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!
Thanks. All the major selling is done. Sequoia and TCV are 100% out, Tyler head and Stinsons are done selling also. My understanding is, from people who have talked to them directly, they are doing some estate planning but is happy with maintaining their position at current levels (ofc I’m hearing things a few steps removed so don’t take this as gospel). Mgmt. selling a small number of shares is just noise. I wouldn’t attribute much to it. Just look at the pace of share buybacks and think about the implications - if paper handed holders keep selling, how many more quarters/years before they bring the float to zero and we’re the last shareholders who own the company? Answer: not too long
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
Thanks for the question - yes this is certainly a negative development. However I am not a legal expert and don't want to speculate on the full ramifications of this and the eventual financial impact to the company without knowing more. The lazy answer is that "it's all in the price", but as a more practical solution, I'll be paying attention to mgmt. commentary around this issue during the 2Q earnings call, and how they plan to prepare. I may ask mgmt. for a separate call as well, they know me and the line of communication is open. If this makes you sit on the sidelines, I don't blame you.
My understanding of the true lender rule was that it only allowed ELVT to originate loans in states with an interest rate cap by partnering with a bank headquartered in a state without its own interest rate cap.
Now that this has been put to an end and any loan originator is the true lender in the state in which the loan is originated, Elevate simply loses its ability to conduct business in states with the 36% cap. Elevate was already not operating in many of these states/not offering its product to these states. Therefore, I am not sure how much of an effect this will have on the company. I believe this legislation wasn't passed until like summer 2020, so for years before it Elevate was operating while unable to conduct business in the aforementioned states.
What I would be concerned about is a federally imposed interest rate cap of 36%, however, as Elevate indicated in their 10K/Qs, this has been suggested in 2009, 2013, 2015, 2017 and 2019, and has passed in none of those cases. This isn't to say it won't happen in 2021, just that it has been addressed before and Elevate traded at >9$ previously in a far worse position financially without these insane share buybacks.
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!
Thanks. All the major selling is done. Sequoia and TCV are 100% out, Tyler head and Stinsons are done selling also. My understanding is, from people who have talked to them directly, they are doing some estate planning but is happy with maintaining their position at current levels (ofc I’m hearing things a few steps removed so don’t take this as gospel). Mgmt. selling a small number of shares is just noise. I wouldn’t attribute much to it. Just look at the pace of share buybacks and think about the implications - if paper handed holders keep selling, how many more quarters/years before they bring the float to zero and we’re the last shareholders who own the company? Answer: not too long
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
Thanks for the question - yes this is certainly a negative development. However I am not a legal expert and don't want to speculate on the full ramifications of this and the eventual financial impact to the company without knowing more. The lazy answer is that "it's all in the price", but as a more practical solution, I'll be paying attention to mgmt. commentary around this issue during the 2Q earnings call, and how they plan to prepare. I may ask mgmt. for a separate call as well, they know me and the line of communication is open. If this makes you sit on the sidelines, I don't blame you.
My understanding of the true lender rule was that it only allowed ELVT to originate loans in states with an interest rate cap by partnering with a bank headquartered in a state without its own interest rate cap.
Now that this has been put to an end and any loan originator is the true lender in the state in which the loan is originated, Elevate simply loses its ability to conduct business in states with the 36% cap. Elevate was already not operating in many of these states/not offering its product to these states. Therefore, I am not sure how much of an effect this will have on the company. I believe this legislation wasn't passed until like summer 2020, so for years before it Elevate was operating while unable to conduct business in the aforementioned states.
What I would be concerned about is a federally imposed interest rate cap of 36%, however, as Elevate indicated in their 10K/Qs, this has been suggested in 2009, 2013, 2015, 2017 and 2019, and has passed in none of those cases. This isn't to say it won't happen in 2021, just that it has been addressed before and Elevate traded at >9$ previously in a far worse position financially without these insane share buybacks.