GreenSky's (GSKY) CEO David Zalik on Q1 2021 Results - Earnings Call Transcript

GreenSky, Inc. (GSKY) Q1 2021 Earnings Conference Call May 5, 2021 9:00 AM ET

Company Participants

Brinker Dailey – Investor Relations

David Zalik – Chairman and Chief Executive Officer

Andrew Kang – Executive Vice President and Chief Financial Officer

Conference Call Participants

John Davis – Raymond James

Michael Young – Truist

Chris Donat – Piper Sandler

Rob Wildhack – Autonomous Research

Operator

Good morning and welcome to GreenSky's First Quarter 2021 Financial Results Conference Call. As a reminder, this event is being streamed live on the GreenSky Investor Relations website, and a replay will be available on the same site approximately two hours after the completion of the call. We will begin with opening remarks and introductions.

At this time, I would like to turn the conference over to Brinker Dailey of Investor Relations. Mr. Dailey, you may begin.

Brinker Dailey

Thank you and good morning, everybody. Thank you all for joining us. Yesterday, GreenSky issued a press release announcing results for its first quarter 2021 ended March 31, 2021. You can access this press release on the Investor Relations section of the GreenSky website.

In addition, we have posted our first quarter 2021 earnings presentation, which we will refer to during today's call. Today, you will hear prepared remarks from David Zalik, our Chairman and Chief Executive Officer; and Andrew Kang, our Executive Vice President and Chief Financial Officer. We also are joined by Gerry Benjamin, our Vice Chairman and Chief Administrative Officer.

Before we begin, let me remind you that our presentation and discussions will include forward-looking statements. These are statements that are based on current assumptions and are subject to risks and uncertainties that could cause actual results to differ materially from those projected. We disclaim any obligation to update any forward-looking statements, except as required by law. Information about these risks and uncertainties is included in our press release issued yesterday as well as in our filings with regulators.

We also will be discussing non-GAAP financial measures on today's call. 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 measures when analyzing GreenSky's performance. These non-GAAP measures are described and reconciled to their GAAP counterparts in the presentation materials, press release dated May 4, 2021, and on Investor Relations page of our website.

At this time, I will turn the call over to David.

David Zalik

Thank you, Brinker. Good morning, everyone and thank you for joining us. It's good to be with you today to review our first quarter 2021 results. The first quarter was another solid quarter for GreenSky in a very strong start to the year. We have built on the momentum generated at the end of last year and are witnessing outstanding application volume growth across our markets that we believe will further propel our business in 2021.

GreenSky posted a company record first quarter adjusted EBITDA of $35 million with a higher adjusted EBITDA margin of 28%. Our outstanding year-over-year profitability was in the face of still ongoing merchant supply chain difficulties related to the continued impacts of the pandemic. First quarter pro forma net income adjusting for non-recurring fees exceeded 2020 first quarter results by $24 million.

A driver of the company's strong performance was the outstanding performance of our service portfolio. For the quarter, the 30 plus day delinquency rate, which is a leading indicator of credit performance was 0.76% marking a strong improvement compared to the previous quarter and to the first quarter of 2020. The strong credit performance has positive implications on our cost of revenue and other areas that impact our profitability, which Andrew will discuss in more detail shortly.

Andrew also go into more detail on our funding efforts in a moment, but I would highlight the during the first 120 days of the year, we completed over $2.3 billion in new funding initiatives across a diverse set of sources, which included a new forward flow agreement, additional loan sales, and the increased commitment of a longstanding bank partner.

The rapid success of diversifying our funding model has been a strength for GreenSky and I'm thrilled with the progress we've made since we announced strategies last year. These efforts and successes have directly resulted in a lower cost of funds in Q1, and will allow us to continue optimizing our cost of revenue to further increase profitability going forward.

Turning now to the results, transaction volume for the quarter was $1.3 billion, which puts us solidly on pace to meet our transaction volume guidance for the year, taking into account the typical seasonality of originations. From February to March, total company transaction volume increased 28% month-over-month, showing strong momentum as a result of the investments we've made in new and existing merchant relationships. This compares favorably to growth in the same period in 2020 of 5% and in 2019 of 21%. Our servicing portfolio ended the quarter at $9.3 billion.

Similar to what we and others are seeing in the broader consumer market. Our servicing portfolio experienced higher prepayment rates compared to historical levels. While higher prepayment rates can result in slightly lower servicing fee revenue, we benefit from lower bank waterfall costs through safe bank margin and lower future credit losses. Simply put earlier prepayments boost lifetime loan profitability for the majority of our portfolio.

Despite these recent market trends, we expect our transaction volumes will outpace prepayments in future quarters, resulting in strong and sustainable servicing portfolio of growth.

Turning to credit quality, the performance and composition of our servicing portfolio remained exceptional during the first quarter. We believe that many consumers are choosing to use their increased disposable income and stimulus checks to pay off their debt, which benefits the credit performance of our servicing portfolio. Our 30 plus day delinquency rate equal just 0.76% of our overall servicing portfolio at the end of March and improvement of 47 basis points from a year ago and improvement of 23 basis points from the end of 2020. Delinquency rates continued to outperform due to the high credit quality of our program borrowers who have demonstrated resiliency despite last year's unprecedented challenges.

Importantly, while some consumers are repaying their loans more rapidly, transaction volume is originating at a faster pace as we continue to see strong demand in home improvement. In fact, March approvals represented the single largest month of approved credit lines in company history.

Next, as we've done in the past, I'd like to provide an update on the status of the COVID-19 Disaster Assistance Program. GreenSky credit program borrowers are continuing to exit payment deferral at a faster rate than those requesting new enrollments. And at the end of March, approximately 0.2% of loans with $20 million of our servicing portfolio were in deferral status. All the loans that had previously received a deferral, approximately 0.4% were greater than 30 days delinquent at the end of the quarter, while we are cautiously optimistic that we will continue to see improving trends. Our total exposure to borrowers that were impacted by the pandemic has declined substantially since the end of 2020.

Turning to Slide 6 of the presentation. After our strong first quarter results, we are seeing real tailwinds for the remainder of the year in our home improvement and elective healthcare businesses as broader macro economic trends continued to improve. We believe that improved consumer balance sheets and more time at home translates into continued and accelerating demand for home improvement projects.

In elective healthcare, as states begin reopening in the final months of 2020, we've seen an upward trend in our patient solutions volume. And as we sit here today, the majority of states are once again fully open for business. And we see medical providers expanding both their office staff and hours to work through patient backlogs. We anticipate increasing transaction volume, but then our elective healthcare business as the year progresses.

Our merchants are the key to our transaction volume. So let's turn to some updates on that front. As previously mentioned, we recently renewed our partnership with the Home Depot and as further built on that success solidifying our market leading position in the home improvement space. During the quarter, we also expanded the strategic relationship with one of our largest sponsors. It enhanced our agreement with one of our top three windows and doors merchants, whereby we expect to see a material increase in their annual transaction volume in the coming year.

Other key wins in the windows and doors space included $20 million annual transaction volume merchant and two regional $15 million annual transaction volume merchant wins from our competitors. In addition to the great progress in windows and doors, we also want a $30 million a year transaction volume HVAC merchant from a competitor, increasing GreenSky’s market share in the HVAC category our second largest segment.

Coming off of the turbulent 2020, these wins strengthened our position as a leader and the largest consumer finance platform in home improvement. As we optimize our relationships with existing merchants and win share with new partners. In our elective healthcare business, our transaction volume as a percentage of our total company volume increased in the first quarter, as we continued to build momentum. We shared previously that we completed the strategic alliance with Clear Blue Smiles, a cutting-edge orthodontic provider, and also significantly expanded our relationship with the nation's largest provider of dental implants.

Furthermore, we successfully completed integration work and launched a Universal Credit Application within our elective healthcare business. As a reminder, the Universal Credit Application, which was rolled out within our home improvement business in 2019 is a tool that increases merchants approval rates without a degradation of GreenSky’s credit quality through our partnership with second-look lenders and fosters a better consumer experience through a streamlined application process.

Based on these key wins and those in the pipeline, I'm excited that we are not only taking market share, we were also growing volumes with our existing merchant relationships. As illustrated on Slide 7, we have a demonstrated track record helping our merchants grow transaction volumes on our platform for multiple years and believe that the recent wins with existing and new merchants will further build on that success.

I will now turn it over to Andrew to discuss our quarter’s financial highlights.

Andrew Kang

Thank you, David, and good morning. Turning to Slide 8 of the presentation. So far 2021 has continued to demonstrate a consistent progress and executing against our diversified funding strategy, which is today benefiting from both more efficient loan sales and also from enhanced relationships with our existing bank funding partners. We believe this quarter has demonstrated disciplined execution on both fronts.

In March, we announced the completion of $1 billion forward flow sale agreement with a leading life insurance company who was new to GreenSky’s ecosystem. In April, we further expanded that agreement by increasing its commitment by an additional $500 million for a total of $1.5 billion. Subsequent to quarter-end, a bank partner that has been part of GreenSky’s platform for multiple years increased its commitment by an additional $500 million increasing their total revolving bank waterfall commitment to $2 billion. That bank partner also extended its agreement for an additional two years into the fourth quarter of 2023.

Also in the first quarter, we completed approximately $315 million in planned loan sales and improved pricing compared to the fourth quarter. Excluding a small number of 0% loans, the loan sold in the first quarter were at or above par. Since our inaugural loan sale in the third quarter of 2020, we have completed over $1.5 billion in sales. At this point, GreenSky has a wide variety of funding options in place with a combination of strong bank waterfall commitments, a forward flow agreement and strong institutional investor demand for incremental loan purchases.

With these options, we now have the tools to further optimize our profitability across our loan products, which you'll see directly reflected in our updated 2021 guidance. That I will provide additional details around shortly. Let me give you some additional details around our funding commitments. Our bank waterfall commitments were approximately $9.7 billion in total at the end of March, prior to the $500 million bank partner increase. Approximately $1.9 billion of commitments were unused at quarter end and we expect an additional $2.4 billion in revolving capacity to become available in the next 12 months as consumers pay down their loans, providing ample funding for our planned future transaction volume.

With a combination of our expected waterfall capacity and the $1.5 billion for flow agreement in place, as well as institutional demand for our loans, we have the opportunity to be highly selective around future incremental funding with a focus on further optimizing our overall costs. As David noted earlier, GreenSky's funding is the most diverse and robust it has ever been in the history of the company and the strong demand for assets from both banks and institutional investors is now reflected in our improved sales costs.

Turning to details around the first quarter financials on Slide 9. As David mentioned earlier, the first quarter produced net income of $12.1 million compared to a net loss of $10.9 million in the first quarter of 2020. Let me walk you through the key drivers of these results. Starting with revenues, total revenues for the quarter was $125 million up 3% year-over-year. Transaction fee revenue for the quarter was approximately $86 million driven by a transaction fee rate of 6.61%, a 6 basis point improvement from the same quarter in 2020.

It is important to note that when excluding certain sponsor rebates that regularly occur in the first quarter of each year, our normalized transaction fee rate for the quarter was 6.89%. During the quarter, we also observed a product mix of originations more in line with three pandemic levels, reflecting higher APRs and lower transaction fee rates. In the guidance provided last quarter, we had anticipated this return to pre-2020 transaction fee rates over the course of this year, but instead experience a faster normalization within the first quarter. As a result, we have updated our expectation to reflect the transaction fee rates for the remainder of the year, we'll be more in line with pre-pandemic levels of approximately 6.8%.

It is important to note again, as we have highlighted in the past a lower transaction key rate is correlated to a higher loan portfolio APR, which benefits incentive payment performance. Said another way, we continue to maximize our lifetime profitability of our transaction volume across all of our products, taking into account both take rates, as well as the collateral yield of the loans originated on our platform.

For the quarter, total servicing revenue was $34.7 million, compared to $31.3 million and 11% increase year-over-year. Servicing fee revenue of $27.5 million was $2 million lower due to a lower servicing fee rate in the quarter of 1.18% compared to 1.27% in the same quarter last year. This change is attributable to a shift in volume among funding sources and from holding loan participations in our warehouse facility in 2021. Our servicing asset fair value impact on revenue increased by $5.4 million to $7.1 million in Q1, this increase was primarily driven by the 23 basis points decrease in delinquency rate that we mentioned earlier and the improved performance forecast of our servicing portfolio.

Effectively, our servicing spread has widened as a cost of service performing loans is far less than for non-performing loans. Operating expenses exclusive of non-recurring professional fees was flat for the quarter when compared to last year and our sales and marketing costs expressed as a percentage of revenue continued to decline to an industry-leading 4%.

Turning to the cost of revenue on Slide 11 in our investor presentation. Overall cost of revenue improved a 11% compared to a year ago from $72 million to $64 million. I want to remind everyone that GreenSky’s cost of revenue can be simplified into two key parts. First, our costs related to originating and servicing or what I call operational cost of revenue. And second, our cost of funding, which includes our bank waterfall costs and our loan sale costs, beginning with the operational cost of revenue, as a percentage of transaction volume origination related expenses, decreased 7 basis points year-over-year continuing to benefit from our investment in GreenSky's technology platform.

Our servicing related expense, as a percentage of the average servicing portfolio was flat year-over-year, as we've successfully overcome the higher level of costs associated with supporting our consumers during the COVID-19 pandemic. Second, our funding costs, which are made up of two distinct components. First, our traditional bank waterfall costs accounted for approximately 85% of our servicing portfolio in Q1 of this year, compared to 100% of our funding costs in the first quarter of 2020. The second component of our loan sale cost is made up of – second components, our loan sale cost is made up of mark-to-market on loan participations we hold on our balance sheet to mark-to-market obligations of loans held for sale with one of our bank partners.

Based on loans already sold or currently in our warehouse, these represented about 15% of our servicing portfolio in Q1 2021. As we move through 2021, we plan to provide additional granularity on the details behind the breakdown of both of these funding sources. Overall, our cost of funds this past quarter was $7 million or 14% lower compared to the same quarter last year. You will note that a year ago, we did not have any loan sale costs in the first quarter, having established our warehouse facility in Q2 of 2020 in completing our first loan sale in Q3 of that same year.

Our lower overall funding cost this quarter reflects both the strong performance from our bank waterfalls and the improved pricing of our loan sales in which we recognized approximately $3.6 million in mark-to-market on future sales facilitation obligations. Combined, our overall cost of funding improves significantly compared to a year ago. When we launched our diversified funding platform, we believe loan sale costs would improve over time and this past quarter’s results clearly demonstrate successful outcome in not only maintaining but improving unit economics under our new funding model.

Bank waterfall cost as a percentage of the average bank portfolio improved approximately 100 basis points when compared to the first quarter of 2020. Finance charge reversal expense was approximately $26 million lower. And our incentive payments benefited from those higher pre-payments and lower charge offs.

On Slide 11, the financial guarantee expense for the first quarter of representative $3.9 million benefit, which is attributable to the decrease in the delinquency rates and improved credit forecast. Through the remainder of the year, we anticipate the higher transaction volumes offset by stronger credit performance will keep the financial guarantee expense relatively flat quarter-over-quarter. As a reminder, the manner by which we are specifically impacted by the adoption of CECL whereby the escrow that we put aside on behalf of our bank partners makes up nearly all of the financial guarantee expense.

While our ongoing bank partners have historically used little to no escrow, the CECL methodology requires us to estimate an expense for each discrete loan facilitated as if it is in runoff, rather than reflecting the actual growing loan portfolios of our originating bank partners. It is important to note, that no originating bank partner used escrow this quarter and we expect that to continue to be the case.

Moving to our revised full year guidance on Slide 13. As David mentioned in his opening remarks, we are on pace to achieve our full year transaction volume guidance of $6.2 billion to $6.5 billion, and we believe that quarterly seasonal volume trends will be similar to pre-2020 period. We are revising our full year revenue guidance to be between $560 million and $570 million as we observed transaction fee rates moved to pre-pandemic levels by the end of Q1. We are now estimating 2021 transaction fee rates to be closer to historical levels prior to 2020.

Additionally, given recent pre-payment rate trends, we expect our servicing fees on the portfolio and interest income on loan receivables held for sale to be slightly lower for the year. It is important to reiterate that a lower transaction fee rate typically corresponds to a higher origination APR, which benefits incentive statements. Also higher prepayment rates contribute to lower associated bank margins, as well as lower FCR expense which both act as a benefit to our bank waterfall costs.

Together, overall profitability as evidenced by both net income and adjusted EBITDA is expected to be meaningfully stronger for the full year 2021, which is reflected in our upward revision of guidance. We are increasing full year net income guidance to be between $35 million and $45 million and increasing adjusted EBITDA to be between $95 million and $105 million, reflecting 17% to 19% adjusted EBITDA margin.

Our current full year guidance includes the potential impact from loans that are currently in, or have previously been in deferral related to the pandemic that could reduce incentive payments in the second half of the year. Although our most recent delinquency trends remain near record lows, which we expect to continue into the second quarter, some uncertainty still remains is how these loans may perform in the second half of the year with continuing elevated unemployment rates and as federal stimulus possibly tapers.

Our revised full year forecast reflects our current expectation of portfolio performance, but as we progressed through the year, we will have a greater visibility on how credit may ultimately perform. To the extent, our servicing portfolio continues to reflect the current positive macroeconomic environment that could be additional upside to our estimated profitability in the second half of the year.

Before moving to Q&A, beginning on Slide 14, I want to remind everyone that we have provided some additional assumption on how to model key inputs underlying our 2021 guidance, on transaction volume revenue and cost of revenue. As mentioned, we expect transaction volume seasonality for the year to closely resemble the average quarterly transaction volume percentage in years prior to 2020, reflecting a more normal seasonality pattern. Also we estimate that transaction fee rates for the remainder of the year will be more closely aligned to trends prior to 2020, as both of these metrics are expected to normalize to pre-pandemic levels.

In addition to update a transaction fee trends, we expect interest and other income to be between $10 million and $15 million for the year. This as a result of lower expected interest income from loan participations held in our warehouse, as we see the velocity of our loan sale accelerate in 2021 compared to the second half of last year. According to the cost of revenue, we estimate our cost of funds to be 50 basis points lower than our previous estimate reflecting the improved costs reported this past quarter.

Thank you for the opportunity to discuss our first quarter 2021 financial results and for your ongoing interest and support of GreenSky. Operator, this completes our prepared remarks, and we are now ready to take questions.

Question-and-Answer Session

Operator

Absolutely. [Operator Instructions] Your first question comes from the line of John Davis of Raymond James.

John Davis

Hey, good morning guys. Hey, David, just want to start out with transaction volume. Obviously, just talking about some key wins and a lot of the moments on especially I guess sequentially February to March. Any thoughts on April, that won't give you confidence that you can hit that midpoint or higher of your guide that was on change on transaction volume, despite that at least of 1Q that were a little bit weaker than we had expected, just curious on some of that shut down, maybe we just have the seasonality wrong? But I'm just curious, kind of what gives you confidence given I think, slightly weaker trends in 1Q?

David Zalik

Yes. So thank you John. Transaction volume in April, as we indicated had accelerating growth, all of the leading indicators for us are through the roof. And so the first thing we look at are the number of applications that we received daily, weekly, for example in April already in May. And then it's – which of those customers were approved. And then that translates into a transaction volume typically over the next 60 to 90 days. So when we look at this February over last February, this March over last March isn't as relevant. So we look at this March over March of 2019, and then we look at growth from February to March and growth from March to April, and we see what the leading indicators are, and we see how that tracks very nicely to our full year forecast, which is broken up by month, which does take into account seasonality.

Keep in mind. I think that shortly Q1 is about 20% of the year, and I think some people just took our annual transaction volume and divided by four or something – to dividing by four, and obviously that's pretty way off. So all the leading indicators should know that we are at or better than where we expected for Q1 and certainly for Q2.

John Davis

It's clear, you kind of ended up where you expected for 1Q overall.

David Zalik

Yes, typically we beat budget.

John Davis

Okay. That's helpful. And then Andrew, maybe just help us a little bit. I know there is a lot of moving pieces in the EBITDA margin that obviously came in much better, it looks like it was all FCR related, but maybe just try and keep a high level, the puts and takes of why 28 in the first quarter, I think the midpoint of guidance on a 1,000 basis points below at 18. Like what are the big call outs, why it will decline, again, obviously above your prior guidance? And then maybe help us a little bit with the sequential or kind of quarterly cadence of the expected margins, I know that can…

Andrew Kang

Sure. So I think one of the largest drivers of the change in the revenue – I’m sorry in the revised guidance is around the cost of revenue. So trying to break that down, I think simply put there, we've seen as we have transitioned into a diversified funding model and as it's something that we actually, I believe tried to highlight when we first announced the strategy, we expected there to be some lower volatility around FCR expense, we're seeing that come through. If you look quarter-over-quarter, I'm sorry – year-over-year, in the first quarter you'll see that there was a significant decrease in the FCR expense that coupled with more improving loan sales costs is really helping to support a more efficient cost of funds, which is contributing to the profitability.

That's probably the largest component to some extent would obviously benefiting as you'd expect from improved credit performance, as it required – as it relates to our incentive payments. The delinquency trends that continue to be near record lows, and as a result, we continue to see some of the similar trends we saw in 2020 related to higher expected payments. Although, I would attribute more of the cost of revenue improvement related to FCR expense. And then probably the last piece is just, as I mentioned earlier, the loan sale costs continue to improve, we've now put a lot of components of that model in place. And I'd say that, when we discussed this in Q3, we talked about our ability to improve upon that execution, I think with the stability of the markets and strong institutional investor demand, we've been able to accelerate that probably even faster than I would've expected.

So pound for pound, I think, the efficiency of our overall funding costs have been significantly improved, that coupled with operating expenses, both in servicing collections, as well as in SG&A, all being flat to better are also contributing to a solid fee versus our initial expectations.

John Davis

Okay. And then any comments sorry…

Andrew Kang

No, go ahead. I think you were going to ask about…

John Davis

Yes. Sequentially like, how should we think about the margin all else equal kind of from 1Q into the – obviously you're implying it's going to be down, but is it down a lot in 2Q and it gets better 3Q, 4Q, just help us a little bit with the – how you guys are thinking about this from our cadence – quarterly cadence perspective?

Andrew Kang

So I think Q2 will be – will continue to see a lot of what I just described and we'd expect there to be some strong performance, I think, as David alluded to, we expect volumes to pick up as well, seeing some of the leading indicators of the first quarter. I think where we – what I try to be a little bit more transparent was in the second half of the year, when I provided my walkthrough on guidance. We do – I think the biggest kind of toggle there is the fact that we do have and believe that there is still some uncertainty on how our consumers will perform that have been impacted by COVID impact. Overall, what I call the depth of that impact is definitely much smaller today, if you recall at the peak in 2020, our deferred portfolio was about 4%, it's now 20 basis points.

So the impact of – the sheer impact of that is much, much smaller, however, we still have about $20 million of loans that are in deferral and we have about $40 million of loans that have had some level of deferral in the past. So with – I think what we're trying to model is that there still remains some uncertainty in the second half of the year related to how those loans could perform. However, we are cautiously optimistic because sitting here today, we're not seeing those trends yet, but I would say, our sentiment is not that different from many others, we hear that, we're still cautiously optimistic, but modeling first a little bit more uncertainty.

John Davis

Okay. I appreciate that. Thanks.

Operator

Your next question comes from Juliano [indiscernible] with Compass Point.

Unidentified Analyst

Good morning and thanks for taking my questions. I guess, from a starting point it'd be interesting to get a little bit of sense of what the different moving parts are within the FCR change in kind of guidance on a go-forward basis and what the – what are not the primary drivers are? And what I mean by that is, at what portion of that is more credit or at a portion of that portfolio size, because you may have more loan sales. So the kind of the portfolio subject to the FCR might be contracting. And there is a portion of that even just beyond that loan performance, just from a better delinquency performance.

Andrew Kang

Sure. So in our prepared remarks, I think what we tried to make transparent was that in Q1 about 85% of our loans from a cost of funds perspective is allocated to bank waterfall costs. And 15% of our service portfolio is based on loan sales. If you compare that to 2020 Q1 of 2020, a 100% of that would have been on bank waterfall. So effectively 15% of the servicing portfolio is now funded through loan sales. As we talked about when you sell a loan we don't incur any of the FCR expense. So if you look on Page 11, you can see that the FCR expense on the right side in Q1 was about $77.6 million, and in Q1 of 2020, it was about $97 million. So there is a – you can see that there is dramatic decrease, and that would be attributed to us primarily being able to diversify our funding model and the benefit that we had expected to achieve on our bank waterfall costs.

Right below that, you can see that incentive payments to a lesser degree improved, so if you look at Q1 of 2020, incentive payments were $44 million and in Q1 2020, incentive payments for $42 million, so there is still a benefit there and that's primarily where you would see the better credit performance of the portfolio come through. So pound for pound, we're getting more from an FCR expense benefit, but we are also seeing the benefit from credit as well.

Unidentified Analyst

That sounds very good. Then kind of on a go-forward basis, there obviously seems to be – it looks like the fiscal 2021 is a bit front end loaded from an EBITDA perspective and what you’re seemed to be assuming is a similar trend, a similar kind of – similar impacts that you were assuming before, but just a little bit less on the front end of the year and more in the back half of the year. What I'm kind of curious about is, how that cadence might run, because at least from most companies – most companies out there credit seems to be extremely strong going into the second quarter. So I'm kind of curious how that set up flows through for the second quarter if credit remains in a similar ballpark to the first quarter, during the second quarter, and then how we should think about that cadence for the year?

David Zalik

Sure. I think we would echo that similar sentiment, we feel that into the second quarter, we feel credit will remain similar as Q1. What we are – what we – we don't know, and what we're being cautiously optimistic about is, what happens in the second half of the year. If you recall previously when we initially gave guidance for 2021, we had indicated that we had expected higher credit losses due to the pandemic kind of through – kind of the going through the course of 2021, we obviously haven't seen that in Q1, we're not seeing that in Q2. So I think it's still in our minds a little yet to be determined on when we will still see it.

And again, the magnitude of that overall impact is much, much lower, but I think we want to see Q2 performance before we're able to kind of continue that positive trend forward. So to answer your question Q2 very similar to Q1 to extent some lower – some uncertainty on how credit will perform in the second half of the year, that all being said, that should – the total full year guidance should give you an idea on how the impact will be in Q3 and Q4.

Unidentified Analyst

That's great. Thank you. I'll jump back in the queue.

David Zalik

Thank you.

Operator

Your next question comes from the line of Michael Young with Truist.

Michael Young

Hey, thanks for taking the question. Wanted to just kind of take the updated 2021 guidance and put it I guess into the broader context of the 10/9/30 strategic plan. It seems like this is more, hey, we thought it was going to be more of a transition year with more pandemic impact in 2021 before kind of reverting to the norm. And maybe that's just going to be a lesser impact. Is that kind of the message, or do you think this meaningfully impacts kind of that 10/9/30 plan over the next couple of years?

David Zalik

Well, we think it certainly demonstrates that it's highly achievable and certainly sitting here in May, we’re further along than we expected to be going down that path. I think it's important to point out this is only in one part, the credit story. Certainly going into Q1, we knew what delinquencies were. So credit was not the big surprise for Q1. There is upside around credit by the thing that I think is that we haven't really talked about is we're getting more efficient funding, more diverse funding, and certainly transaction volumes are trending exactly are better than we expected.

So Michael, I appreciate you asking because the way we think about it is we're just getting that much closer, faster right now than we'd previously talked about to the 10 by 9 by 30. And I think that's a good step forward. And of course, yes, there is upside for this year. Andrew, you had something to add?

Andrew Kang

I would just say, short answer, yes. I think this puts us on track squarely on 10 by 9 by 30. We did talk about 2021 being a transitional year. And I think we pointed to higher loan sale costs. I think we demonstrated an improvement there in Q1, all things being equal. I think – if that continues, I think would clearly on path to meet our goals. And then in terms of credit, we assume that there was going to be a larger potential impact that's come down considerably since we announced that in Investor Day in January. But as I mentioned a moment ago, there's still a lot of uncertainty. So short answer is, we think our results this quarter and thus far this year are certainly putting us to achieve that five-year plan.

Michael Young

Thanks. And one other question, just wanted to ask on the funding partners, just kind of how those conversations are going. On the one hand, I would think things would be more desirous of funded assets at this point in the low rate environment, on the other hand, maybe some of the institutional side, we've seen a big jump up in the 10-year treasury rates, et cetera. So maybe as demand weaken there, just any color you can add on just kind of how those conversations are going, that would be helpful.

David Zalik

We're feeling like we're living in the land of abundance, our super regional national banks certainly appreciate super prime short duration loans. So there's certainly more demand. However, as we stated before, it's really important to us to have diversification. We've seen excellent execution which also by the way, conveniently is a much simpler accounting from bank buyers and non-bank buyers. And so for us, this is about number one, optimizing diversification and long-term economics where we're taking a long-term view. And that's certainly how we're treating our partners and vice versa, but we're seeing great demand. And we're driving this toward diversification for the long-term.

Michael Young

Okay, perfect. Thanks. I'll step back.

David Zalik

Thank you.

Operator

Your next question comes from the line of Chris Donat with Piper Sandler.

Chris Donat

Hi, good morning, everyone. David, you made a comment in your prepared remarks about, I think there were three merchant, you had a number of merchant wins, but I think three of them came from competitors. For the ones you won from competitors. Can you give us any sense of why you won? Like what about GreenSky enabled you to take the business?

David Zalik

So in one case, it was a better integration tools. In another case, it was a better user experience. And in a third case, it was a combination of frustration with legacy partner on missing promises and just our reputation with their peers. And so this isn't new for us. It's how we've grown the business for years. And we just wanted to kind of call it out. Obviously, we had hundreds of wins in the quarter, but these were large and directly coming from a proposed competitor.

Chris Donat

Understood. And then just thinking about the transaction volume guidance for the full year, there's no change there, but it seems like that the trends are working in your favor, not just some wins, but also healthcare is the lack of change reflect like the onboarding can take time or it takes time to ramp up a new merchant or conservatism in like, how do you do about the healthcare ramp over the year? I'm just trying to understand, it seems like the world looks a little better now than it did a couple months ago, and that that might lead to better transact, or you'd be more selective with your loans were noting that your FICO scores, that origination are about 10 points higher than they were a year ago.

David Zalik

So Chris, great question. It's everything you've just described. Certainly having lots of wins taking market share growing the market, does take time to ramp. That's part of it. We're also sitting here in unchartered territory and we're not going to pretend to know exactly what happens over the next eight months. So there is a conservative bias and we have a lot of conviction that we can meet or beat. And we're in the meet and beat game. So that's what we're focused on.

Andrew Kang

I'd also highlight that David mentioned this a moment ago, but our Q1 results, we're ahead of what our internal budget was on track with what we gave for the range of guidance. So I think for us, Q1 certainly was a good data point. We'd like to have Q2 in the back and then reassess, but I think all trends are showing as David described.

Chris Donat

Okay. And then just the last one for me on the FICO scores because they are higher than they were before pandemic, is that reflect something of your funding partners in there, what they're interested in, in this environment? Or and is there an opportunity for you to widen your credit box going forward? Or do you think with the unchartered waters that we're in that you're going to be cautious around that?

David Zalik

I can say it's certainly not driven by us or our funding partners. It's driven by market demand. And I think you could imagine a hard to – first of all, we're talking about five or six points, but over the last couple of years, hard to take exception to 774 versus 781. I don't think any funding source would see that as any kind of material degradation or improvement for that matter. It's purely demand. We think there is even more demand coming. And it's certainly a very, very exciting time but it's not driven by us. We think there's lots of good 680s and 700s out there. We just need them to have some stability in their lives and want to do more home improvement.

Chris Donat

Got it. Thank you very much.

David Zalik

Thank you, Chris.

Operator

[Operator Instructions] Your next question comes from the line of Rob Wildhack of Autonomous Research.

Rob Wildhack

Good morning, guys.

David Zalik

Good morning.

Andrew Kang

Good morning, Rob.

Rob Wildhack

Just a quick one on the financial guarantee expense. Andrew, I think you said, the expectation was flat sequentially. Does that mean that you're expecting it to be a negative expense for the rest of the year?

Andrew Kang

No. It means that it should just kind of not be an expense or a benefit, it should be pretty flat yearly for the range.

Rob Wildhack

Okay. And then David, you talked about comparing March 2021 volumes, March 2019 volume, and I'm just wondering if you'd be willing to share how much volume up in April 2021 versus April 2019?

David Zalik

I'm going to defer to Andrew on that. But what I can say is a very healthy and gives us a lot of confidence that will meet or exceed our expectation for 2021.

Andrew Kang

Yes, I would say that March was the first month we saw real solid year-over-year growth. Coupled with the fact that we talked about the credit line in application approval rates recently kind of all-time highs, I think that does have a leading indicator in April as well as the remainder of the second quarter showing favorably. I think the best way to think about it is if you look at the seasonality, you'll see that the second quarter of the year is about 25-ish – it's 25% of the – 26%, sorry, it’s 26% of total volume. So you should see an expected increase from Q1 to Q2 relative to that seasonality.

Rob Wildhack

Okay. Thank you.

Operator

At this time, there are no further questions. I would like to turn the call back to management for any additional or closing remarks.

David Zalik

Thank you for your questions. And thank you again for joining us today. Please stay healthy and safe, and we look forward to speaking with you when we discuss our second quarter 2021 results.

Operator

Thank you for participating in today's conference call. You may now disconnect your lines at this time.