Elevate Credit, Inc.

Thank you for standing by. This is the conference operator. Welcome to the Elevate Credit third quarter 2020 earnings call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then 1 on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Daniel Ray, Director of Public Affairs. Please go ahead.

Good afternoon, and thanks for joining us on Elevate's third quarter 2020 earnings conference call. Earlier today, we issued a press release with our third quarter results. A copy of the release is available on our website at elevate.com slash investors. Today's call is being webcast and is accompanied by a slide presentation, which is also available on our website. Please refer now to slide two of that presentation. Our remarks and answers will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risk that could cause actual results to be materially different from those expressed or implied by such forward-looking statements. These risks include, among others, matters that we have described in our press release issued today, including impacts related to COVID-19 and our most recent annual report on Form 10-K and other filings we make with the SEC. Please note all forward-looking statements speak only as of the date of this call, and we disclaim any obligation to update these forward-looking statements. During our call today, we will make reference to non-GAAP financial measures. For a complete reconciliation of historical non-GAAP to GAAP financial measures, please refer to our press release issued today and our slide presentation, both of which have been furnished to the SEC and are available on our website at elevate.com slash investors. We do not provide a reconciliation of forward-looking non-GAAP financial measures due to our inability to project special charges and certain expenses. Joining me on the call today are President and Chief Executive Officer Jason Harbison and Chief Financial Officer Chris Lutz. I will now turn the call over to Jason.

Hello, everyone, and thank you for joining our third quarter 2020 earnings conference call. Let's start on slide four, where I'll begin by reviewing the highlights of our quarter. Similar to last quarter, the demand environment remains muted given the combination of factors, including the impact of federal stimulus, high levels of consumer savings, and lastly, a conservative approach to credit underwriting by Elevate and the banks we support. As a result of these factors, our revenue of $94 million for the third quarter declined 43% on a year-over-year basis. Also, similar to our last quarter, and most importantly, Elevate produced record profitability with net income from continuing operations up over five-fold from last year to $16.6 million for the third quarter. Likewise, our adjusted EBITDA of $40 million was up 61% from a year ago, which represents a margin of 42.3%. We are very proud of our record profitability in such a challenging environment, and it speaks volumes to the execution and diligence of our team. The key driver of our profitability was another stellar quarter for credit quality as past due balances now stand at just 6% of our portfolio, which is down from 10% a year ago. Best of all, we accomplished this record profitability while further broadening consumer-assistant tools that help customers in the current environment. These tools allow customers to extend and push payments at no additional cost. Before I give an update on credit, consumers, and some new developments at Elevate, let me start with some color on the quarter. First, I'll begin with context on loan originations and lower APRs, which have led to lower revenues. Similar to last quarter, originations to new customers were modest at just over 8,000 across each of the three U.S. brands. This is down approximately 84% from last year, and as a result, our combined loans receivable principal balance ended the quarter at $377 million, which is down 36% compared to a year ago. APRs declined across the portfolio as well. driven largely by consumer-friendly deferral programs. Portfolio-wide, APR was 96% for the quarter, compared to 113% for the third quarter of 2019. This decline was primarily driven in the rise portfolio, where APRs are 101% compared to 126% a year ago. This is clearly a win for consumers and demonstrates our commitment to lower rates, especially through tough times. The pace of decline in APRs has slowed on a sequential quarter basis. They are down just five percentage points from second quarter. This stabilization is happening commensurate with the lower use of deferrals by customers, which we'll touch on in a second. The key takeaway here, though, is that while our revenue has declined with lower originations and lower APRs as we've aided customers, the power of our model has never been more evident as we have maintained our ability to grow as loan demand returns and have driven significant profitability in a challenging environment. On the back of those comments, let's talk about credit and consumers as they've been a significant driver of that profitability. First, on credit, I detailed a few of our highlights, but for some added background, I want to dig in on why charge-offs and loan performance have been as good as they have. You'll recall from last year that Elevate undertook a top-to-bottom overhaul of our credit models on the heels of our FinWISE partnership. Before the overhaul, we identified opportunities in our underwriting, mainly within the non-DM channels. For loan originated via direct mail, our approach was sound, but the volume opportunity via credit partners drove us to conduct a rigorous review and rebuild of our models. I mention this because we believe that much of the improvement in credit we have achieved this year we can directly attribute to decisions made in our modeling as opposed to simple risk aversion or tightening of the credit standards. This is a critical point and one that gives us a lot of confidence about the models we have built. Clearly, this isn't the way any of us would have liked to see the year go, but to have our credit model validated and battle tested in such an extensive way is highly encouraging as we think about returning to a market where demand is rising. With that, let's turn to slide five, and let me give you an update on consumers and what we're seeing on the ground. In summary, consumers for the most part continue to exhibit resilience and responsibility. Saving rates remain higher than usual, which is good for existing borrowers, but also serves as a headwind for new originations. That said, what's most encouraging is that non-prime consumers have become increasingly confident in their employment. Obviously, this is an important factor in the ability to extend credit, And while we aren't out of the woods on COVID, we know that businesses across the country have found ways to retain employees and improve top-line trends as well. This is an encouraging sign for us as we think about how demand may trend in 2021. Additional fiscal stimulus is the key variable in the short term, and we expect demand to remain muted for 2020, as we mentioned on our previous call. That said, even with additional stimulus, our current expectation is that demand likely bottoms for the near-prime borrowers in the first quarter of 2021. The key takeaway here is that with our optimized credit models, the relative health of our customer set, and our liquidity position, we believe that Elevate has never been better positioned for growth. Before I move on, while we can't control demand, we are serving consumers broadly. First, we are expanding channels and geographies. On the underwriting side, the new models have allowed us to expand our target market, both up and down the credit spectrum. On the application side, conversion rates and flow processes have improved immensely with the new technology stack that we have implemented. Ultimately, we feel that we're prepared to be in front of as many customers as possible when demand returns. Before I turn the call to Chris to detail our financials and speak to the balance sheet, I'll turn to slide six to hit on a few developments over the quarter. First, we are pleased to report that we continue to expand the Rise brand. An additional bank has licensed our technology in new markets and further diversifies our brands. The second development is that we have combined our product and bank relationship teams under one platform. Ultimately, the two functions go hand-in-hand, and with the recent promotion of Scott Geriber to be our Chief Product Officer, we believe there's opportunities to drive strategic improvement and efficiency in the future. Congrats to Scott, and we're excited to have him leading the team. Lastly, as I noted at the start of our call, our team at Elevate has gone above and beyond this year, and we owe our success to a lot of hardworking people. It is for that reason that we are most proud of Elevate's recognition for the fifth consecutive year as a great place to work. On behalf of the management team at Elevate, I'd like to personally thank our employees for making your company even greater in a year that has been anything but. With that, let me turn the call to Chris to speak on our financials. Chris?