration of the portfolio or even by product but I can tell you, it hasn't meaningfully changed and subprime products remain much shorter than our net credit product.

Your next question comes from John Rowan from Janney.

So David, I know you kind of addressed this in your opening remarks but just, I wanted to drill down a little bit more. The U.K., I know you said we relaunched On Stride but I mean what's the plan here, how to deal with the FOS. You lost $7 million in the quarter in the U.K., that's $14 million so far this year. What's the pattern on compensation claims? What's the positioning that you're getting from the FDA when you approach them on some type of sustainable resolution to what's kind of an absurd situation?

Yes. So complaints aren't increasing, but they're not materially decreasing either, and we are working actively. It's not -- I mean, it's partially the FDA but it's really FOS, the Financial Ombudsman Service working -- we're working actively with both of them to try to come to a resolution that everyone can live with. I don't think they want us talking about the details of those conversations in public, so we're not going to do that, but there are active ongoing conversations. Do we get there? I don't know, I'm hopeful. I know the FDA thinks that there is a valid role for high-cost short-term lending in the U.K. and is going to work hard to try to maintain an active market there. And also as a largest and leading lender, and clearly, the most compliant lender in the U.K. I think they want to see us succeed. But whether or not we can reach a satisfactory resolution for everyone, only time will tell. And I think in the meantime though, because of our diversified strategy, the U.K. is becoming an increasingly small portion of our business. It has been losing money in the last couple of years, certainly, last few quarters to the extent that we had to exit the U.K. or exit the positive for our financials right now, and we get some resources focused on some other growth opportunities that we've been holding back on. So I think we -- again, we're going to have a balanced approach in the U.K. We love to find a great resolution. It's a nice market for us, but it's not the biggest market in the world, and we're not going to -- we're not going to bend over backward to make it succeed just for the sake of succeeding. So we'll continue to work through it. Resolution is not going to be imminent. One way or the other, these take -- these practices take time, especially with government entities. But it is something that is actively underway.

So I mean, it kind of sounds like the alternative to AR, you guys all worked out with the FOS, which -- one of your peers have had a deal, worked out too, and when they are at the altar, that deal got pulled away and then closed up shop in the U.K. So it sounds like you're either going to get a deal or you might -- the other option is just to leave the market. Does that sound about right? I mean, you can't stay in the market and continue to offer the On Stride product, right? Because you'd still be an operating company, they're liable to the FOS as well as claims?

That's right. Look, I mean, let's get the economics decision. We're not wedded to the U.K. We'd love to stay there. Again, we think it's an attractive market, but our resources can be better used somewhere else, and we do have other growth opportunities that we're not pursuing because we have limited resources, and we'll reposition the U.K. resources somewhere else, and move on from that market.

Okay. And then just to shift gears and I'll stay on regulations for a second. California, I know you said it was 2.5% originations, as far as an impact, 2020 is to roll-off that loan portfolio, but as you look out, and you've made it to 2021, I think, the offset there maybe gets a little bit lower as you do have to get rid of that instalment products. So 2 questions here. I have some documents here from California Department of Business Oversight, which shows -- I was just looking for confirmation like $49 million loan portfolio, about 6% revenue contribution in 2018, and actually relatively high loss rate. Do that -- those numbers sound about right? I know these aren't GAAP documents, I'm not trying to ping or anything, but I'm just trying to get in the ballpark of what you would have to roll-off? Or what you would have to replace with a bank-partner model?

Yes. Well, keep in mind, our instalment loan book in the U.K. -- I mean, in California, is both subprime instalment and near-prime. There's a variety of interest rates. Some -- a lot of which we can replace it with a bank-partner model. There's no reason why we wouldn't be able to replace our California business with a bank program. So that's really the answer for us in California, plus we can keep our single-pay product. The current bill doesn't impact the single-pay product at all. So we actually think if you look kind of beyond 2020, we don't think this is the right answer, but we actually think we can come out ahead with the kind of, vacancy -- with all the subprime instalment lenders acting in the State. And probably, more importantly, the subprime title lenders exiting the State, it creates a huge opportunity for our near-prime product in California, and obtaining these bank programs aren't easy. There's not going to be nearly as much competition there, kind of, financially, it could be a win. From a regulatory standpoint, not a win, but financially, actually could be a win for us if this California bill does indeed pass.

Okay. And just last question here. Do you have a bank partner in place already? Just remind me, that will allow you to make higher rate loans that is, kind of, pass the product through their regulator?

We do have a bank program. We do have a bank partner that does higher interest rate loans, and kind of, we'll have to do a couple of quick changes to our program with them to offer that in California, but we don't see any reason why we couldn't do that.

Your next question comes from John Hecht from Jefferies.

Congratulations on the quarter and thanks for the details. You guys have had several quarters of high amount of new customer growth. I'm just wondering, is there been any change in, kind of, the behaviour of the new customers as you refine your credit model? Are there -- is first-time payment default is down or any other metrics that we should consider with respect to performance?

Actually not much, which is kind of a positive. We've been able to add a bunch of new customers with very stable credit. Credit, as we talked about, is looking really good across the entire portfolio and the higher levels of new customer growth hasn't impacted that at all. The new vintages are performing really, really well. And so at this point, we're very comfortable with the credit quality of the portfolio.

Okay. And Steve, I know you spent a lot of time over the past several quarters, kind of, optimizing your liability structure and taking down rates. I'm just wondering if the lower, kind of, the intermediate-term rate to drop as you look at the forward terms recently. Is there any further opportunities in the next, say, 12 months for you to take down rates even more than you have?

I think, John, really unless there was a significant drop in the short-end, like on a 1-month LIBOR type basis, I mean that would be where the real opportunity is but that's not something we're really counting on. We think we'll continue to blend down with our existing rate structure as we've gotten rid of -- or refinanced some of our higher-cost credit even up through the first quarter of this year. And so I think that will continue to stabilize or even move down a little bit from where we are today.

And especially, as we see NetCredit product and near-prime product as the fastest-growing portions of the portfolio, those would bring on at the lowest interest rates in our entire portfolio, and so just the kind of, the faster growth of that business will bring down our average interest rate across the portfolio.

Okay. And then final question. You mentioned Analytics-as-a-Service segment. I'm wondering, can you give us an update on revenue opportunities trends there, just give us an update of that category?

Yes. There's not much to say. We continue to add customers a little bit slower than we would like. We'll see. We kind of maybe end of this year, will evaluate whether it's growing fast enough for us to continue with that business. We've gained some traction, it works. Selling into institution isn't necessarily what we've historically done super well at Enova. Although we've built a nice little sales team, and we've given the runway, kind of, to go out and see how fast they can grow that business. And just the question is, given the size of the rest of Enova, can it really be meaningful over time. So we'll probably re-evaluate that again at the end of the year. We like the product and the customers like what we're doing and so we'll just see if we think it can be big enough to be meaningful.

Your final question comes from Vincent Caintic from Stephens.

So another good quarter of loan growth, I'm just wondering -- so relative -- in the past, sometimes you had to manage between your growth versus the cost of that growth. I'm just wondering if this quarter if you had to manage that at all, would it have been growth on the table that you are able to fully capture what was out there?

Yes. No, I think we largely captured it. We -- I think there is more growth out there. We can be aggressive just given the credit quality we're seeing in the portfolio. But we didn't have to pull back anything in any meaningful way in the quarter, which you can see in the strong new customer growth numbers. And the nice sign is it's really continuing, kind of, as we enter Q3, demands remaining really strong, new customer acquisition levels are remaining really strong. So we're pretty optimistic going through into the back half of the year, and as Steve mentioned, kind of, with the credit quality remaining really strong and actually strong growth rates we had last year are providing a nice existing customer base, that's driving enough profitability that we're hopeful we won't have to pull back on growth in the back half of the year.

Okay, got it. And another question on California. So very helpful detail that you provided, so no effect on single-pay, you size-up of the subprime instalment. On the near-prime side, if you could just talk to the mechanics of that a little bit more. So maybe what's the size of the near-prime instalment in California? And when you talk about bank partnerships, so just the mechanics of that, is that really like a like-for-like in terms of if you were to switch these customers over, the interest rates would be relatively unchanged and the loss rates, so the economics would be unchanged for that?

Yes, sure. So we don't break out portfolios by states. In terms of the conversion to a bank program, we give up a couple about percentages -- a couple percent of margin to the bank partner, but other than that it's largely like-for-like. And again, I think given the increased opportunity in California from all the subprime instalment lenders that will leave the State, the storefront guys that won't be able to compete. And again, the subprime entitled lenders who are really impacted by this bill, such a large opportunity for NetCredit. Happy to -- almost happy to pay those couple of points of margin to capture that opportunity.

Got you. And sorry, just squeezing in one more. On the expense side, so just a quick one, just noticed the operations and technology line was up 19% year-over-year. Just wondering, if there's anything one-time there if that's a good run rate to go with going forward?

Yes, there were no one-timers. It really was the 2 things that I mentioned, which is volume-related cost. About 70% of that line item is variable. And the remainder of that is some increase in our year-over-year expenses associated with the U.K. compliance.

This does conclude our question-and-answer session. I would like to turn the conference back to Mr. David Fisher for any closing remarks.

Thanks, everyone for joining our call today. We look forward to talking to you again next quarter. Have a good evening, everyone.