LendingClub Corporation (LC) CEO Scott Sanborn on Q3 2018 Results - Earnings Call Transcript

About: LendingClub Corporation (LC)
by: SA Transcripts

LendingClub Corporation (NYSE:LC) Q3 2018 Earnings Conference Call November 6, 2018 5:00 PM ET


Simon Mays-Smith - Head of Investor Relations

Scott Sanborn - Chief Executive Officer

Tom Casey - Chief Financial Officer


Brad Berning - Craig-Hallum

Jed Kelly - Oppenheimer

Henry Coffey - Wedbush

Rob Wildhack - Autonomous Research

James Faucette - Morgan Stanley


Good afternoon, and welcome to the LendingClub's Third Quarter Earnings Call. All participants will be in a listen-only mode. [Operator Instructions]. Please note this event is being recorded.

I'd like to turn the conference over to Simon Mays-Smith, Head of Investor Relations. Please go ahead, sir.

Simon Mays-Smith

Thank you, Carl, and good afternoon, everyone. Welcome to LendingClub's third quarter of 2018 earnings conference call. Joining me today to talk about our results and recent events are Scott Sanborn, CEO; and Tom Casey, the CFO.

Before we get started, I'd like to remind everyone that this conference call is being broadcast on the internet. We have provided a slide presentation to accompany our commentary and both the presentation and the call are available through the Investor Relations section of our website at ir.lendingclub.com.

Also, our remarks today will include forward-looking statements that are based on our current expectations, forecasts and assumptions and involve risks and uncertainties. These statements include, but are not limited to, our guidance for the four quarter and full year 2018. Our actual results may differ materially from those contemplated by these forward-looking statements. Factors that could cause these results to differ materially are described in today's earnings press release, the related slide presentation on our Investor Relations website and our most recent Form 10-K and Form 10-Q filed with the SEC. Any forward-looking statements that we make on this call are based on assumptions as of today and we undertake no obligation to update these statements as a result of new information or future events.

Also, during this call, we will present and discuss both GAAP and non-GAAP financial measures. Further, all operating expenses that we will discuss exclude stock-based compensation, depreciation, impairment and amortization and expenses related to legacy, and regulatory matters. Adjusted EBITDA also excludes these items and the related tax impact. A reconciliation of GAAP to non-GAAP measures is included in today's earnings press release and related slide presentation.

And now, I'd like to turn the call over to Scott.

Scott Sanborn

All right. Thanks Simon, and welcome to the LendingClub team. And hello to everybody on the call.

As you can see, we had another great quarter, delivering record originations, record revenue and record adjusted EBITDA. Our strong year-to-date performance means we're raising today our adjusted EBITDA outlook for the year.

We achieve these results because we're uniquely positioned to meet a very real consumer need and because we have a team here at LendingClub that knows how to execute and I'd like to thank them for their outstanding efforts.

All results reflect delivery against the plan we laid out for you at our Investor Day in December of last year and they also reflect three attributes that are unique to LendingClub's marketplace. First, our ability to serve a broad spectrum of borrowers efficiently. Second, the broad range of investors on our platform with their varying cost of capital and risk appetite. And third, our data and technology advantage based on 11 years of history and our ability to innovate and test its scale. These attributes give LendingClub unique strengths to expand our market opportunity in our core business, which remains the fastest growing category of consumer credit and to increase our operating leverage.

So let's talk about our strengths. For borrowers, we're able to generate consistent savings versus their credit cards, where interest rates have now risen to their highest levels in more than a decade. For investors, we deliver targeted returns through our high yield, short duration assets by matching the best cost of capital to the right borrowers.

Our ability to leverage our data and to innovate and test its scale enables us to generate and grow applications more effectively by marketing more efficiently. And we can therefore grow loan volumes responsibly even while raising prices and tightening credit like we did this year to ensure that we deliver targeted investor returns.

Over the last 12 months, we've tightened credit on our standard program by 17% to reduce our portfolio charge-off rates and we've raised interest rates across our credit spectrum by between 49 basis points and 114 basis points.

Despite these actions, our year-over-year results clearly illustrate the strength of our marketplace. In Q3, our loan applications grew 30%, our loan volumes were up 18% and our revenue grew 20%. These results are on the back of significant product and process innovation.

For example our focus on demand generation and conversion continues to pay off. Demand generation benefited year-to-date from improvements in both marketing and channel optimization and conversion has benefited from the expanded rollout of new product features such as direct payoff. In addition, multiple process improvements mean we're now able to approve the majority of our personal loans within 24 hours. And in auto where we are already able to approve loans 30% faster than the industry average, we expect to make further material improvements by year end. And we're continuing to innovate. We ran 73 tests in the third quarter, further leveraging our scale and data advantage. And we recently announced a partnership with Intuit to integrate Turbo Tax which has the potential to both add to our proprietary credit model and to make the loan application process significantly easier for our customers.

Stepping back, in a dynamic rising rate environment, we are demonstrating the strength and flexibility of our marketplace. Some investors want higher quality credit, others are seeking shorter duration assets. Our marketplace is delivering both. You can see this most clearly in the 39% year-over-year growth in our personal loans customer originations, growth in both our super prime and near prime programs. It's worth spending a moment to explain the dynamics that underlie that growth.

In super prime and A and B grade loans, community and regional banks are looking for higher quality borrowers. We can offer better rates to these high quality borrowers than many of our competitors as we combine the benefits of our proprietary risk models with the low cost core bank deposits available from our partners These core deposits come at a lower cost of capital than many competitors who are funded with warehouse lines or high yield savings accounts, CDs and broker deposits.

At the other end of the yield spectrum, rising rates are encouraging fixed income investors to seek out the high yield, short duration assets in our near prime program. This is evidenced in the phenomenal growth of our CLUB Certificates program. We've issued nearly 1 billion in CLUB Certificates since their launch less than a year ago. This innovative structure is enabling us to increase our liquidity and significantly expand and diversify our investor base. We believe we're just scratching the surface of demand for this product and it's worth noting that the investors who are already participating in CLUB Certificates managed together over 3 trillion in assets.

Now let me shift to operating efficiency. An increasing focus on our expenses combined with process improvement means we're also growing our margins. Year-to-date, our adjusted EBITDA margins have more than doubled and we have a lot more opportunity to go after. A good example is today's announcement of our additional site opening near Salt Lake City. As we continue our growth and increase our focus on operating efficiency and resiliency, it's clearly time for us to diversify beyond our San Francisco headquarters. The new site with access to the region's tremendous talent pool will enhance our service to existing customers and provide business comp continuity. And when it's fully operational, it will lower the cost of supporting our business growth.

Operating improvements like this are part of our broader initiative we told you about last quarter to review all of our cost and revenue opportunities as we drive towards the GAAP profitability.

So in closing, the strength of our marketplace is enabling us to responsibly grow revenues and expand margins in a competitive and rising rate environment. Our strategy in execution is focused on borrower demand generation and conversion, broadening our investor base with products that meet their diverse needs and driving operating efficiency. Much opportunity remains to serve our growing and loyal club members with more products and services and also to generate the operating leverage that delivers long term revenue growth and GAAP profitability.

Before I hand it over to Tom, I wanted to provide with you with an update on our legacy issues. We have settled the Class Action lawsuits and investigations by both the DOJ and the SEC and we're now constructively engage with the FTC. We will of course keep you updated on our progress.

With that Tom, over to you for details of our Q3 financials and outlook for Q4 and the full year.

Tom Casey

Thank Scott. As Scott mentioned, we had another record quarter, driven by strong borrower investor demand with solid execution balancing the platform on both sides of our marketplace. Q3 revenue was $184.6 million, up 20% year-over-year. Contribution margin was 47.9% and our adjusted EBITDA was $28.1 million, up 34% year-over-year. All this contribute to improving our adjusted EBITDA margin to 15.2% up 160 basis points year-year-over.

Let's walk through these results in more detail starting with our revenue. Transaction fee revenue was up 30% year-of-year to $137.8 million on the back of 18% growth in the originations to $2.9 billion. Transaction fees as a percentage of originations were 4.77% in the third quarter, down sequentially, which reflected the growth in higher quality loans that have slightly lower transaction fees. Some of that growth came in our super prime loans that are included in our personal loan custom category.

Investor fees were $29.2 million, up 6% sequentially and 42% year-over-year. This strong performance reflects the 15% growth in our loan servicing portfolio to $13.2 billion.

Gain on sale revenue was $10.9 million, up $4.2 million year-over-year benefiting from $448 million year-over-year increase in loan volume sold at higher average servicing rates. Other revenue came in at $1.5 million for the quarter.

Net interest income at fair value adjustments were $5.3 million, up from $300,000 in 2Q and up from $3.6 million compared to the same quarter last year. Most of the sequential improvement in this area came from better performance in our structured program as you can see on page 17 of our earnings supplement.

Before I turn to expenses, let me talk a bit about the expense management issues under way across the company, which as you know remain a priority for us as we drive operating efficiency and expand our margins.

Our business process outsourcing or BPO efforts continue to grow. We now have more than 150 members supporting representatives across multiple sites providing us with operating flexibility and lower costs. Our announcement today of a second site near Salt Lake City is the next logical step to build on the success of our initiatives so far, enables us to address one of the key drivers of our fixed cost base, our location San Francisco, where commercial real estate rates have increased dramatically over the last decade and are among the most expensive in the country. We'll benefit from lower real estate and staffing costs which will give us greater long term scalability and operating leverage.

In addition to our footprint, we're looking at opportunities to streamline our operations. For example we're winding down the funds managed by LendingClub asset management. LCAM represent only about 0.5% to 1% of our total funding and one year down will result in additional cost savings. Additions this is like this and more like them will be important incremental contributors to enhancing our operating leverage and also achieving GAAP profitability.

Now with that let's jump back into the third quarter with our operating expense detail. Sales and marketing expenses were $71.8 million or 2.49% of originations, increasing 11 basis point sequentially.

Adjusting for the impact of our mass marketing testing and the timing of certain other initiatives, M&S would have been about flat from 2Q. The incense we gain from our testing are helping us to fine-tune our marketing and we will continue to test promising areas to achieve further benefits.

Origination service and costs were $24.3 million in the third quarter, which was flat sequentially with higher costs resulting from our growing loan service portfolio, partially offset by the benefits of our BPO efforts I mentioned earlier.

Engineering operating expenses were $22.7 million in the third quarter or 12.3% of revenue, improving slightly both sequentially and year-over-year.

Turning to G&A, expenses were $37.7 million for the quarter or 20.4% revenue, improving about 90 basis points equally and 2.9 points year-over-year.

So we're making good progress on our efforts to expand our adjusted EBITDA margins, with third quarter adjusted EBITDA up $7.2 million year-over-year to $28.1 million and margins up 160 basis points to $15.2 million.

GAAP net loss for the quarter was $22.7 million including $15.5 million of additional legacy costs. As you recall, these legacy costs are associate with the final settlement of the Class Action suits as well as the costs associated with concluding the SEC and DOJ investigations.

To wrap up our GAAP results, the adjustments for stock based compensation, depreciation and amortization totaled $35.4 million for the quarter.

Before we take your questions, I want to provide you our guidance for the fourth quarter and how we're thinking about 2019. For the full year, we've tightened our revenue guidance around the midpoint to range of $688 million to $698 million. That puts our fourth quarter revenue guidance at $175 million to $185 million.

For full year EBITDA, we've increased our guidance from $75 million to $90 million to $89 million to $94 million. This puts our fourth quarter EBITDA guide at about $20 million to $25 million.

We expect stock based compensation, depreciation, amortization will be about $34 million, which results in GAAP net loss between $14 million and $9 million. That means for the full year GAAP net loss is expected to between $129 million to $124 million which now reflects the additional Q3 settlement charges, partially offset by the higher fourth quarter EBITDA guidance.

Our outlook on stock-based compensation and depreciation and amortization is about $131 million for the year.

Please remember that our GAAP guidance does not reflect the impact of any nonrecurring legacy issues costs. I will continue to break them out for you part of quarterly earnings call, so you can see the underlying operation performance.

Looking forward to 2019, we expect continue growth while closely managing credit. We are identifying additional cost savings opportunities and expect to have some nonrecurring cost as we accelerate these initiatives to drive our profitability.

Before I finish, I want to take a moment to reflect on our progress against the commitments we made to our shareholders at our Investor Day in December last year. We committed to growing revenues 20%, we committed to delivering contribution margin of 45% to 50% and significantly expanding our EBITDA margin and demonstrating operating leverage in our business.

As you can see from year-to-date results and the outlook for the full-year, we are firmly on track to deliver on all these commitments. As one example, we said out our Investor Day that we would generate 3.7 points from savings in our engineering and G&A fixed cost. Through the first three quarters, these two line items have contributed over 4 points of adjusted EBITDA margin.

To put that in perspective, our revenues have grown 23% year-to-date, while engineering and G&A cost have grown only 6%. This was a key factor behind the 740 basis points improvement in our year-to-date adjusted EBITDA margin to 13.5%.

While we still have a lot of work to do, we're excited about the road ahead of us and believe, we have the right foundation in place to achieve GAAP profitability, while continue to grow revenues at a healthy rate.

Scott, back to you.

Scott Sanborn

All right. Thanks Tom. So to summarize, we had another great quarter and raised our adjusted EBITDA guidance. We are implementing data driven product and process improvements to build on the strengths of our marketplace and drive towards GAAP profitability. Our model is demonstrating its flexibility and is responding well to the dynamic environment and we believe LendingClub remains well positioned.

So with that, I'd like to open it up for Q&A, and to answer any questions.

Question-and-Answer Session


We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Brad Berning with Craig-Hallum. Please go ahead with your question.

Brad Berning

Good afternoon, guys. On the Intuit relationship, I was just wondering if you could go a little deeper on what this means. This is obviously kind of a first in the industry. Could you talk a little bit about what you've learned on lessons from them so far from a credit standpoint from an ease of use of application standpoint, give some actual practical kind of timing of how it helps people, what kind of data you're getting? And then what does this mean for actually rolling out, when is the timing of this going to happen, give us just some thoughts about how this helps the business going forward from a fundamental perspective?

Scott Sanborn

Yes. So - thanks, Brad. The way to think about this partnership is really as an example of the kind of things we're focused on, right. So we're a data driven credit company that is very focused on delivering an incredible customer experience. So this partnership is an example of how we can kind of advance that vision on a couple of fronts. So one for customers who have a turbo tax account which tens of millions of Americans do, the ability to essentially create a seamless application because the information that is in your tax documents is essentially a high degree of overlap with what you need to do apply for or a loan, so you can kind of seamlessly ingest that information to determine application and there is actually more data, right.

So in addition to what a typical loan application would have we can obviously ingest some of the tax data to further inform our underwriting model. So we can make the process both easier for the customer and also more powerful from a risk splitting perspective. This will be - we'll have to learn from this data and learn from the customer experience. We're still at early days there but just as the kind of place where we would expect this to be very useful would be in the growing number of kind of gig economy type workers, who don't have the same kind of W2 income stream that historically most Americans have. That would be the first place we could see this really having great application.

Brad Berning

Appreciate it. One follow-up is on the growth that you had sequentially in the quarter for the custom personal loans. Can you dive a little bit into more specifically what areas of the market that you're seeing that opportunity both from a demand standpoint as well as from a capital appetite standpoint in 22% of the mix? How big can that business mix go to, it's obviously growing faster than the rest of the overall company?

Scott Sanborn

Yeah, so it's really a combination of a couple of things. We've been talking now really for a couple of years about supply side risk in this market creating pressure on the higher risk side of prime. So as we've responded to that you're essentially seeing growth in the areas outside of that kind of fat middle if you will. And so this is where the flexibility of the marketplace to kind of pivot to where we're seeing the right risk adjusted returns and match that with the right kind of investors. So on the higher yield side of things, there's a lot of - the near prime part of the custom program is overwhelmingly shorter duration and so there's a lot of interest for asset managers as rates are going up to participate in that. And in the higher end, the super prime, it's really that has been very kind of stable over all, so there is demand from the community and regional banks there as people think about where we are in the cycle. So this is just I think the marketplace you're seeing kind of the marketplace at work.

Tom Casey

And Brad, we saw in the quarters, the super prime customer program see very nice growth and that really drove a good chunk of that growth in custom program split.

Brad Berning

Congrats on the progress guys. I'll get back in the queue.


And our next question comes from Jed Kelly with Oppenheimer. Please go ahead with your question.

Jed Kelly

Great, thanks for taking my question. First one I guess guidance implies EBITDA margins compressed sequentially. You talked about some of the drivers behind that and then as we sort of think about 2019, I mean how should we be thinking about the rate to the trajectory of potentially EBITDA margin expansion into 2019?

Tom Casey

Yeah, thanks Jed. Two things, keep in mind that the fourth quarter tends to always be our seasonally lower quarter. Right now, our guidance put us somewhere right around 12.5% on the EBITDA margin, adjusted EBITDA margin. Clearly, we like to do better than that but it will be really dependent on how the full quarter grows out. But we feel very good about our overall margin expansion showing the $15.2 in the third quarter again reflecting a strong quarter, so we'll continue to drive towards higher margins.

As we think next year, this is a focus area. You heard Scott talk about in his comments, I did as well. This is an area that we're spending some time on. We gave you a couple of specific tactical things we're doing that will help us and will continue to update those. We do expect to be able to give you in our earnings guidance in February a little bit more detail on specifics on what we can do. But it is our goal to get to get profitability and that requires us to expand our EBITDA up towards that 20% type range. So those two are highly correlated when you think about the amount of stock-based comp and appreciation we have that's where the margins need to be. So we are focused on it, we're obviously balancing that with the credit risk as well as growth investments. So it's a balancing act, but we are clearly focused on it and it's something that we've got a lot of effort around.

Jed Kelly

And then on sales and marketing, can you - what was your comment you said excluding the brand in offline advertising it was flat sequentially, was it flat in terms of total expenses or flat as a percentage of loan originations.

Tom Casey

They will be flat as a percent of loan origination. So remember we talked in the second quarter, we called out that you may be seeing some of our mass media advertising and we're making some investments. Remember that we typically do these types of things in some of our stronger quarters like second quarter third quarter that's why we did it in the third quarter to read what the impact would be. We've gained a lot of information from that. But what I was commenting on is those testing as well as some of the timing of other mailings, we feel very good about our M&S about being about flat quarter-over-quarter.

Jed Kelly

And then can you share any finding or attributes from the brand testing that they have you found worked well or not work as well?

Tom Casey

I would say you know early days, you know we do a lot of testing, we definitely learned some things along the way. It wasn't a huge test, it was only a very small test for us to do comparative our total marketing. So again we're going to read these things and continue to evaluate the pockets we think we can benefit from and the level and timing of that.

Jed Kelly

Okay. And then just one more I guess, applications are up 30% I mean some deceleration from the first half, anything to specifically call out there?

Scott Sanborn

Yeah, what I would say there is broadly we are still seeing very strong overall consumer demand. It is a lot of what we're doing behind the scenes is adjusting what channels we are going after and how we optimize those channels. And that the application to offer rate can vary materially from one channel the other. So a lot of what you're seeing will just be a variation on what channels we're going into over a different time period. But overall I mean just stepping back, we're feeling you know continuing to feel good about consumer demand awareness for the products, utility of the product and interest in the product as they're continuing to see their credit card rates go up.

Jed Kelly

Thank you and nice quarter.


[Operator Instructions] And our next question comes from Henry Coffey with Wedbush. Please go ahead with your question.

Henry Coffey

Hello everyone, and let me add my congrats. It's been a lot of hard work and it's starting to show up in the numbers. In terms of how you're customizing the program you know I understand what a super prime would look like, but maybe you can give us some sense of you know the super prime installment loan what it looks like in terms of FICO, if you're comfortable talking about it in terms of rate and in terms of maturity, our duration and maybe the same comment for some of the stuff that you're pushing into the cert programs?

Scott Sanborn

Yeah. So the super prime you're talking about very, very bankable customers you're looking at FICO scores that are solidly into the 700s. These are tend to be larger loan amount often for the purpose of something like a home improvement and you're looking at rates that are in the single digits. And for the near prime program, there we're talking smaller balance loans, shorter direction loans, on the upper end, as you know we cap, we have a self-imposed capital of 36% APR but they're going to be up into the 20s, let's call it high 20s as a rate basis there. And FICO scores would be between 600 and 660 for the borrowers there.

Henry Coffey

And in duration, is 24 months, 12 months?

Scott Sanborn

36. Vast, vast majority is 36.

Henry Coffey

For the lower FICO loans?

Scott Sanborn


Henry Coffey

What are you starting and we're just starting to hear this you know if you look at the mortgage market, you'll see the cash how refinanced in June that's the latest data we have was up about 10% and mortgage companies are just beginning to talk about offering a home equity product because they realize that cash refight, just doesn't work. Has that hit your horizon at all because that would seem particularly with your super prime programs either to be a real opportunity for you all or real challenge?

Scott Sanborn

So that market has not yet fully recovered. There's a lot of hesitation still with consumers who are having their memory extends back to 2008 and 2009, so we haven't seen that really fully take off at this point. And the other piece is when you look at the amount of work that's required to get one of those loans, the question it's quite a bit of a process in time which is where our super prime program is really trying to play which is to develop - for a similar use case, develop a compelling product that you can essentially have in your bank account within 24 hours with a minimum of hassle. But for sure we'll be watching that space and it is a place where certainly there's been some investor interest in participating.

Henry Coffey

So you think that the differential between 4%, 4.5% home equity line it takes me a month and a half to get, that's the express track by the way, versus a 6% percent installment load is still - I mean you still can offer a competitive product given that the time gap?

Scott Sanborn

That right. At the dollar amounts that we're playing in that's exactly right.

Henry Coffey

And then my last question, this is just been more of a point of intellectual curiosity for a while. Your applications are up 30%, your volumes are up 18%, revenues are up 20%, is it just a lot of unqualified people populating the system or is there something there that you really could exploit over time?

Scott Sanborn

Yeah. It's a reflection of the tightening that we have been doing really responding to the current market conditions, making sure we're delivering the right risk adjusted returns for investors. That's really where you see as we have you know on balance pretty much for the last two years we've been tightening and that's what you see in those numbers. Now is that a kind of a permanent condition? I would say definitively not. As we are you know clicking a new data sources enhancing product features to better split risk able to better target and segment consumers and that's the thing that the scale allows us to do is really begin to break down and look at these consumers, create different profiles and segments and product features to match those segments that allows us to go back into some of these areas that might have been let's call it blunter cuts over the past.

Henry Coffey

So you think over time, you'll be able to grab some of that unserved demand?

Scott Sanborn

Yeah, potentially again depending on where we are in the overall macro cycle, but yes.

Henry Coffey

Great, thank you very much.


And our next question comes from Rob Wildhack with Autonomous Research. Please go ahead with your question.

Rob Wildhack

Yes, I think the origination yield was lower quarter-over-quarter, total revenue yield was hot and that reversed a trend from the early dynamics in the second quarter. Can you just walk us through drivers there how we should expect these lines to trying going forward?

Tom Casey

Yeah, sure. So a couple of things The first is the origination fee is really a product of the mix of assets, we talked about some of the super prime they come in obviously the lower origination piece, the majority of the driver there is just the mix of origination. So higher quality is slightly lower. That's the one piece on the origination fee.

With regard to the overall yield, the yield went up because of the execution we had in the structured program. If you look at that that's up about $5 million quarter-on-quarter. And if you recall really in the second quarter and actually in the first quarter as well, we talked about how important was to have the ability to manage through an uprising rate environment where we were very, very focused on keeping borrower rate competitive while being able to match the desired returns for investors. We've made - as Scott mention we made a series of rate changes throughout the year and so what you're seeing now is the balance of the platform come back and we're benefiting from that in the third quarter. So that's really what you're seeing is some of the rate changes we made in June for example starting to impact the performers in the third quarter.

Rob Wildhack

Thanks. And have you seen any notable change in the average loan size or loan amount either across the border or in specific grades?

Scott Sanborn

Pretty stable across the board.

Rob Wildhack

Okay. Thank you.


[Operator Instructions] And ladies and gentlemen, we have time for one more question and that question comes from James Faucette with Morgan Stanley. Please go ahead with your question.

James Faucette

Yeah, thank you very much, Scott, Tom. I wanted to ask just a couple of quick questions. First on conversion rates where you have customers that you approve an extend offers. Can you talk a little bit about a little more color about what's been going on there and I guess how much is do you think is attributable to the changes that you're making or improvements that you're making?

And then my second question was, when you look at your bank partners and others that are purchasing loans, have you seen any discernible change in their behaviors as to what they're willing to pay up for loans versus not or participation et cetera there. And I guess the point of question is that obviously people are a little bit concerned about maybe changes in opportunity or the credit market so trying to see if you're seeing anything discernible in the behavior of your funding partners? Thanks.

Scott Sanborn

So I'll start with the latter and move to the former, James. So on the bank partners, obviously people are looking at kind of the broader mix combination of their cost of funds together with expected losses in the portfolio to get towards their desired return. So for our bank partners, while the overall rates are going up and therefore broadly cost of capital is going up for the community and regional banks who are our key partners they are going up at a slower rate than the rest of the market. And I'd say within our portfolio, there's been a shift towards more of the banks with that are funded by those core deposits versus some of the other higher cost deposit gathering mechanisms. Overall, appetite for the asset continues to be very strong because in this environment having the term on these loans might be 3 or 5 years but the duration is obviously significantly less than that. So the ability to rebalance their portfolio and reinvest into new assets at the adjusted rates continues to be very attractive.

As for conversion, as you can see in our - we've actually managed pretty significant growth in application volume and loan origination volume this year while holding marketing costs as a percentage of origination pretty stable. And that is because of the variety of things we're doing to optimize our targeting, optimize our channel mix, marketing messaging, the product market fit and process improvements. So we've been able to hold pretty stable and feel good overall about the pipeline that we've got in front of us to continue pushing and testing.

James Faucette

Great. Thank you very much, guys.


And this concludes our question-and-answer session, thus concluding the conference. Thank you for attending today's presentation. You may now disconnect.