Elevate Credit, Inc.

Greetings and welcome to the Elevate Credit Third Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I'll now turn the conference over to your host, Daniel Wright. You may begin.

Good afternoon. Thanks for joining us on the Elevate Third Quarter 2021 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 investors.elevate.com. 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 410 and other filings we make with the NCC. Please note that all forward-looking statements speak only as 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 complete reconciliation of historically any obligation to update these forward-looking statements. During our call today, we'll make reference to non-GAAP financial measures for complete reconciliation of historical non-GAAP .com. Joining me on the call today are President and Chief Executive Officer Jason Harbison, Interim Chief Financial Officer Chad Bradford, and Chief Strategy Officer Chris Lutz. I will now turn the call over to Jason.

Good afternoon, everyone, and thank you for joining us today. As you saw in a press release on originations earlier this quarter, the demand environment for Elevate's full suite of credit solutions has improved dramatically. This is not only a testament to macro conditions, but also a positive reflection on our work in marketing channels, underwriting models, and customer-friendly features. As a result, we are very pleased with our third quarter results, which was the strongest quarter in recent memory, highlighted by near-record originations of 88,000 consumers, up nearly four times the level of last year as the economy continues to bounce back. Best of all, growth and originations was broad-based across products and customer types, including a healthy mix of returning borrowers and new customers to the platform. On a unit economic basis in the third quarter, new loans on the books fit within credit parameters we, along with the banks we support, have created. While it is difficult to speak to a new normal on credit, we do expect loan loss reserves and charge-offs to return to similar levels to 2019. In the short term, notably in Q4, loan loss reserves will tick up due to a heavier mix of new customers. As the loan season growth moderates in the mix of new-to-repeat consumer shifts, the vast credit improvements made over the last two years should be reflected in the credit metrics by mid-2022. As we mentioned for the past few quarters, the near-prime credit market is very healthy with strong consumer confidence and economic growth. So with that, let me start on slide four with highlights from our strong third quarter. The portfolio grew sharply as consumers have reentered the marketplace, both compared to last year and on a sequential basis. Compared to last year, combined loans receivable of $513 million were up 36%. Compared to last quarter, the portfolio grew 28%. As a result, revenues also grew rapidly in the third quarter, up nearly 20% over last year to $113 million. As mentioned, the growth was strong across each product led by the Today card, but revenues more than doubled compared to 2020, and rise revenues increased over 20%. Lastly, as I mentioned, the unit economics in the business are compelling in the current environment. Customer acquisition costs of $221 across the portfolio remain very attractive, especially in the current credit environment, which remains healthy. Chad will detail the timing impact of growth on the near-term profitability, but it's clear to us that the origination activity we are driving today should be high return and drop elevated back to our EBITDA margin target of 15% to 20% in the coming years, depending on the pace of growth. Bottom line, we are very pleased with the third quarter results. This period of heavy investment of growth does lead to short-term losses. As you know, we realize all marketing and loan loss reserves up front will see charge-offs increase with newer customers. In fact, the bulk of the return on loans put on the books today will not be appreciated until mid-2022. Building back the portfolio is an important step forward for Elevate, and we are very excited how the quarter played out. As I just noted, the consolidated portfolio grew 28% sequentially, or 36% year-over-year to $513 million. You'll recall we mentioned last quarter that we began seeing a sharp inflection in demand in late May and June of this year and has continued through the majority of the third quarter. Elevate and the banks utilizing our platform originated a near-record $312 million in loans in this quarter, which we are proud for for a number of reasons. To give some context, while the broader demand environment has improved, we believe a significant driver of strong originations this past quarter has to do with many of the internal improvements that we've made here at Elevate over the past few years. Put simply, we were serious late last year when we expressed that Elevate was well-positioned through the pandemic as we ever have been. This, of course, includes new models, customer-friendly features, and products tailored to the needs of everyday Americans. Seasonality of back-to-school expenses on families certainly also played a role, and we would like to emphasize that we do not anticipate growth continuing at this pace throughout the rest of the year into early 2022. We will continue to have a heightened focus on credit quality and return to more moderate growth in Q4 and beyond. Clearly, the macro environment has been good for consumer credit, but we would estimate that nearly half the growth this past quarter was driven by incremental enhancements in the channels, underwriting, and customer experience. While we have and will see loan loss and credit tick up slightly due to new customers, we anticipate the new normal to be near 2019 levels as the portfolio seasons. Elevate has executed well against our three-tiered growth strategy so far in 2021. First, by reengaging with former customers. Second, by expanding direct mail channels. Lastly, the third tier of growth, leveraging the strategic partner channel, is the most exciting and new growth channel for Elevate. Over 20 million of the consolidated portfolio growth came from this new channel. We will look to continue to scale this in 2022, but to be blunt, we had little incentive to push this further in a quarter already bursting with traditional growth and known credit. Best of all, we believe there's plenty of white space for growth across each of these tiers in 2022. In sum, we have delivered exceptionally well against this three-pronged approach. Let's turn to slide five and talk about how Elevate continues to drive growth to more and more consumers with our growing platform and brands. Here we detail the TodayCard as it continues to be the fastest growing product. TodayCard, as you know, is a credit card offering for near-prime customers that have largely been excluded from the market by traditional banks and credit card providers. The card is a market leader due to credit line size and customer flexibility features not often found in near-prime cards. The portfolio grew by 64% compared to a quarter ago and now has originated over $46 million in the past nine months. Ultimately, today it could be as big as $100 million in receivables by the end of 2022. Best of all is that today provides a number of advantages to elevate beyond its rapid growth. With a lower credit risk product, we have been able to decrease our company-wide funding costs. TodayCard funding has been lowered by nearly 300 basis points. Similarly, with the credit facility backing the TodayCard, we further diversified Elevate's funding sources. Last and most importantly, we believe that TodayCard and its higher utility as a credit card compared to an installment loan product allows Elevate to broaden the addressable market, both from a credit perspective and from a consumer perspective. In fact, we have seen formal rise in elastic customers turn to Today for everyday use compared to emergency use cases. We know the market for both use cases are large, and given our technical capability paired with national scale and product depth, we believe the best days of growth at Elevate remain ahead of us and for the banks we serve. Nearly 100 million in that outstanding or 20% of the overall portfolio is at near prime rates, and this continues to grow. The Blueprint platform is nimble and able to serve consumers and banks at a vast multitude of price points. We're excited about where this will take us in serving everyday Americans, And in fact, we have recently heard from a number of new banks who may be interested in utilizing the platform. Last, before I turn the call over to Chad to review our financials, I'll just mention a few announcements. First, our board approved an increase in our share repurchase authorization of $25 million. This is an expansion of our buyback plan over the last two years, which has accounted for a buyback of approximately 31 percent of the shares outstanding. The bottom line here is that we continue to see a dislocation in the value at Elevate and our current market valuation. We believe it continues to be in our shareholders' best interest to repurchase shares. With that, I'll say thank you for your time. I turn the call over to Chad Bradford, our new interim CFO, to detail our financial results for the quarter. While Chad is new to this call, Chad has been in with Elevate for the last nine years as our chief accounting officer with a deep understanding of our space.