Elevate Investor...
Transcript of Elevate Investor...
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Forward-Looking StatementsThis 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 SecuritiesExchange 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 notrefer 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 andterms of similar meaning. The forward-looking statements include statements regarding: our future financial performance including our outlook for full fiscal year 2017 and our perspectives on the secondquarter of 2017 and our expectations regarding revenue, cost of revenue, growth rate of revenue, cost of borrowing, credit losses, marketing costs, net charge-offs, gross profit or gross margin, operatingexpenses, operating margins, ability to generate cash flow and ability to achieve and maintain future profitability; our belief that an investment in us can be a hedge against recession; the availability ofdebt financing, funding sources and disruptions in credit markets; expectations related to our debt funding, including our expectation that we will extend the maturity of the RISE and ESPV facility to 2021and that one RISE facility and the related lender will be replaced before the end of the second quarter of 2017, related to our RISE CSO relationships in Texas and Ohio; anticipated trends, growth rates,seasonal fluctuations and challenges in our business and in the markets in which we operate; our growth strategies and our ability to effectively manage that growth; customer demand for the ourproducts; the cost of customer acquisition; the ability of customers to repay loans; interest rates and origination fees on loans; the impact of competition in our industry and innovation by our competitors;the efficacy and cost of our marketing efforts and relationships with marketing affiliates; continued innovation of our analytics platform and our ability to prevent security breaches, disruption in service andcomparable 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.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 notlimited 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 lendingproducts 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 debtfinancing at acceptable prices or disruptions in the credit markets; and other risks related to litigation, compliance and regulation. Additional factors that could cause actual results to differ are discussedunder the heading "Risk Factors" and in other sections of the Prospectus related to the Company’s initial public offering of common stock filed pursuant to Rule 424(b) under the Securities Act of 1933,and in the Company's 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 expresslyqualified 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 thispresentation 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 orrevise any of 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 anumber 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 completenessof 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 performanceof the markets in which we operate are necessarily subject to a high degree of uncertainty and 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 anyregulatory or supervisory agency.
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Ken Rees President & CEO
Chris Lutes CFO
year average experience in online technology & financial services
15+ 7+Strong Leadership Team
years working together in non-prime market
CFO, Silicon Valley Bank
PWC
Founder, CashWorks(sold to GE)
15+ years in financial technology
Elevate’s management team
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Elevate is reinventing non-prime credit with online products that provide financial relief today, and help people build a brighter financial future.
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$1B Saved by customers over payday loans
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Adjusted EBITDA is a non-GAAP financial measure. See Appendix for reconciliation to GAAP measure.See Appendix for additional information and definitions.
1.6 mm Customers served ($4.0B originated)
100% Revenue CAGR, 2013-2016
3x Adjusted EBITDA, 2015-2016
40% Lower APR since 2013
Elevate by the numbers
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Why Elevate?Huge underserved market – larger than “prime”170 million consumers who deserve better solutions
More responsible online and mobile creditInnovative products, focus on financial health
10+ year investment in technology & analyticsSignificant competitive advantages and barriers to entry
Hedge against recessionProven ability to manage credit through business cycle
Compelling economicsStrong revenue growth with rapidly expanding margins
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46%of Americans say they could not cover an emergency expense costing $400, or would cover it by selling something or borrowing money1
2 in 5Americans experience month-to-month income swings of more than 30%3
Median HouseholdIncome 2015 Median HHI $56,5162.4% lower than in 19992
2.4%Since 1999
See Appendix for additional information and definitions.
Background: Changing economic realities have created the New Middle Class
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109MM US non-prime1
53MM US credit invisible2
10MM UK non-prime3
US non-prime population larger than prime
US and UK non-prime population >170MM people
Elevate customer profile4
Banks not serving non-prime
$142BTotal reduction innon-prime credit since 20086
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US UK
Average income
Attended college
Own home
$48K
~ 79%
~ 39%
£20K
~ 58%
~ 12%
Typical FICO range5 560-600 N/A
Non-prime consumers need better options
See Appendix for additional information and definitions.
Non-prime Prime Credit invisible
Prime1
34%Non-prime1
44%Credit
invisible2
22%
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• Inconvenient storefront access• High cost• Punitive fees / add-on
products
Bad Today…
• Rates that start & stay high• No help getting out of non-prime• Cycle of debt
…Bad Tomorrow
Traditional non-prime products are deeply flawed
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Approval in seconds Rates that go down over time Financial wellness features
Credit building features Flexible payment terms
Good Today, Better Tomorrow
The next generation of responsible online credit
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Elevate product overview
See Appendix for additional information and definitions.
Geographies 15 US states
Product type Installment loans(state licensed)
Portfolio Size $229mm2
40 US states
Line of credit(bank originated)1
$176mm
UK
Installment loans(FCA licensed)
$40mm
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Consistent customer acquisition cost
Direct Marketing Channels (88%)
Indirect Marketing Channels (12%)
Multi-channel Marketing1
$255
$297
$256 $235
$100
$150
$200
$250
$300
$350
-
50,000
100,000
150,000
200,000
250,000
300,000
2013 2014 2015 2016
Customer Acquisition (Volumes + CAC)
# New Customers CAC
See Appendix for additional information and definitions.
Reaching our customers and building brands
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Credit invisible Challenged Prime-ish• No or minimal credit history• Often young or new to country• High chance of fraud
• Previous charge-offs• History of late payments• May be forced to use payday loans
• Significant credit history• Often over-extended on
traditional credit • Creditworthiness may be eroding
“Right now I’m still working on my credit.”
Maryam
“I recently filed for bankruptcy. Most lenders wouldn’t give me
a second glance.”
Jennifer
“I was diagnosed with a form of cancer. We were almost tapped out completely. I was able to pay
two mortgage payments that I was behind.”
Lamont
Simplistic credit scores like FICO are insufficient
Underwriting the riskiest customers
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• 40+ terabyte• 10,000+ data
variables• 1.6mm customer
records• 5mm+applicants
DORARisk Analytics
IQ Technology Platform
IQ Decision Engine• Application processing• Credit decision & line offer• Loan funding• Processed in seconds• ~ 95% fully automated• Next day funding (US)• Same day funding (UK)
3rd party dataup to 10k variables
Advanced Analytics Across Underwriting Process
Industry-leading technology and analytics
10+ years of innovation and investment
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18.5%20.0%
18.4% 18.2% 18.9% 18.5%
2006 2007 2008 2009 2010 2011Year of origination
Elevate principal charge-offs1 Credit card charge-offs2
3.5%4.0%
5.6%
9.4% 9.4%
5.7%
Nearly3x
Charge-off performance
See Appendix for additional information and definitions.
Proven track record through credit downturn
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Strong Growth 34% revenue growth YOY1
35% loans receivable growth YOY2
Stable Credit Quality In line with targets – all products
Improving Margins Adjusted EBITDA margins increased from 4% to 10%3
Managed CAC Below stated targets
Outsized CustomerImpact
1.6 mm customers served to date ($4.0B originated)$1 billion saved over payday loans4
Elevate is a unique success story in fintech lending
Elevate Goals 2016 Performance Review
Adjusted EBITDA margin and combined loans receivable – principal are non-GAAP financial measures. See Appendix for a reconciliation to GAAP measures. See Appendix for additional information and definitions.
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Strong Growth 20% revenue growth YOY1
39% loans receivable growth YOY2
Stable Credit Quality Continued performance in target range
Improving Margins 16% Adjusted EBITDA margin ($25mm Adjusted EBITDA) 3
Net income of $1.7mm
Managed CAC Record low level at $198
Outsized Customer Impact
6600 basis point reduction in top rate on Rise55,000 Rise customers saw credit scores increase
Q1 2017 continues strong performanceElevate Goals Q1 2017 Performance Highlights
Adjusted EBITDA margin and combined loans receivable – principal are non-GAAP financial measures. See Appendix for a reconciliation to GAAP measures. See Appendix for additional information and definitions.
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($43)($55)
($20) ($22)
$13-$19
2013 2014 2015 2016 2017E
1Q17$2
($47) ($53)
$19 $60
$95-$105
2013 2014 2015 2016 2017E
1Q17$25
Adjusted EBITDA1
+223%
+66% Net Income / (Loss)
Growth in key financial measures ($mm)
$72
$274
$434
$580
$680-$720
2013 2014 2015 2016 2017E
1Q17$156
Revenue
+281%
+58%
+34%
+20%
Adjusted EBITDA margin is a non-GAAP financial measure. See Appendix for a reconciliation to GAAP measure. See Appendix for additional information and definitions.
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0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
0 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
2013 2014 2015 2016 2017
Cumulative loss rates as a % of originations by loan vintage
Months since origination
Consistent and improving credit quality
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Rapidly expanding margins
% of Gross Revenues
2015 2016 Q1 2017 LT Target
Gross Revenue 100% 100% 100% 100%
Loan Loss Provision 54% 55% 53% 50%
Direct Marketing and Other Cost of Sales 18% 14% 9% 10%
Gross Margin 29% 31% 38% 40%
Operating Expenses 25% 21% 22% 20%
Adjusted EBITDA Margin1 4% 10% 16% 20%➡
Adjusted EBITDA margin is a non-GAAP financial measure. See Appendix for a reconciliation to GAAP measure. See Appendix for additional information and definitions.
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Improvements in funding
• Used IPO proceeds to pay down or pay off• $60mm1 sub debt at ~18% COF• $25mm UK facility at ~16% COF (also reduces FX risk)
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• Elastic• Utilizes SPV structure• $250mm facility• Matures 20214
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• Rise• Over $400mm in three facilities2
• Six different lenders• Matures 20213
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See Appendix for additional information and definitions.
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2017 Outlook
Revenue = $680MM - $720MMNet Income = $13MM-$19MMAdjusted EBITDA1 = $95MM - $105MM
• Exiting seasonal slow period• Customer acquisition cost will
increase based on growth and TV spend
• Net charge-offs as percent of revenue will decrease
Perspective on Q2Annual guidance
Adjusted EBITDA margin is a non-GAAP financial measure. See Appendix for a reconciliation to GAAP measure. See Appendix for additional information and definitions.
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Numerous opportunities for long-term growth
Grow our current offerings and build dominant brands
Organic growth
Launch new products to serve more non-prime consumers
Expand credit spectrum
New partnerships with banks, retailers, and customer aggregators
Strategic partnerships
Offer additional products and services to our customers
Expand relationships
New domestic and international markets
Market expansion
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FootnotesPage 5: 1 2013 revenue of $72mm and 2016 revenue of $580mm.2 Adjusted EBITDA for 2015 of $18.7mm and for 2016 of $60.4mm.3 Adjusted EBITDA is not a financial measure prepared in accordance with GAAP. Adjusted EBITDA represents our net loss, adjusted to exclude: net interest expense primarily associated with notes payable under the VPC Facility and ESPV
facility used to fund or purchase loans; foreign currency gains and losses associated with our UK operations; depreciation and amortization expense on fixed assets and intangible assets; adjustments to contingent consideration payable related to companies previously acquired prior to the spin-off; stock compensation expense and income taxes. See the Appendix for a reconciliation to GAAP net loss.
4 2013 effective APR of 251% and 2016 effective APR of 146%.5 Our products have saved our customers more than $1 billion since 2013 over what they would have paid for payday loans, which have an average APR of approximately 400% or more according to the findings by the CFPB, based on a
comparison of revenues at the average effective APR of our combined loan portfolio for the years ended December 31, 2013 through 2016 compared to revenues at an APR of approximately 400%.
Page 7: 1 Board of Governors of the Federal Reserve System, Report on the Economic Well-Being of U.S. Households 2015, 20162 U.S. Census Bureau, Income and Poverty in the United States: 20153 J.P. Morgan Chase & Co., Weathering Volatility: Big Data on the Financial Ups and Downs of U.S. Individuals, 2015
Page 8: 1 According to an analysis of TransUnion data through the third quarter of 2014 by the Corporation for Enterprise Development2 FICO, Expanding Credit Opportunities, July 20153 House of Commons Welsh Affairs Committee, The Impact of Changes Benefit in Wales, October 2013 4 Elevate analysis 2015-2016; US income and home ownership data from Elevate internal database for customers acquired in 2016; other data from self-reported customer research.5 Range of middle quintile of Elevate US customers (2016)6 According to our analysis of master pool trust data of securitizations for the five major credit card issuers, we estimate that from 2008 to 2016, revolving credit to US borrowers with FICO scores of less than 660 was reduced by approximately
$142 billion
Page 11: 1 Originated by Republic Bank 2 As of March 31, 2017, Includes Rise loans originated through Credit Services Organization, or “CSO,” programs.
Page 12: 1 For the year ended December 31, 2016.
Page 151 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 161 2015 revenue of $434 million and 2016 revenue of $580 million.2 Combined loans receivable – principal at December 31, 2015 of $356 million and December 31, 2016 of $481 million. Combined loans receivable-principal is a not a financial measure prepared in accordance with GAAP. Combined loans
receivable – principal represents loans owned by the company plus loans originated and owned by third-party lenders pursuant to our CSO programs.3 Adjusted EBITDA is not a financial measure prepared in accordance with GAAP. Adjusted EBITDA represents our net loss, adjusted to exclude: net interest expense primarily associated with notes payable under the VPC Facility and ESPV
facility used to fund or purchase loans; foreign currency gains and losses associated with our UK operations; depreciation and amortization expense on fixed assets and intangible assets; adjustments to contingent consideration payable related to companies previously acquired prior to the spin-off; stock compensation expense and income taxes. See the Appendix for a reconciliation to GAAP net loss.
4 Our products have saved our customers more than $1 billion since 2013 over what they would have paid for payday loans, which have an average APR of approximately 400% or more according to the findings by the CFPB, based on a comparison of revenues at the average effective APR of our combined loan portfolio for the years ended December 31, 2013 through 2016 compared to revenues at an APR of approximately 400%.
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Footnotes (continued)Page 171 Q1 2016 revenue of $131 million and Q1 2017 revenue of $156 million.2 Combined loans receivable – principal at March 31, 2016 of $321 million and at March 31, 2017 of $445 million. Combined loans receivable-principal is a not a financial measure prepared in accordance with GAAP. Combined loans receivable – principal represents loans owned by
the company plus loans originated and owned by third-party lenders pursuant to our CSO programs.3 Adjusted EBITDA is not a financial measure prepared in accordance with GAAP. Adjusted EBITDA represents our net loss, adjusted to exclude: net interest expense primarily associated with notes payable under the VPC Facility and ESPV facility used to fund or purchase loans;
foreign currency gains and losses associated with our UK operations; depreciation and amortization expense on fixed assets and intangible assets; adjustments to contingent consideration payable related to companies previously acquired prior to the spin-off; stock compensation expense and income taxes. See the Appendix for a reconciliation to GAAP net loss.
Page 181 Adjusted EBITDA is not a financial measure prepared in accordance with GAAP. Adjusted EBITDA represents our net loss, adjusted to exclude: net interest expense primarily associated with notes payable under the VPC Facility and ESPV facility used to fund or purchase loans;
foreign currency gains and losses associated with our UK operations; depreciation and amortization expense on fixed assets and intangible assets; adjustments to contingent consideration payable related to companies previously acquired prior to the spin-off; stock compensation expense and income taxes. See the Appendix for a reconciliation to GAAP net loss.
Page 201 Adjusted EBITDA is not a financial measure prepared in accordance with GAAP. Adjusted EBITDA represents our net loss, adjusted to exclude: net interest expense primarily associated with notes payable under the VPC Facility and ESPV facility used to fund or purchase loans;
foreign currency gains and losses associated with our UK operations; depreciation and amortization expense on fixed assets and intangible assets; adjustments to contingent consideration payable related to companies previously acquired prior to the spin-off; stock compensation expense and income taxes. See the Appendix for a reconciliation to GAAP net loss.
Page 211 Includes $25mm 4th tranche term note.2 Includes two facilities, and two lenders, of which one facility and the related lender are expected to be replaced before the end of the second quarter 2017, related to our RISE CSO relationships in Texas and Ohio. 3 $75mm currently outstanding, matures August 2018 but is expected to be extended to 2021.4 $49 million currently outstanding, matures in August 2018 but is expected to be extended to 2021.
Page 221 Adjusted EBITDA is not a financial measure prepared in accordance with GAAP. Adjusted EBITDA represents our net loss, adjusted to exclude: net interest expense primarily associated with notes payable under the VPC Facility and ESPV
facility used to fund or purchase loans; foreign currency gains and losses associated with our UK operations; depreciation and amortization expense on fixed assets and intangible assets; adjustments to contingent consideration payable related to companies previously acquired prior to the spin-off; stock compensation expense and income taxes. See the Appendix for a reconciliation to GAAP net loss.
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Non-GAAP financials reconciliationAdjusted EBITDA Reconciliation
($mm) 2016 2015 2014 2013 2017 2016Netincome (22)$ (20) (55) (45)$ 2$ 6Adjustments:Netinterestexpense 64 37 13 - 19 14Stock-basedcompensation 2 1 1 - 1 -Foreigncurrencytransaction(gain)loss 9 2 1 - (1) 1Depreciationandamortization 11 9 8 5 3 3Incometaxexpense(benefit) (3) (5) (21) (9) 1 6Non-operatingexpense(income) - (6) - (1) - -Lossondiscontinuedoperations - - - 2 - -AdjustedEBITDA 60$ 19 (53) (47) 25$ 29
AdjustedEBITDAMargin 10% 4% -19% -65% 16% 22%
ThreemonthsendedMarch31,FortheyearsendedDecember31,
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 or expense, foreign currency transaction gain or loss associated with 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 without unreasonable effort because of the uncertainty and variability of the nature and amount of these future charges and costs.
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Combined loans reconciliationMarch31, December31, March31, December31,
(dollarsinthousands) 2017 2016 2016 2015
CompanyOwnedLoans:
Loans receivable–principa l ,current,companyowned 363,336 380,062 254,607 271,415
Loans receivable–principa l ,pastdue,companyowned 52,415 64,422 35,407 40,695
Loansreceivable–principal,total,companyowned 415,751 444,484 290,014 312,110
Loans receivable–financecharges ,companyowned 21,359 25,630 19,045 21,869
Loans receivable–companyowned 437,110 470,114 309,059 333,979
Al lowanceforloanlosses onloans receivable,companyowned (69,798) (77,451) (51,296) (59,771)
Loansreceivable,net,companyowned 367,312 392,663 257,763 274,208
ThirdPartyLoansGuaranteedbytheCompany:
Loans receivable–principa l ,current,guaranteedbycompany 26,888 33,637 28,556 40,696
Loans receivable–principa l ,pastdue,guaranteedbycompany 1,910 3,089 2,112 3,263
Loansreceivable–principal,total,guaranteedbycompany1 28,798 36,726 30,668 43,959
Loans receivable–financecharges ,guaranteedbycompany2 2,754 3,772 1,541 128
Loans receivable–guaranteedbycompany 31,552 40,498 32,209 44,087
Liabi l i tyforlosses onloans receivable,guaranteedbycompany (3,565) (4,925) (4,296) (6,013)
Loansreceivable,net,guaranteedbycompany3 27,987 35,573 27,913 38,074
CombinedLoansReceivable3:
Combinedloans receivable–principa l ,current 390,224 413,699 283,163 312,111
Combinedloans receivable–principa l ,pastdue 54,325 67,511 37,519 43,958
Combinedloansreceivable–principal 444,549 481,210 320,682 356,069
Combinedloans receivable–financecharges 24,113 29,401 20,586 21,997
Combinedloansreceivable 468,662 510,611 341,268 378,066
CombinedLoanLossReserve3:
Al lowanceforloanlosses onloans receivable,companyowned (69,798) (77,451) (51,296) (59,771)
Liabi l i tyforlosses onloans receivable,guaranteedbycompany (3,565) (4,925) (4,296) (6,013)
Combinedloanlossreserve (73,363) (82,376) (55,592) (65,784)
3 Non-GAAPmeasure.
1 Representsloansoriginatedbythird-partylendersthroughtheCSOprograms,whicharenotincludedinourcondensedconsolidatedfinancialstatements.2 Representsfinancechargesearnedbythird-partylendersthroughtheCSOprograms,whicharenotincludedinourcondensedconsolidatedfinancialstatements.