Good day and welcome to the LendingClub Third Quarter 2015 Earnings Conference Call and webcast. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to James Samford, Investor Relations. Please go ahead

Thank you. Good afternoon and welcome to LendingClub's third quarter of 2015 earnings conference call. Joining me today to talk about our results are Renaud Laplanche, Founder and CEO and Carrie Dolan, CFO. Before we get started I'd like to remind everyone that our remarks today will include forward-looking statements and 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 press release, the related slide presentation, on our Investor Relations website and our Form 10-K filed with the SEC on February 27, 2015 and our Form 10-Q filed on August 5, 2015. 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 the new information of our future events. During this call we present both GAAP and non-GAAP measures. A reconciliation of GAAP to non-GAAP measures is included in today's earnings press release. The press release and the accompanying investor presentation are available on our website at www.ir.lendingclub.com. In addition, to the regularly presented slides comments made by Renaud and Carrie will also refer to few specific new slides including Slide 10, 11, 12, 14 and 30 in the slide deck. Unless specifically stated all references to this quarter relate to the third quarter of 2015 and on year-over-year comments are comparisons to the third quarter in the prior year. And now I'd like to turn the call over to Renaud.

Thank you, James. This quarter was our best quarter so far. We continue to deliver very high customer satisfaction and strong credit performance while increasing marketing efficiency and expanding margins. We generated operating revenue growth of 104% year-over-year, reaccelerating from 98% revenue growth last quarter. It was faster than our initial plan as we saw opportunities to efficiently accelerate during the quarter while maintaining strong risk management, credit quality and customer satisfaction. Once again we are in a position to raise both our revenue and EBITDA outlook for the quarter and for the year. The magnitude of the market opportunity and our growing competitive advantage in the space put us in a position to set significant growth targets from next year with 70% revenue growth and expanding margin. Now let’s dig into specific results and contacts for the quarter. Following with originations, loan originations of this quarter increased 92% year-over-year to $2.2 billion compared to nearly $1.2 billion in the same period last year. About $13.4 billion in consumer and small business loans have now been issued since inception including more than $7.2 just in the last the 12 months. Operating revenue this quarter was $115 million, up 112% year-over-year. Revenue grew faster and originations as strong credit performance and investor appetite give us the opportunity to increase investor fees while preserving strong platform returns. Favorable investor needs also helped increase our revenue yield. Adjusted EBITDA was $21.2 million, up 181% year-over-year with margins expanding sequentially for the third consecutive quarter from 13.1% in Q1 to 18.4% in Q3. But we believe the remains considerable margin leverage available to us as we drive more volume for the platform, we plan to continue investing in engineering and product development to long-term growth and continue to maintain or improve user experience and…

Thanks, Renaud. The third quarter was another outstanding quarter with our financial results again topping our outlook. More specifically our revenue exceeded 100 million in the quarter for the first time and was 104% higher from the prior year. Both our contribution and EBITDA margins expanded reflecting our continued leverage and GAAP net income term positive for this quarter. Today I will start with our third quarter financial results and then provide fourth quarter guidance along with some initial thoughts on 2015, before opening the call up for questions. As a reminder all year-over-year comments are comparison to the third quarter and the prior year. Starting with origination, as Renaud shared total originations in the third quarter reached $2.2 billion and increase of 92% compared to last year. While we continue to be disciplined about the pace of our growth we continued the see opportunity to efficiently accelerate growth beyond our initial plan as a result of operating efficiencies in our acquisition channel. Operating revenue in the third quarter was a $115.1 million, up 104% year-over-year. The growth and origination volume was again outpaced by our revenue growth as revenue yield continue to expand. Our revenue yield which is operating revenue as a percent of originations was 5.15% of 12 basis points sequentially and 30 basis points year-over-year. Transaction fees which are earned immediately after a loan is originated represented roughly 87% of operating revenues and total $104 million, up 91% year-over-year transaction fees as a percent of originations were roughly flat sequentially at 4.49% and were lower by three basis points from last year primarily driven by the products used in education and patient finance, which includes the True No-Interest product launched in late 2014. Servicing and management fees from investors, which are earned over the life of investments,…

[Operator Instructions] Our first question comes from Heath Terry of Goldman Sachs. Please go ahead.

Great, thanks. Carrie you guys disclose that interest rates are the borrower returns came down about 100 basis points year-over-year. I was wondering if you get give us a sense of what’s behind that is that a function defaults increasing is that just a function of the fact that there is there so much supply of capital out there. And then when we look at the slowdown in custom loans growth is how much of that is a function of custom loans that are moving over to your standard formats versus maybe something else. And then last one you made it pretty clear in your prepared comments that customer acquisition costs for you have generally been a place that you've been able to get leverage on, which is counter to at least what we seem to hear from up a lot of your private competitors in terms of customer acquisition costs increasing or even some of the legacy banks that are in the space as well. I was wondering if you could give us a sense of what it is that you think that’s allowing you to see that leverage when most others aren’t.

Yes, thank you. So I think the decrease in borrower yield really is a reflection of some of the network effects, we detailed further this quarter and that’s on Page 12 of the earnings deck. I think as we continue to attract more and more investors and then as we continue to build our track record, we are able to lower the returns we offer to investors and continue to be not be supply constrains by any mean and continue to see very strong investor appetite. And we essentially pass on big part of a benefit to the borrowers in the form of lower interest rates and the impact – positive impacts in both ways, first it’s - lowered our own acquisition cost and then also addresses part of your – the third part of your question with lower interest rates increasing the number of borrowers taking our offer, which increases our conversion, which decreases acquisition cost. But also generates positive selection from the borrower population and that positive selection fits our good track record of performance, which further increases little bit of confidence from the investors. I think all that is working to our benefit and to the benefit of all market based participants because we believe that the negative impact on investor return is of less than the positive impact on the borrower side due to the positive selection that essentially lowers the credit losses. So it’s a benefit for all market participants including us. In terms of the standard, custom I mean it’s been pretty stable quarter-over-quarter. We haven’t transferred any of the custom programs onto standard. So what you see is just a stable growth in both programs growing at the same pace. And in terms of our ability to continue to grow very fast and double year-over-year with no increase essentially in acquisition cost. I think that’s a lot of the network effects that play a lot of the investments we made early on in products, quality of underwriting and servicing, compliance, back office and all these investments or either in the - products of improved the customer experience makes for more loyal customers, drive more repeat customers and other investments in repetition, brand, compliance, back office generates some great experience for consumers also accretive to the brand and our repetition online. And we know our customers, new customers as choices when they go online and they typically check the repetition of every reaffirm and can see that LendingClub as a four or five star rating on every review website and we generally have some lower pricing again enabled by a very diverse investor base. So I think all these factors really point to – they all work together to generate more volume, more value for market based participants and better efficiency.

Our next question comes from Smitti Srethapramote of Morgan Stanley. Please go ahead.

Thank you. Hi, Renaud and Carrie. My first question is on guidance for the operating revenue growth of 70% in 2016, can you help us think about what part of that growth is coming from origination growth versus what part would be coming from continued increase in servicing fees. And also how much of the growth in originations maybe attributable to some of the new product lines that you gave us a hint that you are going to be launching?

Thanks, Smitti. So at this point we can talk a little bit about the revenue yield this quarter at 515, it does reflect continued expansion from a couple of things, one the investor mix as we’ve continue to bring on investors paying marginally higher servicing fees or market rate servicing fees and we've been talking about that now for a few quarters. We think there is a bit of expansion that will continue there as well as then we made a change on pricing in this quarter on collection fees that will continue to roll in a little bit. So there will be a little bit of continued expansion there, but that's really rolled into our guidance for the fourth quarter into the next year. And at this stage we really wanted to give a high-level view on the outlook for next year, we are not really providing specific color and breakdown. We are taking into account what we shared earlier which is our intent to go into a new category in the first half of next year as well as continuing to invest in our existing products and bringing other products to market kind of within our categories. So those are the things that are embedded in that outlook, but we are not providing more granularity at this stage.

Great. And then maybe just a follow-up question at the Money 2020 conference this past week, we met with a couple [BCs] in some of the smaller platforms and one of the things we’ve heard was that there seems to be an increase in attempts, in fraudulent attempts to hit the marketplace funders and some of the smaller platforms noted that they've seen increase, some of them noted there's been a lot of talks about newer entrance into the market seeing increase instances of first payment defaults. Can you talk about what you guys are experiencing in this area and what you're doing to prevent fraudulent attempts?

We have not seen an increase in fraud attempts or in – there is successful fraud rate. We are not surprised that our players would see such an increase in that. Fraudsters would typically go to least resistance and certainly smaller on newer platforms wouldn’t have had the opportunity to build some of fraud detection and prevention mechanisms we put in place over the last eight years. We are not speaking specifically about [indiscernible], but where our fraud detection mechanisms are working on.

Okay, thank you.

Our next question comes from Scott Devitt of Stifel. Please go ahead.

Hi and thanks for taking my question. The growth that you are putting up with marketing efficiency and lower acquisition costs that’s impressive and it clearly displays your scale advantage compared to this narrative that exists around competition in the market. And you also gave 2016 guidance of 70% revenue growth which is well above the Street. My question as it relates to guidance is in terms of expected customer acquisition cost trends that are implied with the 18% EBITDA margin guidance that you gave to sustain that growth would be interesting if you can just discuss that a little bit as you look forward into 2016. And then secondly, Santander I believe today announced exiting the consumer loan business and was wondering what impact that has on your relationship and just more broadly if you can speak to the relevance or lack thereof of any individual lender on the platform? Thanks.

Thank you, Scott. So at this stage I mean is still very early in terms of 2015 guidance so really lots of breaking down much of the separate line items, as we get closer we always give more – we’ll get more granular. I think the margin guidance I mean to a larger extent is more driven by investment then it is by customer acquisition. We decide on at any point in time how much we want to invest in products, engineering, back office, compliance, all the things that drive essentially G&A headcount with the product engineering and separate functions. And our philosophies that we – we have a very big opportunity in front of us and we are focusing on building long-term growth and embedded in the 18% EBITDA guidance is continued investments in all these areas. In terms of [indiscernible] they have been a great partner and we’re also very grateful for the relationship we’ve had with them over the years. This year specifically they were a single-digit percentage of originations. They start investing at some point [indiscernible] main program and we are able to replace them with other investors essentially overnight. So that’s really speaks to the resiliency of the platform and we need the power of the marketplace model and the diversity of our investor base and so our ability to manage the flow of both supply and demand. There is actually a slide in the earnings deck Page 11, that shows some of the diversity those of a very broad appetite of our investor base in terms of both risk and duration. I think I can but great benefit of the model now that benefits get even stronger in some different economic environment especially as we go into the next cycle and we show be as a resliancy of the diverse investor base will be out, a patiently over the last ratios. I think we done into a big competitive advantage of some of the newer platforms that for the most part of there is not retail investor and consideration concentration in the invest base are strong reliance on the securitization market which even our cash loan.

Thank you.

Our next question comes from Ralph Schackart of William Blair. Please go ahead.

Good afternoon, two questions first Renaud on the prepared remarks I think you said something along the lines of modifying some of the relationships with the banks to - distance yourself from Madden. So curious if you could provide may be a little bit more color on that statement and then sort of the implications for LendingClub going forward. And second question Carrie’s it relates the 2016 guidance. Can you just give us a sense even qualitatively since it was significantly above the street with your visibility on 2016 just maybe compared to a 2015 a similar point when you wee forecasting those numbers. Thank you.

So with respect to Madden so we continue to see know impact from our investor base and actually really some new data showing that so investors are continue to phones loans made to our residents of the free states covered by the Madden decision and institutional all the shares, institutional investors in the states are actually increased contrary to rumors we have heard in the market. So that shows but investors if you think the most sophisticated investors really are lined with us in terms of our interpretation of the different facts of the Madden case compared to our situation and so we believe that no chance is necessary is that being said to your point as a matter of extra cushion we decided to make a few changes to our relationship with our issuing bank to make sure of good with stand Madden type of case. Well I am not going into more details at this stage about what the specific measures are – we’ve done a quite bit of work, we think it’s a proprietary advantage – competitive advantage. So we're not discussing them publicly.

Yes, and on the outlook for next year, so as we continue to talk about we are neither supply nor demand constrained. And so as we think about kind of quarterly and annual growth we’re taking into account a number of factors that are based on growing the portfolio in a way that is responsible from the credit side, from the risk management side and certainly making sure that we’re continuing to balance on the efficiency side as we grow. And so we believe as we look out several quarters that that we’ve continued to lay out kind of how to balance all of those things. The implied origination growth that you just used the yield from this quarter is just under $14 billion. And so that is a sizable dollar amount that requires the discipline behind it to make sure that we are providing the best customer service and doing it in a responsible way.

Okay, thank you.

Our next question comes from Mark May of Citi. Please go ahead.

Thanks a lot. I apologize if this is already been asked. If you could help remind me, trying to understand the relationship between the originations that you report and any given period, and the amount of whole loans sold reported in the period and kind of the relationship there. It looks like that if I’ve read the numbers right your whole loan sales seem to have grown at a faster rate sequentially than origination. So just trying to understand that interplay a little and how it ultimately I guess impacts revenue in the quarter? Thanks.

Yes, so we - during the quarter the originations include essentially all types of funding behind it. So there is an - in the press release a little bit of detail of how each is funded whether it be from note certificates or whole loan sales. And the method at which somebody finances it is really going to be more a preference of the investor and the investor type banks preferred by the whole loans for example as opposed to hold the security. And so the mix of whole loan sales versus our certificate or note funding is going to be really a function of the mix and appetite of the investors behind there. So revenue when we look at revenue, we are looking just total revenue as a percent of originations, which is essentially funded by all three methods.

And it’s fair to say I think I know the answer but it’s fair to say that all of the whole loans that you are selling in the quarter were originated during the quarter?

That’s correct. We are essentially originating and selling within that same period.

Okay, thanks.

Our next question comes from Josh Beck of Pacific Crest. Please go ahead.

Thanks. I wanted to ask a question on cost per funded loan. So I think sequentially you said the core consumer cost per funded loan improved by nine basis points year-over-year I think you said it was up two points. Could you just give us a little bit of color maybe on what's going on kind of underneath the covers particularly on the year-over-year delta if it was mix or comps or something else?

Sure, yes. So you are talking specifically about our core loans sales quarter-over-quarter we were nine basis points lower year-over-year, we were two basis points higher. I think the way to think about it is definitely channel mix and it’s also a function of the investor appetite. So if were funding more A’s, B’s, there will be different mix that will go into that. So we do expect some level of noise in that kind of on an annual basis. But that's really what the function there if you take a look at kind of seasonally year-over-year quarter you are kind of in that same sort of timeframe. And that's really what’s driving that year-over-year?

Makes sense. And Renaud I think you mentioned unaided consumer awareness. I want to say that you said 3% maybe is the early survey results that you received. Where do you want that to go over time, obviously a lot of your competitors or products that you are replacing in the cases of credit cards spend a lot of money and have very powerful brands. Is that kind of the high watermark or are you just trying to make strides from 3% to 10% to 20%. Any other kind of color you could give us on where you like to see that go over time?

Yes, so we are not managing brand awareness to a specific goal or target and in general the way we are building brands is we have great products and great service and great customer satisfaction. So that customers would both remain loyal customers and become repeat customers, but also talked about us positively and the promoter score continues to be at extremely high. I think we’ll see some organic increase of brand awareness. We don't believe in financial services, there is really no shortcuts; it’s not like some other consumer products where you can reconnect the dots between awareness and sales. The financial services reputation and trust is as important as just awareness and so we are sufficiently busy with that reputation and the trust. And I think the results of that already pretty visible in terms of our metrics and I think we’ll continue to unfold over time.

And last one from me if I can just on competition, I think there's been some announcements over the last several quarters maybe more a traditional financial services or private equity firm or something getting interested or planned to enter the online lending marketplace, just would like to hear your take is that changing the competitive dynamics all in your view, is that something that you are watching closely?

Yes, we are obviously watching our market very closely. We are not particularly worried about some traditional institutions that’s competing with us. Most of the announcements you have seen already focused on different use cases, different market segments than what we focused on. At the end of the day we have 6500 banks in the country, it’s a very big market and so they have many different target segments and room for 1000 of our players to be successful that in areas where there is a overlap and where we compete. We believe our very low cost operations, high-efficiency, great reputation and very diverse investor base that’s again suddenly be built over a long period of time and track record where there is also no shortcuts I need to build the track record over time all these sectors really continue to give us increasing competitive advantage.

Great, thank you.

Our next question comes from Eric Wasserstrom of Guggenheim. Please go ahead.

Thanks very much. Just wanted to follow-up and you’ve been very clear about many components of the guidance, but as I think about the EBITDA margin that you're talking about for next year I mean ultimately there's sort of three levers of the improvement right, there is the revenue margin, there is the expectation around expenses and then ultimately just the tax rate. So I’m just trying to reconcile some of the comments, it seems that given the expansion the leverage I think going to come particularly out of expenses, so it sounds like ultimately investors view on the change in tax rate, you're really zeroing in on continued revenue margin expansion, is that a fair interpretation?

So on EBITDA that does not include taxes this is kind of our margin before taxes so what I would guide here a little bit on this would be to think about. We didn’t share this quarter that in the core personal loan product, our contribution margin is now in excess of 50% and we believe that just looking at our three products there is certainly more efficiency that we will continue to drive in our newer products in small business and education and patient finance that certainly will help continue to expand contribution margins. And then we have the other lever is below contribution margin on our investments in G&A and technology and there we will continue to invest heavily, but certainly as you’ve seen over the last couple of quarters this continued leverage even in those areas. The other thing that I would remind you is that next year we did talk about entering a new category and similar to when we launch small business and purchased Springstone last year as we would expect to going into that being less efficient out of the gate and those certainly will have some impact on being a bit diluted on the margins and the directions that you’ve seem.

Okay, thank you for the clarification. And just one other item you put out in 8-K today having some changing in pricing that you put through various loan grade strata. And I'm just wondering what the motivation for that was and in particular was it a response to the increased servicing fees that you have already implemented in the period.

And also it’s – I think we both go in the same direction so the net impact of the pricing changes that we reduced this quarter would be a price reduction and lower interest rate for consumers. It’s a jurisdiction we’ve implementing since the beginning of last year and again that comes from a lot of the network effects we are seeing and the positive selection we are seeing in the borrower base and the fact that continues to be a lot of apatite from investors, so that’s a large investor apatite really is allowing us to both marginally increase servicing fees, but also pass on most of the benefits to the borrowers in the form of a lower interest rate.

Okay, thanks very much. End of Q&A

And this concludes our conference call for today. We want to thank you all for attending and we ask that you all have a very nice day. You may now disconnect your lines.