Enova International, Inc. (ENVA) Q4 2022 Earnings Report, Transcript and Summary

Good day and welcome to the Enova International Fourth Quarter and Full Year 2022 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Lindsay Savarese, Director of Investor Relations for Enova. Please go ahead.

Thank you, operator and good afternoon, everyone. Enova released results for the fourth quarter and full year 2022 ended December 31, 2022, this afternoon after 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 and as such, is subject to risks and uncertainties. Actual results may differ materially as a result from various important risk factors, including those discussed in our earnings press release and in our annual report on Form 10-K, quarterly reports on Forms 10-Q and current reports on Forms 8-K. Please note that any forward-looking statements that 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 U.S. 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.

Thanks and good afternoon, everyone. I appreciate you joining our call today. I'll start with an overview of our fourth quarter and full year results and then I'll discuss our strategy and outlook for 2023. After that, I'll turn the call over to Steve Cunningham, our CFO, who will discuss our financial results and outlook in more detail. We once again produced a strong quarter, capping a great year for Enova, with solid revenue and profitable growth, combined with stable credit across both our SMB and consumer businesses. Our talented team, diversified product offerings and powerful machine learning credit risk management capabilities have enabled us to successfully navigate through the uncertain macroeconomic backdrop. Revenue in the fourth quarter increased 34% year-over-year and 7% sequentially to $486 million. Adjusted EBITDA increased 18% year-over-year and 4% sequentially to $120 million. And adjusted EPS increased 9% year-over-year and 1% sequentially to $1.76. Similar to Q3, the growth came from our SMB business as well as our consumer line of credit products. These results are driven by our ability to effectively manage credit through the current market environment. Net charge-offs were 8.8% in the fourth quarter which is slightly higher than Q3 as we continue to add a large number of new customers which were 42% of total originations. That being said, net charge-offs remain well below pre-COVID levels of 15.6% in Q4 of 2019 and 16.1% in Q4 of 2018 from a combination of mix shift and good credit management. Our analytics team has continuously refined our machine learning-powered model that have been the foundation of our ability to manage credit risk. And as we discussed on our last earnings call, we increased our ROE targets across all of our products during the back half of 2022. Those higher ROE targets remain in place and we continue to deemphasize our longer-term near-prime installment loans, limiting our duration risk and allowing us to adapt more quickly in an uncertain macroeconomic environment. Given our continued focus on shorter maturity products, in line with our expectations, the percentage of consumer installment loans in our portfolio decreased in the fourth quarter. And within consumer, line of credit products significantly increased as a percent of total consumer loans. While we have a more conservative approach to originations and our balanced approach to growth and risk, customer demand remains strong. As a result, we have maintained strong origination volume. Total company originations increased 9% year-over-year and were down only 3% sequentially. And we still generated substantial growth for the year with combined loan and finance receivables increasing 46% year-over-year to a record of $2.9 billion. Looking back on 2022 and more broadly to the past 5 years, we are proud of our world-class execution that has delivered sustained strong results with both meaningful growth and meaningful returns. In just 5 years, we've more than doubled our annual revenue, tripled our adjusted EBITDA and our adjusted EPS has grown more than 6x. A lot has happened over the last 5 years and the market environment continues to rapidly change but we have demonstrated that we are exceptional operators with an ability to adapt in any environment. That is rooted in our focused growth strategy. We have also demonstrated that we can maintain a strong balance sheet which currently has over $700 million in liquidity, even with difficult capital markets. The result of these efforts has been industry-leading performance for Enova. Over the last 5 years, we've transformed the business in a number of ways. We have been laser-focused on offering products with the features customers want through our flexible online model which is preferred by borrowers. This has enabled us to grow our share of the nonprime credit market. As part of this transformation, we have diversified almost every aspect of the business, including our revenue streams, marketing channels, funding capacity and more. The diversification has been very intentional. It has contributed to our growth while decreasing our macro and regulatory risk. Despite those results, we are trading at only 5.5x 2023 consensus earnings estimates, while EPS grew at a CAGR of almost 50% over the last 5 years. Accordingly, we are going to increase our focus on unlocking significant more value for our stockholders. Our confidence in the value of our company is related not only to the consistency of our performance over the past several years but also the growing contribution of our large and market-leading small business lending franchise. Our SMB business has a diversified portfolio across a wide range of industries, states, product types, loan sizes and prices. Today, small business products represent more than 60% of our total portfolio, up from 10% in 2017. And from 2019 to 2022, the contribution of small business to total company EBITDA has increased from 6% to approximately 60%. Our SMB business has generated a significant growth at attractive unit economics. As with our consumer businesses, we target ROEs of over 30% and EBITDA margins north of 20%. Even with our significant growth over the last couple of years, we are still a very small percentage of our addressable market, leaving ample room for future growth. Despite this demonstrated success in SMB lending, the implied multiple in our valuation is similar to other nonprime consumer-only lenders, while commercial lending sectors such as equipment leasing and business development companies are currently valued at significantly higher multiples of 2023 earnings. Even with the modest application of these valuation differences, we believe there is meaningful upside to our current share price. Before I turn the call over to Steve, I'd like to take a few moments to discuss our outlook and strategy for 2023. While in this environment, we will remain focused on our balanced approach to growth and risk. While it's hard to predict how the macro backdrop plays out this year, in any event, we believe that we have the right strategy in place to continue our success and help hardworking people get access to fast, trustworthy credit. As Steve will discuss in more detail, based on what we are seeing in the current market environment, we expect growth on both our top and bottom line in 2023 compared to 2022. For our SMB business, we will continue to analyze real-time cash flows as well as external data to monitor industries that are more prone to recession. While there may be pockets of challenging credit, given our diversified portfolio and strong brand presence, coupled with continued strong demand and low levels of competition, we believe we are well positioned to grow that business further. For our consumer business, we know that nonprime customers are familiar with living paycheck to paycheck and are adept at managing variabilities in their cash flows. In some ways, our customers are always in a recession. And so we believe that recessions have less of an impact on our customers than on prime borrowers. This is especially true when employment and wages remain high as we are currently experiencing. Finally, I want to wrap up by giving a big thanks to the amazing team we have built at Enova. Our collaborative work environment, challenging development opportunities and industry-leading benefits help Enova rank among the Computer Places -- Best Places to Work for the tenth consecutive year in a row. We believe that having diverse perspectives creates the best answers. I would now like to turn the call over to Steve, who will discuss our financial results and outlook in more detail. 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. We're pleased to report another quarter of solid top and bottom line financial performance in line with our expectations. Despite a difficult macro environment during 2022, we produced record originations and delivered record revenue. We ended the year with the largest portfolio in our history and our ample liquidity, strong capitalization and solid returns on equity also enabled us to repurchase nearly $140 million of our shares. As David noted, our diversified product offerings have allowed us to adapt and pivot in this uncertain macroeconomic environment to support the resiliency of our portfolio while continuing to deliver solid financial results. Turning to our fourth quarter results. Total company revenue rose 7% sequentially and increased 34% from the fourth quarter of 2021 to $486 million. The increase in revenue was driven by the growth of total company combined loan and finance receivables balances which on an amortized basis were $2.9 billion at the end of the fourth quarter, up 8% sequentially and 46% higher than the fourth quarter of 2021. As David noted, total company originations for the fourth quarter totaled $1.2 billion, down slightly sequentially and 9% higher than originations during the fourth quarter of 2021. Total company origination trends were influenced by our increased emphasis during the second half of 2022 when originating shorter duration and smaller dollar consumer line of credit consumer products are reducing exposure to longer duration and larger dollar near-prime consumer installment loans. I'll discuss this more in a moment. In light of the customer demand that David mentioned, our marketing activities continue to effectively attract new customers across our products, with originations from new customers during the quarter remaining strong at 42% of total origination. We expect originations from new customers will remain above historical averages as our consumer mix continues to shift towards lines of credit. Small business revenue increased 12% sequentially and 67% from the fourth quarter of the prior year to $193 million as small business receivables growth continued to be strong. Small business receivables on an amortized basis totaled $1.8 billion at December 31, a 13% sequential increase and 77% higher than the end of the fourth quarter of 2021 as small business originations increased 42% from the prior year quarter to $826 million. Revenue from our consumer businesses increased 3% sequentially and 18% from the fourth quarter of 2021 to $286 million as consumer receivables on an amortized basis ended the fourth quarter at $1.1 billion, flat sequentially and 12% higher than the end of the fourth quarter of 2021. Consumer originations of $336 million were lower sequentially and compared to the prior year quarter. The lower growth in our consumer portfolio was influenced by our increased emphasis during the second half of 2022 on originating more consumer line of credit products. As a result, consumer line of credit receivables grew 18% sequentially and 43% from the end of last year as consumer line of credit originations grew 13% sequentially and 30% from the fourth quarter of 2021. Consumer demand for these products is strong and this mix shift supports our ability to adapt more quickly in an uncertain macroeconomic environment. Looking ahead, we expect total company revenue for the first quarter to be flat sequentially as we expect some first quarter seasonality and to maintain our balanced approach to growth that we've been executing for the past year. This expectation for revenue next quarter will depend upon the level, timing and mix of originations growth during the first quarter. Now turning to credit. The net revenue margin for the fourth quarter of 60% was within our expected range. Credit quality which is the most significant driver of net revenue and portfolio fair value, continues to perform in line with our expectations as $4.5 billion of loans originated during 2022 continue to season. Fourth quarter net revenue and credit metrics for the total company reflect the continued seasoning and normalization of our growing small business portfolio in the aforementioned deliberate mix shifts within the consumer portfolio. The total company ratio of net charge-offs as a percentage of average combined loan and finance receivables for the fourth quarter was 8.8% compared to 8.4% last quarter. And the percentage of total portfolio receivables past due 30 days or more was 6.7% at December 31 compared to 5.6% at the end of last quarter. With the meaningful growth in our small business portfolio this year, we continue to see credit metrics for the portfolio moving to more normal levels from unsustainably low levels we experienced during 2021 and early 2022, along with a corresponding move in the small business net revenue margin toward a more typical level, ranging from the low 60% to the low 70%. The credit outlook for our small business portfolio, as reflected by the fair value premium as a percentage of principal, continued to reflect a stable outlook for lifetime portfolio credit losses at the end of the year and increased 1 percentage point from the end of last quarter to 109%. Similar to what we have observed with our consumer portfolio during 2022, as our small business portfolio's performance and credit metrics continue to settle at more typical ranges, there could be some quarter-to-quarter variability, including temporarily falling below or above typical ranges for the net revenue margin. This can be especially evident in this uncertain macroeconomic environment where we could have slight quarter-to-quarter variations in growth and performance. We highlighted in our earnings call last quarter that we increased our ROE targets across our portfolio, including small business. This was to ensure we had additional cushion in the profitability profile of our loans to protect against potential credit variability in the market environments like we are in now. So even if net revenue margin is lower than expected for a short period of time, we are still likely to generate positive returns on those portfolios. Now turning to consumer. Performance and credit metrics for our consumer portfolio are reflecting the aforementioned shift toward line of credit loan. Consistent with that shift, we've seen an increase in the fair value of our consumer portfolio as a percentage of principal during the second half of 2022, including 3 percentage points this quarter, reflecting a solid outlook for the lifetime credit losses versus original expectations. As a result of the aforementioned trends in our small business and consumer portfolios, the fair value of the consolidated portfolio as a percentage of principal increased by nearly 2 percentage points this quarter to 110%. Looking ahead, the small business credit continuing to settle at more typical levels and consumer credit remaining relatively stable, we expect the total company net revenue margin for the first quarter of 2023 to be in the range of 55% to 60%. The future net revenue margin expectation will depend upon portfolio payment performance and the level, timing and mix of originations growth. Now turning to expenses. Our operating costs this quarter continue to reflect the leverage inherent in our online model and our thoughtful expense management. Total operating expenses for the fourth quarter, including marketing, were $176 million or 36% of revenue compared to $187 million or 52% of revenue in the fourth quarter of 2021. Our marketing activities remain effective and efficient with total marketing spend this quarter of $97 million or 20% of revenue compared to $108 million or 30% of revenue in the fourth quarter of 2021. Looking forward, we expect marketing expenses as a percentage of revenue to be around 20% in the near term but will depend upon the growth and mix of originations, especially from new customers. With growth in receivables and originations during 2022, operations and technology expenses for the fourth quarter increased to $45 million or 9% of revenue compared to $39 million or 11% of revenue in the fourth quarter of 2021. Given the significant variable component of this expense category, sequential increases in O&T costs should be expected in an environment where originations and receivables are growing. It should range between 9% and 10% of revenue. Our fixed costs continued to reflect our focus on operating efficiency and thoughtful expense management. General and administrative expenses for the fourth quarter declined to $35 million or 7% of revenue from $41 million or 11% of revenue in the fourth quarter of 2021. While there may be slight variations from quarter to quarter, we expect G&A expenses as a percentage of revenue of around 8% in the near term. We recognized adjusted earnings, a non-GAAP measure, of $57 million or $1.76 per diluted share compared to $1.61 per diluted share in the fourth quarter of the prior year. Our solid balance sheet and ample liquidity give us the financial flexibility to successfully navigate a range of operating environments. It has allowed us to deliver on our commitment to long-term shareholder value through both continued investments in our business as well as share repurchases. We ended the fourth quarter with $729 million of liquidity, including $196 million of cash and marketable securities and $533 million of available capacity on facilities. The solid credit performance of our portfolios continues to be reflected in our capital markets activity. In addition to closing a new $125 million facility to finance net credit installment loans in October that we discussed on our last call, during the fourth quarter, we also successfully renewed or amended $463 million of existing facilities secured by OnDeck receivables to either extend maturities or increase advance rates with favorable pricing. Despite the 425 basis point increase in the term SOFR rate during 2022, our cost of funds for the fourth quarter was 7%, up only 50 basis points from the fourth quarter of 2021. Demonstrating our confidence in the continued strength of our business relative to our current valuation, during the fourth quarter, we acquired 525,000 shares at a cost of approximately $19 million. At December 31, we had $158 million remaining under our authorized share repurchase programs. Now turning to our expectations for the full year of 2023. In a macroeconomic environment that is largely the same as when we exited 2022, we would expect originations for the full year 2023 to grow between 10% and 15% as we maintain our focus on an origination strategy that balances growth and risk. The resulting growth in receivables, stable credit and continued operating leverage should result in full year 2023 growth in both revenue and adjusted EPS that is faster than expected originations growth. Our expectations for 2023 will depend upon the macroeconomic environment and the resulting impact on demand, customer payment rates and the level, timing and mix of originations growth. Finally, to summarize our first quarter outlook, we expect revenue to be flat sequentially, primarily as a result of typical first quarter seasonality, combined with our continued focus on an origination strategy that balances growth and risk against the current macroeconomic environment. And we expect the total company net revenue margin in the range of 55% to 60%, with continued normalization of our small business portfolio and stable consumer credit. In addition, we expect marketing expenses to total approximately 20% of revenue, expect O&T costs between 9% and 10% of revenue and G&A costs of around 8% of revenue. These expectations should lead to an adjusted EBITDA margin in the 20% to 25% range and slightly lower adjusted EPS compared to the first quarter of 2022, primarily due to the rise in SOFR. Our first quarter expectations will depend upon customer payment rates, the level, timing and mix of originations growth. We entered 2023 with financial flexibility and we remain focused on delivering solid financial results while striking a prudent balance between growth and risk. We are confident that the demonstrated ability of our talented team has us well positioned to quickly adapt to the evolving macro environment. And with that, we'd be happy to take your questions. Operator?

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

David, I was kind of planning on opening with expected question about kind of the macro and credit environment and so forth but I got diverted by your comment about increased focus on unlocking more value for shareholders. And obviously, there's a usual list that people have in terms of kind of the tools that are available and the company has been a fairly aggressive repurchaser of its shares in the past. I'm wondering, I mean is there anything you want to expand on that statement? Is it more of just a kind of general comment? Or is there a specific action plan above and beyond just continuing to deliver the kind of results you have?

Yes. Sure, David. Good question and probably worth us clarifying a bit. I mean, look, we're not going to come out with the laundry list of stuff we're going to work on for a whole variety of reasons but it's more than just lip service. It's a concerted effort here. We've got people dedicated to the effort. We've just had so much success in the business really over the last decade but certainly over the last 5 years or so. And the business is just a completely different business than it was a handful of years ago. But given both the consistency and the diversification, the quality of our balance sheet, we're still trading at roughly the same multiples and that just doesn't make a lot of sense to us. So our job, in addition to continuing to operate the business well, is to unlock some of that value. So definitely more than lip service. I'm not going to give a list but certainly a concerted effort here.

Understood. And the frustration is understood as well. Maybe just 1 follow-up question, I guess, regarding product focus. As it relates to kind of the ROE targeting and the, I guess, deemphasizing the kind of near-prime installment product, is that something that's a permanent shift and should be something we should think about as kind of the longer-term profile of the business? Or is this just in relation to the macro environment trend you saw on the ground? Just kind of wondering, like are there certain things we should be keeping an eye on that would signal the company reaccelerating that product as well in the future?

No, it's really just situational. It's a great product. We've built a great business around it. We're still originating. We haven't, by any means, turned it off. We've just deemphasized it to focus more on shorter-term slightly smaller dollar loans, it just give us more visibility and more flexibility in the uncertain macroeconomic environment. I think as we see the economy improving and on an upswing, you'll -- I think all things equal, you'll see our emphasis on that product increase because it was very successful with great returns and great profitability. So yes, that's purely situational given the macroeconomic environment.

Okay. And I apologize, just to squeeze in one last one. I just wanted to clarify Steve's comments during the guidance presentation. Did I hear correctly that through the full year, obviously, a lot of variables but revenue and adjusted EPS would be expected to grow on a year-over-year basis in excess of the 10% to 15% range that was provided for originations?

That's correct, David. That's our view as we sit here today.

The next question comes from John Hecht with Jefferies.

I appreciate all the guidance. Real quick on that, Steve, you said the words for the near-term when you gave a few guidance factors around some of the expenses and so forth. When you were saying near term, was that just referring to the first quarter? Or is that more of kind of just kind of a base case throughout the year as you stated it?

Yes. I mean for the most part, as I wrapped up at the end there, I clarified that it's primarily focused on the first quarter. So aside from what David just asked, most of my guidance was related to first quarter expectations as we've been providing a quarter forward general view for a while now.

Okay. That's helpful. And then I guess a little follow-on for David's question. Just as you emphasized more of the line of credit product given your focus, what should we think about the overall yields and so forth kind of the mix of the -- I don't know, the ROA drivers in the consumer book as you kind of emphasized that product over the course of the year?

Yes, I mean I think you've seen a little bit of -- if you've seen our supplement, yields ticked up just a little bit which is what we said last quarter when we were asked about it. You might see a bit of a change but not a return to kind of where we were last year. And I think that's going to hold true. So I think you're going to continue to see strong risk-adjusted cash flows, as you've seen in the fair value marks on the consumer book as we make these adjustments and that's a reflection of the performance as well as the cushions that we're building related to ROE to give us flexibility.

Yes. I think the only thing I would add is the ROEs on that product are very strong. So I think that's why you're seeing the strong fair value marks with the higher yields over time. With that mix shift, you'll see slightly higher charge-offs than you would have with the installment product. But given the higher yields and the higher fair value marks and the higher ROEs, that the returns on the product are very, very strong. So yes, if we see slightly higher charge-offs in the consumer book, it's likely to be largely mix-related.

Okay. And then last question, just because we've heard like in the small business that certain industries are doing well, certain industries have been challenged, I guess, tied to inflation. You guys are obviously sailing through that kind of variability with pretty consistent results. So I'm wondering, as you kind of tightened or refined in that segment, are there different subsectors that you can -- you've been emphasizing and some that you've been shying away from or any color you can give us on that?

Sure. So I think one reason we're able to manage this well is we got way out in front of it. This is not last quarter or 2 initiative. This really started with COVID and has been continuing ever since. So we look at industries, we break it down, it's really 100 different industries if you think kind of high level. Restaurants, we continue to be cautious with, although they're doing very, very well now. So we certainly haven't abandoned that space at all but it's a place we're watching out for. Trucking is a mess; the whole industry is having problems, from supply chain issues affecting their loads but also their ability to fix their trucks, fuel prices, just a whole bunch of factors. Trucking is really problematic right now. So we've been -- we've stayed out of that space for many, many quarters now. And then residential construction is a place that we have continued to deemphasize really over the last year. That market is not doing particularly well. So those are a few of the highlights. There's many, many more that have different risk ratings in our portfolio so that we're shying away for emphasizing the different degrees. On the flip side, there's industries that are doing really, really well right now. So they get varying risk degrees. They're continually upgraded but -- updated. But those are a couple of examples of ones that we were staying pretty far away from.

The next question comes from John Rowan with Janney.

Just -- again, I'm going to ask for a clarification on guidance. I just want to make sure what you said. First quarter earnings per share or adjusted earnings per share are down slightly year-over-year in the first quarter. Did I hear that correctly?

Yes. That was the expectation we set. And really, it's largely related to the interest expense that I mentioned, the rise in SOFR compared to where we were a year ago. But again, I'd point you back to a slight decrease.

That's fine. And obviously, the net revenue margin guidance that you gave for the first quarter is slightly lower than what had been kind of communicated through 2022, right? It was -- you had 55% to 65% in the first quarter here, supposed to be between 55% and 60%. So it takes off the top end a little bit. Is the -- I mean is the first quarter supposed to be lower than the other quarters? Is 65% still a doable number? I know you gave some puts and takes and how it can be below or above kind of the historical ranges going forward. Is there just more variability in that number going forward? Is that maybe due to the fair value mark? I'm just trying to get my head around if that kind of historical 55% to 65% is still an appropriate rate going forward.

It is in that the 55% to 65% is intended to be -- when you're in sort of a normalized environment, think of a pre-COVID environment where you're sort of clicking along, not really in an environment like we're in right now, where we're pivoting and adapting and you may have some variability from quarter to quarter. So you'll be -- we'll still be within that range. But there might be a little bit more variability quarter to quarter between the 2 products and on a consolidated level. But we think we'll still hang in that 55% to 65% at a consolidated level.

And then just last question for me. Obviously, you noted strong consumer demand for your products. I'm wondering how closely you're watching what the CFPB is doing in the credit card market. Obviously, the Credit CARD Act, I covered the space when the Credit CARD Act was enacted and I remember certainly kind of a windfall of consumer demand because of what the initial Act did. I'm wondering if what the CFPB is trying to do with late fees could usher in a new wave of consumer demand for smaller ticket items that people are not getting kind of the in-store credit for anymore if that fee is, in fact, reduced as sharply as they proposed this morning. And that's it for me.

Yes. No, it's a great question. Certainly something we've started thinking about as well. We -- yes, we have definitely seen when credit is limited in other parts of the market that it benefits us. Whether it's from a competitive basis or a regulatory basis, our products are ones consumer want. They're solid. They've been in the markets for a long time. We don't charge a lot of those kinds of fees that are getting a lot of that attention. So we'll keep an eye on it. But tightening or elimination of credit in other areas of the economy has been beneficial to us in the past.

[Operator Instructions] The next question comes from Vincent Caintic with Stephens.

Just following up on the SMB question earlier. So just wondering if you could take us through sort of your expectations for SMB if you were to go through a mild recession. So I know on the consumer side, the consumer, as you pointed out, kind of is very adept at managing and is kind of in a recession most of the time. I'm just wondering if you could expand on the small business side. What is the small business customer kind of thinking or worrying about right now? And then as we go through the cycle, how does that behavior typically change?

Yes. No, great question. We are being very conservative with our small business lending right now. There's a tremendous amount of demand. I think both demand from businesses who need money coming out of COVID still but also from a lack of competition and a reduction of competition. So there's a tremendous amount of demand. We're filling a very small portion of it as we are trying to remain very, very conservative with respect to our originations, so we can manage through any turmoil in the economy. And that's really our approach to it. I think where on the consumer side, you tend to have a lot of people who act similarly kind of all at the same time but you have a very large book. That's kind of how you manage through it with very high spreads. On the small business side, our focus is really on diversification, diversification across states, across industries, across product types and across kind of the credit spectrum. And we think that diversification is really what provides the protection in a recessionary environment for us, especially an environment that looks like the one we're likely to be in for the next 6 months to a year where it's more choppy. Obviously, you have a giant hit to the economy like you did in 2008 or 2009. You're likely to feel pain across all those spectrums. But as we've just seen over the last 6 to 12 months, there are some industries that are doing well for a couple of quarters and some that are doing worse and then that rotates. And having that strong diversification has allowed us to manage through that variability over the last couple of years without too much difficulty. So that's kind of our approach, kind of our thought process going forward. This doesn't look like a recession that's going to bring down all kinds of businesses all at once. So that diversification effort and having portfolio limits across states, across loan types, across industries, we think, is really -- is going to allow us to continue to manage a strong book through this period.

Okay, great. And following up on small business again. So you pointed out that your share is low as a percentage of the overall market even though you've grown so well. So if you kind of play out how you plan to expand and maybe take share from that, is that sort of competitors pulling back maybe in a recessionary environment while you're able to underwrite better? Or is there product expansion or just sort of thinking of how you can expand on that -- on the TAM opportunity versus your competitors?

Yes. Another great question. So we're not being super aggressive with taking share right now because we don't want to be too aggressive with our lending. But we continue to build out products and expand the types of opportunities we can offer to small businesses and we'll continue to do that over time so that as we do get aggressive hopefully in the next -- more aggressive over the next 6 to 12 months, we can take our industry-leading position, combine that with the new products that we can offer customers and we'll be even in a more dominant position. So we're gaining share just by kind of just by the fact that competitors are pulling back even more due to credit concerns or lack of capital and we're fine with that. But we're not trying to maximize our market share right now because we do want to make sure that we're being smart about credit. But continuing to build in the background so that when we do get more aggressive, we're really well positioned.

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

We appreciate everyone joining us today and your questions and we look forward to talking to you again next quarter. Have a great evening.

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