Elevate Credit, Inc.

Greetings. Welcome to the Elevate Credit Fourth Quarter and Full Year 2021 Earnings Conference 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 will now turn the conference over to your host, Daniel Ray, Director of Public Affairs. You may begin.

Good afternoon, and thanks for joining us on Elevate's fourth quarter and full year 2021 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 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 Form 10-K and other filings we make with the SEC. Please note that all forward-looking statements speak only at 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 investors.elevate.com. Joining me on the call today are our 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. Thank you, Daniel, and thank you everyone for joining us today.

Before I speak to our strong fourth quarter results, I'd like to start with a broader review of what Elevate has navigated and accomplished over the past years. Let's start with the things we didn't expect. As you know, Elevate and other participants in near-prime credit often face skepticism about the resilience of the model in the face of challenging credit. We certainly believe our decades of experience, especially within the last two years, we was very optimistic for the future and what we can deliver for stakeholders. It has been nearly two years since the pandemic began, and over that time, Elevate had its best every year credit performance and profitability in 2020, as well as best every year in growth in 2021. Best of all, we have managed through the pandemic by helping three of our most important stakeholders, consumers, employees, and shareholders. For consumers, we enhanced market-leading credit assistant programs when they needed it most. And similarly, we and the banks we support have been there to provide credit where other financial services firms have not, especially as the pandemic has persisted and government stimulus efforts have ended. For our employees, Elevate has also delivered. We were named a 2021 Best Workplace in Texas by Great Places to Work. We are focused on creating an exceptional workplace and launched a new partnership with Gallup to identify strengths and improvement opportunities to make Elevate an even better place to work. We also expanded employee resource groups, which are employee-led groups that help connect communities, raise broader awareness around diversity, equity, and inclusion, and enable us to leverage our differences. Lastly, we have adopted a hybrid work approach that is designed to enable collaboration while offering our employees great flexibility. For shareholders, we put our capital to work, repurchasing approximately 33% of shares outstanding over the last two years, or a total of 15 million common shares. Additionally, as you saw in recent filings, Elevate recently settled a longstanding legal matter tied to the spinoff of our predecessor company in 2014. We are happy to have the matter behind us, less because of the dispute itself, but more because of the freedom we now have with the capital our model generates and some of the exciting ways we can add value in the quarters and years ahead. From an equity standpoint, we are extremely fortunate to have a business that generates the free cash flow necessary to settle these legal disputes while also growing our core business and investing in new ideas, which I'll detail in a moment. We are obviously proud of how the company has navigated the past two years. We are even more excited about the strategies we're pursuing in the future. Candidly, we feel a lot of Elevate's strategic progress has been masked by the noise in the world of the past two years and the legal overhang. First, it's hard to overstate how important the overhaul of our tech stack and the approach to growth was back in 2018. Elevate effectively went from a direct mail-focused credit provider to an engine that can market and credit decision across a wide range of partner and consumer touchpoints. Best of all, with the Today card and the newest initiatives, Elevate has significantly broadened the credit spectrum that the Blueprint platform can serve including a new offering in our detail in a moment. The power of the Elevate Blueprint tech stack is immense, and I look forward to demonstrating this power and versatility with new offerings and partners in the near future. In our view, the pandemic has validated the strategic shift, and as a result, the years ahead for Elevate are brighter than they ever have been. Lastly, on the point of capital, the legal settlement only frees the company to pursue more value creation. Over the last two years, we certainly have not been constrained, as evidenced by our share repurchases. In fact, over that time, we have bought back approximately 33% of the company, given the significant value we still see in our stock. With the removal of the legal matter, our flexibility to deploy capital is even greater. We see substantial opportunity in the free cash flow the model generates, and we will always seek to deploy in a manner that prioritizes stakeholder value. With the recent expenses associated with the legal matters, recent new product investments, and portfolio growth, we will briefly pause our buyback with plans to return in the near future. I would also like to reiterate that our recent settlement included a repurchase of approximately 925,000 shares outstanding. I'm going to turn to our fourth quarter next, but as you can see, it's important to take a step back every once in a while and frame where we have been and, more critically, where we can go. With that, let's turn to slide five, and I can provide the highlights from another strong quarter for Elevate. Revenue grew 43% compared to the fourth quarter a year ago. The growth represents the continued impact of the loan receivables we've added this year and stable APRs. Combined loan receivable principal balances ended the year close to $560 million, which is 40% higher than a year ago and is now back above levels at the start of the pandemic. It is an important milestone, not just to validate the significant market demand, but also a testament to how well our team and our business model perform through a very volatile market. All three products experienced loan growth during the fourth quarter of 2021, we saw consistent distribution of new customers between direct mail and strategic marketing channels in the fourth quarter as we continue to diversify our marketing channel mix and add additional strategic partners. I would also note that Elevate and the banks we support purposely slowed down growth over the fourth quarter to optimize the mix of new versus repeat borrowers and originations. We were very pleased with the mix of originations year-to-date, but consistent with our returns-focused philosophy, we took the opportunity to moderate growth with a high mix of repeat customers that have lower CAC and better credit performance. Turning to credit, as we noted on our third quarter call, past due balances reverted back to historical averages, coming in at 10% for the fourth quarter, compared to historically low rates of 6% to 7% earlier in the year. We expect this rate to remain near 10% over the first quarter of 2022, but decrease into the 9% range over 2022, based on the increased mix of repeat borrowers I mentioned. Bottom line, the overall returns and margin profile of the loan book is very healthy, and we feel good about those trends over 2022 as well. Lastly, on profitability, as you know, 21 represents a year of recovering growth from the pandemic, and as a result, near-term EBITDA has been compressed, driven by initial customer acquisition costs and credit provisioning. For context, we think it's important for analysts and investors to remember that profitability is best viewed over the life of the loans. Based on our expectations for credit, we believe the 21 vintage represents a very attractive most margin profile in line with the long-term targeted range of 15 to 20%. Chad will review our outlook for 2022, but bottom line is 2021's growth has established a very strong foundation to continue to grow and scale the profitability of the business in 2022 and beyond. If we turn to slide six, I'd like to provide some context around a collaboration with Central Pacific Bank and the newly formed fintech, Swell, that we announced late last month. Swell will be part of Central Pacific Bank's growth beyond its core Hawaii footprint through a consumer banking app that includes services ranging from checking, savings, and credit. Elevate's credit technology, specifically the Blueprint platform, will embed within Swell to help Central Pacific Bank offer personal lines of credit at APRs below 24% across the mainland U.S. We are extremely proud that Central Pacific Bank chose to partner with Elevate on this exciting new offering. We believe that this investment and collaboration with Swell is an important milestone for Elevate in a number of ways. First, we believe the trust in our technology by a broadening set of bank partners validates our approach and our track record for performance. Second, we also feel validated in our strategic focus on Elevate's blueprint, which we believe positions our company as a leading partner for the rapidly growing banking-to-the-service market. Look for more to come this year on the product and brand front. I'll conclude my remarks with a summary of why we're so excited about Elevate's current position. First, the past two years have effectively battle-tested the model, and Elevate's financial performance was strong. Second, our core business continues to perform well with a broader set of marketing capabilities than DirectNow and an increasing number of bank partners. Lastly, we believe Elevate's technology capabilities, combined with a rapidly growing banking-as-a-service market and a large and growing population of underbanked Americans, positions elevate right at the intersection of two massive trends in financial services. With that, let me turn the call over to Chad.