Elevate Credit’s (ELVT) CEO Jason Harvison on Q2 2020 Results – Earnings Call Transcript

Elevate Credit, Inc. (NYSE:ELVT) Q2 2020 Earnings Conference Call August 6, 2020 5:00 PM ET

Company Participants

Daniel Rhea – Director of Public Affairs

Jason Harvison – President and Chief Executive Officer

Chris Lutes – Chief Financial Officer

Conference Call Participants

Moshe Orenbuch – Credit Suisse

Eric Wasserstrom – UBS


Good afternoon, and welcome to the Elevate Credit Second Quarter 2020 Earnings Call. Today’s conference is being recorded. At this time, I’d like to turn the conference over to Mr. Daniel Rhea, Director of Public Affairs. Please go ahead.

Daniel Rhea

Good afternoon, and thanks for joining us on Elevate’s Second Quarter 2020 Earnings Conference Call. Earlier today, we issued a press release with our second quarter results. A copy of the release is available on our website at elevate.com/investors. Today’s call is being webcast and is accompanied by a slide presentation, which is also available on our website. Please refer now to Slide 2 of that presentation.

Our remarks and answers will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risks that could cause actual results to be materially different from those expressed or implied by such forward-looking statements. These risks include, among others, matters that we have described on our press release issued today, including impacts related to COVID-19; and our most recent annual report on Form 10-K and other filings we make with the SEC. Please note that all forward-looking statements speak only as of the date of this call, and we disclaim any obligation to update these forward-looking statements.

During our call today, we will make reference to non-GAAP financial measures. For a complete reconciliation of historical non-GAAP to GAAP financial measures, please refer to our press release issued today and our slide presentation, both of which have been furnished to the SEC and are available on our website at elevate.com/investors. We do not provide a reconciliation of forward-looking non-GAAP financial measures due to our inability to project special charges and certain expenses.

Joining me on the call today are our President and Chief Executive Officer, Jason Harvison; and Chief Financial Officer Chris Lutes. I will now turn the call over to Jason.

Jason Harvison

Hello, everyone. And thank you for joining our Second Quarter 2020 Earnings Conference call.

I’d like to begin today’s call with some high-level observations since we last spoke. As you’ll recall, during our first quarter call in April, there was quite a bit of uncertainty and a specific focus on potential credit losses for our sector. As we noted at the time and have reiterated since, we have been closely monitoring early credit quality indicators and implemented underwriting changes to address credit risk associated with our originations during the economic crisis created by the COVID-19 pandemic. Consistent with our proactive approach, credit quality has been very healthy, further aided by federal stimulus actions and, most encouragingly, by responsible behavior of consumers.

We’ve acted quickly to establish three separate teams across the following critical responsibilities summarized on Slide 4. First, a team on our operations; second, a team for customers; and third, a team focused on credit and risk management. For my overview, I’m going to focus primarily on customers and credit.

First, with regards to our customers. We believe that over the past four months, our relationship with our brand customers has grown to closest in the history of the company. What I mean by that is we have increased connectivity both as it relates to service for existing customers and underwriting for new customers.

As you know, Elevate had market-leading customer-assisted tools pre-COVID, and we, along with the banks we support, rolled out additional relief when the pandemic hit. The number of customers with deferred payments have leveled off from the highs at the start of the pandemic. At quarter end, approximately 13% of combined loans receivable printable had deferred payments. For those coming off the payment deferral, we’ve seen positive payment performance for customers. And this is very encouraging.

As to new customers, there is still uncertainty regarding new loan originations, but not for the reasons many would think. From where we stand today, given the significant government stimulus programs that have been provided to consumers, we did not see the seasonal loan demand that we normally would see at this time of year. To put it simply, this past quarter seemed very similar to what we experience every tax refund season during the first quarter.

I point this out to emphasize that our growth will be a function of customer loan demand more than risk aversion. To be clear, we have added additional risk parameters and are very focused on bank-level data as we consider new originations along with the banks we support over the second half of the year.

That said, the bigger unknown in our view is not credit worthiness but, instead, customer loan demand, especially as a second wave of stimulus programs are currently under discussion amongst legislators.

Turning now to Slide 5. Let me give a quick high-level update on credit. The short story here is that credit quality has been relatively strong throughout COVID today. Chris will speak more in detail. But at a high level, stimulus support has helped, and we have seen that show up in some encouraging behaviors from customers as well.

In general, non-prime borrowers have historically exhibited less credit worthiness volatility in downturns compared to prime borrowers. Based on what we have observed and know about the existing set of borrowers, the current environment is proving to be similar.

Two things to note on these charts. First, manageability of day-to-day expenses for non-prime consumers only marginally deteriorated in March and, to lesser degrees, in April and May. For June, we saw a near return to pre-COVID levels, which we view as a very positive sign vis-a-vis credit quality.

Second, as we speak about weakened loan demand in the resilient but non-prime consumers, we see a decrease in the number of respondents that have more debt than savings. This trend only seems to continue in June. As you can see here, non-prime consumers are spending cash widely and paying down debts, which again gives us a lot of comfort on the credit quality of the existing book.

So before I review the quarter’s results, let me try to summarize our takeaways here. First, credit quality remains very strong. And as a result, Elevate drove high profitability for the quarter, which we’ll touch on in a minute. Second, the uncertainty in our business is being driven more by demand softness than credit quality, which again was probably not the base case assumption our investors had at the onset of COVID.

We’ll speak to how we’re managing the business against the backdrop later in the call. But in summary, Elevate is well positioned to grow when the market permits and is generating strong profits with stable credit in the meantime.

With that, let’s turn to Slide 6 of our presentation. Elevate reported a strong quarter from a profitability perspective that, clearly, our revenue trajectory for 2020 will be lower for the reasons I’ve just discussed.

Revenue in the quarter totaled $118 million, which represents a decrease of 22% compared to second quarter last year. Over the course of the first half of the year, we experienced normal seasonal pay-down of loans as borrowers utilized their tax refunds. As mentioned, we also had the effect of additional stimulus capital in the system, which significant cut the loan demand we would normally see.

As you can see from our press release, loan originations to new customers for the second quarter totaled just over 2,800 loans across all three U.S. products, which is now a 94% from the 44 loans we, along with the banks we support, originated over the same period last year. As a result, combined loans receivable at the principal at the quarter end stood at $413.7 million, which is down 25% compared to the same point last year.

Credit performance of the existing book of loans remains strong today and drove very solid profitability. Profit growth in the quarter was largely driven by low marketing expense in addition to the decrease in net charge-offs and total loan provision expense. Additionally, we implemented our operating expense reduction plan given the decrease in revenues. We will touch on these actions in a moment. But the end result drove adjusted earnings up $17 million or $0.40 per share, which is more than double last year’s second quarter.

Generally, adjusted EBITDA increased 31% to $45 million, which represents a margin of 38%, up over 15 points from a year ago. Clearly, our business model benefits on the bottom line from a lack of provisioning for new loan originations. But it also would add equal weight to diligent work and hard decisions made by our team over the last 90 days. We’d note again that our fully online platform and ability to quickly shift is a key strength for Elevate in that regard.

With that, let’s turn to Slide 7 and discuss a number of the actions taken over the quarter. First, as announced on June 29, we made the difficult decision to cease operations in the United Kingdom and place our U.K. operations in administration. As we noted then and have voiced over the past year, the uncertain regulatory environment ultimately made operating the business untenable.

As you’ll recall, we made the decision to slow our Sunny originations last year given the lack of clarity regarding how regulators would manage customer affordability complaints. That, combined with the impact of COVID, resulted in a very low loan portfolio that could not sustain profitable operations going forward. It is a particularly frustrating outcome for U.K. borrowers, given the lack of responsible credit options that will be available in the U.K. market. In terms of the financial impact from closing the U.K. operations, we recognized a $7.5 million after-tax charge in discontinued operations in the second quarter of 2020.

With that said, let’s turn to one of the most difficult decisions we’ve ever made, which resulted from COVID-19. As I posted in my letter on July 8, we took action to reduce our U.S. workforce in light of our expectation of lower revenues over the remainder of 2020. Specifically, Elevate reduced headcount by 17%, eliminated all bonuses for all employees and reduced executive salaries and board compensation. Additionally, the company has renegotiated various vendor contracts, all with the aim to right-size our expense base for the environment and protect our returns.

Chris will expand on the financial impact of these actions later in the call. But I’d like to state clearly that we were very indebted to the hard work of all our employees. And while these decisions are always difficult, we firmly believe they were the right ones to ensure Elevate’s sizeable opportunity to grow as we move forward.

Now let me give some high-level comments on the continued suspension of earning guidance for 2020. As you saw in our press release, the uncertainty of the current loan demand environment makes forecasting our financial results challenging. And as a result, we continue to suspend our usual guidance. As we noted in our release, we are working diligently with the banks we support to determine timing and parameters to originate new loans in a COVID-19 environment. The banks we support, along with our core offerings, our committed to assuring that ability to repay is a parameter to renew the market at scale.

That said, the environment remains highly opaque, mainly due to the loan demand dynamics I mentioned earlier. However, we believe Elevate is poised to lean into growth when demand dictates, given some of the early marketing campaign tests we have been running.

Similarly, while we have better visibility into the credit performance of existing borrowers, we note that the second half of 2020 holds uncertainty as well depending on the trajectory of pandemic and what other additional quarantine restrictions put in place.

To touch briefly on the potential of a second stimulus. We anticipate loan demand staying lower in the second half of 2020 in that scenario, while credit quality trends would remain unchanged.

With that, let me turn the call over to Chris to discuss financials in more detail.

Chris Lutes

Thanks, Jason. And good afternoon, everybody. As Jason highlighted, looking back over the past 90 days, our credit quality has been much better than expected. The large amount of stimulus provided by the government, along with prudent consumer spending behaviors, has had the equivalent of a second tax seasonality period for us, resulting in lower loan balances and revenue but higher profit margins.

Turning to Slide 8. Combined loans receivable principal totaled $414 million at June 30, 2020, down 25% from a year ago. These amounts exclude the U.K. Sunny loan balances which are now part of discontinued operations.

At the product level, RISE loan balances totaled $241 million at the end of the second quarter of 2020, down $65 million or 21% from $306 million a year ago. Our RISE California loan portfolio accounted for over a third of that decrease as the portfolio in that state dropped to $28 million at the end of the second quarter of 2020, a decrease from $50 million a year ago. We expect the majority of that loan portfolio to continue to pay down over the second half of 2020.

Elastic loan balances at June 30 of 2020 totaled $165 million, down roughly $79 million from a year ago. Elastic is the product most impacted by COVID, as customer multi-draw activity or line utilization continues to be surprisingly low. Idle customers, those with no active balance, have increased from 24% pre-COVID to approximately 37% at June 30, 2020.

Staying on this slide. While revenue for the first half of 2020 was down only 10% from the first half of 2019, Q2 2020 revenue totaled $118 million, down 22% from the second quarter of 2019. The decline in revenue was evenly split between RISE and Elastic.

For the RISE product, revenue decreased $15 million or 17% in the second quarter of 2020 versus a year ago. A majority of the drop in revenue for RISE related to a decline in the effective APR of the RISE product, which declined from 126% in the second quarter of 2019 to 110% in the second quarter of 2020. The APR was impacted by both a lack of new customers loans, which typically have a higher APR than more seasoned customers; as well as the impact of adjusting the effective APR for customers that have deferred payments on their loan balances. For Elastic, most of the decline in revenue resulted from the decrease in loan balances I just discussed.

Looking at the bottom of this slide. Both adjusted EBITDA and adjusted earnings are up on a year-over-year basis. While topline revenue was down year-over-year, our gross profit and operating for the second quarter of 2020 increased $6 million and $10 million respectively from a year ago. Despite initial concerns related to COVID, credit quality has remained solid, resulting in much lower net charge-offs and total loan loss provision versus the prior year quarter.

Additionally, we recently implemented an operating cost reduction plan which resulted in operating expenses for the second quarter of 2020 to be $4 million lower than the second quarter of 2019. Combined, this resulted in adjusted EBITDA totaling $45 million for the second quarter of 2020, up 31% from the prior year quarter.

Adjusted earnings for the second quarter of 2020 totaled $17 million or $0.40 per fully diluted share compared to $8 million or $0.19 per fully diluted share a year ago. Net income for Q2 2020, including the loss from U.K. discontinued operations, totaled $9 million or $0.20 per fully diluted share compared to $6 million or $0.13 per fully diluted share a year ago. Adjusted earnings for the first half of 2020 totaled $28 million, exceeding adjusted earnings of $26 million for all of 2019.

Turning to Slide 9. The cumulative loss rate as a percentage of loan originations for the 2019 vintage continues to be the lowest ever, with the new generation of risk scores and strategies that were rolled out in 2019 performing much better than the 2018 vintage, which remained relatively flat with the 2017 vintage. We have not seen COVID materially impact any of these vintages so far this year.

On this slide, we also show the customer acquisition cost. There were minimal new customers’ loans and marketing expense in the second quarter of 2020. When customer loan demand picks up again in future quarters, we expect our cap to continue to trend between $250 and $300.

Slide 10 shows the adjusted EBITDA margin, which was 38% for the second quarter of 2020, up from 23% for Q2 2019. Not reflected in this margin is the decrease in the cost of funds for the debt facilities. As you recall, we amended the debt facilities over a year ago, but the full impact was not reflected in quarterly results until the third quarter of 2019.

Interest expense as a percentage of revenue dropped from 11% in the second quarter of 2019 to 10% in the second quarter of 2020. And the overall effective cost of funds for the second quarter of 2020 was 10%.

As Jason previously mentioned, and as we disclosed in an 8-K filing, our U.K. operations was placed in new administration on June 29, 2020, which is the U.K. form of bankruptcy. All the current year and prior year U.K. numbers on our press release are now disclosed as discontinued operations.

At July 31, 2020, the remaining U.K. debt is down to approximately GBP5 million. And we believe the remaining U.K. assets to be liquidated will cover the remaining debt. We do not expect to receive any remaining U.K. cash flows, as that will be reserved for the unsecured creditors and affordability claims.

We’re able to record a deferred tax benefit totaling approximately $24 million related to the loss in our investment in the U.K. We do not expect to collect on this until 2022 at the earliest.

While we don’t have a slide, let me spend a minute discussing the loan loss reserve methodology and how the reserve is determined for customers that are using payment flexibility tools that Jason discussed, such as deferring loan payments.

We did not have to adopt CECL at the beginning of the year, so the loan loss reserve methodology has remained unchanged in the first half of 2020. Loss factors are calculated by product and by delinquency status and considers historical data such as the number of successful payments a customer has made. For customers that have deferred payments, the loans do not continue to age as past due while their payment is in deferral status. But this bucket of loan balances is monitored separately to determine if additional loan loss reserves are needed in addition to reserves generated under the normal methodology.

Additionally, the effective APR for RISE installment loans is lower to account for the longer duration of the loans. And interest continues to accrue during the deferral at that lower effective APR.

For Elastic lines of credit, no fees accrued during the payment deferral period. At June 30, 2020, loan balances with deferred payments totaled $51 million or 13% of combined loans receivable principal.

Now let me discuss the remainder of fiscal year 2020. While we are not providing revenue, adjusted EBITDA or net income guidance for the remainder of this year due to uncertainty caused by COVID and the next round of stimulus, we can provide some high-level thoughts.

The biggest uncertainty from our perspective is when consumer loan demand picks up again, which impacts forecasted revenue, loan loss provisioning and marketing expense for the year. Assuming this latest round of stimulus impacts U.S. consumers in a manner similar to last quarter, customer loan originations, loss provisioning and marketing expense would be down materially in the third quarter of 2020 compared to a year ago.

Loan originations would probably be at 50% of prior year levels at best in the fourth quarter of 2020. As a result, loan balances and revenue in the second half of 2020 would be down versus a year ago. We expect loss rates in the second half of 2020 to continue to trend around 20% of historical loan originations or roughly half of quarterly revenue.

Operating expense levels for Q3 and Q4 2020 will be down approximately 20% from the first quarter of 2020 due to the operating expense reduction plan that we recently implemented, which included a reduction in U.S. employees of approximately 17%.

Turning to liquidity and capital. One of the positives of our business model is the short-term nature of the loans. Q1 and the early part of Q2 every year is the seasonal slow period for loan growth due to loan pay-downs resulting from customer tax refunds. COVID did not impact our normal tax seasonality. And during the first half of 2020, $88 million of BPC debt was repaid, $104 million including the discontinued U.K. operations.

On June 30, 2020, there was over $160 million of cash on our balance sheet. Most of this cash supports the BPC debt outstanding that totaled $440 million at the end of the second quarter of 2020. We chose not to prepay early the $18 million of sub-debt that matures in the first quarter of 2021. All other debt facilities have a maturity of January 2024.

Our relationship with the primary lender, Victory Park Capital, remains strong. We have worked with them for 10 years going back to our predecessor company. Given the current economic environment, loan originations to customers is minimal. So there is no need for additional debt for the next few quarters. All debt facilities were in compliance with their covenants at June 30, 2020.

Lastly, I would like to briefly discuss the common stock repurchase plan authorized by our board in February of 2020. We believe this use of capital at the current stock valuation is compelling form a return on capital perspective.

During the first half of 2020, we repurchased $8 million of common shares under this repurchase programs in accordance with our existing 10b5-1 plan. We have $17 million in remaining availability under this plan which we anticipate using in the second half of 2020: $7 million in Q3 and $10 million in Q4.

With that, let me turn the call back over to Jason.

Jason Harvison

Thank you again to all of our employees, investors and analysts for listening today. As we said in the past, Elevate was purpose-built to lead the market in responsible products for consumers with limited access to traditional banks and credit card offerings. As you know, that need is only more pronounced in times of stress, as traditional channels close off even further to lower credit borrowers.

On that point, I’ll wrap up by saying Elevate remains very well positioned to help this new growing population of Americans reach a good today and better tomorrow.

And with that, we’ll open it up for questions.

Question-and-Answer Session


Thank you. [Operator Instructions] We’ll take our first question from Moshe Orenbuch with Credit Suisse. Please go ahead.

Moshe Orenbuch

Great. I guess, Chris, you had talked a little bit about the level of originations that you’re expecting in the third and fourth quarters. And I’m just wondering if you’d kind of flesh that out a little bit just to see like what have we seen. And I thought I heard Jason say that your bank partners were going to work on an ability to repay. I assume that’s something that they’ve always been doing. So maybe just talk a little bit about the significance of that at this stage?

Jason Harvison

Hey, Moshe, this is Jason. I’ll take a first stab at this and let Chris follow up after me. So where we’re at right now with our core portfolios, and also the portfolios that our banks support, is that we’re looking at additional credit information that we can help underwrite consumers from both a fraud perspective and also from a cash flow perspective. And when we rolled out models in 2019, a big component of that was bank transaction data, so being able to see the cash inflows and outflows out of consumers’ bank accounts. And I think that provides us and the banks we support a lot of great insights on how to underwrite consumers and what their current position is, and how those balances are trending.

And so as we go forward to wrap up 2020 going into 2021, I think, based on – traditional bureaus have a little bit stagnant data because of the way people were reporting back deferred balances. I think capital information is going to be the most critical.

And so I think that’s going to be a key component for our underwriting and for the banks we support. And we’re going to put out, both for our portfolios and the banks, some other marketing initiatives. It won’t be back to the level we did back at Q3 and Q4 last year. But we’re definitely going to make sure we have some sticks in the fire to see when the demand comes back, measure that performance and be very disciplined on how we lean into that demand. When the demand is there and the performance is right, I think we’ve shown in the past we have the capability to move forward and serve the non-prime consumer in a very responsible way.

Chris Lutes

Yes. And this is Chris. As we look out and try and kind of forecast the second half of the year, it’s certainly a little bit difficult until we know the level of stimulus that the government might put out with this second round. But generally, I would expect loan balances to continue to decline during Q3. I mean, I don’t think we’ve hit a trough yet, although I think the decline in Q3 will probably be much less dramatic than what we saw from the end of Q1 to the end of Q2.

And then, what I noted in my high-level thoughts is that I think Jason and I are hopeful that we might be able to see an uptick in originations in Q4, kind of the normal Q4 seasonality. But right now, if I was guessing, it would probably, in the best case, probably – the origination volume would be about half of what it was in Q4 a year ago is kind of how I’m thinking about it right now. But if it is half of volume a year ago in Q4, we would expect to see loan balances start to increase in Q4 versus the end of Q3.

Moshe Orenbuch

And Chris, the comment that you’d made about – was it about credit losses or the provision that you said would be half of revenue? I guess that was the…

Chris Lutes

It would be charge-offs as a percentage of half of revenue, which is kind of the midpoint of our typical metric at 45% to 55%. Realistically, it’ll probably trend a little bit lower. But I think 50% is a good conservative mark.

And then, losses as a percentage of originations would be roughly 20%, kind of in line with what we’re historically seeing on our loss curves that we disclose.

Moshe Orenbuch

And in that scenario in the third quarter where you would be having a decline in balances and credit performing, if it were to perform like it is now, would we expect the reserve to come down? Or because just the balances would be lower?

Chris Lutes


Moshe Orenbuch

Okay. Perfect. Thanks.

Chris Lutes



Thank you. [Operator Instructions] We’ll hear next from Eric Wasserstrom with UBS.

Eric Wasserstrom

Hey. Thanks very much. Wanted just to pick up on that last point, Chris. Could you kind of walk us through what you sort of thing is the cadence of the loan balances from key areas? It sounds like obviously a bit lower in deferred. But at what point would we anticipate maybe a stabilization or maybe even a bit of inflection?

Chris Lutes

Yes. I mean, what we’ve seen through July is the loan balances continued to decline at the end of July versus where we ended June 30, but the rate was significantly lower. I think right now, what we’re seeing is, to be specific – I think both portfolios paid down roughly $10 million on a net basis. So loan balances dropped about $20 million July 31 versus June 30. That’s a much lower rate of decline than what we saw in the second quarter. Because originations are picking up. They’re nowhere near what they were in Q3 a year ago, but we are starting to see some customer loan demand come back.

But I would expect that right now to probably continue. Because right now, this would be, in the Q3 period, our typical last –historically is when we would see the last kind of bit of loan growth would be here in early August with the typical back-to-school seasonality. And even that’s somewhat muted this year with so many kids probably staying home rather than going back in person. So I would expect loan balances to continue to decline through the end of the third quarter.

But then, in the fourth quarter, I think Jason and I – and it might be a little bit optimistic, but probably in a best case, we would assume that origination volume would be about half of what it was in the fourth quarter a year ago. But even at that lower rate, it would still be – that would be the inflection point where, probably beginning in October, you would see loan balances start to increase. So therefore, hopefully, Q3 would be the trough for revenue and loan balances. And then Q4, you would see an uptick in revenue and in loan balances through the end of the year.

I hope that addressed the question.

Eric Wasserstrom

Absolutely, very clearly.

And I know you’ve had to make some very difficult choices around resizing your cost structure. But what level of loan balance is contemplated in your current kind of run rate expense?

Chris Lutes

What level of loan balances are kind of correlated in our op expense? I really view it probably more a different way. I’ve always kind of – well, it’s kind of correlated now that our APRs are roughly 100% on average across the portfolio. But typically, Jason and I like to kind of measure the efficiency ratio, which would be OpEx as a percentage of revenue.

In a good scale period with good revenue growth, we would be typically targeting a 20% efficiency ratio. Clearly, in this type of environment, your op expense as a percentage of ratio is going to run well north of that, probably into the high 20s, maybe even low 30% range as a percentage of revenue. But our profit margins are able to maintain kind of being stable or increasing. Because your marketing expense as a percentage of revenue, which is roughly 10% when we’re in growth mode, is much lower, as well as the loss provision is much lower. So a kind of roundabout way of saying that I would expect our OpEx levels to probably right now – what we’ve kind of proactively tried to forecast out is keeping our OpEx somewhere in the high 20% to low 30% range. And therefore, our profit margins won’t be squeezed that much if revenues continue to decline in Q3.

Eric Wasserstrom

And just one last one from me. In terms of [indiscernible] the cadence of expected losses, how does the loss curve look to you as you maybe move past some of the milestones around the abatement of federal stimulus and extended unemployment benefits and that kind of thing? Is it still a smooth curve, or does it take more the shape potentially of like a step function?

Chris Lutes

I think it’s going to continue to be a smooth curve. I mean, what we’re seeing so far, even if there was no second round of stimulus, I mean, there is certainly some level of exposure. But let me quantify a couple of things that aren’t in the press release. I think at the end of June, we disclosed that our deferred loan balances, or customers with loan balances that had deferred payments. It was roughly $50.7 million, or about 12.5% of the portfolio. At the end of July, that had declined to just under $43 million, or roughly, I think, about 11% of outstanding. So you can see that the level of deferred is definitely decreasing the abatement.

And we continue to see, even through the end of July – and what we’ve seen the last couple of months is that customers that do defer payments typically have roughly about a 70% success rate. So you’re only seeing about 30% that are rolling and eventually potentially going delinquent. And cure rates on those that roll or go delinquent are typically standard.

So we’re not seeing a large uptick in losses. In fact, there is the potential that Q3 loss rates could be much lower than what we’ve typically seen. And I think the one thing that Jason and I are most excited about is that these tools that we rolled out – I mean, we have been working on them really for the course of the past year. We didn’t necessarily roll them out in response to COVID. And these are payment flexibility tools that are going to continue to exist post-COVID, because we think it’s the right thing, from a customer standpoint, to be able to offer our customers the flexibility to defer a payment or to enter into a payment plan, et cetera.

So I think longer term, Jason and I are excited about the potential that these tools could have in potentially helping lower those loss curves even further.

Jason Harvison

Yes, Eric, this is Jason.

Just to expand on that just a little bit on what Chris was saying – coming into COVID, I think we had some of the most flexible products either that we offered, or our banks that we support offered, for consumers to navigate through another financial hiccup that might come along while they were using more of the products. And going [indiscernible] able to expand on that pretty quickly. And I think the team did a great job of building that additional flexibility into the products and programs.

And I think we’ve been able to match up the way for consumers to have that flexibility based on the need that they’re looking for to see positive outcomes. And you haven’t seen consumers overly use these programs, these deferment programs. As Chris said, it’s been about 12% to 15%. And you’re seeing consumers also be very successful, as they use those programs, coming out of them and getting back on track, which is exactly what we wanted to see them do through the last 90 to 120 days.

But as Chris is also saying, I think it’s also something that we see is going to be a key feature within the programs that we offer on a go-forward basis, so that consumers have that flexibility that, if they need additional time to pay, that’s there for them to use and take advantage of at no additional cost.

So I think inaudible really silver lining in what’s going on right now, to be able to continue to provide additional flexibility to the non-prime consumer.

Eric Wasserstrom

Thanks so much for taking my questions.


Thank you. That does conclude today’s question-and-answer session. Like to turn the conference back over to management for any additional or closing remarks.

Jason Harvison

Just want to say thanks to everyone on the call today, both investors, analysts, board members, employees. We appreciate all the support for these unprecedented times.

Chris and I are extremely happy with the way the team performed over the last 90, 120 days, in serving the non-prime consumer. We’re excited about what we can do on a go-forward basis and be prepared to serve the consumer on a go-forward basis in a very responsible way.

So I think we’re set up for great success as we look into the last half of 2020 going into 2021. And Chris and I look forward to talking to everybody about the Q3 results here in a few months.

So thanks so much. Hope everyone’s safe and healthy. And appreciate the support. Take care.


Thank you. That does conclude today’s conference. Thank you all for your participation. You may now disconnect.

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