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dryman's avatar

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!

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Micro Opportunity Capital's avatar

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

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