Enova International, Inc. (ENVA) Q4 2020 Earnings Report, Transcript and Summary

Good afternoon and welcome to the Enova International Fourth Quarter and Full Year 2020 Earnings Conference Call. All participants will be listen-only mode. [Operator Instructions] Please note this event is being recorded. I'd now like to turn the conference call over to Monica Gould, Investor Relations for Enova. Please go ahead.

Thank you, operator, and good afternoon, everyone. Enova released results for the fourth quarter and full year 2020, ended December 31, 2020, 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 of Enova and Steve Cunningham, Chief Financial Officer of Enova. This call is being webcast and will be archived on the Investor Relations section of Enova's website. Before I turn the call over to David, I'd like to note that today's discussion will contain forward-looking statements and as such is subject to risks and uncertainties. Please note that any forward-looking statements are made 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 the US GAAP reporting, Enova reports 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.

Good afternoon, everyone and thanks for joining our call today. First, I will provide an overview of our fourth quarter and full year results. Then I'll discuss our strategy and outlook for 2021 and after that, I'll turn the call over to Steve Cunningham, our CFO, who will discuss our financial results and outlook in more detail. The adaptability of our sophisticated technology driven online business was evident in Q4 as we quickly reaccelerated originations while continuing to produce strong credit metrics even as COVID pandemic persisted. Total revenue in the fourth quarter increased nearly 30% sequentially to $264 million while declining only 24% year-over-year despite our significant pullback in originations from March to July in response to COVID. We also delivered yet another quarter of record profitability adjusted EBITDA rose 126% year-over-year to a record $149 million and adjusted EPS grew 160% to $2.39. Our performance navigating a difficult operating environment throughout 2020 would not have been possible without our experienced and talented team. Their hard work combined with the ability of our sophisticated machine learning analytics enabled us to quickly adapt to the changing environment pulling back on originations early in a crisis and then driving a strong recovery in growth in the second half of the year. [Indiscernible] for the full year total revenue declined to 8% to $1.1 billion while adjusted EBITDA rose 51% to $415 million and adjusted EPS grew 78% to a record $7.26. As we discussed in last two quarters, our prudent approach to originations early in the pandemic led to a contraction in our loan portfolio during Q2 and Q3. However, our ability to quickly accelerate originations during Q4 supported by the strong unit economics we've been seeing led to the first expansion in our loan portfolio since the pandemic began, with growth both in our legacy loan book and in the OnDeck book. In the fourth quarter, our book increased 87% sequentially and 4% from the fourth quarter of last year. Small business products represented 52% of our portfolio in Q4 while consumer accounted for 48%. Within consumer line of credit products represented 29% of our consumer portfolio and summer [ph] products accounted for 69% and short-term loans represented just 2%. Fourth quarter originations more than quadrupled sequentially while down 18% from a year ago. By way of comparison, third quarter originations were down 77% from the third quarter of last year demonstrating how our nimble online business and rapidly adjusting analytics whilst to quickly adjust the business to changing market environment. Another positive trend in Q4 was an increase in originations from new customers to 28% of total originations up from 11% in Q3. As we continue accelerating originations, we expect that the proportion of new customers will continue to increase over the next several quarters given the demand we're currently seeing. To close 2020 with month-over-month growth in revenue, AR and originations for the first time since the pandemic began and while it's difficult to make forward-looking predictions given the ongoing impacts from COVID. Based on what we're seeing today we expect growth in our originations to continue for the foreseeable future. On the consumer side of our business taking into account typical Q1 seasonality and despite persistent elevated unemployment we've had a solid start to 2021, following on the strong sequential growth in originations we produced in Q4. As economy opens back up, we're continuing to believe that consumers will increase their spending potentially at elevated levels as there will be pent up demand and as they do, they'll need access to credit to support any temporary dislocations between their income and their expenses. Since most customers have been paying down debt during COVID their personal balance sheet should be in a position where we can successfully lend to them. We saw the same dynamic following the financial crisis which led to strong origination growth in 2010 and 2011. We are also mindful of any potential impacts from additional stimulus. But based on what we saw from the last round we do not anticipate it being an impediment to our growth. Our analysis for the prior stimulus showed a marked improvement in credit and collections performance with little impact to customer demand. On the small business side, with the closing of the OnDeck acquisition. We're excited to add a world class brand, great products and a talented team to Enova's diversified businesses. Our combined SMB products originated over $120 million in December alone up 26% from November. In addition, we're not seeing much effect from PPP as originations have remained strong so far in 2021. So needless to say, we're very pleased so far with the OnDeck acquisition and as we view the economic landscape, we continue to believe that is an excellent time to be increasing our focus on SMB lending. As economy emerges from the pandemic, we believe small businesses will be a huge beneficiary of the pent-up consumer demand I just mentioned. Today, much of consumer spending it at large business such as groceries stores, big box stores, utilities, streaming entertainment and Amazon of course. But as the economy reopens consumers will likely increase their spending at small businesses like hair salons, gyms, local retailers and restaurants. Many of these small businesses have used up their savings trying to survive the pandemic and they will need access to credit to rebuilt inventory, rehire employees, etc. This could lead to a huge surge in demand that we're ready to fill. The integration of OnDeck is also going well and we're on track to deliver the forecasted $50 million of annual cost synergies primarily from eliminated duplicative resources as well as $50 million run rate revenue synergies. We also continue to expect that the transition will be accretive this year and generate EPS accretion of more than 40% when synergies are fully realized in 2022. Possibly more as it now appears that our purchase rights is even more attractive than we believe at the time we announced the deal. As a reminder, we paid $160 million for OnDeck in a mix of stock and cash. Benefiting from the strong credit performance of the legacy OnDeck portfolio we're now expecting the value of their portfolio to be much higher than we modeled when we completed the deal. We originally thought that the legacy portfolio would have very little residual value. We've already realized over $50 million in residual cash payments alone since the closing and we now expect to receive at least $200 million of total cash on the acquired portfolio, net of securitization repayment. In addition, it is likely that we'll look to monetize our interest in ODX, OnDeck Canada and OnDeck Australia allowing us to focus on the core US SMB lending business further reducing our net investment in OnDeck. While ODX has been able to sign some high-profile bank clients divesting ODX will allow for more efficient use of capital as the business has over 70 employees but less than $10 million in revenue. The Australian and Canadian businesses are viable businesses in their respective market. But are small compared to OnDeck US operations and are unlikely to have a significant impact on Enova's overall growth. In addition OnDeck only has partial ownership of those two businesses. In summary, we're very pleased with our strong fourth quarter and full year performance. A world class analytics enabled us to successfully navigate in unusual year and the strength of our business enabled us to further diversify with opportunistic acquisition of OnDeck. Having successfully navigated 2020 our focus is squarely on accelerating growth in 2021. We have good momentum after an encouraging Q4 and start to 2021 and we're continuing to see very good credit in our portfolio which gives us flexibility to further increase volume as the economy improves. We remain committed to helping hard working people get access to fast trustworthy credit. COVID has created uncertainty in the near term however our solid financial position and diverse product offerings position us well to continue to produce sustainable and profitable growth and drive shareholder value. With that, I'll turn the call over to Steve to provide more details on our financial performance and outlook and following Steve's remarks we'll be happy to answer any questions that you may have. Steve?

Thank you, David and good afternoon everyone. As David mentioned in his remarks, we're encouraged by the sequential growth in originations, receivables and revenue and the continued solid credit quality of the portfolio as we ended 2020. The resiliency of our direct online only business model, the strength of our powerful credit risk management capabilities driven by our world class analytics and technology and our solid balance sheet have given us the flexibility to not only manage through this challenging economic environment. But also to opportunistically and to our products and capabilities as we prepare for economic recovery. With the closing of the OnDeck acquisition during the fourth quarter, we were pleased to add a talented team, operating capabilities and product diversification that further enhance our ability to serve our customers to drive growth and shareholder value. One reporting note before I discuss our results. With the closing of the OnDeck acquisition during October beginning this quarter we're changing product groupings for ongoing reporting in our earnings supplement to two new categories; consumer loan and finance receivables and small business loans and finance receivables. Financial results for OnDeck since October 13 are included in our fourth quarter and full year 2020 results in the earnings supplement, but not in historical periods prior to the fourth quarter of 2020. Now turning to Enova's fourth quarter results. Total company revenue from continuing operations increased 29% sequentially to $264 million as the OnDeck acquisition drove sequential growth in small business revenues and revenue from our consumer businesses grew 2% sequentially. The first sequential increase in revenue since the COVID pandemic began. The addition of OnDeck and sequential growth in receivables from legacy Enova businesses increased total company combined loan and finance receivables balances on an amortized basis to $1.3 billion at the end of the fourth quarter up 87% from the third quarter and up 4% from the fourth quarter of 2019. Excluding $597 million of OnDeck receivables at December 31, total company combined loans and finance receivables balances on an amortized basis rose 2% sequentially with increases in both consumer and small business receivables. As David discussed receivables growth was driven by increases in origination during the fourth quarter. Total company originations were $536 million during the fourth quarter nearly four times third quarter originations and only 18% lower than the fourth quarter of 2019. Fourth quarter originations from Enova's legacy businesses more than doubled from the third quarter with growth from every brand. Originations in the OnDeck brand grew 82% sequentially. Originations from new customers for the total company were 28% of total originations during the fourth quarter as we ramped up marketing to attract new customers. We're encouraged by the steady increase in monthly origination levels across all of our products through the end of the year. As we move into the traditional quarterly seasonal low point for originations in our consumer lending businesses. We expect total revenue for the first quarter of 2021 to be flat compared to fourth quarter levels before accelerating through the remainder of the year. But will depend upon the timing, the level and mix of originations as we move through 2021. The net revenue margin for the fourth quarter was 92% up from 89% in the third quarter of 2020 and remains elevated as we continue to have strong credit quality which increases the fair value of the portfolio. As you'll recall, the change in the fair value line item includes two main components; first net charge offs during the reporting period and second, changes to the portfolios fair value during the reporting period resulting from updates to key valuation inputs including future credit loss expectations, prepayment assumptions and the discount rate. I'll discuss both of these items in more detail. First, for the fourth quarter the total company ratio of net charge offs as a percentage of average combined loan and finance receivables was 4.7% flat to the third quarter of 2020 and significantly below the 15.6% ratio in the fourth quarter of 2019. Net charge off ratios for both consumer and small business receivables were well below typical fourth quarter levels demonstrating the ability of our sophisticated credit models to focus on lending to customers who can repay their obligations despite the challenging economic environment. Second, the fair value of the consolidated portfolio as a percentage of principal decreased to 98% at December 31 from 106% at September 30. This was solely a result of the OnDeck acquisition as the outlook for portfolio credit quality remains strong. The initial fair value of the OnDeck portfolio at the transactions closing in October was 85% of principal resulting in a fair value with that timeframe for Enova's entire consolidated portfolio including OnDeck of approximately 95% of principal. Improved future credit loss expectations and our small business portfolio with a primary driver of the increase in the fair value of the consolidated portfolio from approximately 95% of principal at the closing of the OnDeck transaction on October 13 to 98% of principal at December 31. The stability in delinquent receivables as percentage of loan and finance receivable balances at the end of the quarter reflect strong customer payment rates and a continued solid credit profile of the portfolio. Excluding OnDeck the percentage of total portfolio receivables past due through 30 days and more was 4.1% at December 31 compared to 3.7% at the end of the third quarter and 6.7% at the end of the fourth quarter a year ago. The percentage of OnDeck receivables past due 30 days and more declined during the quarter from 23.2% in closing to 15.6% at December 31. In addition, this delinquency ratio at year end for Enova's legacy small business brand was flat to third quarter levels. The percentage of consumer receivables past due 30 days and more was 3.9% at December 31 compared to 3.5% at September 30 and 7.4% at the end of the fourth quarter a year ago. Consumer receivable delinquency levels including early-stage delinquencies remains at historically low levels. To summarize, the change in fair value line items benefiting from low levels of net charge offs and a slight increase to the fair value of the portfolio as credit metrics and modeling at the end of the fourth quarter reflect the solid outlook for expected future credit performance even with a significant increase in originations especially from new customers. In order to reflect at the uncertainty in the economic environment could present increased risk of customer defaults, our fair value calculations for the fourth quarter continue to include downward adjustments at level similar to the previous three quarters. In addition, the discount rate used in the fair value calculations remained unchanged and at the high end of our ranges. Looking ahead, we expect the net revenue margin for the first quarter of 2021 to range between 60% and 70% as significant fourth quarter origination is seasoned. As the economy recovers and demand and originations continue to rise the net revenue margin should normalize at around 50% to 60% as newer and less seasoned loans become an increasingly larger portion of the portfolio. The degree and timing of that normalization will depend upon the timing, speed and mix of originations growth and will likely occur over several quarters as originations begin to return to historical levels. Turning to expenses as we expected and discussed last quarter, total non-marketing operating expenses were temporarily elevated this quarter from the OnDeck acquisition. Ahead of implementation of cost synergies from the transaction over the coming quarters. Fourth quarter operating expenses also include $13 million of one-time non-recurring expenses related to the OnDeck acquisition. As David mentioned the OnDeck integration is going well and we're on track to recognize deal cost synergies faster than our original expectation. We expect to realize $46 million of annual cost synergies from OnDeck's 2019 full year operating expense base at year end 2021 which should result in achieving 88% of our planned deal cost synergies in year two of the deal versus our original 75% expectation. The rationalization of most corporate support functions and related infrastructure is largely complete and planned steps to eliminate duplicate operating and technology cost as well as to define business operations will follow during the rest of 2021. We still expect all remaining cost synergies to be fully phased in by the end of 2022. Excluding one-time non-recurring expenses related to the OnDeck acquisition total operating expenses for the fourth quarter including marketing were $102 million or 39% of revenue compared to $83 million or 24% of revenue in the fourth quarter of 2019. As expected, we saw marketing expenses increased to $28 million or 10% of revenue in the fourth quarter from $5 million or 2% of revenue in the third quarter. But down from $36 million or 10% of revenue in the fourth quarter of 2019. We expect marketing spend will likely remain at roughly 10% of revenue in the first quarter but will depend upon the level of originations. Operations and technology expenses for the fourth quarter totaled $31 million or 12% of revenue compared to $23 million or 7% of revenue in the fourth quarter of 2019. The increase was driven primarily by the addition of $12 million of OnDeck O&T related expenses. Given the significant variable component of this expense category sequential increases in O&T cost should be expected in an environment where originations are accelerating and receivables are growing. We expect that this will be offset to some degree as we realize expense synergies from the integration of the OnDeck acquisition. Excluding the $13 million of one-time expenses associated with the OnDeck acquisition general and administrative expenses for the fourth quarter totaled $43 million or 16% of revenue compared to $25 million or 7% of revenue in the fourth quarter of 2019. The increase was driven by the addition of OnDeck G&A related expenses. Looking ahead excluding any one-time items we expect G&A spend to decline during 2021 as we recognize synergies of the OnDeck transaction and as we continue our focus on operating cost discipline. Adjusted EBITDA and non-GAAP measure increased 9% sequentially and more than doubled from a year ago to $149 million in the fourth quarter to the reasons I've previously discussed. Our adjusted EBITDA margin for the quarter was 56% compared to 19% in the fourth quarter of the prior year and 67% in the prior quarter. Adjusted EBITDA margin should begin to normalize during the first quarter of 2021 from the record level seen during the second half of 2020 as a result of the continued marketing investments and the aforementioned growth-related normalization in net revenue margins and volume related expenses. As previously noted, the degree and timing of any normalization will depend upon the timing, speed and mix of originations growth and will likely occur over several quarters as originated begin to return to historical levels. Our stock-based compensation expense was $7.2 million in the fourth quarter which compares to $2.2 million in the fourth quarter of 2019. The increase is related to the OnDeck acquisition and as I described last quarter expense associated with 2017 increase in the vesting period for restrictive stock unit is now fully reflected in year-over-year comparison. Normalized stock-based compensation expense should approximate $5 million per quarter going forward. Our effective tax rate was 10% in the fourth quarter which declined from 26% for the fourth quarter of 2019. The decrease resulted from the $164 million bargain purchase gain recognized in this quarter related to the acquisition of OnDeck not being subject to taxation. We expect our normalized effective tax rate to remain in the mid to upper 20% range. We recognized net income from continuing operations of $231 million or $6.47 per diluted share in the fourth quarter compared to $30 million or $0.87 per diluted share in the fourth quarter of 2019. Adjusted earnings and non-GAAP measure increased to $85 million or $2.39 per diluted share from $31 million or $0.92 per diluted share in the fourth quarter of the prior year. The trailing 12-month return on average shareholder equity using adjusting earnings increased to 42% during the quarter from 37% a year ago. Our net cash flow from operations for the fourth quarter totaled $118 million as we continue to see strong customer payment rates. We ended the fourth quarter with $388 million of cash and marketable securities including $317 million in unrestricted cash and had an additional $453 million of available capacity on our corporate revolver and other domestic committed facilities. Our debt balance at the end of the quarter includes $332 million outstanding under our $776 million of combined installment loan and small businesses securitization facilities and we had no borrowings outstanding under our $125 million corporate revolver. On December 24th, we renewed and extended $100 million committed asset back revolving debt facility with Truist to support growth and liquidity for OnDeck's term loan. The facility has a cost of one month LIBOR plus 250 basis points and a final maturity of December 2023. Our cost of funds for the fourth quarter was 10.5%. Interest expense for the fourth quarter included $5.6 million of non-cash cost from accelerating discount amortization as a result of prepayments of OnDeck facilities during the quarter. Excluding these additional discount amortization cost our cost of funds would have been 8.3% for the fourth quarter. We continue to believe our cash position, available facility capacity and operating cash flow will provide us with significant run rate before needing to raise new external funding even when we returned to levels of originations experienced in recent years. Due to the ongoing uncertainty in the economy we're not providing detailed financial guidance at this time. However as we resume meaningful growth and originations and receivables. We expect to invest more in marketing by leveraging our machine learning driven analytics to capture increased demand [indiscernible] economics. As I've mentioned in my remarks today, this should lead to some normalization in the net revenue margins, growth related variable expenses and the adjusted EBITDA margins from levels we've seen during the second half of 2020. The degree and timing of any normalization will depend upon the timing, speed and mix of originations growth and will likely occur over several quarters as originations began to return to or exceed pre-COVID levels. We're confident the return to pre-COVID originations growth will allow us to deliver meaningful and consistent top and bottom-line growth as we leverage the benefits of the scale and efficiency of our direct online operating model of broad and diversified consumer in small business product offerings, our powerful credit risk management capabilities driven by our world class analytics and technology and our solid balance sheet. And with that, we'd be happy to take your questions. Operator?

[Operator Instructions] the first question is from David Scharf of JMP. Please go ahead.

I guess a bit of a high level question on the market. This is the fourth earnings call since the onset of the pandemic and I know it's become somewhat of a cliché where an analyst is supposed to ask you about stimulus and did you see any change in patterns following the latest checks and we've got some more that look eminent. In the longer run that really doesn't tell us much about the business. But what I'm wondering David you talked a lot about machine learning and analytics. Have your underwriting models learned anything over the last year that tells you anything about when we emerge on the other side of this pandemic if perhaps your target market is larger or these are people that maybe could borrow more in a more normalized environment or in contrast is the last 12 months just so unusual that you can't really draw any conclusions? I'm just wondering if there's been anything about this better-than-expected credit performance across all of consumer asset classes from all lenders that have taught your models anything other than people respond positively to stimulus.

Yes, so I - and there's a bunch of questions embedded in there. But let me start kind of at the higher level and get to the lowest level. I think first of all there's absolutely nothing we've seen and I don't think there's any reason to believe that COVID has in anyways fundamentally changed the market. So if you fast forward whatever period that's on - you want into the future post pandemic absolutely no reason to believe the market in general has changed. The economy should get relatively back to normal, sure we'll continue bit different but nothing that should be meaningful change the market for non-prime credit. So when you're thinking about the future of the business. I view this as a temporary dislocation not any kind of long-term dislocation. In terms of stimulus, you touched on that I think I did make a point in my remarks is that, from the prior stimulus what we saw is not a huge impact on demand but a huge benefit to credit and so, we don't expect anything materially different with the current amount of stimulus. And then finally with respect to our analytics models they've learned a tremendous amount and look, there's big cycles overtime but there are small cycles all the time, state-by-state, region-by-region, city-by-city. How customers rebound to stresses to their income is something that our models now know how to much better. We again, the models almost all of our models now are machine learning. So this learnings have increased extremely quickly which is great for us and if things be able to lean back on when they see patterns, the model see patterns that are similar to the ones we saw during COVID even if it's much smaller amplitude than the dislocations we've seen over the past nine months.

Got it, no that's helpful. Just to clear, I mean I was kind of speculating more on if the market is structurally better in the long-term, just based on the fact that models have been learning over the past year. It sounds like it maybe –one quick follow-up, completely understand the lack of guidance commentary as well as these comments about normalization taking place overtime. Based on the small business originations it looked like kind of exhibits it was about $290 million close to $300 million in the quarter. I know that OnDeck pre-pandemic it sort of been in the 550 to 650 per quarter range. Would you be willing to speculate on how long it would take to get back to those levels for the small business products or is there still just too much uncertainty?

I mean I think there's just way too much uncertainty to be able to answer that. I mean, does the vaccine work great and the economy opens up soon or is there a new strain of the COVID virus that requires lockdowns during the summer. I mean, there's no way to know. But I think there's a couple trends that are super encouraging for us and we saw great sequential growth as we talked about throughout the call. I think I mentioned we did about $120 million of originations in small business in just December alone which is great, showing really strong growth there. Also commented that January 2021 started off strongly on consumer side which is great even though there were some increasing lockdowns kind of in December and January but we didn't see they get from that, which was also encouraging. We were confident both on the small business side where we've seen a bunch of competitors go out of business, we've also seen Kabbage get bought. But also on the consumer side we're very confident we have taken share through this pandemic and we think a lot of that is permanent as the market normalizes and the customer demand both consumer and small business increases. We think we have a lot of share in the market that we don't think has shrunk and so we think we're really well positioned as this pandemic winds down.

Got it. Thanks a lot David.

[Operator Instructions] the next question comes from John Hecht with Jefferies. Please go ahead.

You guys talked about the re-growing the kind of mix of new customers this quarter. I guess the question would be I assume well, I guess is there any difference in characteristic in how you're underwriting the new customers now relative to your pre-pandemic environment and is the opportunity get new customers now a reflection of the competition in anyway?

Great questions. In terms of how do you think about the credit models generally? I think they're kind of opened up to levels that we saw pre-pandemic because the customer credit performance has been so good that a lot of restrictions we put on the models as the pandemic was unfolding in spring have largely been removed. I would say especially for some of our lower interest rate had higher dollar amount products. We do still have some extra verification going on kind of post credit model and that will likely continue as unemployment claims and jobless rates remain somewhat elevated so that is kind of layer added on top of the credit models. But generally pretty wide open. In terms of competition like I just mentioned we do think we've taken share and so we think, what our view of what's happening in the marketplace is that, our volumes are down less than demand is down which is encouraging. Yes, our volumes are obviously still down significantly year-over-year. But again as I mentioned everything, we see tells us that's temporary. We - nothing from our customer research from what we're seeing in applications from surveys tells us that either are the small business market or the consumer markets are going to be any smaller post pandemic than they were pre-pandemic. So the fact that we've taken share now which we think is sustainable even as the pandemic ends, is very encouraging for us.

And have you seen at both the consumer and small business category? AmEx buying Kabbage you guys consolidating OnDeck, is there more opportunity in either one of those or is it fairly balanced over both?

And I definitely think it's easier to see on the small business side. But we do think it's there in the consumer side as well. Obviously, mom-pops, brick and mortars on the consumer side not doing well at all. And so we do think long-term we have a structural advantage there, that's what led us to grab market share and will continue post-pandemic. But yes, probably a bit more pronounced on the small business side where just the business was more consolidated pre-pandemic and there's been, I think more dislocations during the pandemic there.

Okay, and then David fully appreciates your commentary that the near term is a little bit cloudy. But over, you think things will get back to normal over the longer-term deal and not have changed much. If we get there, when we get there. Do you guys have an anticipation for the mix between consumers and small business or is that something you'll determine overtime?

I think not only we determine it - returns are. But I think sometimes the markets will determine. I think there'll be periods where small business is for various reasons stronger and sometimes where consumer is stronger rather. Their seasonality is different so obviously little change throughout the year and the consumer side Q1 significantly slower than Q4 on the consumer side and that's less so on the small business side. But from what we're seeing small business is going to be a very large portion of our overall mix going forward every reason to believe it could be least half of originations, if not more and then kind of over the next few years we'll see how the market is helpful. But obviously large opportunities for us in both of those phases.

Great, thank you guys very much.

I'm sorry, we have a question from John Rowan of Janney. Please go ahead.

Steve, can you maybe give us an idea? I know you said 1Q, the gross profit margin could be as high as 70%. Just give us maybe an idea of how fast, I mean we work down to that mid-50 range. I know you left the kind open but it makes a very big difference in the number whether or not we get there. If we were looking that was a realistic pin for the back half of the year or if that's really an optimistical [ph] for 2022.

Thanks for the question, John. So I think beyond sort of Q1 it really will depend on as we said how quickly the economy recovers and demand and originations sort of get back to that pre-COVID level. So just trying to give you some sense that when you start to see that growth return, it's not going to happen overnight, it's going to take several quarters even when you do get back to some level of growth that looks familiar. And that's why we're not providing very specific guidance beyond some line items for Q1. But hopefully that helps you sort of understand as you'll start to see that it will start to line up towards that longer term 50 to 60 that we guided to.

Okay and then as far as the cost synergies.

Can I just?

Sorry, yes.

Yes, John. [Indiscernible] add one thing to that, just in terms of while we don't know the timing because we don't know the pace of the recovery. It is very possibly realistic for the back half of the year. If you get a quarter of two of the kind of growth we saw in Q4 kind of 30-ish percent sequential growth upper 20s to low 30% new customer mix, it can get back to that kind of mid-50s margin pretty quickly.

Okay and then the cost synergies that you're referring. Are we going to see most of that coming out of the G&A line because it sounds like the other lines were going to stay kind of at the 4Q run rate?

Steve, do you want to address this?

Yes, most of our fixed cost John in G&A if you remember operations of technology roughly 70% of that is variable, so the answer is yes, you should see most of that come out of the G&A and some of the smaller component of O&T.

Okay, thank you very much.

Thanks John.

This concludes our question-and-answer session. I would like to turn the conference back over to David Fisher for closing remarks.

Great thank you operator and thanks everyone for joining our call this quarter. We appreciate your time and appreciate your questions and look forward to catching up again next quarter. Have a good evening.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.