GSKY - Earnings call transcript Q4 2019

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Operator

Ladies and gentlemen, thank you and welcome to the GreenSky Fiscal 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the prepared remarks.

As a reminder, this event is streaming live on the GreenSky Investor Relations website, and a replay will be available on the same site approximately two hours after the completion of the call.

It is my pleasure to introduce your host, Ms. President Relations Vice GreenSky. Senior Gardy, of at Investor Rebecca Please go ahead.

Rebecca Gardy

results and Shannon, issued all announcing of quarter market thank X, the our yesterday, XXXX you, December a its XX, ended listeners release trading GreenSky to close today. you Thank after fourth us for press March hours for XXXX. joining

section website. GreenSky can this release press the access on of You the Investor Relations

call. refer fiscal we’ve XXXX fourth investor to also during we which addition, today's In quarter will posted presentation, our

we Zalik, Robert Chief David Chief Financial Officer; call, and today's and On Chairman Gerry have Administrative Executive Chairman Officer. Benjamin, Partlow, Vice and Officer; Chief

our are we discussions to that uncertainties from update cause projected. me will Before is statements law. about to these risks materially risks remind required actual with as and statements. regulators. our any could filings differ forward-looking results forward-looking in release disclaim obligation our uncertainties by and We except as These are presentation on well let subject started, as include Information based that press those and you and get in are issued to yesterday, that assumptions any current statements included

performance. XXXX, Relations measures the page described are our non-GAAP and to and Greensky’s of discussing Investor their March from These the to presentation measures measures These financial certain are results, materials, in be and in GAAP website. a the when GAAP press to to considered on call. not you today's also We'll on analyzing substitute consider non-GAAP counterparts for all release measures reconciled superior intended be dated isolation the non-GAAP X, or encourage we

turn I David? to that, David. over would it And now like to with

David Zalik

XXXX us. to thank today Thanks results. you with and fiscal fourth our for everyone, you Rebecca. quarter It's and Good good joining to review be morning,

a quarter revenue total to healthcare fee over record increased XXXX reported expanding growth and transaction providers, grew XX,XXX merchants elective XX% fiscal Through technology transaction volume revenue. on platform loans nearly of by bringing of XX% originated XXXX servicing the of billion. we fiscal our driven fourth $X.X $X our billion Our and ecosystem in volume

five the of grown at rate to of our volume last an expanding power testament of the we average merchants compound of XX%. competitive nearly years, and a A enable base, Over our annual products quality financing on range platform. has transaction

continues a for and elective providers solutions to As compelling platform, and operates our merchants instantaneous paramount merchants two with customers products providers sale offer growth. our financing, of be leading point sustained markets. vast innovative enabling to technology in Providing GreenSky and their for healthcare

pipeline, made shares become Universal To we've in our functionality double-digit deeply in that widening GreenSky innovation allowing rapid the end, and robust elective such combination as years, only the well-positioned more space including us is volume Application, with between our our market merchant to network gains in GreenSky and XXXX. In with the enhanced technology again, four achieve growth in gap entrenched feature is healthcare Credit GreenSky competitors. to, the

that and sales on improvement in comprise increasing with two-thirds This of home year, million the of in merchants volume network. we providers and vertical. Merchants quality, annual our an the productivity represented importance the $X over our placed profitability revenue

section each productivity cohort originated last posted strong evident volume by of merchant on the Slide transaction website is we XX on [ph] the evening. presentation our focus Our seen the by of as Relations on Investor

merchants and side grow parted with them by their that have many with help merchants side to don't fit. also worked ways We business

evolving to our strategic our the key process. these statements. current year in and a review Board business and two touch first funding to Rob expanding walk expect from see efforts. additional will initiatives, moment, But In financial want you alternative through We momentum the I model on

commitments funding the of end aggregate unused. bank of which $X of First funding; the billion of as quarter, billion fourth was $X.X had we

a paid as and outstanding much Bank they as in replenish Partner loans as nature revolving down. As reminder, are commitments

expectations our for runoff, become we having and capacity portfolio during Given billion anticipate originations available XXXX. approximately in additional $X.X

without consortium is Partners or Bank new existing any partners. the from GreenSky joining expansion this Importantly,

as In in we announced up in asset per capacity for $X year a agreement three-year our with flow billion an principle forward commitment a $X we of funding leading group. addition, December, over billion The $X to reached billion institutional to term. complement manager arrangement provides Partner a Bank

number the performance CECL; agreement or all no second tail arrangement escrow, to no bank flow accounting of recognize volatility this cost quarter FCR, profit, expect The three origination. of one, equivalent funding We likely has historic none funds, important during time forward no same of XXXX. - pursuant two, Number three, to commence bonus. historic the approximately Number complex at or no volatility, no liability to our characteristics. of

has Directors secondly, of Board on in and potential And advisors and Board's public concludes Board maximizing to announced August senior - review. value. a specific approved range or as together the commenced management has comment a until not further or and The review to process the stockholder intend its - does these alternative is regarding focused legal transaction company a ongoing working the company’s explore financial and team evaluate otherwise make review strategic of alternatives our and outside XXXX, with matters unless

the second of XXXX. make announcement than later to quarter no in regard an expect fiscal this We

to it now Gerry. I'll over turn

Gerry Benjamin

David, through enabled over consumers. and morning. of you, has XXXX, million with billion Thank the transactions fiscal over the GreenSky $XX X From end good inception of company's

market in referenced competes which immense. comments, David As his in GreenSky the are

billion on spend more As noted $XXX and Joint Center Harvard by University repairs. Studies, the year residential renovations Housing for a Americans than

that the spend GreenSky veterinary and billion that elective vision associations on Americans of than namely societies $XXX and pursues annually noninvasive healthcare medicine, estimates cosmetics, accreditation reproductive dentistry, subsectors those and and with professional medicine. applicable more actively dermatology Worldwide IBIS correction, While

four healthcare from GreenSky that one improvement in the just years number believe position position market the after home the vertical we number market in While holds and launch. three elective

continued years to remains share lots room both these come. Our for growth for markets of of of material modest allowing

participants separate competition. the While attempting emulate other products, capabilities to continue to successfully from us, new we launch us are that services and market further

and to addition to technology, like see extremely marketing from to that home product us unique universal our release our continue response service, improvement support, capabilities excited merchants credit In the preapproval the to the application our existing newly make we're and in market.

on to team feedback pace elective healthcare range healthcare at we’re while of to of by In positive overwhelmingly shows funding making we're joining providers expand continuing traditionally been the the which payment our time and these that needed have at continues healthcare, GreenSky that program exciting providers. profile to providers meet partners the products continuing and are by to approved innovate been elective the services borrowers available same options that The the made are is ensuring iterate standards. credit The underwriting ecosystem progress. promotional has

merchants Accordingly, while improvement we adding our continuing our home and management product enter larger enhancing effectiveness the fiscal our risk healthcare in XXXX with intense advancing elective procedures. providers processes focus elective productivity both that offerings, an to meet healthcare invest of to on targets and quality and

fiscal stimulate the underwriting depicted have As XXXX Slide volume the to transaction on never XX relaxed Investor presentation growth. standards GreenSky program we posted, of

quarter was dollar weighted average full consumers the exceptionally the and year. fourth FICO credit XXX for origination the fact, strong at for of at XXX In score

loan composed XX% loan in portfolio servicing borrowers origination the portfolio of with FICO highlighted release, the XXX and December average and with XX company's of earnings remains respectively. As in credit XX% truly the servicing weighted press scores yesterday's excess quality company's at of exceptional of XXX

and continued distributions better given quarter of the and slightly prior performance home FICO Both delinquencies the X.XX% XX-day had over growth of display predictably FICO is rates which low within improvement. reached and FICO originations impressive improvement delinquency the better and care scores which relative depict our average originations home higher three-year point health health ranges. care fourth each to lower year

systems credit We continue to XXXX. additional our which throughout proprietary enhance management to merchant we will improvements investments and deliver and believe make tools

Early XXXX facilitated. any of FICO originations. loan early XXXX we've originations home vintage of and the weighted for same lowest healthcare is delinquencies distribution elective indicators vintage the the And show of has average vintage the highest true improvement

had XX, our December active over providers XX,XXX of and merchants we As platform. on

greatest ongoing our addition that the that active or XX% merchants providers performance and total reflects XX, merchants substantial XXXX, and prior high-quality our of December productivity targets. in of Our meet merchants rate roll-off did intentional over of

productivity XX.X% in origination and OPI third was fourth of of quarter the the weighted fund index fourth or or down The XX.X%, COFI. mostly quarter index the in due modestly monthly XXth XXXX average XX.X% lagging of quarter nature from cost district the to

cost Loan that’s X, a representative January Federal to effective publishing of the computing that, XXXX, benchmark movement for go-forward Home reviewing on index. of the alternative basis. Management has Bank funds is COFI the directional Given indices derivatives OPI bank discontinued

the company's review to with year. quarter the I'll turn over performance that, it the Rob and both to fiscal And for Rob? financial fourth

Robert Partlow

Gerry. Thank you,

billion billion quarter record rate third that compared increase the of XXXX will for basis comparisons points review or the quarter. to from was The fiscal year quarter fourth quarter fourth XX XXXX or relative of XX%. the X.XX%, of $X.X quarter of unless during remarks, for in fiscal last results $X.X a I XX% fee otherwise nearly transaction sequentially fiscal respectively, year-over-year note year As in $X.XX by all stated. transaction fourth the XXXX fiscal and XXXX, volume The Transaction a company's $X billion. the my fourth to be grew the down year was volume for the the approximately billion

shift the year, with originations driver product loans shift rate points year-over-year a mix XXXX. solar relatively For deferred the down originations at fiscal decline The to XX X.XX%, basis coupled compared from zero-interest of promotional loans. fee rate had the was to average stable lower predominant was we as transaction marginal of

providers transaction products which on As on transaction use the merchants percentage the consumer to to fee promotional activity. the the to calls, their year drive line offer variability merchants as based discussed promotional to a of our of and sales our fluctuate causes products choose throughout our prior

million continued the servicing associated the $X.X last of fixed revenue the portfolio growth transaction partner and in with $XXX.X other certain with to up quarter of agreement. contractual by and compared XX% driven a fourth Servicing increased bank XX% the increase XX%. fees fee to servicing year revenues Total grew for million asset recognition

XX% fees well total a above up in connection million loan servicing line certain bank the in were partners increased transaction For senior in with $XXX.X our servicing market average million as the servicing in with growth servicing the XX% other our million servicing which fees recognition XX% the agreements, certain with and with whereby driven Servicing fees fiscal year transaction the portfolio to to $XX.X asset in flows growth. a volume were XXXX, modification rate. of by waterfall agreements the cash as grew XX% $XXX.X increased revenue

under assets $XX.X costs revenue quarter of fourth - We and assets or X.X% in management totaled and revenue costs, XX fiscal change the fair of in of XXXX. Cost for $XXX.X out slide components: in servicing of three of the on million value the or into million origination liability. break FCR components the management cost under distinct X%

$X.X X.XX% in down and For in totaled the origination-related X.XX% the fourth XXXX. fourth million of quarter, the from X.XX% expenses quarter of originations, third or quarter

year, X.XX% For originations. originations, origination-related with the of $XX.X expenses million X.XX% of or totaled XXXX’s fiscal consistent

for were portfolio fourth servicing million X.XX% Servicing-related of with expenses $XX.X consistent or quarter, of average loan fourth XXXX’s quarter X.XX%. the the the

expense year, the X.XX% or over a XXXX’s $XX.X full of servicing-related million X.XX%. rate marginal and expenses For totaled improvement represents

will detailed of we this liability. help will I created change the The by servicing FCR provided focus the for $XX.X the seasonal portfolio, or liability of components on servicing from change loan noise $XX.X slide FCR fair XX, X.XX% the nature million the in average have in of isolate QX fourth quarter million portfolio. behavior. the comparison consumer QX-over-QX up the fair the XXXX’s value was as the loan X.XX% On average credit the or value of

deferred our of largely within reflects growth portfolio. of the the increase The balance million of $XX.X loans interest

liability fair addition, the paid in change reduces thereby payments XX-basis-point FCR the item. paid the of increases which servicing bank increase to line expense and impact value to fee its incentive by partners and GreenSky In GreenSky

reflecting the along Absent This paid value net higher GreenSky. QX of metrics decreased declining change bank improving the from fair in revenue higher FCR fee improving our margins. fees portfolio in a the to revenue, have to XXXX, servicing receipts servicing rate from shift would with servicing to QX liability servicing results to XXXX stable credit the in to

begin with value of slide FCR X.XX% of by our in deferred of expense for expense related the on On fair liability charge which future interest is of million loan from the the the XXXX’s change X.XX%. $XX.X out liability This indicative we The was in this our and to the also I'll expense loans million future expense fourth increase is expense XX, building traversals, reversals. sheet a charge larger fund drivers up the quarter balance this line. $XX.X servicing the and and break for the portfolio. balance up portfolio, or finance in

finance average X.XX% the FCR due XXXX’s and million volume, to impact deferred transaction vertical. servicing of loan loan noted, health X.XX% for newer from totaled previously reversals fourth servicing the $XX.X our mix rate were $XX.X charge and future As increased our of a in portfolio materially quarter the interest and loans of in has or the APRs, expense million higher the from servicing elective Receipts or average the portfolio. up portfolio reduced of QX higher care the

X.XX% higher by mix with or a driven point QX basis point originated. of lower $XX.X and loan loans, the Incentive as of the from interest average receipts fees, zero rate, the receipts. in principal impact XX improvement servicing aforementioned both interest XX of coupled servicing X.XX% portfolio. or quarter of average The to compared point loans, XX in loan the the the well million $XX.X as servicing finance payments million components basis being loans despite fees of interest basis reduced XXXX’s increase the deferred are was portfolio Fourth primarily total charges

in was rate from XXXX from the lower year's points made QX partner have in environment off by were relatively as improvements X Agreed benefit risk year's rate this QX The of originations. been upon last in offset higher higher net impact basis payments healthcare have proportion of of other and versus flat bank loans has we partners of charge operations the bank as yields the the incentive of effectively XXXX offset The cost impact the components portfolio. the elective unchanged. increased

XXXX’s receivable totaled we transfer recoveries basis the receivables the basis transfers during loans XX of charge-off charged proceeds during down QX from XX from and off QX points Proceeds XXXX, as points previously off of charge from quarter. the reduce

year-over-year million our infrastructure. recurring in investment year and expenses Operating in long expenses or credit well million invest we term. increase team and continue do we certain to in share-based expect IT increased and as not build the sales a current $XX XX% be to in $X.X our over continued $XX.X Compensation as increased expenses the million to reflecting as compensation for

higher million the costs. million higher increased administrative fiscal Property, expense driven $XX.X million increased professional $X.X fees. contractor as office, well XX% and largely technology expenditures technology or year consulting and General software to XX% and legal, to due the for $XX.X advisory, for or year as and lease by operating expenses

origination of have November. renew partners previously agreement we As at one our not of bank end did their discussed, the

previously small Note portfolios in income our but included are of we broken proportion existing a the result guaranty financial expected expenses now expense smaller large million had legacy approximately related separately on million expenses the a As statement. realized face of guaranty usage $XX related expense of to our financial the and out escrow. historically $XX to we’ve that G&A

income expense to $XX.X expense, the $X.X of to other agreement related tax of our million the net the million remeasuring increased for year due Other receivable to $XX.X liability. primarily million

time. the XXXX, remeasured tax law we states due for in $XX.X and the deferred During assets first in our tax tax file benefit to certain to resulted state obligation changes million

to of an the most the in amortizable was corresponding attributable Since and our tax in with assets a recorded TRA deferred other increase increase tax to goodwill tax agreement, expense. liability subject receivable

XXXX expected $X.X expected during income income GreenSky Holdings. recorded XXXX year which for tax our expense related offset reflected benefits of million primarily of into the compensation entire the economic deduction tax to GreenSky $XX.X tax by deferred earnings tax of expense include assets $XX.X on million. of the The of interest million stock-based benefit and of million Inc.’s remeasurement net warrant was $X.X and tax the Income

respectively. million $XX and tax Corporation. for GAAP tax the the income income year only by Because owned and GreenSky full corporate proportion expense was the reflects of A/C on the $X.X structure, C benefit our GAAP million or net fourth net quarter

more GreenSky forma noted of tax in items for net earnings this our as adjustments owned amount the non-controlling as pro adjusted enterprise’s is reflects operating income as measure C-Corp well believe interest certain the inclusive the by our of We measure income results a all useful entire press release. as other on

in the XXXX Adjusted pro of income fourth million net full from XXXX the $XXX.X in X% effective XXXX. forma was XX.X% quarter, the respectively. The and $XXX.X XX.X% million $XX.X down for million for from tax quarter down rate and was and XXXX fourth year,

one indicators that by As provided grow over of to believe we cash financial our whether business adjusted is is business. term our indicated activities information we and the and performance earnings prior useful sufficient maintain EBITDA long provide calls, have our regarding on of operating key

fourth Adjusted in XXXX. of compared EBITDA million million was for $XX.X quarter quarter the to $XX.X the fourth

$XXX.X full X% the adjusted from $XXX For million in year, XXXX. decreased EBITDA million to

our report The the accounts change risk swap our income, designated our rate term in of interest $XXX debt. fair fluctuations the million which mark-to-market federal hedge during for expectations as and path XXXX. $X.X value the million loss the we of million of comprehensive on a will loan In XX-K, for future the in cuts also market a rate fourth in rate of resulted interest as $X.X a gain and quarter reserve swap the about

the expense settlements interest cash they hedges occur term. Actual four-year into during as are reclassified

as acquire as XX presentation. balance of fiscal unrestricted Partner with continue sell we XXXX XXXX Turning $XXX.X Free Bank approximately million finished periodically investor to $XX our the million for was sale, receivables $XX.X XXXX sheet, flow of and our ended detailed slide held million of We we cash. origination. year cash with for to loan on

of the within loan of XX, network. million December a Sale sale of company's Bank the held XXXX, for executed receivables company to Partner $XX.X Point Subsequent

first accounting ahead adoption to Bank Looking a to the of the our Partner’s CECL expected new component cash. for requirements credit estimating loss standard or which will our quarter, loss current company's are accounts, the change of credit restricted escrow

for escrow noted exposure scope type sheet CECL. credit within loss an under funds We this balance the risk the of And our account guarantee is of XX-Q, guarantee as of we off in prior - the of arrangement. financial as

to runoff, by not loan CECL the of go of loan Importantly, origination Bank loan to into does portfolio. any inclusion a is Thus modeling the the consumer for losses new originations Partners. assumed future allow our with no portfolio

a is $X.X for portion on servicing our arrangements our of loan escrow case. impact and actual expected represent of $XXX.X partners, have be ongoing bank immaterial required been the to as to adoption Historically, significant payments XX, continue million portfolio financial our The cash anticipate guarantee under the our billion we XXXX. December this

through As for CECL adoption sheet. appropriate meaningful we with are impact of noncash the our working will have measures economic GAAP the - for be aligned measures better many and refinements actual meaningfully to impact our - financial companies, of of noncash aligned balance performance. our better on with a earnings non-GAAP measure the And financial

the since we before leaving before the know she's Rebecca East]. IPO. contributions be you Gardy Rebecca to a relocating in to joining new let [North green want to want sky many GreenSky Finally, next our call, role We for will end I thank accepted week as

wish on her to her want well opportunity. exciting new Thank you, also Rebecca. We

set the up Q&A. Rebecca with over that, to to And to like call I'd turn

Rebecca Gardy

our first question. Thanks, we'll take Operator, Rob.

Operator

with question Davis comes John first Our Instructions] [Operator James. Raymond from

Your line is open.

John Davis

full to the but also why Maybe talked release, rate the directionally margin, guide help to for I And maybe us how digit XXXX. with about double we in to first for just think not outlook the take on year. growth, decision think the touch origination just and pieces, wanted should you the off

David Zalik

it's me Can John, hear okay? you David.

John Davis

I can.

David Zalik

function been rate stable, perspective, very that's always was our take and From of mix. a

a that's we So thing. think good

think I ready. as other completed, - was be when think are the around mentioned, it we'll your And I we was then completing alternative I question review. around guidance. And strategic that's

John Davis

forward, year color think think to just I margins, sort would think trying looks profitability take we directionally, going or be any what model rate this of Okay. this But growth, like just the double-digit helpful? just so about origination about business directional should of how but

Gerry Benjamin

in jump me here. let Yes

David Zalik

want Gerald, do you color add to that? some

Gerry Benjamin

me jump let here. Yes, in

think FCR margin you take for about of I would EBITDA our away that EBITDA you'll impact note full our growth flat the if the margin. we year have

EBITDA roughly would XXX have from would margin think EBITDA margin the basis full last it adjusted for I we of the XX%. is. within declined XX% normalized believe the the been have points year FCR, math - year, to I If

funds, in what year in bank telling last because QX. Instructionally margin quality, credit of good QX We the EBITDA in we this converges in very the that's QX you'll the very, year think our slides XXXX. and of closely versus expect moderating cost, improved a pretty precursor see

in people your do have wind you say Some sail.

You things from speak looking are clearly never soon, benign. want environment, pretty interest too to but an rate

carrying And think we're a point XXXX. to I been view, improvements we'd of agree. very into very, we've seeing all clear indicate over are from credit that

two byproduct those you So, growing a very factors is material impact on have know portfolio. a as which FCR, service of our very, our

which as only improving EBITDA based the margin of take David rate prior year the for the XXXX FCR. So growth for stable degregated on said

John Davis

and cost Okay, trying understand or you're the run And taking put and - the forward lot going call be to agreement. a we of volatility. comments the just David some economics going don't get that just think taking get flow not you're with but through on to similar - funds new with maybe helpful. I you appear a then you're less less agreement level economics made but you're that's risk changing high this can to obviously to risks on

would just through that works, helpful? be maybe that kind So walk of how

Gerry Benjamin

Sure.

we… think I

David Zalik

Yeah.

it as�� I think of

Gerry Benjamin

Go ahead, David.

David Zalik

please, No, Gerry.

Gerry Benjamin

We last touched on briefly on this our call.

forward a a up point arrangement. basically as expect of that banks movement. at true that would of time There's the our into selling you As flow we're loans originate

loan because counterparty. by because have economic the sold To loans the or on discount. par a So, either a [ph] recognized you'll held no loss no premium those implication at there's is that point, be either movement in David's it’s gain will ongoing or there

what a no transaction. And closed for call reason. same have accordingly, escrow is you There I the

comes the So there is it less is well your point risk taken, cost. with

David over the Some of be we of loans would what the those discount. out expect historically as economics life a experienced. sell But we've arrangement, loan will approximately at pointed equivalent the to to

John Davis

basis about but kind the next profitability and Okay [ph] think maybe going of of and down what OPI OPI The new we're drove kind different last we commentary just of how like then that I - just points the one into apologies and you of the agreements? just and from goes if to how that change, know it, the me. think missed about have I or but on guys level XXX mix flow year. high index going funding originations with all the forward do

Gerry Benjamin

sure. Sure,

lagging of of think the loan, productivity I but based that computation funding still cost does given approximates by is it treasury The federal originations home or a the to our quarter of cost taking is account discontinued COFI funds funds merit. the something idea of bank on in into where have being index our our nature. a the measure from coming have

right So, COFI the report the of interest we benefit as now, show it didn't moderating rates. in QX,

time, it's lagging a sort And indicator. of a real

would or have have, year QX ago. higher it much would it If closer perhaps a been to

model of be. surrogate searching based maybe of COFI treasury funds cost there's using closer So, a funds. a of will out bank or the much that. swap cost It’s cost mix funding guess something a and If as that too as makes opposed my of estimate that will is probably sense. of what funds I make We're to for our wouldn't be

John Davis

Yes, guys. okay. Thanks,

Gerry Benjamin

Sure.

David Zalik

Thanks, John.

Operator

from with Stanley. comes Our next Steven Morgan question Wald

Your open. line is

Steven Wald

was make the a we value. It could you have since seemed changed process? year review know year. might seen you that if just market just guys of Maybe sure rewind with you've if wanted it since the you the through of guys like maximize sense can't missing talk you you've and that specifically and then maybe could the almost we or shareholder kind something really tape strategic but back alternative, anything into I conceptually gone us comment a - a sort start or one half was Could too to

like anything I talking in you're terms think that has be since thinking changed something of there this? we thinking maybe What about announced how you of of or in sort were you of whether thought about lot had seen of deal us a should terms a you've

Gerry Benjamin

Well, I would tell you…

David Zalik

No, - and is the our a changed. that we've real from positive. has incremental implication on anything is is billion I accounting, enhancements What don't we the think that of funding $X think the seen that

You add. volatility. can imagine tail our similar vast liability valuation. to balance our of think P&L our no no of had to like if with is also that now what has and looks lifetime FCR, GreenSky and funding that CECL majority I no economics seen you part the alternatives, sheet We’ve escrow, there no the something or are Gerry,

Gerry Benjamin

accounting interpretation because it If counterparty. to transaction, provision our the accounting of someone's become you No, But arrangement. apply would. to to is been their new point, been by there There it's flow model with point, typical with implications complement looking our it us. a forward think are fluid we the to think your waterfall what may model value our historic the to like as we're and I bank Board implications this purposefully take longer And are marketplace. than a the your also and where implications a that comprehensive is somewhat at to supported bank in review. how mixed These in not they program a always

company. So, there's as the I sense at by ourselves looking outside well firms audit counterparties been learning as the

confident is thoughtful comprehensive their and it's but the I'm board time So, review. in being some taken

Steven Wald

I on as of flow, And you’ve the commitment, as partner with leg you a you're continue guys there. you things new forward be strategy bank the terms of this The looking think - next does will you that of should maybe, into nonbank more pushing quite focused point - the kind new and should and the on partners shift last of the overall pushing - it’s more growth alluded where should that David, of of sort $X your finalization change or that to to in view this expect at be sizable this as well? the in how billion you be gone for be front a we to

David Zalik

We love nonbanks. bank We love diversification. partners. love our We

of for you think is of way the liquidity. looking that's business be understand mention what simpler $X least one and to advantages the from a at I to of the us of a simpler P&L should better this billion structure, accounting, not accounting, a incremental

information And of has the understand so, particularly of is actual that focus today the funding have do this helpful. way gap, business do we been better because an to the the it review performance part and of our not certainly strategic provide how is we always diversification as to allows investor

Steven Wald

if I of the the the went I of things, here? products could sort think On call one to over with economics some interest in how a just time. moving a of are maybe around rates kind but And things obviously that quite end moving side out of the of higher quick squeeze at bit rate more

more how As rate the impact that guys driven take rates of are of in things down out, can about revenues? you maybe where servicing terms depending sort come rate that how other settle versus way, interest thinking on or

Robert Partlow

Yes.

seen not a take rates. So, down, we is have on material the way in change what

XX basis see, As you less. points can or

while a change material a haven't seen for been now. Rates it's back have and down rates. we So,

not So, the rate rates The hasn't have changed. take interest changed. materially

Operator

Our next with Jeffrey SunTrust. comes Andrew from question

line open. is Your

Andrew Jeffrey

you’re for Hope winters. ready colder

risks fairly do that Gerry, would through on undertaken merchant me and if talk side, review think just and trade-off you've to side. since nearing - end the like how comprehensive like far and it you like sounds any it about that sort of you of we And think, you those overall David the feel I I the acceleration contractor sounds mostly, I sounds process, whether Can maybe, process of it So, sales, some that way? see of are between been if think sort could maybe quality there's same-store growth? we're a contractor about

David Zalik

Yes.

said. expand So, what I would you've

the review the risk expanding dramatically profitability merchant lack certainly that it's quite satisfaction. merchant heavily with customer structure We funding We've risk have worked addition, very changes just And, and funding on side. and of profit we substantially, taken volatility of side, the but and tail. on on in diversifying on comprehensive on focused have and not hard a yes, the

we want are where we We that. And we that book see the to so, now do to that beginning the we have think wanted behind back of now to that be. be. We're is where benefits us,

think do tailwind. have - that aspects those we so, And there's

Andrew Jeffrey

And GreenSky’s fixed G&A. in OpEx, regard, growth. Rob, elevated you an in I'm in like it of get the XXXX? and whether thinking Do sort anticipate just sounds perhaps alluded or Do we support that’d to with to spend your level leverage of benefits comp leverage and be cost mostly comments operating about investment and categories you

Robert Partlow

Yes.

Operator

Piper next question Sandler. comes from Christopher with Our Donat

Your line is open.

Christopher Donat

are clarification one Just expected the XX by that review. mean you conclude on - of strategic to the March XX? - timing it you will will it Do or June

David Zalik

end QX. second than No fiscal of sorry, second the later - June, our quarter.

Christopher Donat

Okay. And throw then I the looking think I'll one at - this Rob. to

and the financial the liability CECL guarantee impact. on Just

us that to to factors the on As can that a it? going of of XX-K, cause about move? I and there the Is are forward What you driving function it escrow? going be XX level the will what's give takes of on sort will slide - we and a puts what size high other move think it disclosure and on that the in be that see will or

David Zalik

Yes.

kind say, Let - partner CECL me have that it’, an originations highlight. kind the of to where no all presumption unnatural There just going portfolio. let's bank new this was does of framework

utilized of escrow wind as down So, draconian in ends being up kind they fashion.

no in quarter-over-quarter expense equal cash no be actually out the that. they CECL change escrow, in of real to because being you or no there’ll real portfolios all partner no if in So, would things in growth usage see that and your expect first portfolio and had growth growth foremost, servicing bank

you look So, with in flow when larger one forward associated highlighted escrow that. with forward, terms, structure, no there's things David new the

So with our into growth and see partner in our but portion of portfolio structures. portion with into escrow our these a a servicing go originations that, other you'll of bank not structures

you grow, to would escrow that the there CECL growth. charge as of expect escrow be with expect associated would you while So,

- You structures. these escrow in non-escrow we'll originations escrow diminished more that should also expect balances a have because bank portfolio growth in partner

Does that make sense?

Christopher Donat

so. think I

decrease there? the another a - in like hit relationship the So, of regions was or but where causes or was have it another shrinkage the quarter, say mostly you the situation and you partner to that bank also if and were fourth had you the right, have it

David Zalik

in and they which the a past in portfolio of it is the call orderly - That which portfolio of was with what of by of driven partners. quick regions rundown we've one you will typical but going the let bank seen kind versus their kind if nature the draconian the kind of run more to up

Christopher Donat

thinking will you discounts. or this or flow I the can one? just types a we that on and sale some it's start or the gain just sale Can factors from not about impact where gain loss either the whether drive potentially least, And so or get think. talk on our about to different around also At then like loan heads other agreement

Robert Partlow

Yes.

net. So it’s a

cash get $XXX of example, transaction a X% the origination We Depending X%. expected So, for worth on discount. originate that X% $XXX. flow, we fee future premium, might investor’s be might

FCR, X% would those volatility. got there's there's cost we our is the as no transaction X%. fee are there's would liability net what no a except equivalent if no net no so The the and bank of pieces of we'd today, par net two funds net CECL, escrow, or of equivalent we tail there’s And same sale,

Christopher Donat

I but FCR of and the you’ll And, partner Right. - in partner side, right? will be terms change liability component out unless have some there's financial bank of there, just you David, as still you’d bank some impact to the have long clear for reporting relationships, the CECL as have mean,

David Zalik

flow. no GreenSky forward translate context only the there provide where scenarios non-GAAP it Certainly, this apply on would There's the on P&L our too. everybody. number the a of structure. objective, providing is also us for gets simply number possibility two, banks But of diversification one, and funding, which to could forward no a No and My simpler path of in of FCR to escrow comments moving and more are reporting to similar some flow are only our question. different

Christopher Donat

non-GAAP banks the whatever, the the and so of And possible. they’re different structure move into in or the realm

David Zalik

Sure.

Operator

next comes Ashwin with Our from Citi. Shirvaikar question

is line Your open.

line mute Please your button. open. your Ashwin, check

Ashwin Shirvaikar

someone skepticism same a forward delve are a different than to allow it. Does anytime in risk appreciate applications - says as same something more, on imagine I returns of I'd return, little little might that it. So cases risk, you've or the does you this need that understand that so higher I less use bit like to to a that. what because It that is piece bit how like better it's the flow follow-up been had question specific doing.

David Zalik

why Gerry, speak to you don’t that.

Gerry Benjamin

Sure.

these in would to of types So, reflect cash underlying arrangements, the the the we specific counterparty expect that price loans flows.

sold the cash sell interest values that flows So reduced from expect Obviously, would we to cash premium. the or loan a loan deferred. if they're discount. be consumer at abated If as a we're deferred are perhaps selling loan, flows buying the a a so at rate ultimate it less counterparty where

obviously, the assertion flow on accurate of we'll will I we says David's quality the David the approximate bank look ran pleasantly approximate funds these we the of funding, we and to of assets. is what interest generally think loan that cost that third-party pretty into funding bank optimize But will statement. an over And, cost view our our When forward arrangement. brief was surprised of life based cost multiple sell received the of historic indications a process, by speaking

Ashwin Shirvaikar

about grappling risk past impact might A of but with thinking to macro as I guys or this widening of sort potentially because you on is potentially any and will Any broader impact of there are weakness guys macro which an rates, - the of you a and question, coordinated things or direct a impact like history guys, downs? of lowering of so to of indirect the how that. you how with part thoughts the macro or sort obviously, framework word so think sort involve forth. of because virus interest regards plans early are thinking of

David Zalik

Yes.

been critical touch our ample generally particularly us merchants, requirements was disruption relationships and inventory. So, key question in windows and chain manufacturers, here. been no alternatives that are in Asia is is supply there we've our chain with manufactured what's around confidence many or There supply majority to and are of first from reported

speaks certainly last we of standpoint, supply any to days anything but we our certainly, relationships, Again, the particular from heard from And certainly if thus or We're seen demand indicators we to have few standpoint the adapt particular haven't we're and far. that any anything a few So, not seen changes, adjust well-positioned weeks. from any a key in concerns. haven't industries that in.

Operator

JPMorgan. question Huang with next Tien-Tsin Our comes from

is open. Your line

Tien-Tsin Huang

one you'll to the trying ask to robin going source model, round fit how just last else. Wanting it model? tap understand on first like how funding forward this How understand does, to to flow thing, trying the versus your everyone funding just again, legacy is

David Zalik

Great question. This just is the robin. another of member round

series bank want of existing and our this robin. continues So loans to will pegs network round another the in be

Tien-Tsin Huang

Right.

know piece else think just implications it. being and mean, more think go I and So, it you trying of as versus with the the about I’m with that I just will should a accounting as we probably you economics how benefit, everything about optics one fits, to discovery, obviously the learn but but that

David Zalik

Yes.

ample excited our look, and about first and we're diverse funding, really So, objective always is that.

We lifetime The that profit optics. all clearly, the can is is three. cash. job of it And audience. this, partnerships use to think we this use objective third use in helpful second think a We be data with or then, can the does wonderful objective the to this we information think emulate that public same will and approach present funding other we more

Tien-Tsin Huang

Understood. Got it.

and be changing benchmark funnel curious both potential somewhat bottom, would you still are What second should of outlook, growth you the I or going mature heard originations? So I say, top level about a know outlook the forward? is then, mind, talked for double-digit any my on and is but the low your it's volume just just secular I'm but benchmark satisfactory I the volume. penetrations, in if how to relatively still question, question, the there. your we follow-up - at kind growth would on how

David Zalik

you Gerry, provide want to at additional clarity this time? some

Gerry Benjamin

year a of million Yes, pretty originations. been growing sure. share our of markets points, very, we've large be $XXX $XXX to million, in modest these To David's notwithstanding continues market very amount

the teens little and investment lot focusing sort put point, life of We've will paying you prior high talent a look QX year quality, high and to reasonable the think into mid-teens a gotten of servicing to really of processes, the growth was to the start basics feels I merchant systems, place a as come that in dividends back to portfolio. over bit that's in like over the on David's credit years - it for quality, teens coming if look at where year. around the we to

With line that, on we'll growth. would basics, consistently, Correspondingly, and and top get relaxed out you'll standards never come quality, focus we quality, less muted underwriting suspect. we a bit to as you merchant I employ stimulate when and discipline volume, a purposely little have credit point have And doubt. no little bit to have back

I proxy So, what a reasonable forward. expect think look for is probably as of we kind that’s growth I to QX helpful. hope

Operator

from next Ryan [Operator comes Point. Instructions] Bill question Compass Our with

line Your open. is

Bill Ryan

questions. of Just a couple

of possible adjusting the adjustments have P&L probable, couple regions may moved the give not quarters, as obviously, you, within you an and to item, put an a adjusting if but as the you've through quarter, explanation for the this obviously, not disclosed portfolio, the on little on what item, the And you these First can I call, quarter? category on missed clarity it normally a run that. in fourth but probable it

on funding of $X $X.X forward the flow side, run-off, And bank question then funding up the billion billion liquidity, $X.X the the just add kind billion second agreement. you from

it billion to in do number Do the growth is I in in You in you or billion funding seems originations about terms about guess say XXXX. consensus volume. of like for get capacity feel, I $X.X $X.X how ‘XX

add in during more Thank XXXX course the partners of you. the to benefit capacity? of funding importantly for of year and kind do terms the of have So you some

David Zalik

Rob. Jerry take and question turn accounting the then the I'll funding back and region's I'll and to

want very the that think be funding bigger bank open And is to there's as the if demand. we that from about number good of On downs. wanted side, feel we well number that we where as plenty the to we the existing pay it to And buy increase network, exactly funding the be.

if billion the As plenty ran remaining demand. of flow. into next what This with with it launching there just that was at the be we're the point relationship on already year on going would forward we're - side. we that based forward relates one to process XXXX, flow Again, on $X was

So we really feel shape. good that we're in

Robert Partlow

in, guess jump this I the Rob, I'll question to regions. related is on the

renew prior probable impossible and quarters they noted the in XX-Qs from flipped we is kind that's and disclosed certainly the the did the actually - to As in not when the we the - in where we in November fourth quarter kind terms of we risk risk. of the

location would kind kind partners an or in to selling we more and or unique non-cash time nature, kind their this regions past, runoff, in go the any most And terms into in we've about our our - which mild escrow allowing result these different do the portfolio standpoint, the manner, of to of orderly from is who always to look and and do expect path, originate at and decline in kind kind it of another just in smaller which bank portfolio transactions done over of program continue way have ever of the talked in really the back of bank of a it of as didn't a usage item. any portfolios, partners something a allow has left we is

core is kind business XXXX look of our more at we So, in kind of of anomaly. how operating of kind an we're of not that and representative

represent kind income. kind So, we it earnings our made a as when adjustment decision to the showing executing the of company we're of what bank these to versus XXXX net pro measures, one-off And trying that we're decision. more the on of power thinking - of about in an non is it's was how about kind forma

Operator

Our next question comes Research. from Rob Autonomous Wildhack with

is line open. Your

Rob Wildhack

it How understanding price. you mean, does resolve healthcare that it's worth what $XXX the $XX. eye-to-eye they flow partner when I then necessarily on that at in And forward out Following the get something flow think it whether the don't rate elective up it's and or interest? like on happens reduced if itself? loan you forward see round-robin, round-robin, home priced deferred what they if is improvement, I in the a am correctly

David Zalik

bank question So, funding. the is and And of to is the agreed the answer to our first cost is your to yes. it answer on we price have equivalent second

Rob Wildhack

Okay.

So,..

David Zalik

an or been to agreed It our index. already It’s No difference to. situated similarly then has partners. bank

Rob Wildhack

annually that set Is entire is that for or agreement? can something be three-year amended that the

David Zalik

Gerry, do that? want you to speak to

Gerry Benjamin

Sure.

kind the forward indicated. renegotiate, pricing seek flow table is suspect reached it is This of of as The be arrangements. the always is not what We agreement, intent. have back part our multiple go will had and first to we to David

where there’ll the and have saw other we we differently in a As marketplace, would than may opportunities price counterparties gone product suspect that select counterparty. be

don't I funds would any So, would are to counterparty. we'll generally anyone. cost to of think jettison our as optimize that a the opportunity and speaking, looking have bit we we’ll continue overall But optimize and to,

Operator

our We last will question take from with Bank Jason America. Kupferberg of

is line Your open.

Mihir Bhatia

for This Jason. is Mihir on

quick the real agreement. Just on flow forward

agreement? type trying to types loans think debt all a different to any I on of the flow for - forward make question, the about specific of or can sure just last you kind the restriction loan Just of types into of there’s not put that similar the loans,

Gerry Benjamin

agreement… The No.

Robert Partlow

arrangement flow forward The sorry, - Gerry.

David Zalik

ahead, Gerry. Go

Gerry Benjamin

of interest agreement partitions of mix loans The selling us our loans, They’re origination. contemplates deferred our regarding reflect, zero that interest amounts our reduced as sort loans. traditional rate and well our as

to rates So, underlying rates just changes are index pricing. in question, terribly response the impact and But in prior nothing clear, unusual swap the be that there. swap to

field we’re from cost playing underlying that look a we counterparty of respect. swap market playing to as funds. B, those And our in counterparty rates So, or people a level A impact will

on Just like and swap rates. impact bank margin today us cost funds of

changes in nothing So, regard. that

Mihir Bhatia

or and see? wanted make And I Does a in potential think times that sale you’re Is this sense? simplify arrangement. with talks guess, loan you to of potential couple obviously, then this Where discussions a similar actually to do your is versus and those you type of that whole would, to it’s just mentioned bank almost accounting partners a that to your for which stuff. something current I your I current, some - like with partners that’s go back in, you’re the of in

David Zalik

Well, little I leave would it say it’s that. of at both a bit and I'll

Mihir Bhatia

I a maybe guys you're just to appreciate gone basics, market and was both of bit in as just just should volume, you perspective of real tightened I trending on said. But little over terms just seeing what that we seen and have you back about talk some we rates next provide then about - bit bit a you're questions. more And I - little wondering seeing if in for you Thank year color more the terms meaningful a how quick. that, underwriting both could if the deceleration merchant a just little just have this curious in that maybe of what just you was growth the transaction think this in could and switching you from year?

David Zalik

Yes.

Gerry some provided think I direction. So, good

the grow billion. we we're as getting perspective, just billion, a from to keeps getting bigger. good vintages demand, keep XX% our You excellent early standpoint $X It's denominator you're from bigger, seen rate saw but growth harder, QX. consumer merchant harder when our get in percentages we've where $X having good demand And size as

the very seeing so we're and good market XXXX So, feel demand good about we far. in

Mihir Bhatia

Okay. you. Thank

Rebecca Gardy

Okay.

think our Operator, question. that last was is I correct? that

Operator

ma'am. Yes,

Rebecca Gardy

we a Thank for a great been everyone has hope you, you. everyone, and day. us. Thank pleasure, joining It's

Operator

conference. ladies this that you does participation. for and conclude Thank gentlemen, With today's your

You disconnect. may now

GreenSky (GSKY) 3 Mar 202019 Q4 Earnings call transcript