Q3 2019 Earnings Call
Greetings welcome to elevate third quarter.
He 19 earnings call at this time, all participants on the listen only mode.
Question and answers that should will follow the formal presentation, if any which require operator assistance. During the conference. Please press star zero and your telephone keypad. Please note. This conference is being recorded I will now turn the conference over your host Daniel Right Communications manager. Thank you you may begin good afternoon, and thanks for joining us on elevates third.
Quarter 2019 earnings conference call earlier today, we issued a press release with our third quarter results a copy of the releases are available on our website at elevate dot com slash investors today's call is being webcast and as a company by slide presentation, which is also available on our website. Please refer it out a flight to that presentation.
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 in our press release issued today.
Our most recent quarterly report on Form 10-Q , and other filings we make with the FCC. Please note that all forward looking statements speak only as a as of the date of this call and we disclaim any obligation to update these forward looking statements during our call today, we'll make reference to non-GAAP financial measures for a complete reconciliation of history.
Oracle non gap to GAAP financial measures. Please refer to our press release issued today and our slide presentation, both of which have been furnished to the FCC and are available on our website <unk> elevate dotcom flash investors, we do not provide a reconciliation of forward looking non-GAAP financial measures due to our inability to project special charges and certain expense.
Joining me on the call today, our interim Chief Executive Officer, Jason harvesting and Chief Financial Officer, Chris Lucas I will now turn the call over to Jason.
Good afternoon, and thanks for joining us on a third quarter earnings call.
As you saw in a release, we're proud to report another quarter of strong profitability with adjusted EBITDA growth of 57%, which resulted in a record margin for Q3, a 15% year to date or net income has grown over 185% and we ended Q3 with diluted earnings per share of 11 cents.
In my remarks today I plan to give color on the key drivers ever profitability, but also to update you on our pace of originations, which as you know have been cautiously moderated this year in conjunction with an appointment R&D credit models Lastly, upper I'll provide a few key business updates.
Before I do though let me first reiterate our mission here at elevate which has to be the most trusted and preferred credit provider to the new middle class I want to start the call here because the drivers of our profitability and our growth both still from a very real need for non prime credit millions of consumers face daily.
We believe our products are well positioned to continue to meet this bath in underserved market.
To be clear, we have certainly change our philosophy with regards to grow the addressable market remains a vast and we feel confident in our ability to grow market share. We've also learned a lot in the past year on a margin upward that's been a very excited about what the future hold for elevate and our shareholders.
First let's speak to our profitability in the third quarter, we drove nearly 600 basis points in year over year, adjusted EBITDA margin improvement because of better credit quality and lower customer acquisition cost.
Clearly some of the benefit is due to a measured approach to growth in in combination with a recently the board credit models that said a significant driver of margin improvement because from a repeat customer base, where both or credit and marketing cost are dramatically lower compared to a newly acquired consumer.
In Q3, we saw historic number of originations by existing and former customers and it's something we're proud to have grown over the past year.
For contact repeat customer mix year to date is up roughly 300 basis points over last year again, the mix is skewed somewhat by are measured growth. This year, but the most important takeaway is how accretive to the incremental margin is on a repeat customer versus a newly acquired customer in short. This is the power of our operating leverage and we believe the profit potential.
Applied to our growing customer base is the most compelling an exciting aspect of elevate as we looked at 2020 M.B. on.
Despite a slight dip in revenues year over year, we're pleased to see at 8.4% or 15 million uptick in revenues from Q2 to Q3, and we continue to push out her new models.
Turning to slide five let's discuss our strategy updates.
From the three core strategic goals I laid out last quarter. We have continued to deliver strong results for our shareholders first on credit our charge off as a percentage of both revenues and Outstandings were both at historical lows, a 45% and 13.1% respectively.
This is a result at the deployment of our credit models earlier this year as well as the repeat customer impact that I mentioned earlier.
Although we had to slower origination pace in order to implement our new models. We're extremely pleased with the resulting impact on our profitability and believe we can drive similar margins at higher origination volumes.
While our growth has been slower we have continued to maintain discipline related to growth and do not feel the urgency to chase that growth with such an enormous addressable market, we're able to tune our credit models and just originations at a rate we feel comfortable with while focusing on bottom line growth.
Now turning to slide six I'd like to highlight a few business updates.
As you are all probably aware, California passed a law that cap interest rates on personal loans between $2500 in $10000.
We believe that this action unfairly limits credit options to California Nonprime consumers.
As a result, we will stop originating loans could read direct lending channel in California, Whats the log goes into effect. However, we do not believe <unk> it'll have a material impact on our business due to our diversified operating model and additional opportunities.
One of those opportunities as they expand or underwriting a technology licensing two or three existing FDIC regulated bank partners in new geographies. In addition, we're continuously looking for additional banks that share commitment to providing innovative consumer focused products.
Next on our credit model roll out I'm pleased to update that all the models have been fully deployed and we're seeing early indications of improved credit quality across the board.
As noted we plan to grow originations through these models at a measured pace with a focus on bargains first that said, we're encouraged by the results thus far and believe the models can be further leverage to penetrate the broader market market opportunity.
As you know much of our decision to overhaul or credit models was driven by the large volume opportunity. It is available via the credit partner channel as compared to the direct melt marketing channel that said in the third quarter and year to date, our mix was predominately tilted towards direct mill, largely because we have more history and data across that channel and were able to rent volumes more.
Quickly as a result for 2020, we will look to expand the partner channels utilizing the advantages from our new models.
In the UK, we continue to scale back growth due to lack of regulatory clarity in the interim our business remains profitable and we see expanded long term potential Sony continues to receive high customer satisfaction scores and stands out as a leader in this space.
CAC with an all time lows in the UK and we intend to hold mobile I'm steady for the top being demanded the underserved market continues to grow wall supplies and limited.
Lastly, I would like to quickly and out the Scott rubber has rejoined our team in the U.S. as executive Vice President of our rise Sunny and elastic products, Scott was previously or UK managing director.
<unk> has been promoted from Chief Technical officer to UK, managing director I would I congratulate both of them at our new and expanded roles.
With that let's turn to slide seven to talk about the rest of 20 not team and our view of growth looking ahead to 2020.
As you can see here, we have lowered our revenue guidance for 2019 by 2% at the midpoint based largely on on a deliberate rollout of our credit models, particularly in the partner channel I'd also note that much. The revenue decreased this year has been due to lower UK volumes and more notably because of a shift towards lower IP yards in our rise portfolio.
On the a PR point, it's important to clarify that these lower IP ours or a function of the mix of our states and a percentage of repeat customers that have the ability to lower their rates with our credit friendly products. The most important take away, though is that even with a slower pace of originations and a shift to lower rape yards, we were seeing a higher pull through to adjusted EBITDA indebtedness.
The reasons I've spoken to a minute ago as a result, we're pleased to announce an increase in our 20 not team adjusted EBITDA net income outlook for adjusted EBITDA. We now expect 135 to 140 million. After net income we now see a range of 28 to 32 million, which represents an increase at the midpoint up to and 9%.
Respectively.
We will provide our official outlook for 2020 on the fourth quarter call, but we believe 2020 will be a year that we can leverage our credit models to reaccelerate growth.
We'll have more to share in next quarter, but before I turn the call to Chris I, just want to reiterate that we view the 170 million person market in the UK and U.S. as a massive opportunity with our new philosophy, which is to be measured with a very strong guy on credit quality margins and profitable growth. We're excited about the shareholder value, we can drive and 2020 and beyond.
Thanks, so much and with that let me turn the call the Chris the detail the quarter.
Thanks, Jason and good afternoon, everybody as we discussed during the prior quarter conference call. We were expecting relatively flat loan growth. This year as we rolled out the new credit models for our U.S. products and a weight more regulatory clarity in the UK regarding affordability complaints.
Looking at the top half of slide seven combined loans receivable principle as of September Thirtyth, 2019 were down $5.2 million or 1% on a year over year basis.
However loan balances were up 27.5 million on a sequential basis for the third quarter versus the second quarter of 2019. This reflects the more measured approach to growth. We are taking limiting new customer acquisition. During the early rollout of the new credit models in the first half of 2019, and then gradually expanding the marketing.
Each month.
Well this approach impacts topline revenue growth. It has resulted in improved gross profit and margins. We expect we will continue with this approach as we move forward through the rest of this year.
At the product level rise loan balances were up $28 million versus a year ago, driven by growth and defend wise portfolio.
Additionally, rise loan balances grew almost $21 million during the third quarter of 2019.
While elastic loan balances at the end of Q3, 2019 are down $32.2 million compared to a year ago. They did grow approximately $10 million during the third quarter 2019.
And Sunny UK loan balances are down compared to both the third quarter of 2018, and the second quarter of 2019 due to continued lack of clarity on the regulatory front with affordability complaints. While we were hopeful we might have clarity for now our assumption is that we will continue to hold loan balances flat with our September Thirtyth 29.
Team balance for the rest of this year.
Staying on this slide our Q3 2019 revenue totaled 192.8 million down 4.3% from the third quarter of 2018.
This decrease was a combination of two factors.
First the overall a PR for our rise product declined from 139% in the third quarter of 2018% to 126% in the third quarter of 2019.
The average GPR of a new rise spin wise customer is approximately 130%, which was lower than our typical state license rise customer, but with a better credit profile.
While we are losing some topline revenue growth due to a lower hbr for the ride spend wise customer we are generating just as much if not more gross profit because losses are lower on these customers and they also have a lower CAC.
While rise revenue was down 1.5 million on a year over year basis in the third quarter of 2019.
Rise revenue less net charge offs were actually up 3.3 million on a year over year basis, an increase of roughly 7%.
Elastic has a similar story gross revenue was down 4.1 million, but net revenue is up 1.3 million on a year over year basis.
Additionally, sequential quarter revenue growth was up 13.9 million or 9% for our U.S. products during the third quarter of 2019.
Lastly, our UK product Sunny experienced a 3.5 million dollar decline in revenue during the third quarter of 2019 as compared to a year ago almost half of this decline was due to a drop in the FX rate and the remainder due to a decline in the average loan balances, resulting from continued concern with affordability comply.
Lanes.
On a consolidated basis net revenue revenue less net charge offs increased 4.6 million or approximately 5% during the third quarter of 2019 versus a year ago.
Looking at the bottom half of slide seven we're very pleased with the year over year growth in our profitability adjusted EBITDA for the third quarter of 2019 totaled $29 million, an increase of 57% from the prior year third quarter.
For the first three quarters of 2019, adjusted EBITDA totaled 107.6 million up 28% from 84.2 million in the first three quarters of 2018.
Bottom line net income for the third quarter of 2019 was $4.8 million or 11 cents per fully diluted share up from a net loss of 4.2 million or negative 10 cents per fully diluted share in the third quarter of 2018.
From my perspective, the third quarter 2019, net income of 4.8 million was even further impressive because it included 2.8 million in pre tax expense associated with FX, a non operating losses and the severance package for our prior CEO .
Net income for the first three quarters of 2019 totaled 23.9 million, an increase of 15.9 million or 185% from 8.4 million in the first three quarters of 2018.
As a result of all of this we are revising our fiscal year 2019 revenue guidance down to 740 to 750 million, but increasing our net income and diluted earnings per share guidance to 28, the 32 million or 63 cents to 72 cents fully diluted per share respectively.
While we are also are narrowing our adjusted EBITDA guidance from 130 to 140 million to the upper half of our previous guidance range or 135 to 140 million.
Turning to slide eight our cumulative loss rates as a percentage of loan originations for our 2018 vintage remains relatively flat with our 2017 vintage and the early read on the 2019 vintage is that it is performing better than both 2017 and 2018.
That said, we are continuing to ramp our new generation of credit scores and strategies and are hopeful that we can drive loss rates lower in coming years.
On this slide we also show our customer acquisition costs for the third quarter of 2019, our CAC was $184 down from $225 in the third quarter of 2018.
We believe both our fourth quarter in fiscal year, 2019, CAC will be sub $225 down from the prior historical range up 250 to $300, primarily benefiting from the expanded state coverage of rise originated by been Wise Bank and continued marketing efficiency and also diminished competition.
In the UK.
Slide nine shows our adjusted EBITDA margin, which was 15% for the third quarter of 2019 up from 9% for Q3 2018.
The adjusted EBITDA margin for the first nine months of 2019 was 19% up from 15% a year ago.
All this expansion happened within our gross margin, which increased due to lower loan loss provisioning and marketing spend.
Additionally, the decrease on our cost of funds for our debt facilities has also resulted in an expanded net income margin so far in 2019.
On roughly the same amount of average debt in both the third quarters of 2018, and 2019 interest expense for the third quarter of 2019 was $5.2 million lower than the third quarter of 2018.
Lastly, I would like to briefly discuss the $10 million common stock buyback plan authorized by our board of directors. We believe this buyback will help minimize dilution from ongoing employee stock grants, while being small enough to not impact daily liquidity in our common stock.
We believe this use of capital at the current stock valuation is compelling from a return on capital perspective.
We began buying back shares in early August before we were precluded from purchasing additional shares through the ended the quarter due to regulatory reasons with that let me turn the call back over to Jason.
Thanks, Chris I would like to reiterate my excitement for the future of our company.
First 90 days a neural have flown by our teams continue to identify new areas for innovation, including new partners potential products and expanded geographies with that we'll now turn the call back over to the operator for your questions.
Thank you if he would like to ask a question. Please press star one I know telephone keypad.
I mean should double indicate your line is in the question can you maybe press star to if he would like to remove your question from the Q and for purchase benches in speaker equipment, and maybe necessary to pick up your handset before pressing the star he is.
Our first question is from Bob Napoli with William Blair. Please proceed.
Thank you and good afternoon.
Nice nice quarter, good love to see does the credit losses coming in lower I think you're being disciplined it's good to see.
The California.
Any color you can give me on the give us on the amount of your business in California that.
And if you expect to have a bank partnerships to replace that volumes, specifically in California or do you have.
The plans with bank relationships out additional relationships outside of that market.
Yeah, Bob Jason I'll answer that I mean, where we see on you know it's unfortunate that California has limited access for non prime borrowers. We think it is restricted that is not a great thing.
The way we look at it we think the diversified operating model that we have will help mitigate any kind of loss of the direct lending business. There so towards into the year, we'll start to.
Cease originating loans underneath the direct lending line that we have.
To California consumers well, we look at other opportunities to offset that one we are seeing.
Good results from our new models are rolled out so thats going to open up new channel towards both in the in the direct lending business and with our existing partners Our bank partners we market for.
But in addition to that we do have a term sheet that we have signed with one of our existing bank partners to expand that relationship and they're looking at multiple geographies, California being one of those will still we're still working with them on when the exact timing what state they'll go into first will be so we feel like between the new channels that we can open up and with the expanded geography.
Along with the direct lending business in California, I should have a minimal impact to us going forward.
Thank you and then as we look at to think about 2020 should we think about similar trends like relatively low growth, but better credit.
Or do you expect what's your models be getting more confident in those models that you will start to see.
UK, you said, you're going to keep flat.
In the U.S. should we see growth.
Resume on the topline.
With the continuation of expanding margins on the bottom line.
Yes, we'll give more color to that in the call. Thank you for Q4 in February but I think the way to think about it is we will still be very disciplined early in the year start to accelerate that growth through the back half the year like I said, we're seeing good results so far but we want to be measured about that so I think we'll see that start to ramp up towards the back half of 2020 from a growth standpoint.
Thanks last question any thoughts on Cecil one.
When you're going to implement Cecil when any effect on the business when you do.
Hi, Bob Yes, it's Chris.
The Fas be is approved a proposal to defer adoption of seasonal for smaller reporting companies and we qualify for that I think it's the definitions of public float less than 250 million on the preceding June thirtyth. So we qualify and I think if that ends up being finalized and that should be in November to finalize the official word.
I would expect that we will not adopt Cecil and we'll take advantage of deferring adoption of Cecil for at least a year and I think it can go up to like three years of deferral as long as your public float is less than 250 million at June Thirtyth every year.
Great. Thank you may not have that next year.
Thank you very much appreciate it.
Thanks, Bob.
Our next question is from David Scharf JMP Securities. Please proceed.
Hi, good afternoon, Thanks for taking my questions as well <unk> first [laughter], Paul apologize I know, Bob just asked US I I was still little unclear about.
The precise message about California, obviously, you're going to seize direct lending are you in fact going to is the goal to replace all of that.
With the bank partnerships I know you talk broadly about expanding the number of states, but it was still little unclear what exactly the California plant was.
Yes, David So right now we have a term sheet with one of our bank partners to expand where they want to offer.
Credit to the there they are comfortable going into California in a couple new states right now what we're working with Oman is what's the first date to go into.
So we'll have more color on that and the first going to call. It in February but right. Now. We're we're optimistic that we can mitigate any loss of California from a direct lending side with the expansion of the new states with the big part of that we have today. That's that's what could open up a few new geographies with California being one of those just looking at the timing.
Got it got it okay understood and <unk>.
Listen I, obviously tremendous margin leverage this quarter, and you know kind of running up and down the personnel and balance sheet <unk> seem to be very.
Very much in line with what we're looking for but but with the exception to obviously on the on the marketing side, the CAC really stood out.
Can you give us a sense for what percentage of originations came from repeat borrowers versus maybe one quarter in one year ago. So we can put that hundred 84 dollar figure into context.
Hey, David It's Chris one thing to clarify and I'm not sure we have that information handy, but really repute origination doesn't come into play in calculating our CAC at all all of our marketing dollars every quarter or allocated just to new customers and so that $184. This call.
Order and what it was a year ago is our true marketing spend divided by the number of new customer loans only so the the repeat or former customer loans, one factor into the CAC calculation at all that said the mix between news and former is definitely has an impact in terms of the credit quality on a go forward basis because.
Clearly the former customers typically have a much lower risk of loss that our newer customers, but from an actual CAC standpoint, we allocate.
All marketing spend just a new customer loan so when a customer comes back for a second loan there's no marketing spend associated with that customer at all.
Got it into the that that's helpful and in Chris.
No this maybe difficult.
Answer, but at least <unk> current.
Scale of the of the business.
No that that that CAC.
Has a tremendous.
Impact on on the earnings power and just my back of the onto locally with 75000 new loans.
If the capital at the midpoint of what you.
Historically outlined is your range if it were 225 for example.
That would have been another 3 million of of expense, which would have cut the pretax income in half.
And.
It seems like you've been outperforming most quarters really since you've been public that CAC range and.
You know I'm wondering is there something structural either in just the efficiency of direct mail and the shifting mix to relying on bank partners. It seems like you know the earnings outlook has impacted so heavily by that figure.
Should we be rethinking of structurally a lower targeted range.
You know you hit on a couple of it the main reasons from my perspective, I mean, clearly theres marketing efficiencies, primarily with direct mail Weve very good added two I think a big player in the reason for the the continuing decline in the CAC has been the expansion to the bank partnership models, particularly.
He was fin wise as we go into new states, where there's less competition.
I think another thing is you can clearly look to the UK.
You know there year over CAC year over year, CAC has dropped significantly because of the decrease competition and I would say with with the Nova just recently announcing that they are exiting the market that I would like to think that our CAC there continued to potentially drop so.
You know, it's one of those things where I know, it's one thing we feel good about you know, there's certainly going to be a question as to whether we'd be willing to spend a little bit more on the marketing side to drive more volume and take slightly higher losses, but for now Jason and I are very comfortable with our measured growth approach through the rest of this year in and we think we've kind of struck the right balance.
In terms of allocating marketing dollars and the cap that we're getting in the margin expansion that we're getting versus trying to drive a little bit more volume, but you know looking ahead. The next year, it's still a little bit early I think we'll provide more guidance again in the February conference calls, we discuss Q4 results as to where we see that range for CAC and.
2020, but for now I feel pretty good that all of these continued to trend south of the historical to 50 to 300 and again, we feel good a one point we feel good from a unit economic standpoint that we can make money off of the customer with a CAC potentially as high as $300, depending upon what state or what product.
But.
Recently, we've certainly been trending good and I think we've done a really good job of managing the CAC this past year.
Got it yeah, just one quick one for you to Christy the effective tax rate case came in at just 22%.
This quarter on any.
Unusual items or tax benefits and how should we be thinking about that.
No I don't think there was anything too unusual.
Theres going to be the standard exclusions, when you're when you're calculating it from a true tax perspective, and given the small amount of.
When your net incomes sub 10 million on a quarterly basis, just a little bit can skew. It I would say going forward, it's still expected in the 25.
Percent range, maybe a little bit higher, but definitely south of 30%.
Got it thank you.
Our next question is from John Hecht with Jefferies. Please proceed.
Afternoon, guys. Thanks, and most of my questions have been asked.
I'm wondering though.
Chris maybe can you tell us.
What kind of what is what are you guys perceive as you intermediate term kind of balance of new versus recurring or existing customers.
Yes are we at that balance now or when do you think you'll get there.
Yeah, the balance certainly fluctuate both by product and based on the time of year with the with the seasonality aspect. This is the time of year, where we would typically add a lot more new customers and grow a little bit faster, but clearly I mean, it can be skewed pretty dramatically elastic being a line of credit product.
I mean, regardless of.
How quickly, we're adding new customers, you're still going to have a preponderance of originations be from existing customers given the nature of the line of credit product.
The rise, we typically like to see that.
New customer originations really don't exceed much more than 50% on a quarterly basis in terms of the overall mix. If we start driving north of 50% in terms of originations, you're probably going to see the credit quality weaken a little bit and be more towards the higher provision.
From a quarterly basis, so we're trying to keep it under 50.
Okay.
And then with respect to the buyback I did did you give us a level are you sort of intentions to in terms of the using the buyback.
Yes. It was a Q3 as I said, I mean, I can't get into the specifics, but we.
Included really from mid August through the rest of the quarter, we're hopeful or at least I'm hopeful.
Once we get this call and kind of get back into our open window period that that will be able to buyback.
Beginning here in Q4 in early November I think what we said last time around it was a 10 million authorization. We had 5 million authorized for this year in for next year I'm not sure. We can hit the full 5 million. This year given kind of the daily limitations based on on on flow.
But we'll certainly look to maximize fully utilize that 10 million in over the course of this year next year as quickly as we can given more of a trade. We certainly think it's a good good value return to shareholders Yep.
And then.
With respect to the U.K. I know you're suggesting.
You got not growing there, but any update on where we are in resolution of those uncertainties and anytime were you guys were just step out of the market like some of your peers have.
Yeah, John It's Jason I mean, the one thing I think we benefit from as we have a profitable business even at the current complaint levels that are there. Yeah. We took some actions to make sure we manage costs, they're pretty carefully.
And we have been in conversations with the FDA there in the conversations are complex I can't go into too much on but I would say they're incremental so.
As you just before we make progress yeah, it's not going to be this kind of defining moment, where everything comes to immediate clarity.
Where we benefit by having that positive net income coming from stood a year. So we have a little bit longer runway to be able to try to work with the FDA to try to get that clarity we thing given that the demand is there there's so little supply up in the marketplace, we're willing to stick it out for a little bit longer as long as we're showing profitability that's not a drag on earnings for us or distraction. So.
We're hopeful that we can get.
Some closure there and we will open the market back up again for us.
Hi, guys, thanks very much.
Sure.
Our next question is from Moshi aren't bunch with credit Suisse. Please proceed.
Well.
Thanks, Most my questions actually had been asked and answered I'm. Just wondering you know your secured fourth quarter revenue guidance looks like it might have corner. So.
Third quarter seasonally normally you would probably see a little bit of an up tick in certain could go up its different obviously the piece of good growth is a bit slower we're still expecting it to be up a little.
You know anything that you could recruits a little bit or perhaps there were true.
With regard yeah, yeah, yeah, you're you're right Moshe.
Chris.
A big piece of that is going to be the UK. I mean, we definitely have consciously slowed down new customer originations, probably beginning in September and so loan balances have dropped a little bit and we're going to try and hold it flat, but thats going to be a big piece as to why it's coming down certainly with the FX rate bouncing up a little bit as they hopefully get closer to.
Brexit resolution that might help I think we're just being a little bit conservative in the forecast as well for Q4, but until we fully rollout and kind of see the measured growth approach I mean, we're really focused on making sure. We exit this year good credit quality and that we're headed into next year feeling good about things. So I think for now we're we're just.
Going to continue to execute as we see but you know revenue. However, topline revenue plays out we're more focused on the bottom line results and we expect to see net income in Q4 higher than what it was in Q3.
Great and would you second which of the early to fix it said that is [laughter] that are critical.
Sure.
We're putting a little more or so.
Earnings streams and network so thanks.
As a reminder, star one then your telephone keypad. If you ask the question. Our next question is from Giuliano right now with the P.T.H.T. Please proceed.
Thanks for taking my questions I guess jumping off on a couple of different topics.
We look at the different products.
It looks like it's obviously a little to shift in the product mix, but do you think the bank partnerships would target specific products between other riser elastic where do you have any preference and targets.
You know from our Sam pointed at inside elevate depending how they're structured yeah. We can credit card at the same type of return. So we're almost in different I think you look from a consumer standpoint consumers tender to favor, though a lot of credit product over the installment loan product. So as we've talked to artisan partners. There is one that we just on the terms you would just looking more towards installment.
On product.
We have some discussions with other bank partners that would be more of a 2020 mid year late 2020 launch that are looking install it sorry, a lot of credit products I think it's we're kind of in on our side. We're in different I think when you look at the customer research they skewed slightly towards line of credit, but I think both a great products and bill Yeah. We tried to build great features 40, the for as it were for the Bank partners.
Certain nonprofit Jim and generally speaking the unit economics are pretty similar for for all sets of products, regardless of the bank partnership.
That makes sense then.
A little bit of different perspective, but.
Obviously, if you continue along this trajectory even if you were to grow assets.
Low double digits next year.
<unk> continues to your leverage ratio come down even if you could actually on the buyback plan is there kind of a target of where you'd like to run the business in terms of leverage.
Yeah, I mean, certainly given where the stock prices and then what the amount of free cash flow that we're generating and you'll see on our Q. We had really good free cash flow for a company our size in Q3 that we generated gives us the ability to both pay down the debt. You know is one of the things that I worked on with BP.
The with the amended debt facilities, we do have in Q1 of every year, a 20% revolver.
Facility now, where we can pay down up to 20% of the debt at no prepayment penalty. So between the normal seasonality to free cash flow that we're generating.
I could see that leverage that debt to equity dropping into the.
Sub three range over the course of the next couple of years.
If we feel that Thats, you know the best utilization of capital and and so Thats one of the things that we will just continue to take quarter by quarter, but it's certainly nice.
To have that flexibility of paying down debt or buying back shares.
That sounds good and then just <unk> cleanup question, you mentioned, a severance costs and FX cost in the quarter.
Could you just to mention that number again.
Well you a it was for the quarter, we had 2.8 million in total pre tax expense the FX in the non operating losses are disclosed separately on the face of the BNL and then the difference between 2.8 and think it was roughly.
A million and a half in the FX and.
Non FX would be the severance a little over a million for the severance.
So clearly we feel good that that will probably run an FX gain in Q4, given where the exchange rate is we don't expect to reference.
Q4, and I don't think there'll be a non operating loss either so so if anything was we should see that slip.
In Q4.
That sounds good thanks for answering my questions.
<unk>.
Ladies and gentlemen, we have been spend about question and answer session I would like to turn the call back up like a management for closing remarks.
Yes, thanks, everyone for joining us for the Q3 call I'd like to say I couldn't be more excited about the future of elevate I'd like to thank all of our employees for continued hard work and dedication upward to speaking their body next quarter. Thanks, so much.
Thank you we have.
Reach the end of our program you may disconnect. Your lines at this time and thank you for your participation.