Form 8-K Elevate Credit, Inc. For: Jul 30
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________________________________
FORM 8-K
____________________________________________________________________
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
July 30, 2018
____________________________________________________________________
ELEVATE CREDIT, INC.
(Exact name of registrant as specified in its charter)
____________________________________________________________________
Delaware | 001-37680 | 46-4714474 | ||
(State or other jurisdiction of incorporation) | (Commission File Number) | (I.R.S. Employer Identification No.) | ||
4150 International Plaza, Suite 300
Fort Worth, Texas 76109
(Address of principal executive offices, including zip code)
Registrant’s telephone number, including area code (817) 928-1500
Not Applicable
(Former name or former address, if changed since last report.)
____________________________________________________________________
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company x
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. x
Item 2.02 | Results of Operations and Financial Condition. |
On July 30, 2018, Elevate Credit, Inc. (the "Company") issued a press release announcing its financial results for the quarter ended June 30, 2018. The full text of the press release, along with the slide presentation to be used during the earnings call on July 30, 2018, are furnished herewith as Exhibits 99.1 and 99.2, respectively.
Item 9.01 | Financial Statements and Exhibits. |
(d) Exhibits.
Exhibit No. | Description |
99.1 | |
99.2 | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Elevate Credit, Inc. | |||
Date: | July 30, 2018 | By: | /s/ Christopher Lutes |
Christopher Lutes | |||
Chief Financial Officer | |||
ELEVATE CREDIT ANNOUNCES SECOND QUARTER 2018 RESULTS
Continued strong revenue growth and expanding margins
FORT WORTH, TX - July 30, 2018 - Elevate Credit, Inc. (NYSE: ELVT) (“Elevate” or the “Company”), a leading tech-enabled provider of innovative and responsible online credit solutions for non-prime consumers, today announced results for the second quarter ended June 30, 2018.
“Given the secular shift towards our more responsible online products, Elevate continues to deliver strong top-line growth greater than 20%, and we are now on track to more than quadruple net income for the year,” said Ken Rees, Chief Executive Office of Elevate. “We are seeing favorable trends in our key financial measures as credit quality improves, customer acquisition costs drop, and adjusted EBITDA margins expand over 2017 levels.”
Second Quarter 2018 Financial Highlights1
• | Nearly 23% year-over-year revenue growth: Revenues increased 22.5% for the second quarter of 2018, totaling $184.4 million compared to $150.5 million for the prior-year period. |
• | Similar year-over-year growth in combined loans receivable-principal: Combined loans receivable - principal totaled $589.5 million, an increase of $108.4 million, or 22.5%, from $481.1 million for the prior-year period. |
• | Continued improvement in credit quality: The ending combined loan loss reserve, as a percentage of combined loans receivable, was 12.9%, lower than the 13.8% reported for the prior-year period due to continued improvement in credit quality and the continued maturation of the loan portfolio. |
• | Strong customer acquisition growth: The total number of new customer loans for the second quarter of 2018 was approximately 85,000, an increase of 28.1% compared to approximately 66,000 new customer loans in the second quarter of 2017. The average customer acquisition cost was $260, within the targeted range of $250-$300 and lower than the $294 for the second quarter of 2017. |
• | Expanding net income: Net income for the second quarter of 2018 totaled $3.1 million, or $0.07 per share on a fully diluted basis. Net income for the second quarter of 2017 was $3.0 million, or $0.08 per share on a fully diluted basis and benefited from $4.4 million in pre-tax foreign currency and non-operating gains, in addition to a $1.4 million tax benefit. |
• | 16% Adjusted EBITDA margin: Adjusted EBITDA in the second quarter of 2018 totaled $28.7 million, an increase of $8.9 million, or 44.8%, versus $19.8 million for the prior year first quarter. Adjusted EBITDA margin expanded to 15.6%, up from 13.2% a year ago. |
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1 Adjusted EBITDA, Adjusted EBITDA margin, combined loans receivable - principal, combined loan loss reserve and combined loans receivable are non-GAAP financial measures. These terms are defined elsewhere in this release. Please see the schedules appearing later in this release for reconciliations of these non-GAAP measures to the most directly comparable GAAP measures.
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Liquidity and Capital Resources
There were no material changes from a funding or liquidity standpoint during the second quarter of 2018. The Company only borrowed an additional $4 million in debt during the quarter, and total interest expense of $19.3 million was flat compared to the first quarter of 2018 and represented only 10.4% of revenues, versus 12.0% in second quarter of 2017.
Recent 2018 Business Highlights
• | Elevate launches Today Card Mastercard: Prime Credit Card for Non-Prime Consumers |
• | Elevate named a 2018 Financial Health Leader by the CFSI Financial Health Network |
• | Elevate celebrates its 2 millionth non-prime customer |
• | Elevate customers have saved more than 4 billion over payday loans |
Financial Outlook
For the full year 2018, the Company expects total revenue of $790 million to $810 million, net income of $25 million to $40 million, or $0.55 to $0.90 in diluted earnings per share, and Adjusted EBITDA of $125 million to $145 million.
Conference Call
The Company will host a conference call to discuss its second quarter 2018 financial results on Monday, July 30th at 4:00pm Central Time / 5:00pm Eastern Time. Interested parties may access the conference call live over the phone by dialing 1-877-407-0792 (domestic) or 1-201-689-8263 (international) and requesting the Elevate Second Quarter 2018 Earnings Conference Call. Participants are asked to dial in a few minutes prior to the call to register for the event. The conference call will also be webcast live through Elevate’s website at http://www.elevate.com/investors.
An audio replay of the conference call will be available approximately three hours after the conference call until 11:59 pm ET on Monday, August 13, 2018, and can be accessed by dialing 1-844-512-2921 (domestic) or 1-412-317-6671 (international), and providing the passcode 13681101, or by accessing Elevate’s website.
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Forward-Looking Statements
This press release contains 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. Such statements contain words such as "may," "will," "might," "expect," "believe," "anticipate," "could," "would," "estimate," "continue," "pursue," or the negative thereof or comparable terminology, and may include (without limitation) information regarding the Company's expectations, goals or intentions regarding future performance. 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 2018 (including all statements under the heading “Financial Outlook”); our belief that we remain on track to more than quadruple net income for the year; our expectations regarding the size of our market; and our targeted customer acquisition cost range of $250 to $300. 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 in the 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; 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 Company's most recent Annual Report on Form 10-K, and in the Company's other current and periodic reports filed from time to time with the SEC. All forward-looking statements in this press release are made as of the date hereof, based on information available to the Company as of the date hereof, and the Company assumes no obligation to update any forward-looking statement.
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About Elevate
Elevate (NYSE: ELVT) has originated $5.9 billion in non-prime credit to more than two million non-prime consumers to date and has saved its customers more than $4 billion versus the cost of payday loans. Its responsible, tech-enabled online credit solutions provide immediate relief to customers today and help them build a brighter financial future. The Company is committed to rewarding borrowers’ good financial behavior with features like interest rates that can go down over time, free financial training and free credit monitoring. Elevate’s suite of groundbreaking credit products includes RISE, Sunny, Elastic and Today Card. For more information, please visit http://www.elevate.com.
Investor Relations:
Solebury Communications
Sloan Bohlen, (817) 928-1646
or
Media Inquiries:
Vested
Ishviene Arora, (917) 765-8720
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Elevate Credit, Inc. and Subsidiaries
Condensed Consolidated Income Statements
(Unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
(Dollars in thousands, except share and per share amounts) | 2018 | 2017 | 2018 | 2017 | ||||||||||||
Revenues | $ | 184,377 | $ | 150,471 | $ | 377,914 | $ | 306,838 | ||||||||
Cost of sales: | ||||||||||||||||
Provision for loan losses | 88,598 | 72,297 | 180,740 | 155,090 | ||||||||||||
Direct marketing costs | 22,180 | 19,592 | 42,875 | 30,080 | ||||||||||||
Other cost of sales | 6,566 | 4,425 | 12,895 | 8,533 | ||||||||||||
Total cost of sales | 117,344 | 96,314 | 236,510 | 193,703 | ||||||||||||
Gross profit | 67,033 | 54,157 | 141,404 | 113,135 | ||||||||||||
Operating expenses: | ||||||||||||||||
Compensation and benefits | 23,380 | 20,824 | 45,807 | 41,352 | ||||||||||||
Professional services | 8,374 | 8,851 | 16,686 | 16,427 | ||||||||||||
Selling and marketing | 2,403 | 2,142 | 5,355 | 4,620 | ||||||||||||
Occupancy and equipment | 4,630 | 3,519 | 8,749 | 6,776 | ||||||||||||
Depreciation and amortization | 2,962 | 2,393 | 5,677 | 5,001 | ||||||||||||
Other | 1,568 | 1,095 | 2,785 | 2,010 | ||||||||||||
Total operating expenses | 43,317 | 38,824 | 85,059 | 76,186 | ||||||||||||
Operating income | 23,716 | 15,333 | 56,345 | 36,949 | ||||||||||||
Other income (expense): | ||||||||||||||||
Net interest expense | (19,263 | ) | (18,095 | ) | (38,476 | ) | (37,341 | ) | ||||||||
Foreign currency transaction gain (loss) | (1,231 | ) | 1,716 | (475 | ) | 2,284 | ||||||||||
Non-operating gain (loss) | — | 2,646 | (38 | ) | 2,513 | |||||||||||
Total other expense | (20,494 | ) | (13,733 | ) | (38,989 | ) | (32,544 | ) | ||||||||
Income before taxes | 3,222 | 1,600 | 17,356 | 4,405 | ||||||||||||
Income tax expense (benefit) | 94 | (1,420 | ) | 4,745 | (283 | ) | ||||||||||
Net income | $ | 3,128 | $ | 3,020 | $ | 12,611 | $ | 4,688 | ||||||||
Basic earnings per share | $ | 0.07 | $ | 0.08 | $ | 0.30 | $ | 0.18 | ||||||||
Diluted earnings per share | $ | 0.07 | $ | 0.08 | $ | 0.29 | $ | 0.17 | ||||||||
Basic weighted average shares outstanding | 42,561,403 | 38,541,965 | 42,386,660 | 25,841,408 | ||||||||||||
Diluted weighted average shares outstanding | 44,239,007 | 39,950,760 | 43,937,066 | 27,294,945 | ||||||||||||
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Elevate Credit, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Dollars in thousands) | June 30, 2018 | December 31, 2017 | ||||||
(unaudited) | (audited) | |||||||
ASSETS | ||||||||
Cash and cash equivalents* | $ | 69,368 | $ | 41,142 | ||||
Restricted cash | 1,594 | 1,595 | ||||||
Loans receivable, net of allowance for loan losses of $76,575 and $87,946, respectively* | 507,801 | 524,619 | ||||||
Prepaid expenses and other assets* | 12,924 | 10,306 | ||||||
Receivable from CSO lenders | 17,752 | 22,811 | ||||||
Receivable from payment processors* | 26,742 | 21,126 | ||||||
Deferred tax assets, net | 18,105 | 23,545 | ||||||
Property and equipment, net | 31,415 | 24,249 | ||||||
Goodwill | 16,027 | 16,027 | ||||||
Intangible assets, net | 2,000 | 2,123 | ||||||
Derivative assets (cost basis of $761 and $0 respectively)* | 2,016 | — | ||||||
Total assets | $ | 705,744 | $ | 687,543 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Accounts payable and accrued liabilities* | $ | 36,800 | $ | 42,213 | ||||
State and other taxes payable | 931 | 884 | ||||||
Deferred revenue* | 28,863 | 33,023 | ||||||
Notes payable, net* | 525,344 | 513,295 | ||||||
Derivative liability | — | 1,972 | ||||||
Total liabilities | 591,938 | 591,387 | ||||||
COMMITMENTS, CONTINGENCIES AND GUARANTEES | ||||||||
STOCKHOLDERS’ EQUITY | ||||||||
Preferred stock | — | — | ||||||
Common stock | 17 | 17 | ||||||
Accumulated other comprehensive income | 1,772 | 2,003 | ||||||
Additional paid-in capital | 178,440 | 174,090 | ||||||
Accumulated deficit | (66,423 | ) | (79,954) | |||||
Total stockholders’ equity | 113,806 | 96,156 | ||||||
Total liabilities and stockholders’ equity | $ | 705,744 | $ | 687,543 | ||||
* These balances include certain assets and liabilities of a variable interest entity (“VIE”) that can only be used to settle the liabilities of that VIE. All assets of the Company are pledged as security for the Company’s outstanding debt, including debt held by the VIE.
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Non-GAAP Financial Measures
This press release and the attached financial tables contain certain non-GAAP financial measures, including Adjusted EBITDA, Adjusted EBITDA margin, combined loans receivable and combined loan loss reserve.
Adjusted EBITDA and Adjusted EBITDA margin
In addition to net income determined in accordance with GAAP, Elevate uses certain non-GAAP measures such as “Adjusted EBITDA” and "Adjusted EBITDA margin" in assessing its operating performance. Elevate believes these non-GAAP measures are appropriate measures to be used in evaluating the performance of its business.
Elevate defines Adjusted EBITDA as net income excluding the impact of income tax expense (benefit), non-operating (gain) loss, foreign currency transaction (gain) loss associated with the Company's UK operations, net interest expense, share-based compensation expense and depreciation and amortization expense. Elevate defines Adjusted EBITDA margin as Adjusted EBITDA divided by revenue.
Management believes that Adjusted EBITDA and Adjusted EBITDA margin are useful supplemental measures to assist management and investors in analyzing the operating performance of the business and provide greater transparency into the results of operations of the Company's core business. Management uses this non-GAAP financial measure frequently in its decision-making because it provides supplemental information that facilitates internal comparisons to the historical operating performance of prior periods and gives an additional indication of Elevate’s core operating performance. Elevate includes this non-GAAP financial measure in its earnings announcement in order to provide transparency to its investors and enable investors to better compare its operating performance with the operating performance of its competitors.
Adjusted EBITDA and Adjusted EBITDA margin should not be considered as alternatives to net income or any other performance measure derived in accordance with GAAP. The Company's use of Adjusted EBITDA and Adjusted EBITDA margin has limitations as an analytical tool, and investors should not consider it in isolation or as a substitute for analysis of the Company's results as reported under GAAP. Some of these limitations are:
• | Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect expected cash capital expenditure requirements for such replacements or for new capital assets; |
• | Adjusted EBITDA does not reflect changes in, or cash requirements for, the Company's working capital needs; and |
• | Adjusted EBITDA does not reflect interest associated with notes payable used for funding the Company's customer loans, for other corporate purposes or tax payments that may represent a reduction in cash available to the Company. |
Additionally, Elevate’s definition of Adjusted EBITDA may not be comparable to similarly titled measures reported by other companies.
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. 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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The following table presents a reconciliation of Adjusted EBITDA and Adjusted EBITDA margin to Elevate’s net income for the three and six months ended June 30, 2018 and 2017.
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
(Dollars in thousands) | 2018 | 2017 | 2018 | 2017 | ||||||||||||
Net income | $ | 3,128 | $ | 3,020 | $ | 12,611 | $ | 4,688 | ||||||||
Adjustments: | ||||||||||||||||
Net interest expense | 19,263 | 18,095 | 38,476 | 37,341 | ||||||||||||
Share-based compensation | 2,010 | 2,085 | 3,647 | 2,787 | ||||||||||||
Foreign currency transaction (gain) loss | 1,231 | (1,716 | ) | 475 | (2,284 | ) | ||||||||||
Depreciation and amortization | 2,962 | 2,393 | 5,677 | 5,001 | ||||||||||||
Non-operating (gain) loss | — | (2,646 | ) | 38 | (2,513 | ) | ||||||||||
Income tax expense (benefit) | 94 | (1,420 | ) | 4,745 | (283 | ) | ||||||||||
Adjusted EBITDA | $ | 28,688 | $ | 19,811 | $ | 65,669 | $ | 44,737 | ||||||||
Adjusted EBITDA Margin | 16 | % | 13 | % | 17 | % | 15 | % | ||||||||
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Supplemental Schedules
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Revenue by Product
Three Months Ended June 30, 2018 | ||||||||||||||||||||
(Dollars in thousands) | Rise(1) | Elastic | Total Domestic | Sunny | Total | |||||||||||||||
Average combined loans receivable – principal(2) | $ | 277,281 | $ | 244,583 | $ | 521,864 | $ | 52,092 | $ | 573,956 | ||||||||||
Effective APR | 137 | % | 97 | % | 118 | % | 226 | % | 128 | % | ||||||||||
Finance charges | $ | 94,716 | $ | 59,298 | $ | 154,014 | $ | 29,380 | $ | 183,394 | ||||||||||
Other | 435 | 460 | 895 | 88 | 983 | |||||||||||||||
Total revenue | $ | 95,151 | $ | 59,758 | $ | 154,909 | $ | 29,468 | $ | 184,377 | ||||||||||
Three Months Ended June 30, 2017 | ||||||||||||||||||||
(Dollars in thousands) | Rise(1) | Elastic | Total Domestic | Sunny | Total | |||||||||||||||
Average combined loans receivable – principal(2) | $ | 231,098 | $ | 181,284 | $ | 412,382 | $ | 42,094 | $ | 454,476 | ||||||||||
Effective APR | 139 | % | 97 | % | 120 | % | 236 | % | 131 | % | ||||||||||
Finance charges | $ | 79,934 | $ | 43,808 | $ | 123,742 | $ | 24,790 | $ | 148,532 | ||||||||||
Other | 1,401 | 423 | 1,824 | 115 | 1,939 | |||||||||||||||
Total revenue | $ | 81,335 | $ | 44,231 | $ | 125,566 | $ | 24,905 | $ | 150,471 | ||||||||||
(1) Includes loans originated by third party lenders through the CSO programs, which are not included in the Company’s condensed consolidated financial statements.
(2) Average combined loans receivable - principal is calculated using daily principal balances. Not a financial measure prepared in accordance with GAAP. See reconciliation table accompanying this release for a reconciliation of non-GAAP financial measures to the most directly comparable financial measure calculated in accordance with GAAP.
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Revenue by Product, Continued
Six Months Ended June 30, 2018 | ||||||||||||||||||||
(Dollars in thousands) | Rise(1) | Elastic | Total Domestic | Sunny | Total | |||||||||||||||
Average combined loans receivable – principal(2) | $ | 289,565 | $ | 244,980 | $ | 534,545 | $ | 51,970 | $ | 586,515 | ||||||||||
Effective APR | 138 | % | 97 | % | 119 | % | 231 | % | 129 | % | ||||||||||
Finance charges | $ | 197,924 | $ | 118,201 | $ | 316,125 | $ | 59,527 | $ | 375,652 | ||||||||||
Other | 1,265 | 825 | 2,090 | 172 | 2,262 | |||||||||||||||
Total revenue | $ | 199,189 | $ | 119,026 | $ | 318,215 | $ | 59,699 | $ | 377,914 | ||||||||||
Six Months Ended June 30, 2017 | ||||||||||||||||||||
(Dollars in thousands) | Rise(1) | Elastic | Total Domestic | Sunny | Total | |||||||||||||||
Average combined loans receivable – principal(2) | $ | 238,324 | $ | 178,466 | $ | 416,790 | $ | 43,025 | $ | 459,815 | ||||||||||
Effective APR | 143 | % | 97 | % | 123 | % | 233 | % | 133 | % | ||||||||||
Finance charges | $ | 169,168 | $ | 85,580 | $ | 254,748 | $ | 49,637 | $ | 304,385 | ||||||||||
Other | 1,557 | 781 | 2,338 | 115 | 2,453 | |||||||||||||||
Total revenue | $ | 170,725 | $ | 86,361 | $ | 257,086 | $ | 49,752 | $ | 306,838 | ||||||||||
(1) Includes loans originated by third party lenders through the CSO programs, which are not included in the Company’s condensed consolidated financial statements.
(2) Average combined loans receivable - principal is calculated using daily principal balances. Not a financial measure prepared in accordance with GAAP. See reconciliation table accompanying this release for a reconciliation of non-GAAP financial measures to the most directly comparable financial measure calculated in accordance with GAAP.
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Loan Loss Reserve by Product
Three Months Ended June 30, 2018 | ||||||||||||||||||||
(Dollars in thousands) | Rise | Elastic | Total Domestic | Sunny | Total | |||||||||||||||
Combined loan loss reserve(1): | ||||||||||||||||||||
Beginning balance | $ | 44,209 | $ | 28,098 | $ | 72,307 | $ | 11,939 | $ | 84,246 | ||||||||||
Net charge-offs | (49,494 | ) | (28,490 | ) | (77,984 | ) | (13,772 | ) | (91,756 | ) | ||||||||||
Provision for loan losses | 46,081 | 29,786 | 75,867 | 12,731 | 88,598 | |||||||||||||||
Effect of foreign currency | — | — | — | (557 | ) | (557 | ) | |||||||||||||
Ending balance | $ | 40,796 | $ | 29,394 | $ | 70,190 | $ | 10,341 | $ | 80,531 | ||||||||||
Combined loans receivable(1)(2) | $ | 305,674 | $ | 265,959 | $ | 571,633 | $ | 52,128 | $ | 623,761 | ||||||||||
Combined loan loss reserve as a percentage of ending combined loans receivable | 13 | % | 11 | % | 12 | % | 20 | % | 13 | % | ||||||||||
Net charge-offs as a percentage of revenues | 52 | % | 48 | % | 50 | % | 47 | % | 50 | % | ||||||||||
Provision for loan losses as a percentage of revenues | 48 | % | 50 | % | 49 | % | 43 | % | 48 | % | ||||||||||
Three Months Ended June 30, 2017 | ||||||||||||||||||||
(Dollars in thousands) | Rise | Elastic | Total Domestic | Sunny | Total | |||||||||||||||
Combined loan loss reserve(1): | ||||||||||||||||||||
Beginning balance | $ | 42,414 | $ | 20,087 | $ | 62,501 | $ | 10,862 | $ | 73,363 | ||||||||||
Net charge-offs | (43,046 | ) | (22,564 | ) | (65,610 | ) | (10,622 | ) | (76,232 | ) | ||||||||||
Provision for loan losses | 41,661 | 23,163 | 64,824 | 7,473 | 72,297 | |||||||||||||||
Effect of foreign currency | — | — | — | 412 | 412 | |||||||||||||||
Ending balance | $ | 41,029 | $ | 20,686 | $ | 61,715 | $ | 8,125 | $ | 69,840 | ||||||||||
Combined loans receivable(1)(2) | $ | 259,260 | $ | 204,108 | $ | 463,368 | $ | 41,922 | $ | 505,290 | ||||||||||
Combined loan loss reserve as a percentage of ending combined loans receivable | 16 | % | 10 | % | 13 | % | 19 | % | 14 | % | ||||||||||
Net charge-offs as a percentage of revenues | 53 | % | 51 | % | 52 | % | 43 | % | 51 | % | ||||||||||
Provision for loan losses as a percentage of revenues | 51 | % | 52 | % | 52 | % | 30 | % | 48 | % | ||||||||||
(1) Not a financial measure prepared in accordance with GAAP. See reconciliation table accompanying this release for a reconciliation of non-GAAP financial measures to the most directly comparable financial measure calculated in accordance with GAAP.
(2) Includes loans originated by third-party lenders through the CSO programs, which are not included in the Company's condensed consolidated financial statements.
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Loan Loss Reserve by Product, Continued
Six Months Ended June 30, 2018 | ||||||||||||||||||||
(Dollars in thousands) | Rise | Elastic | Total Domestic | Sunny | Total | |||||||||||||||
Combined loan loss reserve(1): | ||||||||||||||||||||
Beginning balance | $ | 55,867 | $ | 28,870 | $ | 84,737 | $ | 9,052 | $ | 93,789 | ||||||||||
Net charge-offs | (112,941 | ) | (58,175 | ) | (171,116 | ) | (22,682 | ) | (193,798 | ) | ||||||||||
Provision for loan losses | 97,870 | 58,699 | 156,569 | 24,171 | 180,740 | |||||||||||||||
Effect of foreign currency | — | — | — | (200 | ) | (200 | ) | |||||||||||||
Ending balance | $ | 40,796 | $ | 29,394 | $ | 70,190 | $ | 10,341 | $ | 80,531 | ||||||||||
Combined loans receivable(1)(2) | $ | 305,674 | $ | 265,959 | $ | 571,633 | $ | 52,128 | $ | 623,761 | ||||||||||
Combined loan loss reserve as a percentage of ending combined loans receivable | 13 | % | 11 | % | 12 | % | 20 | % | 13 | % | ||||||||||
Net charge-offs as a percentage of revenues | 57 | % | 49 | % | 54 | % | 38 | % | 51 | % | ||||||||||
Provision for loan losses as a percentage of revenues | 49 | % | 49 | % | 49 | % | 40 | % | 48 | % | ||||||||||
Six Months Ended June 30, 2017 | ||||||||||||||||||||
(Dollars in thousands) | Rise | Elastic | Total Domestic | Sunny | Total | |||||||||||||||
Combined loan loss reserve(1): | ||||||||||||||||||||
Beginning balance | $ | 53,336 | $ | 19,389 | $ | 72,725 | $ | 9,651 | $ | 82,376 | ||||||||||
Net charge-offs | (102,676 | ) | (43,939 | ) | (146,615 | ) | (21,545 | ) | (168,160 | ) | ||||||||||
Provision for loan losses | 90,369 | 45,236 | 135,605 | 19,485 | 155,090 | |||||||||||||||
Effect of foreign currency | — | — | — | 534 | 534 | |||||||||||||||
Ending balance | $ | 41,029 | $ | 20,686 | $ | 61,715 | $ | 8,125 | $ | 69,840 | ||||||||||
Combined loans receivable(1)(2) | $ | 259,260 | $ | 204,108 | $ | 463,368 | $ | 41,922 | $ | 505,290 | ||||||||||
Combined loan loss reserve as a percentage of ending combined loans receivable | 16 | % | 10 | % | 13 | % | 19 | % | 14 | % | ||||||||||
Net charge-offs as a percentage of revenues | 60 | % | 51 | % | 57 | % | 43 | % | 55 | % | ||||||||||
Provision for loan losses as a percentage of revenues | 53 | % | 52 | % | 53 | % | 39 | % | 51 | % | ||||||||||
(1) Not a financial measure prepared in accordance with GAAP. See reconciliation table accompanying this release for a reconciliation of non-GAAP financial measures to the most directly comparable financial measure calculated in accordance with GAAP.
(2) Includes loans originated by third-party lenders through the CSO programs, which are not included in the Company's condensed consolidated financial statements.
13
Customer Loan Data by Product
Three Months Ended June 30, 2018 | ||||||||||||||||||||
Rise | Elastic | Total Domestic | Sunny | Total | ||||||||||||||||
Beginning number of combined loans outstanding | 127,263 | 138,555 | 265,818 | 86,791 | 352,609 | |||||||||||||||
New customer loans originated | 27,149 | 26,305 | 53,454 | 31,692 | 85,146 | |||||||||||||||
Former customer loans originated | 22,816 | 127 | 22,943 | — | 22,943 | |||||||||||||||
Attrition | (46,331 | ) | (15,847 | ) | (62,178 | ) | (25,928 | ) | (88,106 | ) | ||||||||||
Ending number of combined loans outstanding | 130,897 | 149,140 | 280,037 | 92,555 | 372,592 | |||||||||||||||
Customer acquisition cost | $ | 307 | $ | 234 | $ | 271 | $ | 243 | $ | 260 | ||||||||||
Average customer loan balance | $ | 2,187 | $ | 1,711 | $ | 1,934 | $ | 519 | $ | 1,582 | ||||||||||
Three Months Ended June 30, 2017 | ||||||||||||||||||||
Rise | Elastic | Total Domestic | Sunny | Total | ||||||||||||||||
Beginning number of combined loans outstanding | 99,885 | 94,163 | 194,048 | 75,691 | 269,739 | |||||||||||||||
New customer loans originated | 23,567 | 24,179 | 47,746 | 18,736 | 66,482 | |||||||||||||||
Former customer loans originated | 19,235 | — | 19,235 | — | 19,235 | |||||||||||||||
Attrition | (37,378 | ) | (11,605 | ) | (48,983 | ) | (20,136 | ) | (69,119 | ) | ||||||||||
Ending number of combined loans outstanding | 105,309 | 106,737 | 212,046 | 74,291 | 286,337 | |||||||||||||||
Customer acquisition cost | $ | 400 | $ | 176 | $ | 287 | $ | 315 | $ | 294 | ||||||||||
Average customer loan balance | $ | 2,311 | $ | 1,823 | $ | 2,066 | $ | 524 | $ | 1,666 | ||||||||||
14
Customer Loan Data by Product, Continued
Six Months Ended June 30, 2018 | ||||||||||||||||||||
Rise | Elastic | Total Domestic | Sunny | Total | ||||||||||||||||
Beginning number of combined loans outstanding | 140,790 | 140,672 | 281,462 | 80,510 | 361,972 | |||||||||||||||
New customer loans originated | 49,414 | 47,185 | 96,599 | 58,682 | 155,281 | |||||||||||||||
Former customer loans originated | 38,199 | 216 | 38,415 | — | 38,415 | |||||||||||||||
Attrition | (97,506 | ) | (38,933 | ) | (136,439 | ) | (46,637 | ) | (183,076 | ) | ||||||||||
Ending number of combined loans outstanding | 130,897 | 149,140 | 280,037 | 92,555 | 372,592 | |||||||||||||||
Customer acquisition cost | $ | 318 | $ | 252 | $ | 286 | $ | 260 | $ | 276 | ||||||||||
Average customer loan balance | $ | 2,187 | $ | 1,711 | $ | 1,934 | $ | 519 | $ | 1,582 | ||||||||||
Six Months Ended June 30, 2017 | ||||||||||||||||||||
Rise | Elastic | Total Domestic | Sunny | Total | ||||||||||||||||
Beginning number of combined loans outstanding | 121,996 | 89,153 | 211,149 | 78,044 | 289,193 | |||||||||||||||
New customer loans originated | 35,932 | 44,650 | 80,582 | 38,861 | 119,443 | |||||||||||||||
Former customer loans originated | 33,638 | — | 33,638 | — | 33,638 | |||||||||||||||
Attrition | (86,257 | ) | (27,066 | ) | (113,323 | ) | (42,614 | ) | (155,937 | ) | ||||||||||
Ending number of combined loans outstanding | 105,309 | 106,737 | 212,046 | 74,291 | 286,337 | |||||||||||||||
Customer acquisition cost | $ | 368 | $ | 164 | $ | 255 | $ | 246 | $ | 252 | ||||||||||
Average customer loan balance | $ | 2,311 | $ | 1,823 | $ | 2,066 | $ | 524 | $ | 1,666 | ||||||||||
15
Combined Loan Information
The Elastic line of credit product is originated by a third party lender, Republic Bank, which initially provides all of the funding for that product. Republic Bank retains 10% of the balances of all of the loans originated and sells a 90% loan participation in the Elastic lines of credit to a third party SPV, Elastic SPV, Ltd. Elevate is required to consolidate Elastic SPV, Ltd. as a variable interest entity under GAAP and the consolidated financial statements include revenue, losses and loans receivable related to the 90% of Elastic lines of credit originated by Republic Bank and sold to Elastic SPV, Ltd.
Elevate defines combined loans receivable - principal as loans owned by the Company plus loans originated and owned by third-party lenders pursuant to the Company's CSO programs. In Texas and Ohio, the Company does not make Rise loans directly, but rather act as a Credit Services Organization (which is also known as a Credit Access Business in Texas), or, collectively, “CSO,” and the loans are originated by an unaffiliated third party. Elevate defines combined loan loss reserve as the loan loss reserve for loans owned by the Company plus the loan loss reserve for loans originated and owned by third-party lenders and guaranteed by the Company. The information presented in the tables below on a combined basis are non-GAAP measures based on a combined portfolio of loans, which includes the total amount of outstanding loans receivable that the Company owns and that are on the Company's condensed consolidated balance sheets plus outstanding loans receivable originated and owned by third parties that the Company guarantees pursuant to CSO programs in which the Company participates.
The Company believes these non-GAAP measures provide investors with important information needed to evaluate the magnitude of potential loan losses and the opportunity for revenue performance of the combined loan portfolio on an aggregate basis. The Company also believes that the comparison of the combined amounts from period to period is more meaningful than comparing only the amounts reflected on the Company's condensed consolidated balance sheets since both revenues and cost of sales as reflected in the Company's condensed consolidated financial statements are impacted by the aggregate amount of loans the Company owns and those CSO loans the Company guarantees.
The Company's use of total combined loans and fees receivable has limitations as an analytical tool, and investors should not consider it in isolation or as a substitute for analysis of the Company's results as reported under GAAP. Some of these limitations are:
• | Rise CSO loans are originated and owned by a third party lender; and |
• | Rise CSO loans are funded by a third party lender and are not part of the VPC Facility. |
As of each of the period ends indicated, the following table presents a reconciliation of:
• | Loans receivable, net, Company owned (which reconciles to the Company's condensed consolidated balance sheets included elsewhere in this press release); |
• | Loans receivable, net, guaranteed by the Company; |
• | Combined loans receivable (which the Company uses as a non-GAAP measure); and |
• | Combined loan loss reserve (which the Company uses as a non-GAAP measure). |
16
2017 | 2018 | |||||||||||||||||||
(Dollars in thousands) | Mar 31 | Jun 30 | Dec 31 | Mar 31 | Jun 30 | |||||||||||||||
Company Owned Loans: | ||||||||||||||||||||
Loans receivable – principal, current, company owned | $ | 367,744 | $ | 403,944 | $ | 514,147 | $ | 471,996 | $ | 493,908 | ||||||||||
Loans receivable – principal, past due, company owned | 48,007 | 45,839 | 61,856 | 60,876 | 58,949 | |||||||||||||||
Loans receivable – principal, total, company owned | 415,751 | 449,783 | 576,003 | 532,872 | 552,857 | |||||||||||||||
Loans receivable – finance charges, company owned | 21,359 | 21,866 | 36,562 | 31,181 | 31,519 | |||||||||||||||
Loans receivable – company owned | 437,110 | 471,649 | 612,565 | 564,053 | 584,376 | |||||||||||||||
Allowance for loan losses on loans receivable, company owned | (69,798 | ) | (66,030 | ) | (87,946 | ) | (80,497 | ) | (76,575 | ) | ||||||||||
Loans receivable, net, company owned | $ | 367,312 | $ | 405,619 | $ | 524,619 | $ | 483,556 | $ | 507,801 | ||||||||||
Third Party Loans Guaranteed by the Company: | ||||||||||||||||||||
Loans receivable – principal, current, guaranteed by company | $ | 27,841 | $ | 30,210 | $ | 41,220 | $ | 33,469 | $ | 35,114 | ||||||||||
Loans receivable – principal, past due, guaranteed by company | 957 | 1,066 | 1,152 | 1,123 | 1,494 | |||||||||||||||
Loans receivable – principal, total, guaranteed by company(1) | 28,798 | 31,276 | 42,372 | 34,592 | 36,608 | |||||||||||||||
Loans receivable – finance charges, guaranteed by company(2) | 2,754 | 2,365 | 3,093 | 2,612 | 2,777 | |||||||||||||||
Loans receivable – guaranteed by company | 31,552 | 33,641 | 45,465 | 37,204 | 39,385 | |||||||||||||||
Liability for losses on loans receivable, guaranteed by company | (3,565 | ) | (3,810 | ) | (5,843 | ) | (3,749 | ) | (3,956 | ) | ||||||||||
Loans receivable, net, guaranteed by company(2) | $ | 27,987 | $ | 29,831 | $ | 39,622 | $ | 33,455 | $ | 35,429 | ||||||||||
Combined Loans Receivable(3): | ||||||||||||||||||||
Combined loans receivable – principal, current | $ | 395,585 | $ | 434,154 | $ | 555,367 | $ | 505,465 | $ | 529,022 | ||||||||||
Combined loans receivable – principal, past due | 48,964 | 46,905 | 63,008 | 61,999 | 60,443 | |||||||||||||||
Combined loans receivable – principal | 444,549 | 481,059 | 618,375 | 567,464 | 589,465 | |||||||||||||||
Combined loans receivable – finance charges | 24,113 | 24,231 | 39,655 | 33,793 | 34,296 | |||||||||||||||
Combined loans receivable | $ | 468,662 | $ | 505,290 | $ | 658,030 | $ | 601,257 | $ | 623,761 | ||||||||||
17
2017 | 2018 | |||||||||||||||||||
(Dollars in thousands) | Mar 31 | Jun 30 | Dec 31 | Mar 31 | Jun 30 | |||||||||||||||
Combined Loan Loss Reserve(3): | ||||||||||||||||||||
Allowance for loan losses on loans receivable, company owned | $ | (69,798 | ) | $ | (66,030 | ) | $ | (87,946 | ) | $ | (80,497 | ) | $ | (76,575 | ) | |||||
Liability for losses on loans receivable, guaranteed by company | (3,565 | ) | (3,810 | ) | (5,843 | ) | (3,749 | ) | (3,956 | ) | ||||||||||
Combined loan loss reserve | $ | (73,363 | ) | $ | (69,840 | ) | $ | (93,789 | ) | $ | (84,246 | ) | $ | (80,531 | ) | |||||
(1) Represents loans originated by third-party lenders through the CSO programs, which are not included in the Company's condensed consolidated financial statements.
(2) Represents finance charges earned by third-party lenders through the CSO programs, which are not included in the Company's condensed consolidated financial statements.
(3) Non-GAAP measure.
# # #
18
Q2 2018 Earnings Call July 2018
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 2018 and the third quarter 2018; our perspectives on 2018, 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 2017 and 2018 vintage; our growth strategies and our ability to effectively manage that growth; anticipated key marketing and underwriting initiatives; new and expanded products like a US credit card and 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, including in the third quarter of 2018; the cost of capital remaining high until 2019; 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 in the 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; 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 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 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 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 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 any regulatory or supervisory agency. 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 $5.9 billion to two million customers1 and saved them more than $4 billion over payday loans2 33
Elevate key performance highlights Q2 2018 Performance Elevate Goals Highlights 1 23% revenue growth YOY 23% combined loans receivable – 2 Strong Growth principal growth YOY 3 45% growth in Adjusted EBITDA YOY 16% Adjusted EBITDA margin3 Expanding Margins 240 basis point expansion YOY Stable Credit Quality Continued performance in target range $260 Q2, $276 YTD Managed CAC 30% more customers acquired over 1H17 Outsized Continued secular shift to responsible online products Customer Impact Average APR down almost 50% since 2013 Adjusted EBITDA, Adjusted EBITDA margin and combined loans receivable – principal are non-GAAP financial measures. See Appendix for a reconciliation to GAAP measures. 4
Recent Business Highlights Celebrated Elevate’s 2 Millionth Non-Prime Customer -Innovative credit solutions offer responsible alternatives to payday, title and storefront installment loans Named a 2018 Financial Health Leader by the CFSI Financial Health Network -Leading consumer financial health network highlights Elevate’s commitment to customer financial wellness Customers have saved more then $4 Billion over Payday Loans1 -More than $2 Billion saved in the last 18 months alone2 Launched Today Card Mastercard: Prime Credit Card for Non-Prime Consumers -New first-of-its-kind credit card product offered through Capital Community Bank of Utah 5
Today Card • Non-prime credit card with a prime experience • Larger lines than competing cards due to underwriting prowess • Broadens product portfolio • Continues commitment to customer financial health with “prime” rates • Expands bank partnership model 6
Growth in key financial measures ($mm) Ending combined loans receivable – principal, Adjusted EBITDA and Adjusted Net Income (Loss) are non-GAAP financial measures. See appendix for a reconciliation to a GAAP measure. 7
Consistent and improving credit quality The 2017 and 2018 vintages are not yet fully mature from a loss perspective – expected to be slightly better than 2016. 8
Continued margin expansion % of Gross Revenues 2015 2016 2017 YTD 2018 LT Target Gross Revenue 100% 100% 100% 100% 100% Loan Loss Provision 54% 55% 53% 48% 50% Direct Marketing and 18% 14% 14% 15% 10% Other Cost of Sales Gross Margin 29% 31% 33% 37% 40% Operating Expenses 25% 21% 20% 20% 20% Adjusted EBITDA 1 4% 10% 13% 17% 20% Margin Adjusted EBITDA margin is a non-GAAP financial measure. See Appendix for a reconciliation to GAAP measure. 9
2018 Outlook Annual guidance Perspective on Q3 Revenue = $790mm - $810mm Continued strong growth in new customers and portfolio balances Diluted EPS= $0.55 - $0.90 Operating margins higher than Q2 but lower than Q1 Net Income = $25mm - $40mm Continued improvements in credit quality Adjusted EBITDA1 = $125mm - $145mm CAC within range of $250-$300 Close management of Today pilot portfolio No change in cost of capital until 2019 Adjusted EBITDA is a non-GAAP financial measure. See appendix for a reconciliation to GAAP measures. 10
We believe everyone deserves a lift. 1111
Appendix 12
Footnotes Page 3: 1 Originations and customers from 2002-June 2018, attributable to the combined current and predecessor direct and branded products. 2 For the period from 2013 to June 30, 2018. Based on the average effective APR of 129% for the six months ended June 30, 2018. This estimate, which has not been independently confirmed, is based on our internal comparison of revenues from our combined loan portfolio and the same portfolio with an APR of 400%, which is the approximate average APR for a payday loan according to the Consumer Financial Protection Bureau, or the "CFPB." Page 4: 1 Second quarter 2018 revenue of $184 million and second quarter 2017 revenue of $150 million. 2 Combined loans receivable – principal at June 30, 2018 of $589 million and at June 30, 2017 of $481 million. Combined loans receivable - principal is 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 Second quarter 2018 Adjusted EBITDA of $29 million and second quarter 2017 Adjusted EBITDA of $20 million. Adjusted EBITDA is not a financial measure prepared in accordance with GAAP. Adjusted EBITDA represents our net income, 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; non-operating income; share-based compensation expense and income tax expense. See the Appendix for a reconciliation to GAAP net income. Adjusted EBITDA margin is Adjusted EBITDA divided by revenue. Page 5: 1 For the period from 2013 to June 30, 2018. Based on the average effective APR of 129% for the six months ended June 30, 2018. This estimate, which has not been independently confirmed, is based on our internal comparison of revenues from our combined loan portfolio and the same portfolio with an APR of 400%, which is the approximate average APR for a payday loan according to the Consumer Financial Protection Bureau, or the "CFPB.“ 2 For the period from January 2017 to June 30, 2018. Based on the average effective APR of 129% for the six months ended June 30, 2018. This estimate, which has not been independently confirmed, is based on our internal comparison of revenues from our combined loan portfolio and the same portfolio with an APR of 400%, which is the approximate average APR for a payday loan according to the Consumer Financial Protection Bureau, or the "CFPB." Page 7: 1 Ending combined loans receivable - principal is a non-GAAP financial measure. See appendix for a reconciliation to a GAAP measure. 2 19% is based on 2018 estimate midpoint. 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; non-operating income; stock-based compensation expense and income tax expense. See the Appendix for a reconciliation to GAAP net income. 4 55% is based on 2018 estimate midpoint. 5 2017 adjusted net income of $5.5 million is not a financial measure prepared in accordance with 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. 13
Footnotes (continued) Page 9 1 Adjusted EBITDA is not a financial measure prepared in accordance with GAAP. Adjusted EBITDA represents our net income, 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; 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 10 1 Adjusted EBITDA margin is not a financial measure prepared in accordance with GAAP. Adjusted EBITDA margin is defined as Adjusted EBITDA divided by revenue. Adjusted EBITDA represents our net income (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; loss on discontinued operations; non-operating income; share-based compensation expense and income tax benefit. See the Appendix for a reconciliation to GAAP income. 14
Non-GAAP financials reconciliation Adjusted EBITDA is a non-GAAP financial measure. See Appendix for a reconciliation to GAAP 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 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. 15
Combined loans reconciliation 16
Combined loans reconciliation (continued) 1 Represents loans originated by third-party lenders through the CSO programs, which are not included in our financial statements. 2 Represents finance charges earned by third-party lenders through CSO programs, which are not included in our financial statements. 3 Non-GAAP measure. . 17
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