Investor Presentation
December 2019
Forward-Looking Statements
This presentation and responses to various questions contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The forward-looking statements present our current expectations and projections relating to our business, financial condition and results of operations, and do not refer to historical or current facts. These statements may include words such as "anticipate," "estimate," "expect," "project," "plan," "intend," "believe," "may," "will," "should," "likely" and other words and terms of similar meaning. The forward-looking statements include statements regarding: our future financial performance including our outlook for full fiscal year 2019; our expectation that our new credit models will be rolled out in 2019 and that our partner credit models and strategies will be rolled out in 2019; our perspectives on 2019, including our expectations regarding revenue, growth rate of revenue, net charge-offs, gross margin, operating expenses, operating margins, Adjusted EBITDA, net income, loan loss provision, direct marketing and other cost of sales and Adjusted EBITDA margin; our expectations regarding regulatory trends; our expectations regarding the cumulative loss rate as a percentage of originations for the 2018 and 2019 vintages; our growth strategies and our ability to effectively manage that growth; anticipated key marketing and underwriting initiatives; new and expanded products like a lower-priced installment product in the UK; our expectations regarding the future expansion of the states in which our products are offered; the cost of customer acquisition, new customer originations, the efficacy and cost of our marketing efforts, our plan to maintain our UK portfolio balances through the second half of 2019 in advance of regulatory clarity‐on complaints; expanded marketing channels and new and growing marketing partnerships; continued growth and investment in data science and analytics; and additional bank partnerships. Forward looking statements involve certain risks and uncertainties, and actual results may differ materially from those discussed in any such statement. These risks and uncertainties include, but are not limited to: the Company's limited operating history in an evolving industry; new laws and regulations in the consumer lending industry in many jurisdictions that could restrict the consumer lending products and services the Company offers, impose additional compliance costs on the Company, render the Company's current operations unprofitable or even prohibit the Company's current operations; scrutiny by regulators and payment processors of certain online lenders' access to the Automated Clearing House system to disburse and collect loan proceeds and repayments; a lack of sufficient debt financing at acceptable prices or disruptions inthe credit markets; the impact of competition in our industry and innovation by our competitors; our ability to prevent security breaches, disruption in service and comparable events that could compromise the personal and confidential information held in our data systems, reduce the attractiveness of our platform or adversely impact our ability to service loans; the impact of litigation or potential or perceived litigation; customer complaints or negative public perception could harm our business and other risks related to litigation, compliance and regulation. Additional factors that could cause actual results to differ are discussed under the heading "Risk Factors" and in other sections of the most recent Annual Report on Form 10-K; most recent Form 10-Q and in the Company's other current and periodic reports filed from time to time with the SEC. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements regarding risks and uncertainties that are included in our public communications. You should evaluate all forward-looking statements made in this presentation in the context of these risks and uncertainties. Neither we nor any of our respective agents, employees or advisors intend or have any duty or obligation to supplement,amend,update or revise anyof the forward-looking statements contained in this presentation.
This presentation also contains estimates and other statistical data made by independent parties and by us relating to market size and growth and other data about our industry. This data involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. Neither we nor any other person makes any representation as to the accuracy or completeness of such data or undertakes any obligation to update such data after the date of this presentation. In addition, projections, assumptions and estimates of our future performance and the future performance of the markets in which we operate are necessarilysubjectto a high degree ofuncertaintyand risk.
The information and opinions contained in this presentation are provided as of the date of this presentation and are subject to change without notice. This presentation has not been approved by any regulatoryor supervisoryagency.
See Appendix for additional information and definitions.
2
Elevate is reinventing non-prime credit with online products that provide financial relief today, and help people build a brighter financial future.
So far, we've originated $7.8 billion to 2.4 million customers1and saved them more than $6.1 billion over payday loans2
33
Experienced team
20+
10+
year average experience in technology & financial services
years working together
in non-prime marketJason Harvison
CEO
Chris Lutes | Sarah Fagin Cutrona | Kate Vanderkolk | Sharon Clarey |
CFO | Chief Counsel | CRO | CHRO |
Joan Khuel | Scott Greever | David Peterson |
CIO | EVP Product | CCO |
4
Building a great company
Guided by our Values | Geographic Diversity |
San Diego | London |
Bury St. Edmonds | |
Dallas | |
Fort Worth |
Financial Health | 2019 Diversity & |
Network Leader | Inclusion Award |
Great Place to Work®
Certified Great Place to Work 4 consecutive years
Based on anonymous employee feedback
5
Why Elevate?
Huge underserved market - larger than "prime"
170 million consumers who deserve better solutions
More responsible online and mobile credit
Innovative products, focus on financial health
10+ year investment in technology &analytics
Significant competitive advantages and barriers to entry
Proven track record through recession
Low charge-off volatility from 2006-2011
Compelling economics
Strong growth in net income with expanding margins
6
Non-prime consumers - the New Middle Class
US non-prime populationlarger than prime
Prime1 | Non-prime |
34% | |
Non-prime1 | Prime |
44% | Credit invisible |
Credit | |
invisible2 |
22%
US and UK non-prime population>170MMpeople
Elevate customer profile4
US | UK | |
Average income | ~ $54K (RISE) | ~ £19K (Sunny) |
~ $40K (Elastic) | ||
Average college | ~ 82% | ~ 54% |
Own home | ~ 22% | ~ 19% |
FICOrange (mean) | 511-6265 | N/A |
Banks not serving non-prime
$142B
Total reduction in non-prime credit since 20086
109MM | 53MM | 10MM |
US non-prime1 | US credit invisible2 | UK non-prime3 |
7
Non-prime consumers have different credit needs
% Ranked in the Top 31
Solve financial needs | 74% | |||||||||
Fast and Easy | 51% | |||||||||
Money quick | 49% | |||||||||
No hidden fees | 32% | |||||||||
Few documents | 30% | |||||||||
Terms clear | 29% | |||||||||
Afford payment | 26% | |||||||||
Builds credit | 23% | |||||||||
Lowest APR | 16% | |||||||||
Multiple payments | 15% | |||||||||
Key differences for non-prime borrowers
- APR much less important
- Speed of funding much more important
- Credit building more important
- Hardship handling more important
- Ease of application process more important
0% | 20% | 40% | 60% | 80% |
The next generation of responsible online credit
Installment and | Line of credit | Credit card | Installment | |
line of credit | ||||
Geographies | 40 US states | 40 US states | US - Nationwide | UK |
Originator | Elevate through state license | Republic Bank | Capital Community Bank | Elevate |
and FinWise Bank | ||||
Loan size | $500-$7,000 | $400-$4,500 | $1,000-$3,500 | £100-£2,500 |
Loan term | 4-26 months | Up to 10 months | n/a | 6-14 months |
Pricing | 36%-299%, rates drop by 50% | Initially $5 per $100 borrowed | 29.99%-34.99% variable | 10.5% to 24% monthly |
after 24 months | plus up to 5% of outstanding | |||
principal per billing cycle | ||||
Elevate customer acquisition
Multi-channel Marketing1 | Customer acquisition cost below targets |
TV & Mass
Media
8%
Digital 23%
Strategic Partners
15%
TV & Mass Media
Strategic Partners
Direct Mail 54%
Digital Direct Mail
10
Industry-leading technology and analytics
History
2.3MM
customers served
$7Billion
in loans originated
10MM+
applications processed
Data
Mainstream
Alternate Bureau
Bank
Other
Advanced Analytics
Across underwriting process
Credit
Scores
Fraud
Scores
Affordability
Assessment
Instant Decision
& Line Offer
Fraud &
Verifications
Customer
Management
Bank Transaction
Data
15+ years of innovation and investment
11
Proven track record through credit downturn
12
Non-prime lending is the least volatile sector
While overall delinquency is positively correlated to credit score, the
volatility of delinquency is inversely correlated to credit score
13
Growth in key financial measures ($ in millions)
Ending CombinedLoans | +5% | Revenue | +17% | ||||||||||||
Receivables - Principal | 1 | ||||||||||||||
+28% | $649 | $634 | $629 | +16% | $787 | ||||||||||
$618 | $740-$750 | ||||||||||||||
$673 | |||||||||||||||
+35% | $481 | +34% | $580 | ||||||||||||
+59% | |||||||||||||||
+77% | $356 | $434 | YTD | ||||||||||||
+177% | +280% | ||||||||||||||
$202 | $274 | $560 | |||||||||||||
$73 | $72 | ||||||||||||||
2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 3Q18 | 3Q19 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | |
Guidance | |||||||||||||||
Adjusted EBITDA2 | +16-21% | Net Income / (Loss)3 | |||||||||||||
+115-146% | |||||||||||||||
+33% | 116% | ||||||||||||||
+45% | $135-$140 | $28-$32 | |||||||||||||
$116 | |||||||||||||||
$87 | $13 | ||||||||||||||
+223% | $6 | YTD $24 | |||||||||||||
$60 | YTD | ||||||||||||||
$19 | $108 | As adjusted | |||||||||||||
(-$20) | (-$22) | ||||||||||||||
(-$43) | (-$55) | ||||||||||||||
(-$47)(-$52) | |||||||||||||||
2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | ||
Guidance | Guidance |
Ending combined loans receivable - principal, Adjusted EBITDA and Adjusted Net Income are non-GAAP financial measures. See appendix for a reconciliation to a GAAP measure.
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Improving credit quality and customer acquisition costs
35%
30%
25%
Cumulativeprincipal loss rates as a percentage of
originations by loan vintage
Customer Acquisition Cost
$325
$300 | ||
$297 | ||
$275 | ||
$256 | ||
$255 |
20%
2018
2017
$250 | $245 |
15%
10%
5%
0%
YTD Sept 2018
YTD Sept 2019
$225
$200
$175
$150
$235 $237
$184
1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 | |||||||||
Months since origination | |||||||||||||||||
2013 | 2014 | 2015 | 2016 | 2017 | 2018 | YTD Sept 2018 | YTD Sept 2019 | ||||||||||
2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 3Q19 |
CAC | Top Target Range $300 | Bottom Target Range $250 | ||||
2019 loan vintage is not yet fully matured.
15
Continued margin expansion
% of Gross Revenues
2015 | 2016 | 2017 | 2018 | YTD 2019 | 3Q 2018 | 3Q 2019 | |
Gross Revenue | 100% | 100% | 100% | 100% | 100% | 100% | 100% |
Loan Loss Provision | 54% | 55% | 53% | 52% | 48% | 57% | 52% |
Direct Marketing and | 18% | 14% | 14% | 13% | 11% | 14% | 11% |
Other Cost of Sales | |||||||
Gross Margin | 29% | 31% | 33% | 35% | 41% | 29% | 37% |
Operating Expenses | 25% | 21% | 20% | 20% | 22% | 20% | 22% |
Adjusted EBITDA | 4% | 10% | 13% | 15% | 19% | 9% | 15% |
Margin1 |
Adjusted EBITDA margin is a non-GAAP financial measure. See Appendix for a reconciliation to GAAP measure.
16
Strategy Updates
Priorities | 2019 Impact |
Dedication to strong credit | • Deployment of enhanced credit models complete |
• All credit quality metrics have improved | |
• Drivenby lower charge-offs, lower CAC, and cost | |
Margin expansion | of funding reduction |
• Net Income and EPS guidance raised despite | |
lower revenue | |
• New approach to measured growth in conjunction | |
Measured growth | with confirming data from our credit models |
• Addressable market opportunity remains | |
significant | |
17 |
Elevate positioned for long-term growth
Demand | 40% | 170 MM | |||
Enormous Market | |||||
Americans living paycheck | underserved consumers in | ||||
to paycheck1 | US and UK2 | ||||
Limited Competitive | $142 B | Legacy | |||
Pressures | |||||
reduction | competitorsprimarily high | ||||
in bank non-prime lending3 | cost and inconvenient | ||||
Regulatory and | 4 | 3 | 2 | ||
Product | |||||
Diversification | Products | Bank | Countries | ||
partners |
18
We believe everyone deserves
a lift.
19
Appendix
20
Footnotes
Page 3:
1 Originations and customers from 2002 - September 2019, attributable to the combined current and predecessor direct and branded products.
2 For the period from 2013 to December 31, 2018. Based on the average effective APR of 123% for the nine months ended September 30, 2019. This estimate, w hich has not been independently confirmed, is based on our internal comparison of revenues from our combined loan portfolio and the same portfolio w ith an APR of 400%, w hich is the approximate average APR for a payday loan according to the Consumer Financial Protection Bureau, or the "CFPB."
Page 7:
1 According to an analysis of TransUnion data through the third quarter of 2014 by the Corporation for Enterprise Development.
2 FICO, Expanding Credit Opportunities, July 2015.
3 House of Commons Welsh Affairs Committee, The Impact of Changes Benefit in Wales, October 2013.
4 Elevate analysis 2018; US income and home ow nership data from Elevate internal database for customers acquired in 2018; other data from self-reported customer research.
- Range of middle quintile of Elevate US customers (2018).
- According to our analysis of master pool trust data of securitizations for the five major credit card issuers, w e estimate that from 2008 to 2016, revolving credit to US borrow ers w ith FICO scores of less than 660 w as reduced by approximately $142 billion.
Page 8:
1 According to research conducted by the Center for the New Middle Class in April 2018
Page 10:
1 Marketing mix as of December 31, 2018.
Page 12:
1 | Elevate legacy predecessor credit product from 2006-2011 - Includes losses related to credit and fraud. |
2 | Credit card charge-offs based on Federal Reserve data. |
Page 13:
1 TransUnion data on 90 day delinquency rates of balances for different Vantage Score bands from Q1 2006 through Q1 2017. Volatility is calculated by dividing the standard deviation of Vantage Score bands from Q1 2006 to Q1 2017 by the average during the same period.
21
Footnotes
Page 14:
1 Ending combined loans receivable - principal is a non-GAAP financial measure. See appendix for a reconciliation to a GAAP measure.
2 | Adjusted EBITDA is not a financial measure prepared in accordance w ith GAAP. Adjusted EBITDA represents our net loss, adjusted to exclude: net interest expense primarily associated w ith notes |
payable under the VPC Facility and ESPV Facility used to fund or purchase loans; foreign currency gains and losses associated w ith our UK operations; depreciation and amortization expense on fixed assets |
and intangible assets; non-operating income; stock-based compensation expense and income tax expense. See the Appendix for a reconciliation to GAAP net income (loss).
3 2017 adjusted net income of $5.5 million is not a financial measure prepared in accordance w ith GAAP. Adjusted net income for 2017 represents our $6.9 million net loss for the year ended December 31, 2017, adjusted to exclude the impact of $12.5 million in tax expense incurred during the fourth quarter of 2017 due to the enactment of the Tax Cuts and Jobs Act.
Page 16:
1 Adjusted EBITDA is not a financial measure prepared in accordance w ith GAAP. Adjusted EBITDA represents our net income, adjusted to exclude: net interest expense primarily associated w ith notes payable under the VPC Facility and ESPV Facility used to fund or purchase loans; foreign currency gains and losses associated w ith our UK operations; depreciation and amortization expense on fixed assets and
intangible assets; loss on discontinued operations; non-operating income; stock-based compensation expense and income tax expense. See the Appendix for a reconciliation to GAAP income. Adjusted EBITDA margin is Adjusted EBITDA divided by revenue.
Page 18:
1 | According to the Federal Reserve's Board Report | on the Economic Well-Being of US Households in 2017. |
2 | According to our analysis based on CFSP report, | "Data Point: Credit Invisibles." May 2015 and 2018 Average US FICO data. |
3 According to our analysis of master pool trust data of securitizations for the five major credit card issuers, w e estimate that from 2008-2016, revolving credit US borrow ers w ith FICO scores less than 680 w as reduced by approximately $142 billion.
.
22
Non-GAAP financials reconciliation
Adjusted EBITDA Reconciliation | |||||||||||||||||
Three months ended | Nine months ended | ||||||||||||||||
For the years ended December 31, | September 30, | September 30, | |||||||||||||||
($mm) | 2018 | 2017 | 2016 | 2015 | 2014 | 2013 | 2019 | 2018 | 2019 | 2018 | |||||||
Net income (loss) | $ | 13 | (7) | (22) | (20) | (55) | $ | (45) | $ | 5 | (4) | 24 | $ | 8 | |||
Adjustments: | |||||||||||||||||
Net interest expense | 79 | 73 | 64 | 37 | 13 | - | 15 | 20 | 52 | 58 | |||||||
Stock-based compensation | 8 | 6 | 2 | 1 | 1 | - | 2 | 2 | 7 | 6 | |||||||
Foreign currency transaction (gain) loss | 2 | (3) | 9 | 2 | 1 | - | 1 | - | 1 | 1 | |||||||
Depreciation and amortization | 13 | 10 | 11 | 9 | 8 | 5 | 4 | 4 | 13 | 9 | |||||||
Non-operating expense (income) | - | (2) | - | (6) | - | (1) | 1 | - | 1 | - | |||||||
Income tax expense (benefit) | 1 | 10 | (3) | (5) | (21) | (9) | 1 | (3) | 10 | 2 | |||||||
Loss on discontinued operations | - | - | - | - | - | 2 | - | - | - | - | |||||||
Adjusted EBITDA | $ | 116 | 87 | 60 | 19 | (53) | $ | (47) | $ | 29 | 19 | 108 | $ | 84 | |||
Adjusted EBITDA Margin | 15% | 13% | 10% | 4% | -19% | -65% | 15% | 9% | 19% | 15% |
Adjusted EBITDA is a non-GAAP financial measure. The Company's Adjusted EBITDA guidance does not include certain charges and costs. The adjustments in future periods are generally expected to be similar to the kinds of charges and costs excluded from Adjusted EBITDA in prior periods, such as the impact of income tax benefit or expense, non-operating income, foreign currency transaction gain or loss associated w ith our UK operations, net interest expense, stock-based compensation expense and depreciation and amortization expense, among others. The Company is not able to provide a reconciliation of the Company's non-GAAP financial guidance to the corresponding GAAP measure w ithout unreasonable effort because of the uncertainty and variability of the nature and amount of these future charges and costs.
23
Combined loans reconciliation
Combined Loan Adjustment Summary | |||||
(dollars in thousands) | Sep 30, 2019 | Jun 30, 2019 | Mar 31, 2019 | Dec 31, 2018 | Sep 30, 2018 |
Company Owned Loans | |||||
Loans receivable - principal, current, company owned | 543,565 | 523,785 | 491,208 | 543,405 | 525,717 |
Loans receivable - principal, past due, company owned | 65,824 | 55,711 | 55,286 | 68,251 | 69,934 |
Loans receivable - principal, total, company owned | 609,389 | 579,496 | 546,494 | 611,656 | 595,651 |
Loans receivable - finance charges, company owned | 35,702 | 31,805 | 32,491 | 41,646 | 36,747 |
Loans receivable - company owned | 645,091 | 611,301 | 578,985 | 653,302 | 632,398 |
Allowance for loan losses on loans receivable, company owned | (89,667) | (75,896) | (76,457) | (91,608) | (89,422) |
Loans receivable, net, company owned | 555,424 | 535,405 | 502,528 | 561,694 | 542,976 |
Third Party Loans Company Guaranteed | |||||
Loans receivable - principal, current, guaranteed by company | 18,633 | 21,099 | 27,941 | 35,529 | 36,649 |
Loans receivable - principal, past due, guaranteed by company | 697 | 596 | 696 | 1,353 | 1,661 |
Loans receivable - principal, total, guaranteed by company1 | 19,330 | 21,695 | 28,637 | 36,882 | 38,310 |
Loans receivable - finance charges, guaranteed by company2 | 1,553 | 1,676 | 2,164 | 2,944 | 3,103 |
Loans receivable - guaranteed by company | 20,883 | 23,371 | 30,801 | 39,826 | 41,413 |
Liability for losses on loans receivable, guaranteed by company | (1,972) | (1,983) | (3,242) | (4,444) | (4,510) |
Loans receivable, net, guaranteed by company2 | 18,911 | 21,388 | 27,559 | 35,382 | 36,903 |
1 | Represents loans originated by third-party lenders through the CSO programs, w hich are not included in our financial statements. |
2 | Represents finance charges earned by third-party lenders through CSO programs, w hich are not included in our financial statements. |
3 | Non-GAAP measure. |
. |
24
Combined loans reconciliation (continued)
Combined Loan Adjustment Summary | |||||
(dollars in thousands) | Sep 30, 2019 | Jun 30, 2019 | Mar 31, 2019 | Dec 31, 2018 | Sep 30, 2018 |
Combined Loans Receivable3 | |||||
Combined loans receivable - principal, current | 562,198 | 544,884 | 519,149 | 578,934 | 562,366 |
Combined loans receivable - principal, past due | 66,521 | 56,307 | 55,982 | 69,604 | 71,595 |
Combined loans receivable - principal | 628,719 | 601,191 | 575,131 | 648,538 | 633,961 |
Combined loans receivable - finance charges | 37,255 | 33,481 | 34,655 | 44,590 | 39,850 |
Combined loans receivable | 665,974 | 634,672 | 609,786 | 693,128 | 673,811 |
Combined Loan Loss Reserve3 | |||||
Allowance for loan losses on loans receivable, company owned | (89,667) | (75,896) | (76,457) | (91,608) | (89,422) |
Liability for losses on loans receivable, guaranteed by company | (1,972) | (1,983) | (3,242) | (4,444) | (4,510) |
Combined loan loss reserve | (91,639) | (77,879) | (79,699) | (96,052) | (93,932) |
1Represents | loans originated by third-party lenders through the CSO programs, w hich are not included in our financial statements. |
2Represents | finance charges earned by third-party lenders through CSO programs, w hich are not included in our financial statements. |
3Non-GAAP measure.
.
25
Single year illustrative Rise unit economics
Economics to Elevate assuming an amortizing two-year$2,000 loan at 180% APR1
($1,400)
Unit operating margin:
16%
Note:
1 For illustrativepurposes using targeted expense ratios. Does not necessarily reflect historical performance
26
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Elevate Credit Inc. published this content on 12 December 2019 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 12 December 2019 21:30:03 UTC