Q1 2020 Earnings Call

Thursday Thursday

Thursday

Ladies and gentlemen, thank you and welcome to the green Sky first quarter 2020 earnings conference call at this time opposite direction will follow to prepare Mark reminder is a streaming live on the green Sky investor relations website and everybody will be available on the same site. My name is completion of the call is my pleasure to introduce your host familiar Freeman vice president of taxes and equity and green Sky, please go ahead and

Thank you.

Demetrius and thank you to all our listeners for joining us today after the close of Market trading hours yesterday greensky issued a press release announcing results for its first quarter ended March thirty, first, two thousand you can access this press release on the investor relations section of the green Sky website. In addition. We have also posted our first quarter investor presentation, which we will refer to during today's call log on the call today. We have David's Alec chairman and chief executive officer Jerry Benjamin Vice chairman and chief administrative officer and Executive Vice President and Chief Financial Officer.

Before we get started. Let me remind you that our presentation and discussion will include forward-looking statements. These are statements that are based on current assumptions and are subject to risks and uncertainties that could cause actual results to differ materially from those projected. We disclaim any obligation to update any forward-looking statements except as required by law information about these risks and uncertainties is included in our press release issued yesterday as well as in our filings with Regulators. We also will be discussing certain non-gaap Financial measures. These non-gaap measures are not intended to be considered in isolation from a substitute for a superior to our gaap results. And we encourage you to consider all measures when analyzing Greenscapes performance. These non-gaap measures are described and reconciled to their Gap counterparts in the presentation materials the press release June eleventh 2020 and two relations page of our website. And with that I would now like to turn the call over to David.

Thank you Amelia. Good morning, everyone and thank you for joining us. It's good to be with you today to review our first quarter 2020 results. These are unpacked it in X our thoughts go out to all those impacted directly or indirectly by the pandemic. We agree and sky are committed to helping our consumers Merchants Bank partners and team navigate this challenging environment as previously announced in mid-march greensky implemented the remote working aspects of our business continuity plan successfully migrating the company that entire Workforce to work at home while focusing on the safety of all of our greensky Associates and their family members continuing to provide world-class Loan Servicing and customer service level wage our bank Partners merchants and greensky program consumer borrowers of note our greensky technology infrastructure, and the Innovative capabilities of our talented Workforce have enabled us to confirm

While working remote these accomplishments are true Testament to the leadership provided by the entire greensky senior management team and our chief technology officer and Executive Vice President of Operations in particular when the severity of the pandemic and the associated potential economic impacts became more clear in mid-march percent of the green Sky Bank funding Partners came together to offer voluntary payment deferrals for any greensky program borrower voicing hardship approximately 2.5% off the customers reflected in the company's nine point three billion dollar servicing portfolio are greensky program borrowers that have received payment deferrals in response to a hardship requests.

the rate of

Payment deferral requests received is low relative to many other consumer loan programs and is indicative of the exceptional credit quality of the green Sky program borrowers now turning to our faith results. Let me Begin by saying that we enter 2020 firing on all cylinders are transaction volume for the quarter was one point four billion dollars a record for any first quarter inch long history reflecting an increase of 10% over the first quarter of 2019 before covid-19 began disrupting business activity in mid-march our transaction volumes for January and February together. We're up 16% compared to the same two-month period in 2019 moreover as indicated on slide thirty two of the investor presentation the green Sky publishing last night, the company of achieved first-quarter incentive payment receipts that exceeded comparable first quarter 2019 amounts by 77% wage.

Which we believe to be the most reliable operating performance indicator for the company was Nineteen point four million dollars for the first quarter reflecting a 76% increase over the first quarter of 2019. After taking into account a 2019 charge off recovery sale of seven point four million last year with no corresponding charge-off recovery sale this year long as you'd expect the shutdown by the states of all elective Healthcare procedures has driven the current run-rate of the small component of our overall business to negligible origination volumes. However, I'm particularly pleased to share the knowledge standing of the impact of the pandemic our home improvement business continues to be quite durable for April the monthly approved applications a chelating indicator were approximately 70% of April 2019 levels importantly. We we have seen continued recovery for the last three consecutive weeks.

In a moment. Gerrie will walk you through our key operating metrics and the trends impacting the business and then Rob will provide a detailed review of the quarters operating results. However, I want to update you on to key business wage jobs diversification of our funding model and our board strategic Alternatives review process first funding as of the end of the first quarter of 2020. We had aggregate used Bank funding capacity of 1.6 billion dollars in addition. We anticipate approximately three point four billion dollars of additional capacity over the next 21 months as existing loans down or pay off.

We also have continued to actively diversify our funding to include alternative funding structures with one or more institutional investors financial institutions and other sources on that. We are pleased to announce that green sky yesterday closed on an asset back revolving credit facility with JPMorgan Chase to finance purchase participation in loans by a green Sky sponsored special purpose vehicle SPV. This credit facility is five hundred million dollars with three hundred million committed and an additional two hundred million accordion subject to lender consent. We expect that the the TV will then periodically conduct sales of loan participation zor issuance has of asset-backed Securities to third parties, which would allow additional purchases to be financed through the revolving facility. As long as those sales are issuances occur. The revolving facility could facilitate a substantial increase in the velocity of loan transaction volume through greenskies platform in addition to the new Republic.

we also continue work with multiple institutional investors and a leading institutional asset manager to complement our bank partner funding by a both whole

Phone sale programs and Ford flow financing Arrangements, we expect to close one or more of these financing and the second half of 2020.

Lastly as announced in August 2019 the company's board of directors working together with our senior management team and outside legal and financial advisors commence the process to explore review and evaluate a potential strategic Alternatives focused on maximizing stockholder value. The Board review is ongoing and the company does not intend to make further public comment regarding these matters unless and until the Borg proved a specific transaction or alternative or otherwise concludes, its review. We expect to make an announcement in this regard no later than when releasing our fiscal 2020 second quarter operating results. I'll now turn it over to Jerry.

Thank you, David and good morning from the company's Inception through the end of the first quarter 2020 green sky was now enabled nearly $24 billion dollars of transactions off 3.2 million consumers.

The markets in which Greensburg competes are a Mets. We firmly believe the green Sky hold the number one market position in the Home Improvement point-of-sale Finance vertical as David shared. Our home vertical has proven to be extremely resilient in the face of the covid-19 and demek.

We believe that entering fiscal twenty we had achieved the number three Market position and elective Healthcare point-of-sale Finance after just four years from launch the covid-19 impact on this vertical have been much more severe. However, these are the prohibition of elective medical and dental procedures enacted by virtually all of the states. Fortunately this represents only a very small piece of our overall origination volume, despite or leadership position these two large industry verticals, both are highly fragmented and accordingly our share of these sizable Market remains modest blowing room for college material growth for years to come once we get back to normal Economic Times.

As we have, Don prior calls, we continue to adapt and innovate new products services and capabilities for our merchants of providers distancing our technology mode in a manner that makes green Sky loan really distinctive in the marketplace while premature to declare outright Victory were seeing tangible evidence that suggests when we ultimately fully emerge from the economic impacts of the pandemic black rims guy will enjoy meaningful Home Improvement market share gains of note in the months of March and April greensky enjoyed. It's braided Merchant enrollment growth as measured by annual sales revenue or ASR of merchants enrolled in the company's history surpassing 3 billion and a Sr for these March and April recently added Merchants representative New Home Improvement sponsors and Merchants added in 2020 include a 150 million dollar a Sr. National HV AC Network multiple log.

Regional exterior remodelers

Are getting more than a hundred million ASR multiple large Regional HVAC dealers aggregating more than eighty million and a Sr and a twenty million national outdoor Hardscape Network long as we progress through 2020. We plan to retain our focus on enhancing our home improvement product offerings in particular adding larger merchants and those that need both our quality and productivity Target wage war continued when you invest in advancing the effectiveness of our risk management processes and procedures moreover. We continue to be extremely pleased with our twenty-twenty credit performance to date.

If you picked it up, like twenty one of the first quarter two thousand investor presentation, the dollar credit weighted average FICO score consumers that origination was exceptionally strong at 7. Thursday 3 for the first quarter compared to $769 in the same quarter last year as highlighted earnings yesterday's earnings, press release the credit quality of the company of Loan Servicing portfolio page remains exceptional.

As of the company's March 31st Loan Servicing portfolio 85% of borrowers and an originated weighted average credit FICO in excess of seven hundred and 37% off the Nexus of 780 30-day delinquencies observed at the end of the first quarter was 1.23% and 8 basis point Improvement compared to a year ago.

We continue to make material Investments to enhance our proprietary credit and Merchants management tools and systems, which we believe will deliver additional improvements throughout 20/20 importantly early in life to show that the 2019 Home Improvement vintage of origination have the highest dollar credit weighted average FICO distribution and lowest early delinquencies of any loan. We facilitated from him censorship and the same is true for the 2019 vintage of elected Healthcare origination.

As of March 31st, we had nearly 18,000 active merchants on the green Sky technology platform more important than the 13% growth in the total Act of merchants on our technology lab platform in the last 12 months is the quality of these Merchants. We focus not only on the substantial addition of high-quality Merchants, but also upon generating increased productivity from several emerging part of the Greenspan Merchant Network for many many years. We partner with each of these Merchants to successfully grow their businesses and we've actively taken steps to call those Merchants that don't meet with a rigid quality standards as we sit here today. We believe greensky is extremely well positioned to enjoy a significant increase in market share once economic conditions restored. In fact, we feel very good about the quality of our servicing portfolio moreover. The quality of the loans greenskies facilitated for our bank Partners in the first quarter was exceptional

Based upon April results. We are not yet. Seeing any increase in early-stage delinquencies and charge-offs.

What we can't predict however is the rate by which states reopen their economies whether the virus moderate some the Commerce coming months or whether we witness another spike in the virus driving folks back to shelter at home or quarantine for safety. Therefore while we plan for an extended period of softer origination volumes. We have both the technology and human resources available to support growth associated with a rapid economic recovery.

On that note. I'll turn it over to Rob to review the company's financial performance for the first quarter Rob. Thank you Jerry as I review the results for the first quarter turn my remarks with the corresponding page numbers of the presentation, please also note that all comparisons will be relative to the first quarter of 2019 unless otherwise stated as we discuss with you on our March second year and call the company's adoption of the new current expected credit loss or Cecil accounting standard change. The accounting requirements for estimating credit losses are Cecil impact is different than for a bank account that has the credit risk on the loan instead. Our primary financial instruments in scope are the financial guarantee arrangements with our bank Partners, which are secured by our bank credit escrow.

Which is a significant component of a restricted cash on our balance sheet under the new accounting for guarantees under Cecil future loan originations by our bank partners are not factoring in a cast of Bank partner portfolio performance for the purposes of the new guarantee Reserve calculation a key feature of green Skies waterfall structure that creates very durable portfolios wage. I think Partners is the programmatic nature of Bank Partners continual loan originations to both replace run off as well as grow their portfolios under the guidance of the Cecil standard. We must now assume a mortgage loan losses were by any consumer loan portfolio goes into run off with no new origination in the portfolio as you will note this results in a reserve level as maturely a higher than I anticipated crash test usage of escrow for our ongoing Bank Partners the adoption impact on January 1st, 2020 was 118 million. It's a significant wage.

Portion of our escrow balance on our nine point two billion dollar loan servicing portfolio as of December 31st 2019. I would like to note that this historic that historically wage actual cash payments required under the financial guarantee Arrangements have been in material for our ongoing Bank partners, and we anticipate this to continue to be the case. But the first quarter we recognized on my new charge of 18.4 million dollars associated with our financial guarantees, the additional Reserve relates primarily to the growth of our escrow balance during the first quarter and included approximately 3.5 dollars related to the additional model escrow usage due to the impact of forecasted elevated levels of unemployment on this picket off portfolio forecast.

Turn into are funny.

Results with our which correspond to page twenty-nine of our presentation transaction volume in the first quarter of 2020 was approximately one point four billion dollars a 10% increase over the one point two billion dollars originated on our platform in the first quarter of 2019. The company's transactions. If you rate in the first quarter was 6.55% down marginally 6.77% of the same. In 2019 reflecting normal variation promotional products offered by our Merchants as we have discussed on prior calls a variability in the promotional package, which are merchants and providers offered to their consumer causes our transaction fee as a percentage of transaction volume to fluctuate throughout the year based on the promotional products are Merchants choose to use to drive sales activity.

Total revenue in the first quarter grew 17% to 121 million with transaction fees totaling eighty nine point nine billion dollars percent over last year.

Service in another Revenue increased 59% to Thirty one point three million dollars and included a 1.8 million dollar increase in our servicing asset driven by the growth of Bank partner servicing portfolio wage higher than Market servicing fees as you may recall starting with the second quarter of last year several of our bank Partners servicing Arrangements were mended to among other things increased their fixed Services fees off when service would be is are higher than the market rate for servicing the excess servicing these create a service and asset the servicing fees which are senior cash flows in the bank partner waterfalls increased to 1.29% off important Bank partner portfolio in q1 twenty 21.05% in 2019, reflecting the increase in our fixed servicing fees that occurred throughout 2019.

Turning to slide Thirty cost of Revenue told 71.8 million dollars or 3.1% of assets under management in the first quarter consistent with q1 2019 rate of 3.1% off cost of Revenue is divided into three distinct components servicing costs origination cost and the fair value change in the FC reliability.

Service and related expenses for the first quarter where twelve point eight billion dollars or five six percent of the average Loan Servicing portfolio and down from q1 2019 2.57% off the first quarter origination related expenses totaled six point five million dollars or 47% origination down 4.69% in the first quarter of 2019, the year-over-year improvement in our fishing measures reflect our operations technology teams working together to find new and innovative ways to help our customers a slide Thirty-One. We have provided the detail of components of the fair value change in the law reliability.

Fair value change in the liability for the first quarter was 52.5 million dollars or 2.28% of the average Loan Servicing portfolio up from q1 2019 $38,000 per rate of 2.0 to 2.07% year-over-year increase of 13.7 million dollars largely reflects the growth of the balance at Burgess Lounge within a month. Please note. We did not pursue a charge-off recovery sale during the first quarter. Whereas in 2019, we realized seven point four million dollars from the quarter sale as we will make more of a timer retaining the Eagles versus selling their receivables to our investors. We do not plan to continue these sales going forward in addition when compared to q1 2019 that the impact of the aforementioned wage basis point increase in the servicing fee paid to Green Sky by Pink Partners, which has the effect of reducing receipts paid to Green Sky by approximately 24 basis points for five point five million dollars during the past quarter dead.

And thereby results and of course.

An increase in the fair value change in the S ability to express line item adjusting the fair value change and the fzr reliability expense for the shift of the service servicing fees from received to servicing revenue and for the cessation of our recovery sale program.

Yes, you are rate would be improved by 42 basis points year-over-year this year-over-year Improvement reflects the strong performance of our bank partner portfolios on slide. Twenty-One a a 32. We also break out the fair value change in the viability by the driver's of its expense line item. I'll begin with the expense for the future finance charge of Brussels, which is the expense rejected to the building up the liability on our balance sheet for future finance charge reversals. This expense in the first quarter was 97.2 million dollars and 4.25% of the loan servicing portfolio out from twenty nineteen seventy point eight million dollars or an fzr rate of 3.79% The ink increase in this expense is indicative of larger balance of 2 per just Blends in our portfolio as previously noted. The FDR rate is increased to be reduced the impact of higher aprs on transactions in the hiring extra footage is lens and our elective Healthcare birth.

Impact of the higher build interest rates under four inches lines is largely played itself out as you can see from the modest one basis point sequential change in the rate.

Receipts from our servicing portfolio reduce the expense refuge for finance charge reversals, even though we did not offer the charge Office tables for sale this past quarter as we have in office receipts nonetheless increased maturity of this quarter to forty four point seven million dollars or 1.94% of the average Loan Servicing portfolio from q1, 2019, 32.1 million dollars or 1.72% of the average length servicing portfolio.

Driver of the strong year-over-year Improvement was within the incentive payments line first quarter incentive payments totalled to forty two point four million dollars 1.84% average Loan Servicing portfolio compared to Thursday twenty nineteen s rate of 1.28% the 56 basis point Improvement the rate despite the aforementioned 24 basis-point impact of the higher servicing fees was driven by a combination of the higher finance charges and fees for both deferred-interest and reduced rate loans, the agreed-upon bank partner yields for the portfolio benefited from the climate interest rates and lower net charge-off wage portfolios benefit from the improvements. We've made in risk and operations turning back to slide twenty-nine operating expenses, which exclude cost and the non-cash charge on cash diesel charge of 18.49 dollars total $37 up 12% from $33 as we continue to build in vayne.

Our team as well as encouraging certain legal and other expenses. We do not expect to receive current over the long term.

Got net income for the first quarter was a loss of ten point nine million dollars compared to seven point four million dollars. Net income in q1 2019. The decrease was primarily due to a combination with the recognition of the Cecil Financial guarantee expense a non-cash charge of eighteen point four million dollars coupled with the absence of the charge off recovery sale during the quarter versus the seven point four months proceeds during the q1 2019 as we've indicated on earnings calls, we believe the adjusted ebitda is one of the key financial indicators of our business office over the long term provides useful information regarding whether cash provided by operating activities is sufficient to maintain and grow our business. We reflect a non-cash Cecil charged as an adjustment giving us a cash accounting construct adjusted ebitda for the first quarter was Nineteen point four million dollars compared to the eighteen point four million dollars in the first quarter of 2019 twenty nineteen eighteen point four million years.

Include the previously discussed seven point four million dollars charge off receivable sales apps and the charge off sale in 2019 year-over-year growth and 8GB data was 76% You're here watching the strong Improvement in you every year results. And with that. I'll turn it back over to Amelia to set up the Q&A.

Thank you rob concludes our prepared remarks. Please. Remember we are happy to take detailed modeling questions offline. And with that operator. Let's please have our first question.

And our first question comes from John David with Raymond James.

You may proceed.

Jesse exited march called down 15 to 20% on a volume I missed the first cake. Good morning. I missed the first part. I think there was a connection. Could you start off? Okay. Yeah. Sorry. You hear me now? Can you hear you great. Good morning. Okay. Good morning. Just first on April friends, you know Mark it down 65% from a volume perspective and I appreciate the down Thirty, you know funded or sorry approved Home Improvement loans and just trying to put that with what you're seeing it in total volume Trends obviously like the medical Thursday and then what's the difference between approved and funded just trying to figure out what they were like

So the leading indicator for for April as we indicated in our home improvement business was down 30% from prior year. We also indicated that the last three three weeks. We've seen a Resurgence. I don't think we're providing any more detail at this time Jerry. Do you want to provide some more color?

No, good morning, John. We said in our common selective business was really driven and not virtually all the states prohibited anything other than emergency procedures. They're coming back on life slowly is David commented. We're seeing a tapering and the distance if you will between 20 and nineteen same day year ago in terms of new applications. So we feel that that 30% is sort of the the bottom and it will improve from there the rate by which improves it's probably too early to say though.

and if you recall

The health care business is left and 10% of our monthly origination.

Okay. Thanks. Then just one. Is it on the SPV for a minute first, you know just thoughts on why creating it and the benefits and in seconds to make sure I understand it. These loans will sit on my ass balance sheet. And then finally, how should we think about the economics relative to the waterfall model for us? It's opportunistic. We see that there are opportunities to expand the diversify to non-bank facilities. And we see this as a good way to facilitate that whether it's whole loan or Ford flow security life. It's a relatively small amount of balance sheet leverage for for these astronauts and we we see potentially a high-velocity. So for us it's it's opportunistic Jerry. Do you want to add add some comments? The other thing that does that really creates a lot of flexibility for us guide if we were to put on all the afterburners to close that forward flow rate?

But right now just given where credit markets are we're not inclined to lock in long-term rates until Market settle just a bit. So this serves as a bit of a holding tank if you went off us to time more permanent Arrangements, it's good for us and it's good for counterparties the quality of the super Prime book of assets. We've we've proven the demand is superb job of people that want to buy these assets what we don't have any interest in doing is that a range of a mispriced arrangement for this provides? A lot of flexibility into David's Point think of this is a holding tank that we can turn over with a lot today. So it's only a half billion in terms of sticker, but you turn that over for six times a year you're talking about real money. So it really was a vehicle or structural flexibility that we took in place.

Okay, and then just how should we think about the economics relative to the waterfall model, you know as we said earlier, we've been really pleased with the multiple effects that we've gotten it bids and they vary by product type. You know, we basically think of our loans in three different buckets reduced late loans to fir drones and what we refer to as ills almost like a zero coupon off and each of these investors have different views regarding pricing. So we maintain the ability to optimize and we want the flexibility to sort of pick and choose where we slot these. So as we said the off the overall economics notwithstanding the fact that we remove a lot of beta from our business model is not terribly different than what we're seeing in our bank partner environment.

Okay, and then last one for me, I think you kind of already alluded to this but we we had a six billion for full agreement on the table last time we talked last quarter. It seems like that's come down to two months without the back half of the year. So I'm assuming that's just what you said that you don't want to lock in rates given where credit markets are today. But any other commentary on that is it the same week and asset managers are going to do the six billion dollar deal with still looking for to just any commentary there would be helpful. Yeah, I can I can I can provide just how your deals?

Go ahead.

Oh, I remember that 6 billion was a three or a multi-year deal. So the arithmetic pretty much holds true.

jump in there David

Yeah, so still engaged with that particular asset manager other asset managers have emerged as well for pool loan. But the question is it hasn't structurally changed in terms of six billion going to two billion. It was always two billion a year.

Okay. All right. Thanks guys.

Thank you.

And our next question comes from Stephen Walt with Morgan Stanley.

You may proceed. Yeah, can you guys hear me hear you great great. Hope you guys are well. Maybe we can touch on another piece of the funding side here and just touch the bank the non-bank partner piece. Wondering what your conversations are like with your bank Partners so far as we track through the year. I know those tend to be done months in advance of any renewals or adjustments. But just if you could get providers any color on at least the top five or four Partners, I think BMO is the only one that's extended Beyond this year by term. You know, how have those been trending with the virus impact one of your bank Partners without saying they might reduce exposure over time.

So I think the conversations have been constructive. I think actually most of our relationships have already been extended. This is not new news. Uh well into next year and Beyond I think we have one that we're expecting material extension later this year. That would be the only one that remains to be extended. Everything else is already been extended the conversations have been constructive. I think the financial institutions have done their own stress tests off on the portfolio and the feedback has been I think confident in encouraging. So we we feel that we're in really good shape with with our Legacy Bank partners.

Okay, great and maybe just shifting towards the expense base to backing out items like Cecil reserving adjustments and all that as we deal with a wage for top-line environment as you're looking through the what what are the sort of areas you feel like you can take out I didn't really see a ton of granularity on what you guys are doing on the expense side, but just wondering how you guys are thinking about that as opposed to the next few months. Yeah, so to the extent we see, you know prolonged reduction, although, you know, we're not expecting reduction in in Revenue as much as we are less growth this year, you know, a lot of our expenses are variable origination related expenses. And as long as we have a growing business, we hire more as we have a business that grows less quickly will hire less quickly. So there there's certainly is a great deal of variable coughing.

That we can scale up and scale down as appropriate.

But we don't we don't see see the need for that at this time. If I could just squeeze in one last one on your Merchant side. What's the General Health of your wage or Merchant Partners right now in terms of there's a lot of these are tend to be small businesses aside from things. Like, you know Partners Like Home Depot what's going on in terms of the health? There are businesses shutting down for a loaner temporarily halting. What's what's what do you seeing? So the the bulk of our business are these amazing small and medium-sized companies typically are doing call at five million to twenty-five million in Revenue. So they're small but they're they're Mighty and they're not tiny businesses. Generally. What we're seeing is they continue to operate some of them have seen twenty Thirty forty percent reductions, but they're seeing their business rebound depending on the market that they they're in, Georgia.

Some of them but very few from a week until have ceased operations or furloughed their teams. It's it seems that the vast majority slowed down dramatically their ability either to finish the job or to make a sale, but we're seeing evidence that that's restarted in in earnest money and I I would say that many of our merchants of reported recently record sales as markets become available to them again and to the extent that there was a slow down really much to our surprise it it was much less of of a Slowdown that I think we all expected in Home Improvement.

Did I answer your question? Yep, that that's very thank you.

Internet question comes from Reggie Smith with JPMorgan you may proceed.

Hey, good morning. Gentlemen, can you hear me?

Hello.

Yes, can you hear you great good morning few questions. One of them is kind of been touched on what is it kind of go back to you, but I guess April Trent David called it a Resurgence and and Jerry a tapering just try not to say that I guess the magnitude of the discussion their second part of the question kind of help us or remind us.

How the business works when volume or reservations are are declining the question before asked about operating expenses. But what are some of the wage loss that that should kick in if transaction revenues are down year-over-year in the second quarter and could could could you see a situation where he died negative next quarter?

Can you?

Repeat the the last question the very beginning cut out.

Yeah, so if if you know presuming origination Czar down 20% right, I would imagine transaction revenues have a similar kind of flow. What are the natural offset off in the business expense wise and could you see a scenario in the second quarter with the diag negative?

We don't see a second a scenario where second quarter ebitda is negative and going back to the and the offsets are both originally the vast majority of origination costs are variable. And and so those are the the natural offsets has it relates to April for the month. We reported that the leading indicator was down about 30% and we have seen in the last three weeks that the consecutive growth wage from what we think was a trough three weeks ago.

And then you speaking about interest rates coming in. Obviously, what impact does that have on the business? I know that they went up. It was a little headline. Are you expecting any of the lease from lower rates or or how does that impact your your profitability in the model?

So I think if you take in interest rates and this environment, you know, we we think it's it's neutral would not I would not suggest that it's um, uh a Tailwind or a headwind at this time.

I'm sorry Reggie, same question.

And it's last one. I didn't maybe overlooked. I didn't see a a non-gaap EPS calculation or share count. Are you guys not providing non-gaap EPS anymore?

No, no, we're not. I think the with the there's really limitations on what you can do with see someone other things in terms of adjustments that we purchased on adjusted ebitda and the as our core kind of non-gaap measure.

I'm hoping that an analyst will do a little work to derive it the fcc's frowning upon it right now. But if it was our inclination, we think about pro forma adjusted giving it back to the non-cash charge because the Cecil charge just got no relevance to our business model truly.

And know during that reported gaap EPS to something akin to what we reported last year.

Just I think it is in the presentation. It showed a share count of something in the sixty million range, which is down considerably from the previous year. Was that a typo or it must be a typo? I'm not sure what you're referencing. That doesn't sound right. If you go if you go in the 10-q, we actually gives you a detail Reggie dead.

Okay, perfect. Thank you. Thank you.

Internet questions on it, which Piper Sandler you may proceed with.

Hi, good morning. Everyone. It's good to hear your voices. I wanted to ask one question on your first quarter volume Trends. I look through the detail on Thursday at 11 solar now 10% to a big jump, but it looks like HVAC Roofing & Construction least by my math or down sort of 25 to 30% quarter-on-quarter. I just wondered if the trends are kind of persisting that way like solar is strong but HVAC Roofing & Construction or off.

On the week or side of your spectrum and in April and May are you making a reference by chance to the pie chart? That's on Thursday? Yeah taking a pie chart and then we take that pie chart and you know use those percentages to slice up the transaction volume X Healthcare. So I took a little nap around it, but you know solar at 10% that's a big job. Um,

Is that still strong is really the the core of the question here? Yeah, I think we may have a mislabeling applied eleventh candidly. That doesn't doesn't long time.

Chris what we've seen is that HVAC has been affected less than Windows kitchens bathrooms and solar and if we need to update slide 11:00 will get that to you in circulated broadly as well. So what we've seen is that it's it's more wage. Uh, number one HVAC has been impacted less but the bigger driver is is is what city and state you're in North East much more impacted than anywhere else Southeast least impacted amazing how much business still in Windows and in kitchen and bath remodeling was being done in April may be seeing in may even in state in in in the Midwest and the west coast and the south east. So no solar is not is not dead.

Is not growing faster than anything.

Else but we have seen HVAC, um be more durable even than Windows and kitchens. If you actually turn to slide off in you can see our actual solar volume was 2% Yep. Okay, Daddy. Yeah that makes more sense to me. All right, and then anything on I guess we're hearing out of some of the home improvement companies that or some of the data that we can also gather from them. So it looks like for consumers they're engaging more in small projects rather then then larger projects. I'm just wondering if you saw anything in the first quarter on like average ticket size. Is there anything like that that that suggested any change or is that not something you'd really see because of what your financing? Yeah. So what we're seeing is durable demand from the consumer. We have not seen any change in dog.

And average purchase amount or financed amount or transaction amount what we are seeing interestingly enough is more merchants or Thursday from what we can tell more Merchants are using financing more often and are paying for more expensive promotions. They value that sale even more money. They're paying more for bigger promotions to drive traffic for their businesses, but we are not seeing average order value go down cost of windows isn't dead down, you know so know the short answer is

Consumers that are buying windows or or not seemingly spending any less money.

Okay, and then Jerry you'd made some comments about some of the additions on Merchants like remodelers and HVAC dealers and Hardscape. Just wondering with those additions are those things that had been in the works for a month and I'm just trying to understand sort of the you know, your Merchant Pipeline and what business you're able to do now, and if we might see a week or Merchant ads and a quarter or two because it's just tougher to to add them in a zoom meeting rather than on a face-to-face sales. Call. Let me let me speak to that Jerry. So most of our Merchants enrollment is is not a not face-to-face we support them face-to-face and we'll continue doing that, you know, but these businesses and business owners, they're really busy and so they don't tend to like dead.

People interfering, you know with their daily routine. So you you need to be invited what we actually saw was not a pull forward sort of God, you know reference. I think what you were getting at what we saw is that Merchants that either were not using financing or using competitors suddenly started shifting to us as competitors have had business interruptions drastic changes in their operating procedures. And so we've we've we we think it's a a future Christmas present for us.

Based on you know getting Merchants that that have long been either entrenched elsewhere moving over or Merchants that has home obviously not used financing.

All right. Thanks very much. Thank you.

Internet question comes from research.

May I proceed morning guys, you know, I know that you said in the past payments on the financial guarantees have been immaterial, but can you share with us? Just how much losses would have to increase before the financial guarantees and the escrow or tapped into?

But it's for that to Jerry and Rob.

Yeah, that's I mean it it's a couple eggs and construct where your continued originate loans. I think you would have to see different life stresses under that environment, but it is typically an excess of 50% or more we removed before you would start seeing dead.

potential Husker usage kind of a steady-state portfolio growth environment

Okay, and then just to follow up on the on the SPV a handful of questions what interest rate that you're paying? How does the reserving work for that structure then? What does the SPV mean for your leverage ratio and existing debt covenants? Thanks guys, great questions a couple of things first the from a financing cost is actually lower. If you will from a spread perspective than our our typical Bank Partners. So from an efficiency standpoint is actually a very efficient for us from a funding costs the

Maybe the other part of the question was how does it affect our leverage ratio from a leverage ratio standpoint? This is securitization that mrs. Non-recourse, so it's not part of that calculation.

Okay, and then do you have to do any reserving for the loans? That'll be funded through the SUV like a quick question. These ones will be loans help for sale such as that then they there's not a choice will charge if you will do that at the loans held for sales, you have to mark-to-market the loans and then book, you know your typical reserve for any impairment you see on phones for my credit lost perspective month, but there's not a Cecil charges directly related to that. Okay. Thank you.

internet question customer when you make receive

Thank you. Good morning. Good morning, Jason. How are you? Hey, so one question I had was with the three point four billion in additional capacity through 2021 that you reference on one of your slides is that based on using sort of normal pay down patterns or have you used any sort of newer modified assumptions given the current situation and if so, could you talk through some of the assumptions?

Yeah, very simply it's it's based on what we expect to see in Pay down for the next eighteen months.

Right. I understand that. But what are the underlying assumptions? You're making about the economy about the consumer and so on so I think it's going to be well, it's not yeah, it's not connected to merchants in consumer. Yeah are based on what what we expect which is is our estimates based on what we know now, but we don't think that the volatility debate is terribly High considering these are one year weighted average life life and 775 goes and as indicated what we've seen in Jerry indicated earlier today early stage delinquencies have not.

deteriorated yet

That's where the one the one comment I would add is note that only 2.5% of the borrowers in our nine point three billion dollar loan servicing portfolio have received any kind of hardship release pretty de minimis. When you compare that with other consumer programs. We don't have enough definition to really provide what would be imprecise off estimating but we know what the weighted average life of the portfolio is we sensitized it for this small percentage that have been hardship relieved, but it's very very small.

Got it. Okay, and then the the transaction fee 6.55 in 1 to 20 should we expect to see that take up through the year maybe closer to the 6.7 which was the rate excluding promotional allowances?

Yes, we would expect it to expect it to pick up a little bit. We've certainly seen seen that already here lately.

okay, the

The the the first time in many quarters that you haven't had any proceeds from charged off receivables transfers. So is that more a reflection of the market or is that a change in approach by you? As long as as part of the Strategic review that the board's undertaken it became clear that sort of the cost of capital that we enjoy is such that our economic benefit by continuing to use our collection procedures would suggest that the rate of return that we're paying investors. Exceeds by a good Dimension are off the capital and we're best served by retaining these accounts for our own and use our collection procedures and it'll drive up r i r

on those assets to as opposed to

Sizing a programmatically like we have been we've made meaningful Improvement in collection and process and we're of a mindset where we're better off keeping those economics of ourselves, and that page was out to investors.

Okay, that's good to know there any other as a part of your review? I know you don't normally talk about it at any other conclusions that the Strategic dog has has given you that you're implementing or that it would be useful for investors to know.

I mean in all Candor, it's probably not surprising just given the economic Times. We're in we're generally internally focused right now by Design and that would really be the same for any prospective counterparty. Everybody's focused on their business. Just given the dynamic nature of the market today.

Okay, that's it. Thank you guys. Thank you.

And our last question comes from Angie Jeffrey address.

You made for G.

Hey, good morning. Appreciate you taking the question here at the end. Did you ever wonder if I could just dig in a little bit on on the promotions? Sounds like today? I bought a new Merchants have borne the cost of those promotions rather than greensky subsidizing then that should we expect that to continue or you support Merchant sales by offering better terms, for example.

I'll let David expand on this but we stay close to our merchants and we want to enable them. Anyway, we can optimize their business if that's getting creative with respect to New Age oceans new financing tools new programs, whether it be sort of Fourth of July holiday specials or otherwise we're going to be there for them. That being said we have a cost of capital and we have a business and we do run our math and seek a you know, a a targeted returnee respect to the financial product. We bring but we're creative we're accommodating. We're responsible. I would note if it wasn't clear in the last question. The queue ones transaction fee rate is impacted by seasonal rebates that only occur in the first quarter month. So one of our prior questions came up with you see what do you expect to see a tick up and Merchants rate throughout the year and David responded Yes. If for no other reason than those rebates having been behind us, you can expect that to be the club.

David anything you Dad along that line. Yeah, I I would you know just want to remind you our business model is to help businesses grow and Delight their customers, but there's a cost to do that and we we are a for-profit. So we we're not in a position to subsidize the merchants the merchants pay a fee to use the platform which increases their sales to Jerry's Point echoing my point earlier. They pay us a fee. We're actually seeing that fee go up. So I think the short answer to your question is yes, we we can we expect to continue to see Merchants using our platform paying for it to drive incremental growth. It's important to them and perhaps more important today and we're seeing an uptick in what they're what they're paying based on one thing more promotions more authors.

Thank you. Okay, I guess not all that'll make sense in the system. We've said in the past about the one Q seasonality of promotions. I just wonder took it to the extent more and more protracted downturn and you know, it sounds like a sensibly underwriting gets a little tighter which makes sense. Does there some point become attention that which there's a trade-off between volume and yields right? I guess I'm trying to to park. So yeah, so I can see what we've seen is more pressure. The merchants are from a revenue standpoint the more often they spend more money on promotional credit.

That's something that we have seen very obviously in April which I think speaks directly to your question when when Merchants are having a harder time getting the phone to ring or a harder time with consumers being comfortable moving forward with a project. What we've seen is that they are more likely to use our service more often with more expensive products.

Good, that's helpful. Thanks man. Quick one for Rob on the servicing portfolio on that servicing asset. Should we see runoff increase and and barring any pricing changes to the servicing portfolio is the bank declines. Is that all you have to write the servicing acid down?

Yes, yes. Yes. It's a great question. So it's the extent the servicing portfolios for the bank partner portfolios that have the higher yield if they were to hire service next month of service and themes that were to decrease you would start seeing potentially Aunt more like net amortization from the the servicing asset if it's steady. You would not going to know that real activity with an increase in as you saw last quarter. You saw a slight increase or gain related to that but it is it is somewhat related to the the growth of the wage this particular servicing portfolios.

Got it. Thank you. Very helpful.

Thank you.

Thank you operator. And and thank you everyone for joining us today. We hope everyone has a great day.

With that lady hundred. I mean just a conference. Thank you for your participation. Can you may now disconnect? Everyone has a great day.

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