Quick ELVT update & Schedule for New Pitches
Brief Housekeeping Post - Hope everyone had a great July 4th weekend!
For recent new subs - welcome! Great to have you on board. If you haven’t already, please be sure to check out my two old (but recent) posts, Elevate Credit and Jakks Pacific. I am very excited about the PnL potential of those two names over the next 6-12 months, and they are two of the core positions in my book.
Quick word on my publishing plans over the near term, and we’ll get to the ELVT update. I am currently in the process of writing up several ideas, all of which are high conviction positions that I think are immediately actionable, and compelling risk/reward in terms of valuation and near-term catalysts. Of course I want to prioritize quality above all else so I won’t necessarily rush to get them out, but hoping to get to at least two more ideas published over the next 2-3 weeks, and then re-evaluate from there.
I am still thinking about what the optimal publishing schedule is - balancing subscriber expectations and at the same time ensuring that the quality of the ideas remains strong. I will likely have more thoughts on this over the coming weeks, and will share them with you at the right time.
In the meantime, if you have liked the ideas so far, please forward to friends and colleagues and have them join in!
Now for the ELVT update - this isn’t an earth-shattering development, but I thought it was worth bringing to your attention. According to the latest Form 4 filing, board member Tyler Head has completely finished selling down indirectly owned shares that were held in his Trust (in his name, dated March 20, 2014). This marks the culmination of a lengthy sell-down process of ~2.3mm shares that were in the Trust (i.e. a lot of shares!)
For subs that are not familiar with how the reporting of insider transactions works - whenever an insider (that could be employees, board members or other individuals related to the company that have material, non-public information) makes a trade, that information must be reported to the SEC, so that the public is aware that such transactions have taken place.
Today, on 7/6/2021, a Form 4 was filed by Tyler Head, and it clearly shows that all his shares beneficially owned in his Trust have been sold. I’ve circled it in red in the below snippet, and also providing the link below as the print is too difficult to read here:
https://d18rn0p25nwr6d.cloudfront.net/CIK-0001651094/4695ab7d-7a6b-41bd-adac-b327f09eb4e3.pdf
As can be seen in the footnotes, we should note that all the disposals to date were pursuant to the the trading plans set in the 10b5-1. This was likely set up this way because Tyler Head and his family needed liquidity for their own personal reasons, not because they had some bearish view of the Company. I won’t repeat the thesis again (just refer to my post #1 on ELVT) but with this overhang gone, I expect the near-term trading of the stock to be buoyant - and we should learn more about the Company’s trajectory in the 2Q earnings in late July / early August, where I expect credit quality to remain strong, and mgmt. to make positive commentary about share buybacks and returning to growth in new loan originations.
Hi Plum, thanks for your excellent blog! In digging through value stocks I've been wanting to like ELVT near its lows and came across your posts - what's concerning me though is the scope of the continued insider selling, which isn't limited to Tyler Head / Linda Stinson / TCV, and includes members of upper management who've been continuing to sell. For example their Chief Credit Officer David Peterson, Chief Product Officer Scott Greever, and President/CEO Harvison have all been selling throughout this year including recently and near current prices.
Management owns much less than the large selling shareholders like Tyler Head (e.g. Harvison at ~2% as of the Apr 2021 proxy), so it's not the size of the share overhang that concerns me now but the informational/signaling aspects, where the Board and management are directing the company to buy back stock, but are simultaneously unloading their personal shares into these buybacks with no one seeking to grow their stake at these levels. In other words are they perceiving a value trap that we're not, and using buybacks to create liquidity? I can't find any clear red flags so far, potentially some areas of "information asymmetry" could include emerging developments in loan quality, the pending lawsuits under Other Matters in the 10-Q, and future legislative/regulatory issues (which seem hard to handicap as you mention).
I'm curious on your take on the latest 10-Q; there could be two ways to read it in that it's encouraging to see topline growth in loans receivable, but they swung to a GAAP loss and adjusted EBITDA margin of 2%, which they attribute to "upfront costs associated with credit provisioning and direct marketing expense". I suppose this could make sense if they have significant marketing costs recognized up front but was surprised by the extent of this hit. Past due loans are now at 53.8MM or ~10% of total loans receivable, this was up from 30.8MM/421MM or 7.3% at 12/31/20. Their current allowance for loan losses rose more modestly from 48MM to 56MM and about matches the total past due. This might be related to ending COVID payment deferral programs on July 1; I'm hoping the impact of this should be baked in to the past due figures from the latest 10-Q since it's been 3 months. What wouldn't show up yet is results recently issued loans that haven't had time to become delinquent, so perhaps the next 10-Q will be highly informative to prove out whether the recent loan growth will be profitable.
Anyway, sorry for the long post, and would be interested to hear your thoughts!
Hi, I've read the writeups on ELVT, thank you. The sticking issue for me is the overturn of the "true lender rules" referred to in link below. This seems like a fairly big problem for lenders like ELVT which is a) beyond their ability to control and b) beyond my ability to anticipate. When those factors exist, I usually take a pass. Your thoughts on the "true lender rules" ?? https://seekingalpha.com/news/3709989-congress-overturns-trump-era-regulation-on-payday-lenders