ELVT - Earnings call transcript Q3 2018

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Operator

Greetings, and welcome to the Elevate Credit Third Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference your host, Al Comeaux, Chief Communications Officer.

Al Comeaux

for call. on thanks XXXX third and conference earnings afternoon, joining Elevate's us quarter Good we a today, results. Earlier issued quarter our XXXX third press release with copy our available A release elevate.com/investors. at on the of website is which being is website. accompanied slide on and Today's is call available webcast also by is a presentation, our Please refer presentation. now X Slide to that of

described actual Securities materially to will These we've forward-looking Act. disclaim that from answers that any and within statements risks this remarks or forward-looking such speak and Reform press XX-Q could other forward-looking we our statements today, filings the implied these be others, the statements. call, only we and forward-looking as all risks are Litigation subject most forward-looking results meaning of the those expressed Our statements. include issued date note matters recent in make of obligation report of different include, Please that cause Form our the quarterly update on to with Private by statements among These to release SEC.

our make non-GAAP measures. reference will call today, financial to During we

project reconciliation furnished complete and available please slide financial release do We on reconciliation forward-looking charges both due GAAP website a our of certain special financial to have today a and to SEC non-GAAP our measures, For historical expenses. press non-GAAP refer our issued which of elevate.com/investors. at presentation, to and of the been to measures, our are inability not provide to

over are well as our I'll Joining the now Lutes. our and as to the Rees; CFO, me Chairman Ken. on call call CEO, today Chris Ken turn

Ken Rees

call all for today. thank and us joining Al, you on you, our Thank

it release, for challenging quarter indicated Elevate. our As a in was earnings

was We underwriting-related issues in FinWise growth experienced of to to discuss including underwriting loss later. Slide customer that and related several provision initiatives, because rolling originations. didn't new Bank these charge-offs partnership a initiative $X.X capabilities later improved driver until important vintages impact charge-offs expected year delayed begin quarter. The number Turning than new expected million we number customer out loan This X, support provision, from performance improve and that we'll one analytics resulted loss of and for the opportunities a through in loss to underwriting the expectations. new to originally technology and growth forecast we loan margins generated this Without higher the with XXXX. the line will and into benefits loan

from management in erosion increased a of Sunny. rate UK our UK complaint for negative costs combination the the on Additionally, had and product contribution FX impact

the regulators the growth discuss complaint a the management given they should FX of was declines up false to issue is I many If also investigate lenders situation. financial complaints. which products, a of loan led complaints charge. This in all of has the complaint to to loan, due claims volume clear, a affordability. to reimburse and companies, complaint drive cases, to the company the can customer’ to the who customers spend lack In shouldn't have While that can UK, minute the the UK for been

majority In customers. many actual that found which fact, in companies made are complaints management of Sunny, from Sunny even the of we batches come don't claims from about complaints

whether customer irrespective requirements. via is reflects firms UK recent Sunny Sunny's sized of Service fee fact We competitors. believe number that of In is follows £XXX the the regulators listing ranked net government lower find by loan Note of of satisfaction news of situation, this an that promoter the assessed recent Financial a financial us loan customer's a has the on an claim. from XX. assessment good Sunny Elevate that scores. average levels The the £XXX, bonds unsecured to Given in frustrating worse investigate and is that there affordability they than those is a size this much favor. complaint made are the a remarkably that comparably high This assessed Ombudsman

In regulators management one believe highest beginning the net their so-called product fact, review services. scores that recent for financial Furthermore, based any most we score promoter of bad stories the in actions these are recorded Sunny's was recent XX, the of on quarterly UK practices. to about companies, claims news

change soon. is anytime the this However, unlikely to situation fundamentally

in and QX, So XXXX. we're and through that compressed Today such the cost complaint as one-time item than FinWise These growth volumes several high anticipated related costs other legal included legal Card. into initiatives expenses. and where XXXX forecasting continued higher to key One earnings

key had can XXXX million, term the these targeted and revenues just between for Despite On progress quarter for to receivable $XX guidance. million grew of earnings $XXX to As operating had million loans three takeaway $XX still forecast. to a million to guidance to full Demand we end see, as issues, of a $XXX adjusting of year able and X, as our annual disappointing had $X.X are at the full see fundamental Slide revenue financial lowering another year last margins, growth, costs for $XXX.X remains our QX, important net quarter our we're strong. income relatively not acquisition with all strong for year its to An as are million up the we rapidly good result core objectives, guidance products customer and lower loss is we you our XX.X% by our between for our prior long and Elevate is range. keep continued continuing million and over making improvements we're XX.X%. along in XXXX below

That credit in year delivered year. is points legal range further I'd the one-time This delivering deliver costs forecast originations, the XXX said, and reiterate, XXXX, comparable quarter remains $XXX. CAC and In for volumes performance and delinquencies excluding higher led credit models our improvements operating implement to to the charge-off not we're that improved presentation. net of complaints The overall our has rates new in the stable, continue $XXX UK and that stayed have we're stress to To XXXX. ditched, been low with technology to ranges but to worth $XXX were flat year income as up in to basis within noting acquisition instead also margin increased charge-offs vintages. the later that levels. performance. over EBITDA of stable portfolio below credit remains compared last detail will customer like we to we disappointed for our credit is adjusted underwriting some quality in to net the charges, and targeted quality of we than new the customer Chris would year-to-date last It's manage fact, expected at last able quarterly our

Turning to some our to mention highlights. Slide I'd like product of recent X,

Awards. short First, by a the this are the responsible mission which lending by award the proof recognize Credit we're Sunny, installment We proud be second voted reasons, Sunny winter the loan is UK of expect term our consumers that is driven that year to our best Consumer term and product that at market. running in was honored provider the the we long been view UK on customers. awards, one approach to named This loan is

Card pilot in Today in Mastercard third the its phase quarter. continued our Second,

the we refined As larger in a product launch. advance of

customer of begin the following XXXX and to expect Today we half before, in the latter noted scaling Card product tuning of profitability. I've As

particularly agreement Bank expand an we're XX product Finally, will states. that announce our to excited to our FinWise additional RISE with

offer loans will originate If you’ll to excited licensed the line loans Elevate’s and to underwriting what branded originates, built and utilize RISE, fees Republic that I as be take such built a in go customer that features more on credit. We're time, to established Utah-based to to its brand FinWise will where of is not FinWise options, we the proud FinWise RISE for RISE states, more no relationship similar better clearly with appreciates, has you'll brand only much down turn consumers Bank can to of of over the Slide working we've in or is the with RISE with and right hidden today rates, which to wanted the Bank, lower product X, five-day out punitive rescission. RISE product have in not This of and see say expansion. and friendly the expertise offered. offer will this marketing RISE it marketing more national this spreading credit rates places. advertising. per-loan cost to the originates make more a elastic efficient, currently in it XX also more but our more FinWise, Americans

able on very RISEs, move to opportunity approximately three the FinWise to established in an from product, the Given concept months. we’re implementation quickly

these to has states this been year. Although, on set next other full it offering began corporate did actually of impact an loans with FinWise rollout month in discussed. initiatives, some it have earlier finish a

the will where states, product offering to hand quarter. offering licenses ourselves XX we've additional RISE I'll over in performance understate provide detail with been Chris continue on it it. that, We the to financial our in And the CSO or relationships

Chris Lutes

year and provided everybody. results. year the our the XXXX previously good close and quarterly fiscal actual XXXX. we to quality consensus Ken, the I'm normal bridge start to growth, QX fiscal the our that I'll discussing forecast, afternoon, slides analysts’ going Thanks, updated for discussing credit from off forecasts cover from our bridge discuss Then to And I'll margins.

related for of which quarter. million forecast QX the of consensus X, that biggest was the related the RISE higher net than variance bridge and Turning results The XXXX to primarily the approximately to product. charge-offs Slide analysts’ is in was actual came a the quarter third for $X to to

we charge-offs vintages improvement in as RISE of we underwriting this higher quality, that the recent portfolio forecasts worse than performed because expecting. makes large credit the it of a get clear deterioration rather an as degree, wasn't to of analysis were Our and much some a overall didn't more

the Our and line expectations. XXXX were for of other third in net charge-offs with two quarter Sunny products, Elastic that had

September planned approximately balances quarter the story, in better than technology Elastic situation a higher loss similar reserves, resulting The for Despite we loans than what delay total at and balances forecasts past in due were were were XXXX improvements loss originally of X.X% Elastic analytics. However, forecasting. year $X.X X.X% the to of loan slightly originations, than past the quarter the ago. reserves the due end increase Elastic and reasons in RISE million as higher end loan are this XX, for product,

until clear deterioration portfolio analysis just Elastic profitable, see RISE, not will loan a we this but volume in be new like that customer credit quality overall and it makes XXXX. don't Our

Within than to expense complaints, the higher the dropped UK in other expense in direct the volume we in materially as complaints related we complaints significant much and as realized $X October to million saw been sales what settlement Ken of costs previously a and monthly and related spike discussed. ago We while XXXX and of marketing year item, of line UK it than September of August, had is August higher in off forecasting. compared is and

various those $X such legal recent FinWise facilities Today million products. related also and initiatives expenses in experienced We to launch Card one-time as of and debt the documenting the the for

a of Lastly, lost revenue short was forecast. from lower of our FX bit $XXX,XXX rate UK forecast. top We a line revenue roughly than

Additionally, is forecast. in versus of $XXX,XXX expense in third adjusted results came and late This QX resulted roughly expense, higher and legal normalize of our slightly RISE EBIDTA, be slower complaints September million August to the and UK the we in net XXXX QX eliminating loan would a third were in comparable $X expected $XXX,XXX year. results quarter. million in Elastic XXXX for income. growth If last in the $XX.X to revenue quarter by than revenue shortfall

Elastic to balances. will already Turning end QX we previously provisioned higher forecasting, but charge-offs XXXX forecast, year to what our for the QX the Slide at fiscal this due of part increase were cover in the to of compared is X, be XXXX, in bridge to updated XXXX and been past

on QX the We UK QX be slightly FX well. at complaints drag lower performance expense, level expenses erosion expect have a as been year full a albeit will dropping. complaint from levels in as legal continued And UK in

loan and forecast RISE will revenue reasons Lastly, continue discussed QX QX lower prior the bridge. to line growth year growth. due as revenue top same slower in prior versus the than to the will our decline relates in to be the I

launched This However, this QX in pretty partnership FinWise to the similar should with the accounting was just Republic our year. is help an partnership of and Elastic from slower Bank to XXXX. this Bank with launch of of perspective growth partnership limit October and

the XXXX – not midpoint XX% the of really QX and However, the revenue XXXX. growth our year-to-date at XXXX at is forecasted will up quarter year Slide of be until apparent be third guidance. revenue X, our XX% QX from XXXX through fiscal

quarter or growth scale continue end total receivable $XX we even amount third of Staying fiscal XXXX very we loans from adjusted amount. as almost XXX% adjusted are grow the combined the $XX Slide can prior on guidance, expected revenue. and year EBITDA prior Additionally, principle you over expecting grew year guidance, million. with see million. At Year-to-date the the the totaled is X, company from that the succeeded XX.X% year million to to adjusted of our and reduced and midpoint at of EBIDTA, million of EBITDA income up adjusted $XX net be XXXX of $X updated strong

Turning to Slide XX.

on the is loan guidance our loss slower originations growth cumulative loan as rates is biggest XXXX. vintage, this impact a for besides with XXXX vintage for RISE, Our XXXX percentage for of our flat our the

solid, we profitability improvements by we to in expected margin technologies new able next the QX until expected results be of are drive realize While fully models implemented had rates. these are won't charge-off quality year. and credit and Since and in improvements critical

forecast flat current will Our the prior with continue year. to loss rates assume

our ago. Turning EBITDA to year-to-date XX.X%, margin up Slide from a was XX% XX, year adjusted

from material of third liquidity standpoint no were there during changes funding the Lastly, XXXX. and quarter

our expect materially of to will be continue reduced XXXX. we funds cost Additionally, in

before turn me for a the our XXXX final outlook Ken some over Now final we let of Q&A. call thoughts, to back and up it open for review

Ken Rees

Thanks, Chris.

XXXX. like Before questions, for turn ahead provide the review and over some we as outlook XXXX we our look call to context I'd to

QX XXXX growth performance million noted $XXX XX% versus represents XX% XX, million, a now We to outlook on based we've of As which reduced XXXX. full roughly revenues our in shortfalls. expect on ranges XXXX year range Slide $XXX growth midpoint for of

million, GAAP now a million midpoint year a guidance. range total, perspective, this to to stable our EPS to $XXX In $X.XX which and double remain million continue $XXX we EBITDA, million, to guidance of in Putting and represents between diluted $X.XX XXXX factors adjusted expect accounts of $XX between for XX% and revenue the The now we net and X% targeted full And $XXX new our year we full approximately is of a our our adjusted income at XXXX, net to acquisition range share. trends income see these our full $XX guidance. UK range now two increase revised increase implies expect a RISE credit the combination over million. in in For $X.X and a XXXX of of fully per year in rates costs original original complaints customer and own difference our finally, charge-off for X% the $XXX. decrease your FYXXXX over

expect revenue, to product XXXX, revenue number our Slide we we have states prospects the XX, our nearly believe just a flagship and to generated with this year, we looking doubled $XX In of future RISE. beyond, in Turning forward million remained million in unparalleled. to marketable mere $XXX generate XXXX and

expected initiatives, underwriting X% And new competent seen acquisition of adjusted they partner further let's in vast in plan, non-prime of behind continue and for lagged that your capital have margins capabilities we're to that XXXX. believe and year-to-date for reduction with net EBITDA and result the and XX% improvements the penetrate expansion partnership, costs that, of positioned underserved. cost are EBITDA ongoing open need improvements channel. the We we expand believe, questions. Furthermore, the The customer in of continue income both originations well FinWise will combination line And development, we've this new XXXX. in under margins to in our to better up management an options year. margin our credit we remains our XXXX with deeply market While this to to will increase from

Operator

this session. your At will a John with be we time, comes question-and-answer question Instructions] Hecht, from conducting Jefferies. [Operator Our proceed first question. Please

John Hecht

I that. year-over-year? afternoon, haven’t or Good Just guides as question One flat, or and that so costs. clarification, talk on credit acquisition quarter-to-quarter quick Is about customer clear guys. you the

Ken Rees

both, Roughly John.

John Hecht

I it delayed because about or to kind talk or careful rolling up revenues. credit a rolling impacting that the to seasoning is credit, module of out some margin Is Okay. how impact new you other think there? also of about tools on just could And then be your a credit understand, – the but aspect with the you're can scoring there tightening out

Ken Rees

we really which that the due realize would delays, technology opportunity, as lot the which go that underwriting It's to were we as improvement. and consumed largely the planning FinWise a resources we're discussed to of

be a come which will continued the next quarters. the this growth we of and out rolling couple be credit over rollout of our wait to expect to products, are those We to quarter place, going while to slowing we into improvements a start for

John Hecht

you some new Have you And or talked maybe been quality credit about attributed higher of new to kind overall might slightly charge-offs? consistent that the the the the able then that customers of the resulting issues be core book, isolate in changed to with customers. characteristics and are variables it

Ken Rees

charge-offs isn't it’s and Well, higher again, higher had forecasted. we it charge-offs,

to the we've few was rates. would plan charge-off Since, improvement past why you've in seen and just Our latest that we see That's in and of underwriting the seen such the we wanted XXXX out continue a opposed that over years. were there improvements where this to as has kept them delay flat those to to in improving, scores getting they where generation being be. technology dramatic

John Hecht

be XXXX final partnerships, just but Okay. the in specific these guess That's to Republic give is, in potential helpful context do, next to think and ramp of next be some guess one, – announced year? a question the where give opportunities one newly clarification. your to year? you I what Both me no around and about the but you I Just lifecycle you of color particularly in bank guidance, would don't those kind about where will us I thinking And know then one XXXX how new ramping? Republic

Ken Rees

anticipated Elastic really product. is Bank, be for us change change big we in is see don't ramp A it Republic RISE. in had with we how So course about to year we think much of that about as next

out. year, we get as didn't That's expect rushed fast would this into this place why we Going as have we it did. to we that in partnership

XXXX So the growth product. we as it to of making doubles sure be factor rolled getting with it around going growth been can fully a positive states them have we is they're mitigating for having underwriting that on think of but all said, year half the that positive new it's first out – and next the negative because be going for we think the I – to and way be I prospects on it, the said these performing of the models want impact that think That number served perform, would that to XXXX.

John Hecht

Okay, great. Thanks guys.

Operator

question comes with Please Securities. next Scharf, Our your JMP David from question. proceed

David Scharf

my Can you on provide expecting. models taking improvement that technology scoring from rather maybe the wondering, that than more, it you staying I'm help to and out. you just, granularity see topic observation the I to benefit precisely for were expect Great. when the rolled can guess and not of of if level appreciate Thanks on it the questions. didn't little gets you a the I but credit, us what understand deterioration

the to factors you're scoring the the model points Maybe of for us on be on telling first in of half your lot help can margin and us are of what's maybe the data a out next answer And to rolled think been underwriting kind you is last XXXX? how impacted lookout of scoring going that factor some a there specifically. into that the the are of necessarily new story. are of model specific hadn't I part when counting generation by

Ken Rees

channel, it constantly different and and the the David. like channels significant foremost, somewhat Credit the increasingly we're Karma our technology that have the platform grow mean, question, things. here evolving fraud for origination a Great LendingTree an us, The others. some around through other a like partners. for and in are to part first any management and we're platform which and The big is people use. particular, business. opportunity with difference scores different is really channel of around But underwriting it's of our the to approach. models I partner fintech; does different. a us require we interface It's massive And This more between issues we

models way the partner, new in really a So some generation at say, which we this of the the least, from that them very they’re underwrite focused these that are are delta biggest folks of past. it’s I on would in

there other is a showing aspects We lift, underwriting, some talked is which of the use too. information model. in more Now are our very bank but significant about much complicated just some

because, our tests combination we start need plan on that from built gotten or can both the out, of really that the haven't most today in the business into focused just and we're and areas rolled the the it's analytics we've and things seen so upside that we the we our getting market to those the disappointing results portfolio. of them it's now two So see and right get biggest benefit it was in to and we

David Scharf

very and of were expectation. percentage concentrated secondly, newer on maybe guess that following past I it. of like that, this from of partners these customers the channels? that things. Got helpful. the what volumes Where percentage, borrowers through, Karma performance Credit heavily That's came And in those in origination mean, short quarter What I fell maybe two up

Ken Rees

from bring well. very we is We're get my partner these really with into have customer seen us they tremendous growth which generate actually perspective, don't because that quite them customers partners channels are much a of for monetize lot great acquisition granularity can't traffic, volume. through non-prime so a the but channels, We fit certainly what, opportunity on, us but are biggest which in these

improvements that performed we I generally well more the that has we been I interface will as were hope that and not is But as because it that So a into to our speaking, would mail wanted lender good answers. traffic plan. direct were our partner we're anticipated, built with as the expecting has them. say traffic

David Scharf

outlook a of quarter-over-quarter. Yes. perspective. rate a And I kind flattish of that in helpful get ending is, relatively I thinking QX to the just Should the guess maybe loss I’ll back XX% that's cleanup One at modeling similarly questions and applies for allowance queue. rates about commented flat, you we as No, quick be both, year-over-year, in couple year well? know

Ken Rees

I Yes, would that. expect

David Scharf

And XXXX Okay. it just on XX, preliminary average the in reduction a then the point last the just of make Slide sure regarding or the that absolute wanted capital, cost is outlook interest clarification reduction to to comment the the borrowing comments, costs, an expense the that latter? refers to not

Chris Lutes

of in more issue those that would and hopeful bit to Chris. release to absolute I own well. our it's interest is $XXX reductions flow we funds the be down hopeful to to potentially get to be think on as rate lead facility is addition mean, I'm reduction a I even still not XX% that reduction some And XX% we're this are implemented. reduction some right hopeful would in finalize playing I Depends an utilize absolute and currently as there Well, the then possible little borrow possibility that early and that provide expense tweaks into we'll may more of reduction of advantageous. interest that roughly decrease next last savings finalized to to funds large I'm range. those or that need the free once rate, a more we'll blended that a negotiations and going debt a upon we indicated potential final we're there's expense. cost percentage that the press be able needs guidance that an and cash when other the to million much just make on be XX% be roughly But in of to able to the quarter, of of to that And the as and then year. in because, next funds. cost separate that year cost But now, could I'm

Ken Rees

XXXX obvious David, And you on of think, John upsides is two have from really which I and for focused reduction. cost the us, capital the

because rates. also are typically these are FinWise, market I get new then above already these states, states the good market the comes by RISE is people new mention particularly not doubling in a and a costs, customer paying opening to with at our and our there's states up down typically these And in going going be states, of We working we're expansion particularly states should acquisition that into. that lot in good experience competitors to is quality credit to

me, about in over performance And of next Excuse to the we expected So few and then we'll had in have we're positive be we course, improvements place that. underwriting QX in ongoing in that of months. hoped couple get the coming quarters.

David Scharf

you Thank it. Got very much.

Operator

Our Wasserstrom, next question comes question. from Eric UBS. your Please with proceed

Eric Wasserstrom

Thanks.

business, or your even UK points the that's first, respect the change view does profitability anything viability that of just business? of on, the happened to couple a up to Just follow about

Ken Rees

of decent Well, contribution business growth, would shown business. the it slowed I business. of have that we mean, from the profitability certainly year-over-year. that If changes had the the viability we business, our of but view grew not we XX%

I seen customer current the players. We're satisfaction the what and our are that's scores, UK. leading a perspective other that think So we've on lower comparably-sized product, than mentioned our we've from also complaints

how So and some these overseeing that their shakes abuses to new going control. of of that claims we're get hopefully what's going regulators while management them, to all companies under happen the out, are with

business, we'll had going business not certainly would from growth income that net we into coming see slowing what will We be and the a that thought but be this year.

Chris Lutes

of with kind are breakeven assessing, even the Yes. the UK slightly of in this terms Chris. we mean, now This just profitable in is complaints. of I higher right level

hoping to expected extent large the remained So we complaints we of this steady fall the at because again, NOL a lot prior will EBITDA from the directly the bottom for next have year. feel income that drive should able that we even were of be line. kind the to we or And of that, that maybe profitability optimistic the that history, decreases that UK in year expense, to least

has it on increased material the impact net a of because income expense. year complaints this So our had

Eric Wasserstrom

wondering But growth increased future that I I'm just net exposure also reaccelerates, simply guess, for the to extent claims? there that the doesn't

Ken Rees

think that's looking gas I ball environment. some provides rules. bent see again. who really protections lenders regulatory Well, A what for to for want we're growth the going we the the into are be hit to We'd following before

I are just in is the change rules. an complaints made new lenders there's situation. from still think rules, held the strange are That's system, of odd sort where yet on loans coming intermediary accountable this before some based

that's one month. a been we're of be in environment. slowing looking profitability regulatory going environment that surviving as the a So the we're watching that really why we share bit, little just the mean, that takes market to positioned regulatory at the be think, companies to we market by the that expect the business others largely I big and of that down things But well tags the increase certainly exited has company to stabilizes coming –surviving market over by Wonga of

Chris Lutes

We implementation majority XXXX. to want of a Ken last FCA it's big book Chris. One that point Yes. brought rule up loans have emphasize prior of complaints January the of that are in XXXX. not a did the to I Eric, is pre

to we than I of what of us complaints that the that much reasons prior said, UK lot customers following this, grow more I why rules comfort over but not are some are affordable to that we we loans in FCA and get smaller think a be to books XXXX, that the the related expenses product to regulatory making that of also that to to the mean the be perspective. lot clarity have players gives other as our are but a generally we probably larger we're new comfort also our that's deemed one going currently it's larger from that drastically some had of new UK

Eric Wasserstrom

business what the really I Great. but the it fully And XX, Is I of still, you from there if to economics targets largely unchanged Page will term like I'm like? quarters, the looked which be your that just that's on just what several look still Or they guess, changed? is it past of which in issue curious, could long has seems move time achieved? confident you're the the expressed

Chris Lutes

We've good Yes. margin year-to-date got expansion.

and Because and again, and on that CAC. that drive have long we what expense. more But a come marketing of what our scale expense a Elastic. slower why that would at improvements. pleased I bit. with for that's If a them revenue other is in continued period items, of do probably one compound revenue. line marketing the times, allocate most even have the part can see from is to and time running is time customers loss less in UK to us. of life jumps incremental they it us sales books They then and That's I we that second of those to revenue out were to get underwrite but can not sales. costs XX%, those Ken I even third at the charge-off for will percentage or customers not of was – successful time I will that term direct is but look the loan other profitably the it complaints, keeping back expect case would and period and XX% for the the customers allows part I'll marketing and we scale also The improving, at or of little to first the the loan The first you new the think and not rates higher cost extent really hurt the of mean really argue all QX with necessarily provision you're the longer is growth I'm a below a admit XX% potentially of longer

about. all the lot ways down in really new it a boils really leverage to item. acquisition channels line talked Ken improvements need what the of to continued credit opening that up particular We quality models and So the customer in

leverage with I we're continue improve. what that am Lastly, I to would pleased operating expect the expense that to showing and

I number or to end lower the to continue upside that revising there's expect think than up may decline we that I XX%. and target

We're get longer taking there expected. us. seeing It's taking what just just think us progress. it's though So good we to I

Ken Rees

showing this bit were towards where the margins. space, XX% that to my headway get We a to didn't are of That's in we're XXX% doable more right. getting it’s adjusted but this we We on we're still committed of year, kind here little perspective, targets From think we EBITDA are track disappointed. very to make there.

Eric Wasserstrom

Thanks very much.

Operator

Crédit proceed from Our Please Moshe comes question Suisse. Orenbuch, next with your question.

Moshe Orenbuch

know because supposed way partner I models, had that these it? model you and is channels with just subpar repetitive trying understand updated, through the I a all but I market guess, kind it's bit other the understand, the to about of results wasn't to questions effectively credit the we're did still

Ken Rees

when and existing how already different know perform expectations each have have pretty partner get had be channel our And opportunity, way explain perform forecast expected just did to we But think to place. have the basis able going to we vintage Maybe how as actually would we expected. able out we did. then going we vintages as better We on – we locked, a weren't made with is and of much portfolio, these know there perform. the do the build that's see that's in we we to improvements in given more to it, about particular than we we'd in even the FinWise improvement much distraction, those that get I underwriting vintage that

I The it what we So where but improvements reason portfolio instead improvement potential vintage portfolio worse past, coming anticipated. that in the worse vintage see had of expected we've than the performance, than performance. channel, it getting to that going that's was than are not to partner worse biggest drive the anticipated, pointed the

Moshe Orenbuch

the talking the quarter since that of guess, of mean, takes we're when we're QX. lifecycle I models – one about I of because right? see these here, about and the to time what's amount talking maybe improvement one And it

Ken Rees

different, for in because place into Each pretty instance support that’s channel for direct particular, quite is and Right. the business, a to growth mail channel they which was partner channel a vary piece Well, can partners. that the the their between business even bit each of operate our traffic product of us. that at rapidly have speeds it's big pretty a getting somewhat stable. But deal growing that partners

answer so of of a that's for innovation the pace seeing a partners. but not just improvements to we're whole, are fact channel that model business business, where pieces need helpful, others. need hope I scores that and have not individual precisely the but of the scores more built need it's as but some to overall tuned the of even much may that's in that there more are faster So the

Moshe Orenbuch

allowance the then some to stable, you you that are losses be expected be the going in absorbed by that reserve. rate And that also had I said – would to guess Okay. but mentioned of the you were QX happen

I guess how work? does that So

Chris Lutes

Well, in one what in you the can the have, some RISE I also particular as shows that’s that bridge, is going there mean expected. we’re loan slowing QX to slide with on full-year see of growth

actually So, a it’s of going credit impact. a to have than revenue more impact

some think point, not I mean we’re performances I Ken’s we’ve where identified of the vintages. to recent happy with of the

that’s some customer we so where into growth some opportunity little that head a we there’s QX, bit being – as So new on feel prudent there’s natural there. more

with allow elastic as efforts some We’re partnering that the that the techniques collection bank I us new will rolling approved think on the collection and well. increased for products, technology also that that, banks some out

be in comfortable what I’m we at QX. of the So, – point at of the level the of quality with at credit end end the this see consistent that QX should

Moshe Orenbuch

would lastly, a down mean, concept product mean, you a per of then impact the something of thought on balances loan. kind kind is each more trend? than was there ago. would’ve of that balance were would borrowers slightly of driving I given Got of that from to be that repeat positive I there whole that, the the if Is it. that that, kind year that alluded products have the I I and average by looked And at something actually of those

Ken Rees

Average, about I’m portfolio or while of each seeing products response, each total clarification, about a are per the a products, the average think portfolio is for because from Chris of we basis. just balance growth sorry, for in the to point are loan talking trying the of you in

Moshe Orenbuch

All Well, we fine. could right. All right, thanks. I that guess offline. take That’s

Operator

Vincent with from comes proceed your Stephens. Please next question Our question. Caintic,

Vincent Caintic

guidance, thanks. Hey, here. can’t broadly but just I of afternoon Good guys. kind think give know you XXXX

So, and you’re underwriting by year that now. you’re making be now expecting quarter you where I you’re to be to into the that analytics guess next going it of second and technology investments this expect

bridge half would half of of So next to year. we about? we kind to second or – be should moving should should a the we have first this of expect kind year of year be the that that we other should take in and used profitability It’s been imply the there profitability half of similar where thinking next we are then pieces second

Ken Rees

not the think as a couple the double just into funds second will states. All One right. whole. that. profitability or it and rise charge-off things increase I’d the that performance earnings little the about a are of and said in of cost a a which reduction expansion the first is whole as number talking to we Probably, I grew of underwriting being impact the of probably about have performance part up that’s But inaccurate. there harder bit

the those than performance. two are So, additional factors charge-off other

Vincent Caintic

potential on of in the size opportunity, maybe Got you That up loan RISE expect anything between yields, versus any and that the could makes terms or expenses, there, your you It. difference relationship sense. relationship FinWise, And existing charge-offs volume else? bank

Ken Rees

bank states. we’re are per can partnership on and disclose a that capita comparable There in to number RISE look the at it just that bank between structures Elastic vis-à-vis separately, that, basis a not of growth, pretty planning but the the partnership you

of lack of but double be competition. the the a the in quality number customer because – these number acquisition customers actually market, have will states, of We’re that higher states isn’t of we believe addressable also likely doubling new you quite the in

sizable very increase growth prospect RISE. it’s So, for in the

Vincent Caintic

Okay.

at partnership look of the growth, of trajectory the kind proxy partnership, as fair? can would we bank growth for the that meaning existing a new be that the So as

Ken Rees

think I yes. so,

Vincent Caintic

then Okay, – yes. just perfect. And

Ken Rees

Go ahead.

Vincent Caintic

out that outcome? you just will resolve as see see the one through need and the do way do you something from you me. happen do of are you how in it’s how see talking last that think what who your and to order issue or so kind of Just the see just you the Do When its kind of one work about issues? playing the – you as Thanks. peers, time UK about UK to slowly and UK, also

Ken Rees

It’s address crazy because will the UK likely already lender as matter this the we others It complaint; investigation for largest a have bit mentioned. thing – the for of and or this fee £XXX It’s a of $XXX investigation now. to a up me different currencies. $XXX a I situation right mean fee short-term one loan mixing regulators market, out £XXX to short-term a few it’s Wonga. think excuse long mortgage. thing – for a the It’s so charge whole will I a taken for take

very capture and do resolved lenders XXXX a, what’s be expect able market, do that will talked get less in it’ll I I’m we’ve but stabilize and we’ll still expect the and still So, and a business, people to to grow competition. that with things in are big

but long-term is still in a space and market we player this think bit we be discussed. we’re getting So we a while dealt UK to Earnings we are overall. the the are the on going with. liked squeezed all market bullish as

Vincent Caintic

Okay. got Thank it. you.

Operator

Instructions]. [Operator

question question. next Michael comes Our Compass Tarkan, proceed Point. from Please with your

Michael Tarkan

are if again, just seeing partner I base? quarter-over-quarter. changes, mentioned base, a but channel, kind picture wondering overall your I’m you any big that in amongst anything, the credit the Just picture material of bigger on know customer you’re your there’s customer back just changes you noticed any anything

Ken Rees

financial That’s expectation starting to of or aren’t. the be other recession. outside it world mean, in non-prime a great we services, certainly question credit look and providers whether at of up the tighten we potential I really –

loans this our anything point, because about this is partly seeing nervous not of much term that has so the shorter. We’re

average term Mike, our As is about year the a you effective products. for know, just

stay related competent think ability top session. any of on macro So, changing more to it about makes a we us – to our issues

customer opportunities got to So generally that seen initiatives technology analytics just the said, better job or is quality our with the proved a what traffic that delayed. we’ve we’ve But fundamentally as plant different before. do speaking, net-net, underwriting not and

Chris Lutes

where I on, when it’s of look putting IPO One original was Mike, that headed about three my what credit The model a Chris. is together probably assumed years at, originally two into thing I’ve about probably probably off, our we’re elastic less but to talk you potentially kind to since average noticed balance bubble. at ago. than customer $XXX I $XXX or recession

of uptick the situation. that a losses a probably average in as the you’re not they’re generating road. utilization credit we’re So, a an look guess I as ahead, to more I if into we’re there’s it’s the the lead that not; a we quite is elastic much mean down revenue potential, off macroeconomic in benefit I benefit perspective customer what they’re utilization as expected. is utilization, could seeing an from But which potentially not or us headed credit maximizing not there where seeing rate not it’s that increase hurt

Michael Tarkan

just the up through are follow then channels. any customers the And in seeing helpful. different changes on coming That’s material to that, you

little channel, partnership it or just models underwriting have a it customer is just different or to is that tweaked bit? the themselves be a So

Ken Rees

different a of customer, Not sense. the type, concentration makes that more if customer Yes. completely the but of

one our may organic, let’s the range credit defaults. mail and they direct with the we see another of all through say people limited non-prime more our the really but those, in channel of more So, experience through broad be to concentrated customers, may one a and have

a to different I we’re fundamentally adjust sense. So that it’s but not they channel that underwriting in and that the customers, to need concentrations makes hope models that partnered and accordingly. tuning and it’s different partner our we come whole, as to individual

Michael Tarkan

I appreciate That’s Yes. Thank helpful. it. you.

Operator

question proceed of Please Napoli comes from William with next Blair. question. Bob Our your

Bob Napoli

maybe Thank direct an business that Ken, is much of kind – through you. versus and the can seen? get on Chris shift give channel, you’ve you which how us update afternoon. versus of coming other marketing the Good mix your mail marketplaces

Ken Rees

we channel the it upfront and split, that year. the believe this channel Yes. number but is the get us We pretty the but one been channel our that fastest-growing is we’ve years, opportunity specific for fastest-growing mail for direct don’t partnered has been

and in business growth margins looking are both a going we the top-line for to be as that So, support key driver to well improving as forward.

Bob Napoli

and partner marketplaces the like Credit and the primarily is Lending Karma’s. Tree’s And the

Ken Rees

let’s from say decline other Yes, absolutely. And traffic lenders. fintech

Bob Napoli

Okay. credit mail credit the – change are of out – the And is is partnered the channel higher direct are I you credit, out seeing the channel? mean partnered in the any losses those of that versus channels,

Ken Rees

that’s be underwriting mail There what more through channel the versus speaking, partner had Yes. these performing, part expected by equalized of a models. we a new that worst and would are vintages come generally little direct bit

Bob Napoli

have? to then coming you’re the today beat – from death, is And crystal mean, the you are you absolutely clear hate underwrote, just, to gave that UK loan, and consumer not underwriting you shouldn’t Okay. it back saying, a loans but safe me I I

Ken Rees

the something way learned use the difference the the is operate regulators U.S. the the in between more regulators The and and space. operate I’ve U.S. Yes. judgment. set UK UK big rules very operators regulators specific value

That’s treat So can say that treat whole lot regulators to didn’t without that in used or of how something the UK, either you have to a you by do to about fairly. customers customers be prescriptions fairly. did

other are underwrite we all out U.S. So adhering and the people way space conservative that in of from manage we the regulations, of view, we the in absolutely, and to in affordability there. fact, are the more than requirements a UK point

feel extremely that way customers. we’re the about good So, underwriting we

it’s customer complaint a does fee as make there evaluated prevent make making to investigating want for is customer for doesn’t said if a and similarly, it’s by just that we the I complaint. that that. clear that it, However, And a regulators, it a

complaints, we what us we to that, on based forward. be have how but are, no very good go we complaints those feel So for should some will matter manageable level doing, of we’re

Bob Napoli

whether And determines or investigate the it regulator it… they should is

Ken Rees

so No. even that fee the as pays and a – is an rejected. that request lender doing to the said it, regulator customer’s we the The customers the behest, customer the complaint we if gets investigation, that

Bob Napoli

Okay. Thank you. And then…

Ken Rees

sense as think not £XXX Sunny’s, now whole doing why that the be sustainable doing such for long-term. make situation Yes. for that and It mortgage, the may is for a loan an that I that’s regulars unusual a a are they recognizing lot of that

hopefully be anticipate regulations, reduction those So, rules in leading to there’ll and a and those costs. we evaluating a do that

Bob Napoli

Thanks. credit more sounds And are card, in point? of XXXX this out you rolling credit the the the card it that like on back half planning at

Ken Rees

about along. all today saying changing new been is the we’ve the not it – aren’t don’t We actually That’s Yes. rollout a card, because talking for product.

tuning customer latter the like the of and still and the profitability, we feel rollout in both for testing half on but all, customer we’re XXXX. We’re track experience a

Bob Napoli

road, have of so time wouldn’t I and won’t you this material losses typically, obviously a period going to mean, think that big to Now – losses you be losses would it startup you a be generally I new that payoff the to gradual down for rolling – out or credit material? expect not card, is would some kind but expect have that startup of

Ken Rees

Our plan is to manage the of that growth portfolio.

has the of a mean, you roll part last of because business growing that have company. our faster impact, anticipate doesn’t anytime customer significant a forward. just anytime you going it any we overall acquisition that impact the plans impacted So, right, costs provision, my profitability grow but near-term overall I don’t that and the you’re it of of out,

Bob Napoli

I appreciate it. much. you Thank very

Operator

the end question-and-answer Ladies and session. gentlemen, we the of have reached

closing turn like remarks. Reese would the to Now, back call I Ken to for

Ken Rees

Well, better to it all. U.S. look that who the thanks the ability whether get to this FinWise, in supporting and just to we long call to forward to the the growth and we unmet continue you are course, fast see products in to be and a our the margin of our serve better perspective, our analysts investors enhancements need and UK. Elevate on opportunities, Thank have and employees,

Operator

This concludes today’s conference.

for lines your may You your Thank time. you disconnect participation. this at

Elevate Credit (ELVT) 29 Oct 182018 Q3 Earnings call transcript