Q2 2021 GreenSky Inc Earnings Call
Good morning, and welcome to Green Sky's second quarter 2021 in financial results conference call as a.
A reminder, this event is streaming live on the Green Sky Investor Relations website on a replay will be available on the same site approximately 2 hours after a completion of the cool we.
We will begin in the opening remarks in introductions at this time I would like to have a cool ever to bring a daily head of Investor Relations. Mr. Dailey, you may begin.
Okay.
So we're in good morning, everyone.
Yesterday, a green Sky issued a press release announcing our results for a second quarter ended June 32021, you can access a press release on the Investor Relations section of Green Sky's website.
In addition, we have posted our second quarter 2021 earnings presentation.
Which we'll refer to during today's call today, you will hear prepared remarks from David <unk>, Our chairman and Chief Executive Officer in Andrew King, Our Executive Vice President and Chief Financial Officer. We're also joined by Gerry Benjamin Vice Chairman and Chief administrative officer.
Before.
These are statements that are based on current assumptions on a subject to risks and uncertainties and could cause actual results to different materials in those projected we disclaim any obligation to update any forward looking statements, except as required by law information.
These risks and uncertainties is in included in our press release issued yesterday as well as in our filing with regulatory.
We will also be discussing non-GAAP financial measures on today's calls.
These non-GAAP measures are not intended to be considered in isolation from a substitute for or superior to our GAAP results and we encourage you to consider all.
All measures when analyzing <unk> performance. These non-GAAP measures are described and reconciled to their GAAP counterparts in the presentation materials. The press release dated July 28, 2021 in on the Investor Relations page of our website.
At this time I will turn the call over to David.
<unk> good morning, everyone and thank you for joining us today to review our second quarter 2021 results.
Green Sky achieved record earnings and delivered on a number a key initiatives in the second quarter. The strength of the company's performance reflects the longstanding commitment we have made to our merchants consumers.
Thank you funding partners in this past quarter's operating results could not have been achieved without the dedication and hard work of our green Sky Associates.
Our strong start to the year has continued in was highlighted by strong profitability metrics in the achievement of several important accomplishments that I will elaborate upon.
Throughout.
In marks today Youll notice to consistent themes first green Sky has made great progress leveraging our strategic relationships.
In investments in merchants in sponsors that would materially growth transaction volume in the future.
Second our continued focus on a lifetime profitability of each loan originated on our platform.
Our is directly reflected in a record earnings this quarter.
Turning to slide 3 during the second quarter Green Sky delivered record net income of $47 million, which represented a $33 million increase from the second quarter of 2020.
And was a direct result of the improvement in our cost.
Form bonds in the scalability of our operations adjusted EBITDA of $61 million also a company record resulted in a 45% adjusted EBITDA margin for the quarter accelerating our path towards sustaining long term annual adjusted EBITDA margins exceeding 30% consistent.
Just a thought we outlined during Investor day this past January.
Scott its 30, plus day delinquency rate, a leading indicator of our portfolio performance was <unk>, 7% at the end of the quarter in improvement of 29 basis points in the last 6 months from <unk>, 99% at the end of last year.
While our portfolio.
With limited from a macroeconomic environment in improved consumer liquidity, we cannot not have achieved these results without the contributions from a significant investments in people process and technology.
Additionally, in as Andrew will expand upon shortly the benefits from a stronger more diverse funding model has allowed us to optimize our cost.
Cost of funds driving a 33% lower cost of revenue, which directly contributed to green Sky's dramatic profitability this quarter.
Transaction volume for the quarter increased to $1.5 billion, representing a 14% improvement from the same period of the previous year while.
While we are pleased with the growth year over year. We also recognize that second quarter transaction volumes continued to be impacted by a challenging supply chain in labor market, which both continued to be constrained directly impacting a number of a sub verticals in home improvement.
More importantly, we are optimistic that recent key merchant in sponsor.
In the strong momentum we saw in the first quarter continued to demonstrate positive leading indicators, including the all time quarterly record of a prudent credit lines in the second quarter.
We expect that this will this trend will translate into third and fourth quarter transaction volume contributions that would elevate transaction volumes above.
Our historical seasonality trends.
Relating to the previously disclosed CFPB matter, we are proud of our record a consumer advocacy and have already implemented many of the protocols in business practices called for by the agreement.
These enhanced protocols and practices have been very well received by our ecosystem.
And will only serve to enhance our best in class merchant and consumer experience.
Andrew will provide further details on a financial implications relating to the resolution of the CFPB matter, which will not have any adverse impact upon our ongoing operations or our growth target.
Moving on to slide 5.
<unk> made significant enhancements to its technology offerings throughout the quarter, specifically, we released version 6.5 of our mobile application, which migrates or a point of sale platform to a new cloud environment.
The updated mobile application using GPS technology provides qualifying consumers immediate access to credit in a high.
Richer environment.
We believe that these enhancements further extend our competitive technology advantages and are examples of our commitment to innovation security speed and feature functionality, we remain committed to innovation around our process and technology as our continuous improvement was a key factor.
Highlights in a number of large strategic sponsors in merchant wins this quarter.
As we look to further build our momentum on transaction volume growth I'd like to briefly outline some of the key.
Recent merchant in sponsor wins across a diverse array of sub verticals, most notably we finalized a very important contract.
Actor in <unk> largest HVAC sponsors EIA.
This 5 year exclusive first look deal will ship valuable market share from competitors to Green Sky.
This relationship is expected to generate an incremental $300 million in 2.
2022 transaction volume and targets 1 billion.
In annual transaction volume over the course of the agreement.
The company's best in class technology tools service and commitment to continuous improvement providing E. J, a with the best value proposition when compared to other market competitors.
While this expanded sponsor relationship should provide meaningful incremental transaction.
With 1 of those volumes to green Sky in the coming years. It was also a testament to our long standing mutually beneficial relationship with each AIA in cannot have been accomplished without the valuable contributions of many green sky team members.
We also grew our industry, leading position in windows and doors, and we made significant strides.
Transaction or other home improvement categories.
Through the completion of new partnerships with leading national manufacturers in the kitchen and Bath space.
Lastly, we finalized in innovative alliance with <unk>, Inc, a leading digital marketplace for home services.
These wins.
Combined with our total merchant.
Additions.
From this quarter alone.
Are expected to contribute in excess of $500 million in incremental transaction volume in 2022 with the opportunity for additional significant growth beyond that.
Finally, I'm very pleased to announce that green Sky is planning to expand a residential.
AIDS in our offering in the coming quarters, we're excited about the large addressable market in profit profile.
Our second quarter results highlight our ability to execute on a strategic investments we've made in our merchant in sponsor relationships technology and process improvements have helped land many new key strategic.
<unk> in record approved credit lines show strong consumer demand for Green Sky's platform.
And we are excited that recent trends in wins will fuel growth in the second half a 2021 and beyond.
I will now turn it over to Andrew to discuss our quarters financial highlights.
Thank you David.
Good morning.
Moving to the second quarter financial update on slide 6 as David mentioned Green Sky reported record net income of $46.7 million in recorded adjusted EBITDA of $68 million, reflecting a 45% adjusted EBITDA margin for the quarter.
These.
These strong results highlight the accelerated path to achieving and outperforming the long term goals, we set at the beginning of this year.
Let me dive a little deeper into the drivers of this exceptional performance in importantly, how they reflect sustainable margins in profitability.
Total revenue for the quarter was a 130.
$7 million up 3% year over year.
While a transaction fee revenue increased to $102 million, driven by a 663% transaction fee rate and 14% growth in transaction volume year over year.
APR at origination in which is tightly correlated with transaction.
To rate and closely associated to build yield was.
It was 13, 5% in the second quarter with increased demand for higher APR loan products.
The APR for a reduced rate loans increased to 6.9% from 6.7% at the end of last year.
We are expecting in transaction fee rate.
A 6.5% in the second half of this year as mix continues to reflect recent trends.
As I've mentioned to you before in prior earnings calls transaction fee rates are highly correlated with collateral API at origination.
While merchant in consumer demand may ebb and flow of take rate. We are as we have always been focused.
<unk> on maximizing the lifetime profitability of our transaction volumes across all of our products on which takes into account both take rate as well as the collateral yielded a loans originated on our platform.
For the quarter servicing revenue grew 10% year over year to $31 million as a fair value change.
Servicing asset increased approximately $5 million due to improved portfolio performance and expected lower cost to service.
On slide 8 our 30, plus day delinquency rate dropped to 0.70% representing a 29 basis point improvement since the end of last year.
While the economic recovery in stronger.
Longer consumer credit behavior has provided a benefit our current portfolio performance reflects the direct investments we have made to enhance our origination process with our merchants.
Drive more first looks and without tightening credit policy.
I would like to provide a final update on a COVID-19 disaster relief.
And in our time for 2020.
At its peak the program accounted for approximately 4% of Green Sky's the service portfolio.
It now represents less than 10 basis points.
While the program offered valuable assistance to many customers and also came with uncertainty of how that portfolio could ultimately perform.
Since then we have provided consistent in improving updates on this deferral portfolio in at the end of this quarter. The COVID-19 disaster assistance program remained at less than $10 million of a $9.4 billion servicing portfolio.
We no longer view that the performance of this program will have a meaningful impact on our financial performance.
<unk> going forward.
Turning to slide 9 Green Sky improved its cost of revenue by 33% year over year.
The $65 million decrease compared to the second quarter, a 2020 as a result of improvements in both operational costs and our overall cost of funds.
Beginning with operational costs, our origination costs as a percentage of our transaction volume improved by 11 basis points in a cost of service as a percentage of the average servicing portfolio was flat year over a year.
Our overall cost of funds improved by $21 million or 44% in when compared to the second quarter a 2020.
<unk>, Inc. Waterfall costs as a percentage of the average bank waterfall portfolio improved approximately 60 basis points when compared to the second quarter of 2020.
These costs benefited from a loan sales activity during the quarter, which lowered our total SCR exposure by $17 million year over a year.
If you recall.
<unk> when we launched our diversified funding model last year, we stated that loan sales grew to reduce the volatility on our profitability profile and we are now seeing that reflected in our results.
For additional context bank waterfall costs accounted for approximately 83% of our servicing portfolio in the second quarter of this year.
Compared to 98% in the second quarter a 2020.
On a loan sale costs, which include mark to market on loan participations, we hold on our balance sheet and also a mark to market obligations on loans held for sale at a bank partner.
For the quarter on a loan sale costs were $15 million in included.
Premiums and discounts on loan smarter sold.
The weighted average discount on the $547 million a sales this quarter was approximately 2%.
Which included loans across all of our product types, some of which were sold above par.
This quarter's results reflects the <unk>.
Realizing a our loan sales strategy that we believed would occur over time and that we've discussed on previous calls.
We.
<unk>, a $8 million benefit to a cost of revenue related to our sales facilitation obligation expense.
This was related to recent pricing improvements since the end of last quarter in also related to certain loans.
<unk> from a bank waterfall waterfall portfolio this quarter, which reversed the associated in mark to market in our sales liability in was included in the realized net discounts for the quarter.
On slide 10, the financial guarantee expense for the second quarter represented a $6 million benefit which was driven by loan sales loan.
Mix in an improved credit forecast.
Specifically the sale of loans in the quarter reduced green Sky's escrow commitments in a bank waterfalls, which lowered the overall financial guarantee impact we.
We expect a financial guarantee expense will remain relatively flat for the remainder of the year.
Operating expenses were $41 million.
And when excluding a nonrecurring expenses ops expense improved by 4% in when compared to 2020.
Included here in which is also adjusted in EBITDA was a $6.5 million impact from the resolution of the CFPB matter.
At the end of the second.
The company was fully reserved for this matter and we do not expect to incur any further expenses related to us.
Turning to funding on slide 11 funding remains the strongest that it's ever been which continues to provide capacity to support growth.
A second quarter was another excellent quarter in terms of our ability to.
Commitments across multiple sources and execute on improving our cost of funds.
We increased to bank partner commitments by a combined $640 million in the quarter.
In April and as previously disclosed 1 of our bank partners increased its commitment by $500 million increasing their total revolving.
Moving commitment to 2 billion.
In extending the agreement into the fourth quarter of 2023.
A second bank partner increased its commitment by $140 million to in aggregate revolving commitment of $900 million.
Also during the quarter, we expanded our forward flow agreement with a leading life insurance company.
Increase in incremental $500 million to a total $1.5 billion dollar commitment.
Lastly, we completed approximately $547 million in asset sales across all loan originations with some of the strongest pricing we have seen over the last year.
Our bank quarter, our bank partner a.
By commitments were approximately $10.3 billion in total at the end of June.
Approximately $2.6 billion of commitments were unused at the quarter end and we expect an additional $2.3 billion in revolving capacity become available in the next 12 months as consumer consumers pay down their loans, providing ample funding for planned future transaction volume.
Waterfall I'd like to take a moment to highlight the progress we have made since launching our diversified funding initiative over a year ago.
In total we completed approximately $1.9 billion in loan sales in has seen pricing improve every step of the way.
We completed a $1.5 billion forward flow agreement in bank partner commitments have increased.
In <unk> 3 billion.
While we continue to find additional opportunities for enhancement I am very pleased with the progress we have made over the last year to increase capacity across multiple fronts, which has been a foundational improve in improving green sky strong bottom line profitability.
When we announced a strategy with.
Turning on we believe that we could growth funding capacity and also optimize our cost of borrowings, which I believe we have been very successful in accomplishing.
Our corporate liquidity has also continued to improve as we reshape our profitability in return to strong positive cash flows.
At the end of the second quarter the company had over 2.
<unk> trillion in unrestricted cash approximately 38% increase since the end of last year.
Highlighting our ability to generate free cash in tandem with growing profitability, we anticipate similar steady cash growth in the future as we continue to demonstrate sustainable profitability.
On.
<unk> 12.
We have updated our full year transaction volume guidance to 6 point in zero billion to $6.2 billion.
The slight 4% change from a previous estimate reflects the headwinds David noted in the home improvement supply chain in labor markets.
We are also updating our revenue guidance to $520 million to $540 million.
To reflect our updated volume guidance in recent transaction fee trends.
We are increasing net income to 100 million in tier $110 million in adjusted EBITDA to a $160 million to $175 million.
In updating our adjusted EBITDA margin guidance to 30% to 35% for the full year.
Our updated guidance highlights a significance in how we have enhanced our overall cost to deliver ongoing in sustainable profitability alongside continued strong growth in future periods.
Thank you for your time in interest in Green Sky I will now turn it turn the call back to David.
Thank you for joining us today, operator, we are now ready for Q&A.
Thank you David.
You'd like to ask a question. Please press star followed by a 1 on your telephone keypad, if you'd like to withdraw your question. Please press star followed by 2.
When preparing to ask you a.
Please ensure you on on meets it locally.
Our first question comes from Christopher on that of Piper Sandler Christopher Your line is now away from.
Oh, great. Thanks for taking my questions David.
Wanted to just ask first on the solar I realize it's more of a future.
Her side of a business, but why the decision to move into the market now what what do you see in the opportunity or or what sort of a changed within green sky that a the causes a decision.
Yeah.
So a couple of things and we're actually launching.
A question.
In small scale in the third quarter. So we've been building out the capabilities controls.
In the prior quarters, we have quite a bit of a experienced in solar we see that there is a tremendous <unk>.
Funding appetite for that type of product.
And.
Share leveraging our prior experiences we built out the controls in the processes that.
We think work.
And we've certainly seen where we think we have advantages in a market.
Between our technology or our protocols as well as a funding.
And we think that it can.
Can be a material.
Growth factor for our business in.
Something.
Highly profitable in Incrementals so.
Certainly a.
Doing it absent all of those pieces didn't make sense.
But we've certainly been been looking at for a while in.
We've got the tools and we're ready to go.
Okay.
And then just.
Thinking about your guidance on transaction volume in what's going on in the marketplace with with.
With supply chain in the labor issues.
Im just wondering if there's.
Well it seems to me that certainty of financing for a contractor should be a positive thing that would work in green Sky's favor.
But in I'm missing something or are the issues with supply chain in labor just overwhelming everything else are you seeing something where contractors they actually would prefer to deal with just.
We've got cash from the customers, who can pay cash no no no no those customer in the up a queue.
No.
The the finance rate as a percentage of jobs that are being financed is not going down.
Anything in appears to be going up.
Let me, let me give you in.
Explicit anecdote.
It used to take 6 weeks to get a.
Window installed it takes 12 weeks it take.
<unk> <unk>, we have we have roofing manufacturers that used to carry 12 products.
And.
A couple of weeks now they are constrained at 233 products 3 colors and it can be 18 weeks. So when you have great sales.
But you don't get to recognize it until the job is complete and it takes potentially 2 or 3 times longer that's going to a push.
It take a transaction volume apps.
So what we're seeing is and we referenced this.
Seeing record approvals.
But the transaction volume is lagging because it takes.
Much longer to get these jobs done.
We're not.
In less demand what we're seeing is when we interview our contractor customers.
That they're there.
Wound with demand.
And they are greatly challenged by supply chain in labor. So what we are seeing is.
Not seeing a normal course.
If a 10000 dollar sale is made in June we would normally expect to see $10000 in transaction volume in June in July and instead, we're seeing that get pushed out over 4 or 5 or 6 months.
Okay.
And then I guess just last question from me as you are thinking about things being pushed out for a 5.6 months.
Does that change how you feel about 2022, I think you're already relatively optimistic of a because of EIA in other.
Other relationships, but do you think.
You'll see basically activity pushed out from 'twenty, 1 to 'twenty 2.
Yes, so look although all the leading indicators, including adjusting for these longer lead times.
Makes it makes us very bullish on 2022.
I think I think Chris that we.
<unk>.
We've demonstrated that.
Funding is highly diverse and we've we've.
I think made it more profitable.
For a for our company I.
I think we've demonstrated that we can win in have continued to win some really really big relationships.
A heads up against the.
The competitive landscape.
And as it relates to 2022 all of a leading indicators are very encouraging so we've got funding we've got.
Profit in profit margin and we expect accelerating transaction volume.
In.
In other another anecdote.
In in here in the last couple of months merchants are telling us they're cutting back on their advertising just to have a chance to catch up to a there their backlog.
So we the short answer is we're very bullish on on 'twenty.
And in just yet.
Got it okay. Thanks very much David.
And thanks, Chris.
Yeah.
Our next question comes from John Davis of Raymond James John Your line is now away from.
Hey, Good morning, guys just wanted to talk a little bit.
On a chris's transaction question, David how should we think about.
How the how the increased guide or sorry, a decrease guy how does that play out in <unk> versus <unk>, obviously it implies in acceleration in growth is because we get something similar from a growth perspective in <unk>, what we saw in <unk> in more of a hockey stick in <unk> or is it more even just anything to.
On the 20th with how that plays out sequentially in the back half of this year.
Yeah. So.
What we don't expect is the same kind of seasonal curve that we've we've had for the last decade.
What we would take what we would expect is.
On a Sunday.
In some.
Help us that is.
More flat in terms of.
No.
Q3 in Q4, but the fact remains people generally don't like to have home improvement.
Performs after Thanksgiving right that tend to be a low time what.
We don't know exactly and we can't predict precisely is.
With a backlog we don't think people are going to.
Well.
You weren't able to install it in October but now you've got the material, let's let's go so.
We think that that's a.
It will it will be.
Something different than historical seasonality and it does push more into into Q4, we just don't know.
How long, it's going to take the supply chain to catch up rate. Some some industries. It seems they think by the end of the summer theyre going to be a little bit more normal summer reporting that it's in.
Early next year.
And so that was really.
Elevate our Q4 volume.
Okay. So if I'm reading those comments correctly, you would expect some modest acceleration in <unk> and then a little bit step up in <unk> on a year over year growth basis.
Relative to that strength.
Okay.
Correct and then maybe.
In the baby on the on.
On the margin I think guide implies 27% EBITDA margin, obviously, it was a pretty eye popping 45 per cent this quarter.
So its kind a talk to a 30% margin longer term. So just want to understand a little bit of puts and takes in a credit has has.
A definitely a tailwind in the first half of a year, but just.
Andrew If you could just go through a puts and takes on a margin in the back half of the year in it in if theres been any change in kind of a longer term margins at all.
Let me let me just.
So let me let me just a.
Comment that.
Every year.
Sure.
Symptoms before we're a public company.
Margins EBITDA profile goes on a normal curve. If you if you if you look at.
Certainly all the years that we've been public fourth quarter in first quarter tend to be our weakest quarters. So it is on.
Our focus certainly is.
Is a annual EBITDA margin.
And we're very excited that.
That we're demonstrating we can get their second and third quarter is always the highest EBITDA margin.
So you tend to have.
Your biggest quarters in the second and third quarter.
It is only Nash.
Natural in historic for us that the margin.
<unk> tends to peak in second and third quarter.
And Ed.
In the first in fourth.
Andrew anything you want to add to that.
No David that's a.
Absolutely right.
And.
Income.
Commenting around the second quarter, specifically I think.
As I mentioned.
In my prepared remarks, I think that the.
The areas, where we saw the real.
Improvement in cost of revenue was was around both our operational cost as well as our overall cost of funds in when I.
Kind of unpack the cost of funds.
We're really seeing the.
The benefit of our loan sales strategy, we talked to you guys about this late last year and I know, we had a lot a convincing to do but what we said was when we diversify our funding model.
Be able to optimize.
The very.
A important bank waterfall components, we have but also a leveraged loan sales to reduce SCR volatility.
And also you've seen the impact of loan sales benefiting financial guaranty.
So as well as I should say in improvement in the pricing of that leg of the funding model.
So.
From a cost of revenue side of the cost of fund side, we've seen multiple dimensions of improvement this quarter and I really think that that reflects kind of getting to a steady state.
First of all I'd model in Q1, and then now more more solidly in Q2.
We're at the.
The end of last year, you saw us kind of a building.
In building expense to be able to execute now we're kind of at a steady run rate. So I think I think that's a really important component of Av.
The impact to the second quarter.
Also the second quarter similar to like what David mentioned is a seasonal peak in.
Portfolio performance.
So we did see a strong benefit on a bank waterfall through our incentive payments.
So collectively I think in the coming the loan sales strategy in a diversified funding model just really hitting its stride along with a really strong quarter from a from a credit perspective is has a translated into a very strong quarter.
Okay. So is it fair to say no change to the to a mid to long term margin.
Profile of a business Youre, just getting there quicker than you thought you were going to initially.
Well I would say I agree with you that exactly a quicker.
But I would say that there is opportunity to keep going.
Okay.
And then last 1 from me I guess, it's kind of a 2 quarter Dave.
David the solar kind of headwinds on the business you know a couple a years ago, where we're pretty well documented a given the higher take rate. So just curious do they still carry the I believe it was kind of in the 13% range.
Take rate.
Could we expect some upward pressure how big do you think the solar could get as a percentage of of the business and then lastly, just kind of any update on on elective health care in where we are there. Thanks guys.
Got it so solar.
<unk> should be at least a $1 billion business for Green Sky.
In terms of annual transaction volume.
We'll see if that takes us 1 year or 2 years to get to that kind of run rate.
But we're very excited about it in 1.1 thing to think about is in this will create a lot less.
Complexity.
Is.
<unk>.
And I think that over time.
It'll be even more transparent what you're noticing as more and more of our originations.
Our.
Originated on too for example insurance company balance sheet. There is no waterfall there is no SCR there.
It's a great deal more simplicity and transparency as it relates to the financials.
And we would.
Have a similar structure, we would not expect on.
Our solar originations to be on a complex bank waterfall.
We would expect to clear a 5.
5%.
Contribution margin and so if we originate.
A $1 billion.
It would be really simple you'd take transaction volume discount that a <unk>.
<unk> partner would earn and we'd clear 5.
And that would be recognized at time a.
Origination plus we'd get servicing fee and then there would be no ongoing volatility.
So we think that keeps it very very clean and so there wouldn't be the noise of a.
Of a 12% transaction fee, but negative cash flow in a subsequent years. It would just be a great net economic time.
Origination is that does that helpful.
Yes, no it's exactly on looking for other.
That's a health care.
Take care and elective health care continues to ramp up in we're very excited about that in.
And we expect that.
To continue to ramp in start becoming a meaningful part of our business.
Yeah.
So we've got we've got a I think a lot of opportunities in front of us not only in a home improvement core business, but.
Health Care's ramping in now solar.
Okay Jonathan.
Just add.
John I would just add on the health care piece, a recall that we had gotten to about 10% of.
Our eyes wide originations in the fourth quarter of 2019.
And we're hoping to grow that to the mid teens, it's difficult to do when Youre growing your home improvement business 800, $800 million, a $1 billion a year, we're not going to get to 10%. This year I hope by the fourth quarter next year, we're in that sort of range.
Net.
The gentleman, leading that health care business for us is having great success with some large enterprise accounts and the demand for share procedures is.
<unk>. So the market is there for us in it's just a matter of execution, but we do have some denominator effect to catch up but wed like to see this be a multibillion dollar contributor in the market certainly is therefore it.
Take care.
Thank you.
As a reminder, its star filled up a 1 on your telephone keypad to submit a question.
Our next question comes from Giuliano Bologna of Compass point Giuliana. Your line is now a perm.
Thank.
I guess kind a go.
Jumping into a.
A slightly different topic.
The revised guidance implies EBITDA in a 30 to 35 per cent range for a 21 in there.
There are obviously some tailwind there.
Driving that number better probably not necessarily a recurring there kind of a little bit of a reversal.
What happened.
Last year in even earlier this year.
There's a.
In the Investor Day guide was kind of a 30% or exceeding 30% at scale on from EEP.
On a margin perspective.
What I'm curious about from.
Someone on a trajectory perspective, obviously youre getting a benefit this year, which is pretty right in and to that 30.
Moving on to 35 per cent range.
Would you see what do you think you'd come down a little a bit before he got back up or do you think.
As possible going into next year that you could be right at kind of your your optimized EBITDA margin.
Guidance perspective.
Yes, we don't see a trailing down to go back up other than.
So that's a natural seasonality.
So.
You know, we we we painted I think a very clear picture in.
Our first Investor day in January.
On a 5 year plan to get us to $300 million in profit 10 billion in volume 30.
Per cent plus margin.
And what we think we're demonstrating here.
A few quarters later as that we're way ahead.
And there's obviously upside.
And we think we can continue that momentum.
Because of the investments that we're making in the wins that we've had that.
<unk> will start impacting us at the end of this year in early early next year.
So we're very excited and.
We think we've got great results in great momentum.
That's great.
Giuliano.
I would just add to David's comment I'd say you know just.
It's making sure you understand that the results, we're seeing today arent necessarily because of any sort of release I think it's more that.
We will release that could then come back this is really as I described before.
In acceleration too.
A stable.
It's a revenue.
A P&L and as David mentioned there'll be seasonality over the course of a year.
But really a I feel like we're at a spot now where we have gotten to a point we've given the guidance we provided we.
We feel that to be pretty much a.
A good starting point.
Cost per dollar of incremental volume, we can generate in the coming year is going to it's going to improve upon that.
Hopefully that helps.
That's very helpful.
The only question from there is really.
Now that you're running at a much better margin profile.
You're going to increase liquidity since the end of last year.
And then kind of a curious about.
What do you think you know the best use of cash is at this point, because if you're running a price margin reshuffling.
Be adding to your on your cash position if it makes sense to use that cash to fund more kind of balance sheet facilitated loans or how do you think about the use of that cash.
From a from a.
Deployment perspective.
Sure I'd say, so let's say that the first.
Go ahead David.
Okay.
So we.
We are generating a lot of cash thank you for recognizing that in.
We don't see any need to balance sheet.
There is incredible.
Both diversity, what we're seeing is really fantastic participation from in demand from insurance companies.
And it just cant get more efficient in that from our perspective.
So in conjunction with our bank partners, we think we have.
Tremendous amount of runway in terms of efficient growth.
And as we continue to accumulate cash will be.
Looking seriously at all options, but.
But we certainly havent havent made any conclusions at this time.
That sounds very good.
The only thing that a convention to serve on spirit.
Youre sitting on.
From a market perspective.
Suspect that there's going to be on.
There's been some discussion about a.
Greater use of unsecured personal loans not necessarily.
Yes, the types of loans in your offering in a more specific to projects that are being used for home improvement type projects or even a cash out refis on a mortgage side that could be used for.
Retrans on a renovation projects in kind a curious if you see from interplay between potential competition on that side. So.
You've seen any impact of that recently.
No not at all in here is why what you are referring to generally as a product for credit seekers.
And the data clearly supports that.
But remember the.
The advantage that our platform has is there is a subsidy paid by our home improvement contractors.
That allows the consumer to get a much better deal than what they could get.
At any bank directly or.
Personal loan website so.
It's highly subsidized by the merchant.
And it is instant it's paperless.
It's a.
Even more transparent for consumers. So we're certainly not not seeing in.
In.
As you know a personal loans have been around.
In a very very popular and have a.
A.
On an important place, but we don't see in intersecting.
With commerce, we see it as more loan consolidation.
And then anything.
That's great I really appreciate the time from Diavik.
I'll jump back in the queue.
Thank you.
Our next question comes from a.
Other than say, we're kind of a city.
Your line is now with them.
Thanks.
Just on that on the cost of revenue in the.
The Investor Day, you laid out the kind of example of a and maybe it's just because it's a life of loan, but just kind of shows the bank waterfall in loan sale as being similar cost of revenue.
And you're running below it which was around 313.
Per cent and you're running below that you know thus.
Thus far in or at least in your guidance for <unk>.
<unk> 2021.
Is that expectation of a cost of revenue changed overall I'm just trying to understand.
The differences between the 2.
I think era in Andrew go ahead.
Yes, Ernest I think to answer your question I think a short answer is yes, if we were to update them.
That view today and you would see.
Advantages relative to what we presented then a pricing has improved availability as.
0.2 route capacity has increased.
So.
I think the the component in that view that reflected in cost of our loan sales strategy would be improved from that.
January perspective, and that's something we're.
We're looking to put together in might be able to.
But with you in the next call.
Okay. I mean is that more of a current environment a issue or is that something that's structural that you expect would be true.
True through the next several years.
Oh, it's definitely structural because.
Prior.
Sure on January we had done some discrete loan sales.
We now have a $1.5 billion forward flow agreement in place that creates structure.
We also by the way are still doing discrete.
Loan sales as well.
And in addition to that we're getting more of that more and more demand requests from our bank capacity.
Capacity partners.
And we're having discussions on other.
Other additional funding sources. So I think those are all the structural pieces that really.
Again thinking about where we started in January to where we are today much faster than what I initially had expected as having accelerated to a.
On a pretty steady state.
State within a couple of quarters.
Okay got it thank you.
Ladies and gentlemen, as a final reminder, please press star followed by 1 on a telephone keypad to submit a question.
At this time, we currently have no further questions. So I'll hand back over to David's Alex a closing.
Thank you everybody for joining us.
I'd like to add 1 additional comment.
Just gotten some messages I want to be a very clear that there have been.
So reserves released.
There is no 1 time a rig.
<unk> or reversals.
Theres no loans on our books that have caused that so the the increase in profitability in a profitable billing rate.
Has been driven by improved cost of funds.
Net and.
Efficiencies in a company. So I just wanted to underscore that thank you everybody for joining us look forward to our third quarter call. Thank you.
Thank you all for joining today's call you may now disconnect your.
Your lines in have a lovely day.
Okay.
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Okay.
Okay.
Yeah.
Yeah.
Right.
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Okay.
Yeah.
Yes.