ELVT - Earnings call transcript Q4 2019

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Operator

Greetings, and welcome to the Elevate Credit Fourth Quarter 2019 Earnings Call. [Operator Instructions]. Please note, this conference is being recorded.

I will now turn the conference over to our host, Daniel Rhea, Chief Communications Officer. Thank you.

begin. may You

Daniel Rhea

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

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

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

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

the Executive Officer, Harvison; today call Chief Officer, Joining Financial Jason Chief on me Chris Lutes. and are

will turn to the call now Jason. I over

Jason Harvison

begin year against strategic says I you of about for a it's quarter a our approach a call I'd conference XXXX goals. call. business thank and that and like think and review our XXXX, execute fourth our because we year-end to the the joining to with afternoon, Good quick lot how

was As new our credit know, for change products. Elevate, revamped XXXX across you of full all a and slate and both we of implemented models year

on expanding originations Most Additionally, we with importantly, focus we a profitability. approach growth serve customers and new continued to a measured to took well.

If our turn we over have and take note X, to served less than that Slide pride fact customers you lending X.X of $X.X than in you'll lot now more billion products. individuals, have consumer-friendly our save the a we more million platforms payday

know back our income net year and speak notably, I look for I at of are just we achieved and year. Most Chris results. more full proud our I XXXX, for say company than As the when we how we full record the myself

XXXX. net let's set long-term If expansion nearly margins year XXX% in the adjusted We increase grew in EBITDA for of to our to the margins XX.X%, we to XX% year-over-year that of XXX We'd X%. goal were turn the also original of adjusted everyone goal Slide We which highlights full our income, points. review we year margin compares full business. XXXX drove closer EBITDA with EBITDA when remind XX% margin of ended a back XXXX, basis by quickly X, drove and

designing is and past repeat the mix over mentioned that need. our we sign in want the a products As few customers of percentage are quarters, customers rising we

our to for rise. continue satisfaction XXXX, portfolio-wide was And scores satisfaction XX%. customer Our percentage

have about issue their to see back to lower are lives enabled a our while receiving rebuild our in overcome We them from products get and how we humbled our comments rate. the consumers credit

In of to aligned to the Elevate customer skill tend and lower And credit operating how power marketing acquire financials of to are and our XXXX, biggest part cost are outcomes. acquisition X Repeat perspective. expenses. is demonstrated our each. less certainly costs have in best our the noted, customer model, also we've positive our across charge-offs from customers these a As business

First, charge-offs compared the record originations, on at ended basis year credit, we to were year-end XX%. in point our see lows near which a pleased to XXX improvement

at our acquisition below customer, costs, a ended longer-term standpoint. saying without for which XXXX mark $XXX of it was last goes minute, range more $XXX. XX% marketing outstanding from acquisition Second, we efficiency strategy in We'll to below the nearly and $XXX talk year per year's materially but a is our that $XXX about go-to-market

seen the to a as much ultimate whole, we've been able the income record the we we've drive drove profitability of smaller efficiency for as to competitors a operating net have. and spoke large what I attempt number companies like do On In to market Elevate many ours, shareholders. but our done, have

As we that on view. is last Elevate's noted profitability and by of on strong full growth right our our philosophy, and view driven focus few measured management line a year results responsible we've as vindication calls, the top XXXX

Elevate addressable very for we as the remains ahead, large. look Now market

measured in better our While place, been the of credit believe to following Elevate our never growth has to remain we overhaul models. approach go-to-market will positioned

on models of eventually without more campaigns. the a flip tools channel. to this put mail our and X is some into channel about online and, profitability. the now opportunity, tested context volume importantly, credit credit scalable further most the tap We to channel our and universe digital the credit are we and marketing talk beyond do available opportunity mail partner sure than and what's direct around to make decisioning to have To ultimate this the have we larger sacrificing Slide via excited through can grow you potential penetrating and our and traditional by the very If we partner about our volume scaling direct XXXX, use

continue to channels. credit That returns significant to margins. as see and opportunity in be mail clear, we to well new I'd our our To channel both as commitment like emphasize said, direct growth partner

be XXXX that continuation of expect and shareholders, focus remains Our of on to growth, a profitability goal. our profitability for we that and

at to also pace, measured think of at about a of vast philosophy we Elevate vein, performance especially prudence we despite that the mind in like originations enter Credit grow that new and origination growth. marketing plan we as pursue markets I'd or as us, In front is to new with remains our reiterate opportunity top channels.

you well-being their core As is at customers see, and do our the financial what the day. can health we of of every

Our aligned corporate culture also customers, that we are is fortunate our our the and returns and shareholders customers' to aligned our we with business our deliver is in well-being. to profitability

we quickly providing universe majority X, to like of customers. I'd ever-expanding our across of our experienced the history our said, the portfolio. opinions, loans that average to the Slide which provides some of highlight Contrary have vast to growth, lower-cost portfolio APR With

result legacy consumers consistent day scores. of in is as a for of tied model, cut average believe consumer-friendly in the In in we APR to seem in and judged In night these payments. this we to in are years that fact, many subprime to X by difference the pride take platform products our past help lives the a included Compared satisfaction a lower our rebuild direct has overall reductions lending half. customers rates our their customers with features of been lot agree that credit and cases, our consumers, repeat

in passed in installment On legislation our regulatory that portfolio. in the California the will a California loan new front, result reduction

universe to continue California. however, in small customers serve will, a We of

eligible XX% to rate on with As with products law. our new of products rates their serve to is based portfolio approximately customers. is with California you performance these It to interest intent and the know, the for we reward payment customers lower comply interest continue

profitable. Turning remains to the U.K., Sunny

in in the do clarity, However, lender the intend without regulatory benefit portfolio of space the preferred the see given to grow our a many not we presence and XXXX. exit maintaining to of as competitors. do continue the We our responsible of

reflects We forecasting a Slide full range to detail outlook year portfolios, will for experience in our growth $XXX regulatory we the the and forecast pressures XXXX. $XXX of X, million. which Moving were of Chris in XXXX on review to California to X% This will shortly. Sunny million financial let's revenue X%

to to fiscal range million $XXX the $XXX be of adjusted EBITDA expect We million. in year

$XX believe Elevate's between which commitment our and forward XX% executing continued growth range we we XXXX these on net translates of million reflects plans expecting are We strategic the year. the $X.XX EPS a and million, look continued growing $XX through to profitability as $X.XX. to to We move income and to diluted priorities, strong X% forecast to between with

repurchase I would also our stock like plan. to approved recently briefly address

at of shares Directors approved plan, repurchase $XX an improve Board increase can that stock XX ability repurchase to returns. current and million million. Our price of to our to our value amount our of the in repurchased total We see its be bringing

call turn Now, Chris. the to let me

Christopher Lutes

good Thanks, everybody. Jason, and afternoon,

waited for the U.K. As relatively products as flat regulatory we prior models in we clarity for expecting and U.S. complaints. call, conference we the during growth regarding XXXX in loan our affordability out quarter new credit discussed rolled the more were

were half top $X.X million receivable Slide of principal combined XX, as Looking X.X% X, of XXXX, loans down the basis. on year-over-year at a or December

loan measured XXXX the more models during new However, half the of limiting expanding quarter sequential marketing approach growth each million up customer the the quarter a the the rollout early on were fourth to or credit are basis the reflects then versus balances for and XXXX. we X.X% first of taking, new in This $XX.X of third acquisition gradually month.

top has gross growth, margins. approach improved this it impacts and profit While in resulted line revenue

almost ago. versus $XX product level, XX% were the At year balances up RISE loan million a or

quarter grew of loan RISE approximately Additionally, million XXXX. fourth during the balances $XX

other over credit the a hand, in million year. Elastic compared ago a tightening to in loan primarily this On quality the past $XX down due were balances to year product

significantly increase for profit XXXX that new XX% deteriorated. improved up decrease gross with $XX quality dropping XXXX was versus Elastic million very XXXX, and XX%, year almost lower credit with top most profitability during While Elastic Elastic customers this revenue slowed was product year, XXXX new XXX,XXX the new in XXXX but fiscal $X XXXX in year. new over resulting versus Despite customer a of revenue, in volume in by This new fiscal line strong million year roughly customer acquired acquisition past versus was was acquisition almost profitable an customer in XXXX, and year, margins.

balances Turning to the XX% to a the are of on or million due to $XX clarity over lack down regulatory U.K. year Sunny ago continued compared loan front.

the rather which loan both is have we resulted loan fiscal discussions our customers, with decrease a straining generate the to not assessment the main to complaint XXXX complaint be but is been have to to portfolio decreased growing year. to regulator impeding during has our ability generate for us during situation reach XXXX, customers? in and originations and to in ability our ability both affordability a expenses in words, for continue to we FCA In affordability customers underwriting. come existing need rising again to We an profit. profitable Sunny assessments XXXX, with customer most year the an new to continue can begin lend profit, where product. related enable year our the viable are to the during fiscal but a our in ongoing regulator, to to continuing on this for regarding acquire? FCA, While with loan Sunny how other can fiscal order volumes And a we year which The stable This new affordability agreement product was balances often Sunny an assessments agreement existing of existing new

this of revenue in the fourth of on resulted Almost down totaled from I revenue $XXX.X Sunny slide, Staying from all the and Elastic XXXX. what X.X% QX discussed. million, XXXX decline just the quarter

XXXX million of $X.X XXXX decline RISE but versus from quarter in fourth product, from FinWise better For the effective credit fourth is the a XXX% the The lower of fourth decreased the the a APR approximately to typical RISE new XXXX. APR quarter profile. of a of than year RISE the customer resulted quarter average the a XXX%, XXX% of ago. which declined customer which state-licensed is RISE with in in revenue in This product,

and this FinWise are the While lower these lower revenue line in have higher for losses top due lower results customers also CAC. they customer, is APR to on because a a the RISE growth profit gross

RISE up the a in fourth actually $XXX,XXX was were revenue While of a charge-offs on XXXX, basis. down RISE quarter on basis less revenue year-over-year net year-over-year

X. As passed both I'll we discussions slide. balances those loan at into bottom head half revenue year in continued California address Slide will next and regulatory But legislation the related and the look be fiscal the FCA impacted the the with new on of let's both in U.K. the first, XXXX, of by

the We slight are very pleased with in quarter for the $XX.X profitability. our of XXXX. million, fourth growth of decrease EBITDA the year-over-year fourth XXXX totaled from quarter a Adjusted

XXXX. XX% up XXXX, million in fiscal year million, $XXX.X fiscal EBITDA totaled for from However, adjusted year $XXX.X

for fourth XXXX $X.XX $X.X the per fully than fourth or for fully diluted totaled quarter XXXX. $X.XX Net or the in fiscal income almost per diluted share $XX.X $X.XX diluted fully of million XXXX $X.XX the Net XXXX. more tripling or in million per or totaled year of diluted income million $XX.X quarter year $X.X million doubling fiscal fully share, share per share,

While debt-to-equity equity $XX.X a XXXX average XXXX, to not X.X ratio slide, for and depicted XX, XXXX. The on fiscal ago, year on in declined compared to year from this to $XX.X in XXXX fiscal was cash for flow return XX.X% XXXX. fiscal year December X.X year XX.X% million at free totaled compared fiscal million year

RISE XXXX in state-licensed $XX ongoing loans. California Slide we change on the On X, installment the We year fiscal with and revenue. year of in regulatory fiscal impact in XXXX discussions million U.K. legislative expected California the depict the ended

portion We basis. will California on an the under those new lend of a be customers to ongoing able legislation to

loss million revenue revenue to If XXXX revenue revenue XXXX XXXX would X range the $XX fiscal portfolio year to loan adjust year XX% XXXX, revenue year fiscal U.K. we XX% XXXX. resulting a 'XX. continued expect $XX guidance California under the versus fiscal could for in million. decrease Further, loss or an slowdown expected balances year approximately be in in year these to adjusted RISE Sunny result loan year-over-year year in over revenue end the million additional items, expected by in of $XX fiscal of $XX balances, even of be growth million for for fiscal we the fiscal However, of

of scores strategies the drive XXXX rolled the out to loss cumulative and vintage new much are the percentage strategies That XX. hopeful originations remained our rates is loss XXXX for the loan and better said, the generation lower that and to fiscal to in The can ramp vintage, with relatively in Turning as a XXXX we credit new flat generation rates ever, XXXX than risk XXXX Slide performing lowest which were with scores that vintage. and years. future we are year continuing of continue of

we slide, customer the show this On cost. also acquisition

$XXX quarter was down XXXX. fourth of $XXX, CAC the XXXX, quarter the of the fourth in For from

fiscal U.K. the diminished totaled year decreases year These in down of result CAC For RISE products XXXX, and fiscal competition marketing in XXXX. in Elastic better are $XXX, efficiency from $XXX the the the on

up happened the Slide was from EBITDA margin, year adjusted adjusted marketing EBITDA quarter for QX from loss XXXX. XX up fourth fiscal lower the increased for due shows XX% XXXX. which fiscal provisioning margin and this loan The the XXXX for XX% XX%, gross margin, expansion year spend. of which within XXXX, to was XX% for All

the lower XXXX. debt same facilities $X net XXXX the the expanded fourth average income XXXX, of cost for funds was the quarter also interest for almost in Additionally, margin XXXX amount of than resulted has expense On for fourth the million the of debt in quarters an roughly the decrease in quarter XXXX. fourth both of and of

year covered like guidance management by more that discussing earlier. capital would fiscal and end detail in the Jason XXXX to I

had off, CECL of U-shaped. the when increased from new fiscal quarter quarterly impact during more a versus portfolio rolled we to the business are this smaller First adopting ago where than in a not income this a CECL. more yet the a credit we of due to decline expected loan expect financial hockey to performance net it This out customers a was due first will XXXX, marketing year in models. stick would year is reporting year small perspective, new result XXXX not the company. be year since to be no fiscal There net From XXXX year on quarterly income I we

customer QX we year loss year-over-year portfolio due loan resulting QX slow EBITDA and XXXX XXXX paydown acquisition margins be probably in There marketing RISE loan the fiscal a relatively to have EBITDA of see U.K. the we added through the adjusted build to loan adjusted QX XXXX despite decline XXXX be will While reserve and due year-over-year volatility in new flat expect growth margin loan and to quarterly revenue, quarterly in growth. year may spend the growth from growth, fiscal revenue continued balances. and CAC some to expect California and the with

flat of on XX depreciation outside additional We year point increases relatively fiscal funds receiving XXXX, expenses and intend plus continuing facilities. stock-based XXXX, products an the expense. full built-in January benefit prior basis all hold Interest of in the XXXX in to cost reductions basis that reduction X, on due for slight was should year with to fiscal debt operating effective year comp the all decrease of noncash expense a year-over-year

intend the debt incur of sub in million $XX quarter the also prepayment. first remaining a XXXX. We during small penalty $XXX,XXX this pay associated to off would with We

discuss believe I plan capital $XX would capital from stock at briefly common stock the a this additional valuation our like of perspective. by authorized Lastly, repurchase return on compelling million We is to Board. the current use

of EPS year EPS the plan. we this new to range. XXbX-X as authorization able implement million buying $XX fiscal the high range begin low the assume utilization XXXX far, to the August an been a under and already our year We as Board utilized last we of end for that legal XXbX-X ratably plan. We new diluted again and are window soon that plan the We authorization fiscal $XX authorized at fiscal by in intend once assumes new buyback of additional would XXXX regulatory to year fiscal in XXbX-X guidance of July for shares million XXXX, XXXX million fully no from buying fully year are have The since $X end perspective. be and so ultra-conservative to throughout this for at back XXXX open have repurchases the stock a establish full intend

that, turn me With over back to the let Jason. call

Jason Harvison

U.K. conclude needs. highlighting like I'd products up a U.S. to consumers the non-prime get fit responsible tomorrow day market to the We customers. ready enormous their meet non-prime by need provide loan designed to for and better Non-prime that in and deserve each

us serve in Our diversification this company to shareholder well to the We from positions growth and future. the continued a standpoint XXXX. product forward value adding of into look space

turn over your for I'll questions. that, with And the call

Operator

Instructions]. [Operator

David first Our Securities. comes with question JMP Scharf from

David Scharf

had it with partner the lenders. the on front, the is now lot the versus at curious strong sort year a in like your those customers performance sounds still coming consistent you've seeing First, the from But big mail, of ago. improve very into direct quality is we're channel credit to acquisition? improvement Are a of credit obviously, there subprime what of room there? parity a with Or direct

Jason Harvison

this David, Yes, is Jason.

in we're other profitables model think come were place; one, these for we're with XXXX targets the seeing bringing accounts; in we a we that in What the help channels. net what put do place. some I was: on of each the and to from into also new in profitability line able reset also new

going the solved So the of best history some together, X in those credit organization. the combination qualities the we've of things of

David Scharf

feet asked do the mind a in visibility whether will deadline switching you know you of and to to And habit maybe, like clarity go last a of doesn't sort you will, in of any at in or have of I there regulators affordability sort some bit Sunny. to maintain level tend product? make FCA? Do Because quarter, it. on getting in to Got current test. it their on, decision the gears, mean, or have more case, have I this this scale, timing Okay. of drag made that of a no-go of continue you be for an because kind sort U.K. maybe noted, drop-dead of, from sounds just a the with as want the little kind decision sense a date, it when the when if of you get sort I update

Jason Harvison

done scale, say forward. to There's profitable to FDA foresight back and got we've FDA internally. a with comments, but is thing so his make progressing time business to in growth mentioned good continue But line of the job Yes. be we to at Chris interacting One keep or just the a with sure cannot team no the will has having go mode. the I see there to decent conversation set as that the in

be over about to that's So more the FCA we're conversations months. something the having going with coming

David Scharf

I the different the a out impact appreciate the we the all granularity California partner Got bank as from mechanical is -- to it. the And falloff? reason mean, one be underwrite Should the on the there? Or interpreting that breaking longer color, California last revenue wanting legislation. this in to continue for I existing there no one. --

Jason Harvison

we state so No. RISE a about And with the What to we under licensed by had XX% that's the impacted the legislation outlined serve able that that bill was new XX% were passed. we there continue APR, the were that we in RISE where was that to portfolio, passed. sitting where at was portfolio, those that

Operator

Our with comes Brian William next question Blair. from Hogan

Brian Hogan

question. a got I've

actually guess margin what And the First there margin, should to one I it we get in expect I comments outlook? outlook. margin on the -- the eventually? your margin. mean, XX% plus progress Or I your long-term is is flat appreciate your the on flat

Christopher Lutes

Chris. that of into we flattish the talked mode, in Yes, XXXX including paydown I U.K. growth the back even California Yes. the predicated into assuming it's getting even portfolio about good the guidance is growth think for and Brian,

the you really us, rates with will that have loss lots continue is So across for But our that of margin them beyond we customer at lows cost see slowdown any better perspective. don't almost acquisition relatively each better The from I and in XXXX. all and year to XXXX vintage. with perform look historical upside keep margins flat out compress and when mean, components. we probably the each

really, the then amount going XXXX role And big ability in driving to certainly falls more only EBITDA we overall beyond really start see here to this highlight interest yet drop, that to call, off once of will we tapped revenue XXXX, is lot and play into the rate continue margin a couple factor a is loan a to but expense really the years, addition the funds to what growth, the but tremendous going in that we're operating tried not haven't of of the go-forward growth flow we'll a and past lot in but drop then other we back our to outside the buying of benefit cash And I leverage. able a shares. the to in see the of and continue in free cost self-fund on to be throw basis just as be

And so as a I continue just really the result, as to I going think you'll a continue cost get XXXX. margin to funds. is see as in even of percentage result, a to addition the natural we expand our into start drop to of interest expense revenue as net And think more to interest

Brian Hogan

then in start But on a about your think an think to how this and And kind and going in growth credit long-term there. you term? of is business growth we longer-term-type answer reacceleration as we kind kind that profile, seeing rates? Sure. of appropriate longer and of -- growth How growth? number do we're retool about touched the do shift What

Jason Harvison

for I in the opening would type growth. U.K., you XX% impact some his of mean, where of Yes. highlighted XXXX XX% to the a out back California Chris and I if be the think remarks, revenue guidance

quality range haven't on keep is probably got won't single focus be I high of give forward, assist to think area we -- but target credit as the that I and we'd to measured low an going think I look XX% to digits looking XX% growth. yet, an we kind

Brian Hogan

on All please. touch environment What particular, California of kind regulatory focused any right. the can the these the in discussion? on And are touch statewide? Just just obviously, in you on and states, environment, you regulatory national

Jason Harvison

was Yes. consumers access it non-prime obviously, California not for one because mean, change think I in the credit a way, we limited impacted great that in to them.

but those states watch out stay products that's else happens is in relations, and they anything Our we do we tune using. up we're seeing our something to. on what there, as and that now, where hope see end consumers go, what government outreach not other that's will Right

Operator

[Operator Instructions].

Our next Jefferies. question John Hecht from comes with

John Hecht

Most portfolio commentary moving growth will of little been the will organic for thinking but RISE California, -- do your guess some it static, the elsewhere. there? one you then cadence RISE a given bit? have think shrink just Or How my the asked. product, is to how questions parts year, it of be the you the I about over the have will about course

Christopher Lutes

John, this is Yes. Chris.

a going look as then and excluding as I some relatively to RISE on get think California, I balances conservative California product, I year, kind roughly course we kind basis next California, we in state California lose flattish. think million other through the of the into in certainly, we're Yes, remain the overall that be states. that loan $XX replenish a it's out, be normalized year, again. to think, paydown there mean, RISE to explore of able not with able I what possibly As we'll be as we a And of lose growing see standpoint, flattish. Is portfolio of will start from I RISE upside almost that? to on other with they going to licensed the if going there's opportunities us

John Hecht

amount stable. the And fairly kind like portfolio, is ALL the then looks Elastic of on

now? Your charge-offs moving migration metrics of run it into expect In effect. kind kind have started a trends of over -- of a Or they've those also more year-over-year, they've is range-bound but of we that mature portfolio rate should it time? improved reflects kind portfolio, fairly any

Christopher Lutes

the where loss line and That as revenue the a growth the Elastic result, substantially. a No. out. I very looks will pretty -- worked expect of feel rolled rates product. last new year The And on will top the this CAC was models lot mean, We grow drive the a them. to or good. product That's want that we really year we the are it exactly I that be portfolio good about

it product that's in of credit think that product a of good that pretty we nature can grow given I line the here XXXX.

So this that's one lot loan growth top get our back and product drive line a expect to mode year. and into growth that of I

John Hecht

there was in -- you -- perspective about at a there any What's there's bank any this your Obviously, what partnerships. time that? on on? it's then you And just about think important you Is guys' of going time business. hearing is Okay. do in think point D.C. you sort an -- comment of what

Jason Harvison

I limiting we're going mean, to when was access could out it's cap of hurt sides to It's a take the that was glad that know there issue crystal figure rate in a to I the aisle. like, those good that's saw -- were saw sides some see what's both there think borrowers happen, I there, by was conversation place. from we Yes. -- of what And to looks but good aisle the discussion see that non-prime ball we hearings that there focus happy both think to early the credit. still complex

Operator

gentlemen, and you. to remarks. additional appears this questions at to for back it Thank time. Ladies I'll no turn be there management closing

Jason Harvison

from to Just everyone. and the for afternoon. XXXX about XXXX everyone want Thanks, time We're happy start. this good results thank the to excited a get to off

Operator

evening. concludes may a great Have today's disconnect. you. Thank All This parties call.

Elevate Credit (ELVT) 10 Feb 202019 Q4 Earnings call transcript