Elevate Credit Earnings 2020-06-30

Balance Sheet	Income Statement	Cash Flow
Assets, Equity	Rev, G Profit, Net Income	Ops, Inv, Fin

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission file number 001-37680

ELEVATE CREDIT, INC.

(Exact name of registrant as specified in its charter)



Delaware				46-4714474
State or Other Jurisdiction of Incorporation or Organization				I.R.S. Employer Identification Number



4150 International Plaza,	Suite 300
Fort Worth,	TX			76109
Address of Principal Executive Offices				Zip Code
		(817)	928-1500
Registrant’s Telephone Number, Including Area Code

Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.



Yes	☒	No	☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).



Yes	☒	No	☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	☐	Non-accelerated filer	☐
Accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☒

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 7(a)(2)(B) of the Securities Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

Securities registered pursuant to Section 12(b) of the Act.



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Shares, $0.0004 par value	ELVT	New York Stock Exchange

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:



Class		Outstanding at August 5, 2020
Common Shares, $0.0004 par value		40,788,816

TABLE OF CONTENTS



Note About Forward-Looking Statements			4
Part I - Financial Information
	Item 1.	Financial Statements
		Condensed Consolidated Balance Sheets as of June 30, 2020 (unaudited) and December 31, 2019	6
		Unaudited Condensed Consolidated Income Statements for the three and six months ended June 30, 2020 and 2019	7
		Unaudited Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2020 and 2019	8
		Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the six months ended June 30, 2020 and 2019	9
		Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019	10
		Notes to Unaudited Condensed Consolidated Financial Statements	12
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	42
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	85
	Item 4.	Controls and Procedures	86
Part II - Other Information
	Item 1.	Legal Proceedings	87
	Item 1A.	Risk Factors	88
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	122
	Item 6.	Exhibits	123
SIGNATURES			124

NOTE ABOUT FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act") that are based on our management’s beliefs and assumptions and on information currently available to our management. The forward-looking statements are contained throughout this Quarterly Report on Form 10-Q, including in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and "Risk Factors." Forward-looking statements include information concerning our strategy, future operations, future financial position, future revenues, projected expenses, margins, prospects and plans and objectives of management. Forward-looking statements include all statements that are not historical facts and can be identified by terms such as “anticipate,” “believe,” “could,” “seek,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” or similar expressions and the negatives of those terms. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:


•	our future financial performance, including our expectations regarding our revenue, cost of revenue, growth rate of revenue, cost of borrowing, credit losses, marketing costs, net charge-offs, gross profit or gross margin, operating expenses, operating margins, loans outstanding, credit quality, ability to generate cash flow and ability to achieve and maintain future profitability;

•

the effects of the outbreak of the novel coronavirus ("COVID-19") on demand for our products, our business, our financial condition and results of operations, including as a result of the expansion of our payment flexibility program to provide temporary relief to certain customers, underwriting changes we and the bank originators we support are implementing to address credit risk associated with originations during the economic crisis created by the COVID-19 pandemic, and new legislation or other governmental responses to the pandemic;


•	the availability of debt financing, funding sources and disruptions in credit markets;


•	our ability to meet anticipated cash operating expenses and capital expenditure requirements, including our plans with respect to assessing minimum cash and liquidity requirements and implementing measures to ensure that our strong liquidity position is maintained through the current economic cycle;


•	anticipated trends, growth rates, seasonal fluctuations and challenges in our business and in the markets in which we operate;


•	our ability to anticipate market needs and develop new and enhanced or differentiated products, services and mobile apps to meet those needs, and our ability to successfully monetize them;


•	our expectations with respect to trends in our average portfolio effective annual percentage rate;


•	our anticipated growth and growth strategies and our ability to effectively manage that growth;


•	our anticipated expansion of relationships with strategic partners, including banks;


•	customer demand for our product and our ability to respond to fluctuations in demand;


•	our ability to attract potential customers and retain existing customers and our 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;


•	our ability to attract and retain necessary qualified directors, officers and employees to expand our operations;


•	our reliance on third-party service providers;


•	our access to the automated clearing house system;


•	the efficacy of our marketing efforts and relationships with marketing affiliates;


•	our anticipated direct marketing costs and spending;


•	the evolution of technology affecting our products, services and markets;


•	continued innovation of our analytics platform, including releases of new credit models;


•	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 the platform or adversely impact our ability to service loans;


•	our ability to detect and filter fraudulent or incorrect information provided to us by our customers or by third parties;


•	our ability to adequately protect our intellectual property;


•	our compliance with applicable local, state, federal and foreign laws;


•	our compliance with, and the effects on our business and results of operations from, current or future applicable regulatory developments and regulations, including developments or changes from the Consumer Financial Protection Bureau ("CFPB") and developments or changes in state law;


•	regulatory developments or scrutiny by agencies regulating our business or the businesses of our third-party partners;


•	public perception of our business and industry;


•	the anticipated effect on our business of litigation or regulatory proceedings to which we or our officers are a party;


•	the anticipated effect on our business of natural or man-made catastrophes;


•	the increased expenses and administrative workload associated with being a public company;


•	failure to maintain an effective system of internal controls necessary to accurately report our financial results and prevent fraud;


•	our liquidity and working capital requirements;


•	the estimates and estimate methodologies used in preparing our consolidated financial statements;


•	the utility of non-GAAP financial measures;


•	the future trading prices of our common stock and the impact of securities analysts’ reports on these prices;


•	our anticipated development and release of certain products and applications and changes to certain products;


•	our anticipated investing activity;


•	trends anticipated to continue as our portfolio of loans matures; and


•	any future repurchases under our share repurchase program, including the timing and amount of repurchases thereunder.

We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.

Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. We discuss these risks in greater detail in "Risk Factors" and elsewhere in this Quarterly Report on Form 10-Q. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this Quarterly Report on Form 10-Q. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

Elevate Credit, Inc. and Subsidiaries

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

CONDENSED CONSOLIDATED BALANCE SHEETS



(Dollars in thousands except share amounts)	June 30, 2020			December 31, 2019
	(unaudited)
ASSETS
Cash and cash equivalents*	$	167,735		$	71,215
Restricted cash	2,135			2,235
Loans receivable, net of allowance for loan losses of $59,438 and $79,912, respectively*	373,024			542,073
Prepaid expenses and other assets*	9,492			6,737
Operating lease right of use assets	9,286			10,191
Receivable from CSO lenders	3,854			8,696
Receivable from payment processors*	6,603			8,681
Deferred tax assets, net	22,887			8,784
Property and equipment, net	36,686			35,944
Goodwill, net	6,776			6,776
Intangible assets, net	1,193			1,253
Assets from discontinued operations (see Note 13)	—			81,002
Total assets	$	639,671		$	783,587

LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable and accrued liabilities (See Note 14)*	$	25,404		$	38,679
Operating lease liabilities	13,207			14,352
Income taxes payable	235			—
Deferred revenue*	5,310			12,087
Notes payable, net (See Note 14)*	438,174			525,439
Liabilities from discontinued operations (see Note 13)	1,209			36,541
Total liabilities	483,539			627,098
COMMITMENTS, CONTINGENCIES AND GUARANTEES (Note 12)
STOCKHOLDERS’ EQUITY
Preferred stock; $0.0004 par value; 24,500,000 authorized shares; None issued and outstanding at June 30, 2020 and December 31, 2019.	—			—
Common stock; $0.0004 par value; 300,000,000 authorized shares; 44,960,438 and 44,445,736 issued; 42,007,167 and 43,676,826 outstanding, respectively	18			18
Additional paid-in capital	198,188			193,061
Treasury stock; at cost; 2,953,271 and 768,910 shares of common stock, respectively	(7,955		)	(3,344		)
Accumulated deficit	(34,119		)	(34,342		)
Accumulated other comprehensive income, net of tax benefit of $0 and $1,353, respectively	—			1,096
Total stockholders’ equity	156,132			156,489
Total liabilities and stockholders’ equity	$	639,671		$	783,587

* These balances include certain assets and liabilities of variable interest entities (“VIEs”) that can only be used to settle the liabilities of that respective VIE. All assets of the Company are pledged as security for the Company’s outstanding debt, including debt held by the VIEs. For further information regarding the assets and liabilities included in our consolidated accounts, see Note 4—Variable Interest Entities.

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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)	2020			2019			2020			2019
Revenues	$	117,991		$	150,374		$	280,458		$	310,440
Cost of sales:
Provision for loan losses	41,477			68,282			120,052			143,637
Direct marketing costs	344			11,074			11,313			18,271
Other cost of sales	1,607			2,508			4,277			4,786
Total cost of sales	43,428			81,864			135,642			166,694
Gross profit	74,563			68,510			144,816			143,746
Operating expenses:
Compensation and benefits	16,844			21,938			40,318			44,139
Professional services	8,471			7,686			16,397			15,864
Selling and marketing	904			1,460			1,858			2,552
Occupancy and equipment	4,843			4,013			9,479			7,835
Depreciation and amortization	4,529			3,955			8,825			7,811
Other	907			1,505			1,978			2,622
Total operating expenses	36,498			40,557			78,855			80,823
Operating income	38,065			27,953			65,961			62,923
Other expense:
Net interest expense (See Note 14)	(12,177		)	(16,936		)	(25,833		)	(34,936		)
Non-operating loss	(1,422		)	—			(5,685		)	—
Total other expense	(13,599		)	(16,936		)	(31,518		)	(34,936		)
Income from continuing operations before taxes	24,466			11,017			34,443			27,987
Income tax expense	8,373			2,634			10,428			8,649
Net income from continuing operations	16,093			8,383			24,015			19,338
Net loss from discontinued operations	(7,540		)	(2,611		)	(20,373		)	(208		)
Net income	$	8,553		$	5,772		$	3,642		$	19,130

Basic income per share
Continuing operations	$	0.38		$	0.19		$	0.56		$	0.44
Discontinued operations	(0.18		)	(0.06		)	(0.47		)	—
Basic earnings per share	$	0.20		$	0.13		$	0.09		$	0.44

Diluted income per share
Continuing operations	$	0.38		$	0.19		$	0.56		$	0.44
Discontinued operations	(0.18		)	(0.06		)	(0.47		)	(0.01		)
Diluted earnings per share	$	0.20		$	0.13		$	0.09		$	0.43

Basic weighted average shares outstanding	42,182,412			43,681,159			42,673,879			43,514,862
Diluted weighted average shares outstanding	42,511,808			44,291,816			43,090,730			44,142,947

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Elevate Credit, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)



(Dollars in thousands)	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)	2020			2019			2020			2019
Net income	$	8,553		$	5,772		$	3,642		$	19,130
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustment, net of tax of $0 and $1 for the three months ended 2020 and 2019, respectively, and $(14) and $(1) for the six months ended 2020 and 2019, respectively	(58		)	(724		)	(2,061		)	(59		)
Reclassification to Net loss from discontinued operations, net of tax of $1,369 and $0 for the three and six months ended 2020 and 2019, respectively	965			—			965			—
Change in derivative valuation, net of tax of $0 and $(95) for the three and six months ended 2020 and 2019, respectively	—			—			—			(208		)
Total other comprehensive (loss) income, net of tax	907			(724		)	(1,096		)	(267		)
Total comprehensive income	$	9,460		$	5,048		$	2,546		$	18,863

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Elevate Credit, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

For the periods ended June 30, 2020 and 2019



(Dollars in thousands except share amounts)	Preferred Stock		Common Stock				Additional paid-in capital			Treasury Stock					Accumulated deficit			Accumulated other comprehensive income (loss)			Total
(Dollars in thousands except share amounts)	Shares	Amount	Shares		Amount		Additional paid-in capital			Shares		Amount			Accumulated deficit			Accumulated other comprehensive income (loss)			Total
Balances at December 31, 2018	—	—	43,329,262		$	18	$	183,244		—		$	—		$	(66,525	)	$	54		$	116,791
Share-based compensation -US	—	—	—		—		4,922			—		—			—			—			4,922
Share-based compensation -UK	—	—	—		—		(11		)	—		—			—			—			(11		)
Exercise of stock options	—	—	25,000		—		81			—		—			—			—			81
Vesting of restricted stock units	—	—	677,343		—		(1,211		)	—		—			—			—			(1,211		)
ESPP shares issued	—	—	142,267		—		498			—		—			—			—			498
Tax benefit of equity issuance costs	—	—	—		—		(2		)	—		—			—			—			(2		)
Comprehensive loss:
Foreign currency translation adjustment net of tax benefit of $(1)	—	—	—		—		—			—		—			—			(59		)	(59		)
Change in derivative valuation net of tax benefit of $(95)	—	—	—		—		—			—		—			—			(208		)	(208		)
Net income from continuing operations	—	—	—		—		—			—		—			19,338			—			19,338
Net loss from discontinued operations	—	—	—		—		—			—		—			(208		)	—			(208		)
Balances at June 30, 2019	—	—	44,173,872		$	18	$	187,521		—		$	—		$	(47,395	)	$	(213	)	$	139,931

Balances at December 31, 2019	—	—	43,676,826		18		193,061			768,910		(3,344		)	(34,342		)	1,096			156,489
Share-based compensation -US	—	—	—		—		5,347			—		—			—			—			5,347
Share-based compensation -UK	—	—	—		—		45			—		—			—			—			45
Exercise of stock options	—	—	34,185		—		(51		)	—		—			—			—			(51		)
Vesting of restricted stock units	—	—	199,933		—		(567		)	—		—			—			—			(567		)
ESPP shares issued	—	—	280,584		—		353			—		—			—			—			353
Comprehensive loss:
Foreign currency translation adjustment net of tax of $1,355	—	—	—		—		—			—		—			—			(1,096		)	(1,096		)
Treasury stock reissued for RSUs vesting	—	—	785,218		—		—			(785,218	)	3,419			(3,419		)	—			—
Treasury stock acquired	—	—	(2,969,579	)	—		—			2,969,579		(8,030		)	—			—			(8,030		)
Net income from continuing operations	—	—	—		—		—			—		—			24,015			—			24,015
Net loss from discontinued operations	—	—	—		—		—			—		—			(20,373		)	—			(20,373		)
Balances at June 30, 2020	—	—	42,007,167		$	18	$	198,188		2,953,271		$	(7,955	)	$	(34,119	)	$	—		$	156,132

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Elevate Credit, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)



(Dollars in thousands)	Six Months Ended June 30,
	2020			2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	3,642		$	19,130
Less: Net loss from discontinued operations, net of tax	(20,373		)	(208		)
Net income from continuing operations	24,015			19,338
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	8,825			7,812
Provision for loan losses	120,052			143,637
Share-based compensation	5,347			4,922
Amortization of debt issuance costs	343			278
Amortization of loan premium	2,740			2,981
Amortization of derivative assets	—			108
Amortization of operating leases	(239		)	145
Deferred income tax expense, net	10,096			8,117
Non-operating loss	5,685			—
Changes in operating assets and liabilities:
Prepaid expenses and other assets	(3,219		)	(186		)
Income taxes payable	700			—
Receivables from payment processors	2,077			(612		)
Receivables from CSO lenders	4,842			5,937
Interest receivable	(26,124		)	(32,109		)
State and other taxes payable	(91		)	232
Deferred revenue	(6,226		)	(9,583		)
Accounts payable and accrued liabilities	(17,579		)	1,461
Net cash provided by continuing operating activities	131,244			152,478
Net cash provided by discontinued operating activities	1,335			16,949
Net cash provided by operating activities	132,579			169,427
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans receivable originated or participations purchased	(307,170		)	(484,601		)
Principal collections and recoveries on loans receivable	379,791			387,529
Participation premium paid	(2,036		)	(2,491		)
Purchases of property and equipment	(9,508		)	(9,750		)
Net cash provided by (used in) continuing investing activities	61,077			(109,313		)
Net cash provided by (used in) discontinued investing activities	9,457			(18,016		)
Net cash provided by (used in) investing activities	70,534			(127,329		)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Elevate Credit, Inc. and Subsidiaries



	Six Months Ended June 30,
(Dollars in thousands)	2020			2019
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable	$	6,500		$	27,000
Payments of notes payable	(94,000		)	(60,000		)
Debt issuance costs paid	(108		)	(2,598		)
Debt prepayment costs paid	—			(850		)
ESPP shares issued	354			498
Common stock repurchased	(8,030		)	—
Proceeds from stock option exercises	27			81
Taxes paid related to net share settlement of equity awards	(644		)	(1,211		)
Net cash used in continuing financing activities	(95,901		)	(37,080		)
Net cash used in discontinued financing activities	(16,310		)	0
Net cash used in financing activities	(112,211		)	(37,080		)
Net increase in cash, cash equivalents and restricted cash

Price	4.47	EPS	1
Shares	45	P/E	7
MCap	200	P/FCF	1
Net Debt	472	EBIT	90
TEV	672	TEV/EBIT	7
TTM 2019-09-30, in MM, except price, ratios

10-Q	2020-06-30	Filed 2020-08-07
10-Q	2020-03-31	Filed 2020-05-08
10-K	2019-12-31	Filed 2020-02-14
10-Q	2019-09-30	Filed 2019-11-08
10-Q	2019-06-30	Filed 2019-08-09
10-Q	2019-03-31	Filed 2019-05-10
10-K	2018-12-31	Filed 2019-03-08
10-Q	2018-09-30	Filed 2018-11-09
10-Q	2018-06-30	Filed 2018-08-10
10-Q	2018-03-31	Filed 2018-05-11
10-K	2017-12-31	Filed 2018-03-09
10-Q	2017-09-30	Filed 2017-11-09
10-Q	2017-06-30	Filed 2017-08-11
10-Q	2017-03-31	Filed 2017-05-18

8-K	2020-08-06	Enter Agreement, Earnings, Off-BS Arrangement, Officers, Exhibits
8-K	2020-07-17	Officers
8-K	2020-06-29	M&A, Exhibits
8-K	2020-05-06
8-K	2020-05-01
8-K	2020-02-10
8-K	2019-11-21
8-K	2019-11-04
8-K	2019-07-29
8-K	2019-05-03
8-K	2019-04-29
8-K	2019-02-11
8-K	2019-02-06
8-K	2019-01-24
8-K	2018-10-29
8-K	2018-07-30
8-K	2018-05-31
8-K	2018-05-04
8-K	2018-04-30
8-K	2018-03-19
8-K	2018-02-08
8-K	2018-01-24
8-K	2018-01-24

EX-10.2	exh102sgreeverempagree.htm
EX-10.3	exh1031stamendsgreever.htm
EX-10.4	exh1042ndamendsgreever.htm
EX-10.5	exh1053rdamendsgreever.htm
EX-10.6	exh1064thamendsgreever.htm
EX-31.1	exhibit31106-30x20.htm
EX-31.2	exhibit31206-30x20.htm
EX-32.1	exhibit32106-30x20.htm
EX-32.2	exhibit32206-30x20.htm

ELVT 10Q Quarterly Report

Elevate Credit Earnings 2020-06-30