Elevate Credit, Inc.

Greetings and welcome to Elevate Credit, Inc. full year, fourth quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during today's conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn this conference over to your host, Mr. Daniel Wright, Director of Public Affairs. Please go ahead, Stuart. You may begin.

Good afternoon, and thanks for joining us on Elevate's fourth quarter and full year 2020 earnings conference call. Earlier today, we issued a press release with our fourth quarter and full year 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 risks 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 that 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'll 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 in certain expenses. Joining me on the call today are President and Chief Executive Officer Jason Harbson and Chief Financial Officer Chris Lutz. I will now turn the call over to Jason.

Good afternoon, everyone, and thank you for joining us today. Today, I'd like to spend some time on 2020 and how Elevate both succeeded as a business and helped customers in what was a challenging year for all of us. I'll then provide thoughts on the year ahead, including our growth strategy and some product updates. Lastly, I'll discuss Elevate's strong balance sheet and give an update on how we're putting capital to work for shareholders. Before those topics, let me start on slide four and give some highlights from our fourth quarter. Our financial results are similar to the past few quarters as muted demand continued to dampen revenues, but very strong credit bolstered adjusted earnings and adjusted EBITDA. Specifically, fourth quarter revenue of $90.7 million was down 45% compared to a year ago, but was just down 3.7% sequentially. The most important takeaway in our view, though, was that our loan balance in the fourth quarter were up 6% over last quarter. Turning to profitability, Elevate had another very strong quarter with adjusted EBITDA of $26.5 million and adjusted earnings of $8.9 million. Strong credit and lower marketing costs again drove profitability, and as a result, adjusted EBITDA margins for the quarter increased. remained above historical trend at 29.2%. Payment assistant tools continue to help customers in their time of need, whether that be due to COVID or not. We anticipate these features continue to help keep credit strong across the portfolio. For marketing costs, Chris will give more detail, but the cost to acquire or tax in a quarter was, again, optically high due to low originations. What is masking the result was some great success we've had with the TodayCard offering, which originated at very attractive costs. The company incurred an overall net loss for the fourth quarter, resulting from a $17.4 million charge associated with legal matters related to our spinoff from the predecessor company in 2014. Finally, as you saw in our fourth quarter press release, we repurchased 7.7 million shares of Elevate Common Stock at an average price of $2.58 per share. In addition, at our most recent board meeting, we approved an additional $25 million of repurchases under our existing plan. In addition to a strong capital position, the most important point here is that we see very compelling value in our current valuation based on the anticipated growth and return opportunity ahead of us. In summary, the company ended fourth quarter in a very strong position to resume both growth from an operations and capital perspective. Let's now turn to slide five and briefly look back at 2020. Clearly, it was an unprecedented year for every business and every person, but I'd like to call out two main highlights for context about why Elevate performed the way it did and how we also help 80,000 non-prime consumers manage the ongoing crisis with payment assistance tools. First, let me speak to our operations and how we manage 2020. As you can imagine, credit has been even more of a priority focus for Elevate this year. That said, as we look back, management of credit was the biggest contributor to our returns, and we feel very validated in the process and strategy we put in place before the pandemic took hold. First, as you know, We rolled out new credit models over the back half of 2019, and the benefit to underwriting clearly showed with customers over 2020. The use of bank-level transaction data significantly improved screening across both Rise and Elastic. We also benefited from the strategy put in place 18 months ago to manage elevate to profitability over volume and top-line growth. In 2020, lower demand took that choice out of our hands somewhat, but we do believe the pace growth over 2019 certainly benefited our performance in 2020. And lastly, while difficult to quantify, we can't ignore that the environment and behavior of customers certainly aided performance in 2020 as well. Key factors that we've discussed include the impact of federal stimulus and unemployment benefits over 2020. Additionally, consumers showed better than expected discipline and resilience by saving more, reducing expenses, and exhibiting job flexibility by leveraging the gig economy to supplement lost incomes. In summary, we were very pleased with the performance on credit and have conviction that this model will produce strong returns as growth resumes. Before I speak to growth, though, let me also review 2020 from the lens of how we served consumers in the pandemic. To put it bluntly, we couldn't be prouder to have helped as many people as we have through such a challenging time. Elevate continues to lead the market for customer service in a number of ways, and we've proven it yet again this year. From an availability standpoint, we found more than ever that the online model compared to brick and mortar was important for non-prime consumers during quarantine. While Elevate isn't the only online consumer finance company, we do believe that COVID-19 likely accelerated the shift to online. More specific to Elevate, we expanded already industry-leading consumer-friendly credit assistant features to aid customers when they needed it most. All three products currently in market rolled out payment flexibility tools that can be self-serve for consumers. This was a big win for many during the pandemic but we believe these features will also serve consumers and elevate wealth in non-recessionary times. We know non-prime consumers will often experience hiccups throughout the course of a loan. Adding this layer of deferral at no cost helps ease the bumps while also lowering default rates over the long term. In total, there are several proof points on the resilience and durability of the credit model, but most important is what it meant for our profitability in a challenging year. Specifically, we generated nearly $55 million in adjusted earnings, more than double last year, which implies an ROE of over 22%. Clearly an impressive number, especially when compared against regional bank or credit card performance in 2020. Now let's turn to slide six, where I'd like to give a brief update on product development. First, as you've noticed in our reporting ever since our IPO, Elevate's consolidated APR continues to decline, primarily driven by our new product introductions and an increase in repeat or seasoned performing customer base. As you know, our brands include customer-friendly features that allow rates to decline with consistent payment performance. As I just noted about our 2020 results, we see a lot of profit potential across a wide range of credit and amongst near prime lenders. We certainly believe our company is best positioned to shift to near prime rates. In fact, 17% of the current portfolio is at near prime rates, which is up 65% from a year ago. The Today card, which we launched two years ago, is the latest success story as we saw a 237% increase in the portfolio over the past year. Looking ahead, we expect today to become a bigger driver of growth given how well the card tested in the market during the pandemic. Let's turn to slide seven. As we look forward to the year ahead, there's still a lot of uncertainty regarding the pandemic. That said, we can provide our initial thoughts based on what we saw in the fourth quarter and our view of demand. First, let me speak to the fourth quarter, which was encouraging as consumer spending increased, jobs began to recover modestly, and demand picked up as stimulus impacts from earlier in the year began to fade. Put simply, we believe there's growing demand for credit, but looking ahead, it seems likely that additional stimulus will impact the shape of that demand in 2021. Based on what we know today about the proposed stimulus plan, we anticipate that the first quarter of 2021 will be down from a year-over-year origination standpoint and and stimulus payments will more than replace the impact of tax refunds that consumers typically rely on throughout the spring. That said, as we look to second quarter and beyond, we expect originations to grow over last year based on growing demand. Recall that customers commonly use our brands for emergency credit to fund unexpected life events. Through much of the quarantine, these drivers have been delayed or eliminated because people have experienced fewer events, such as auto breakdowns, due to lower activity, such as driving less. In the fourth quarter, we saw an increase in loan origination demand as the economy began to reopen, which is a positive sign for 2021. Against this backdrop of anticipated rising demand, we have a three-tiered strategy for growth. First, in 2020, we saw increased attrition amongst the customer base, given lower demand and paydowns. Many of these consumers will again experience a need for credit in 2021, and we plan to market to them in a reacquisition strategy. The advantage of this group is we have a history from an underwriting perspective, and we expect that average customer acquisition costs should be lower as well, both of which benefit returns. Additionally, consumers are likely to receive a reduced rate due to consumer-friendly features that allow for rates to decline with consistent payment performance. The second leg of our growth strategy will be to restart traditional direct mail campaigns. Last year, we focused on digital marketing with small marketing dollars. In 2021, we plan to go back to direct mail in a large way. Based on our experience, we expect this to be an effective marketing spin as demand increases. And lastly, we will build on the success in the credit partner channel with a focus to increase new partnerships on the platform. While we do not have specific guidelines yet, we believe the overall demand will continue to improve in 2021 and we'll have a near-term line of sight in the customer and channels where anticipated returns should be better than average. Overall, we believe Elevate has never been better positioned from a product set perspective than And as you will hear from Chris in more detail, we also believe our credit and capital positions have never been stronger. Like everyone else, we look forward to a better 2021 and plan to share additional detail on our views as the demand environment becomes less uncertain. With that, let me turn the call over to Chris.