LendingClub Corp (LC) 2018 Q1 法說會逐字稿

Good day, and welcome to the LendingClub Corporation First Quarter 2018 Conference Call and Webcast. (Operator Instructions) Please note, this event is being recorded. I would now like to turn the conference over to Artem Nalivayko, Investor Relations Manager. Please go ahead.

Thank you, and good afternoon. Welcome to LendingClub's First Quarter of 2018 Earnings Conference Call. Joining me today to talk about our results and recent events are Scott Sanborn, CEO; and Tom Casey, 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 second 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 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 excludes stock-based compensation, depreciation, impairment and amortization and expenses related to legacy, legal and regulatory matters. Adjusted EBITDA also excludes these items and their related tax impact. A reconciliation of GAAP to non-GAAP measures is included in today's earnings press release and investor presentation.

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

Okay, thank you, Artem, and good afternoon, everyone. We are pleased to report a solid start to 2018, performing well against our internal targets for both growth and profitability. As I've mentioned on past calls, we are proud of our mission to empower those who strive to achieve financial success. We continue to invest and innovate so that we can help more people meet their financial goals. By the end of Q1, we had enabled more than $35 billion in loans to over 2.4 million borrowers, helping them lower their cost of credit, and these are numbers that we are certainly proud of.

A quick look at our financial highlights. In Q1, we delivered $151.7 million in revenue, coming in above the midpoint of our guided range. We again saw our normal Q1 seasonality as loans were down modestly on a sequential basis but up nearly 18% year-over-year. EBITDA of $15.3 million was well above our guided range and up materially over last year, driven by strong revenue growth, expanding revenue yield and our ability to drive better operating leverage. As we mentioned last quarter, we're going to continue to grow the top line while turning increased attention to driving operating margin in 2018 and beyond. So we're on track to deliver our full year guidance.

On the borrowers side of the platform, all indicators are green. We have calibrated our marketing efforts to our credit model, and our strategic initiatives are working to drive both current and future growth. During the quarter, we processed over 2.8 million applications, representing a 36% increase in activity over last year. We have been optimizing our existing marketing channels and expanding into new channels and partnerships to drive demand. Additionally, we have removed friction and improved the borrower experience with proprietary new features that allow us to attract better credit profiles. Last quarter, we mentioned our launch of a new direct payoff feature that allows borrowers to seamlessly pay off their debt obligations as part of the loan application process in exchange for a better rate. This feature is directly in line with our mission of helping consumers manage their debt obligations responsibly. It is testing well and increasing conversion rates. So we'll be making it more broadly available throughout 2018.

Equally encouraging, we're seeing that the use of direct payoff is driving better borrower behavior and improved credit and financial profiles post loan. So this is truly a win-win. While we optimize and expand direct payoff, we're also continuing to test new capabilities. For example, as we entered Q2, we have added the ability to underwrite new customers using cash flow and transaction-level data from their bank accounts, adding visibility where a traditional bureau-focused approach falls short. Clearly, our continued product innovation is providing a solid path for future growth.

On the investor side of the business, we saw strong demand for our recent innovation, CLUB Certificates, a first in marketplace lending. In Q1, we issued 162 million in CLUB Certificates to leading U.S. asset management firms that are new to LendingClub. We are excited about the potential to scale this program given the enhanced flexibility and liquidity it provides investors and the speed of execution and attractive economics it provides to LendingClub.

For whole loans, we continue to build on our relationship with bank partners as evidenced by our mix of bank investors, which increased to 48% this quarter, up from 36% in Q4. The increase in share is driven by our shift to higher-credit quality assets, together with the impact of a block sale we executed in the quarter. Our highly diversified investor base, our sizable balance sheet and the ability to change pricing both on the investor and borrower side allow us to maintain platform equilibrium and adapt to changing marketplace conditions.

During the first quarter, credit performance across the industry continued to return to long-term averages, and the interest rate rose across fixed income assets. This trend has been echoed on our platform with investors showing demand for higher-quality assets while also looking for higher yields. In response to marketplace signals, we are today making a few changes. These include incremental changes in pricing and adjustments to underwriting in pockets of our higher-risk prime grades, all intended to bring yield in line with investor expectation.

Overall, yield forecast for the majority of our platform remains stable.

I separately wanted to touch on the recent FTC announcements. We are committed to delivering a superior customer experience, and we appreciate and support the important role the FTC plays in encouraging appropriate standards and best practices. However, we believe that the allegations in the FTC's complaint are legally and factually unwarranted. We look forward to making our position clear and resolving this matter at the earliest opportunity. I know everyone would like to know more about this, but as with most litigation, we cannot comment further than what we have already shared in the blog post, which you can find on our website.

Before I turn the call to Tom, I'd like to provide some people updates. First, our Chief Capital Officer, Patrick Dunne, is going to be going back into retirement this summer and will be succeeded by our own Valerie Kay. Patrick joined us after our May 2016 events with a mandate to build the investor team and diversify and grow our investor base. He's done a fantastic job on both fronts. I am grateful to Patrick and sad to see him leave, but his departure was planned, and we have been carefully transitioning Val Kay to take his place in the executive team. You may recall, Val was one of Patrick's first hires. She joined us from Morgan Stanley to run our institutional group and has been instrumental in launching our structured program including innovations such as securitizations and CLUB Certificates. Second, as we reported last month, we are excited to welcome Bahman Koohestani as our new Chief Technology Officer. He brings 25 years of experience using data and technology to compete aggressively and deliver an amazing customer experience at companies such as PayPal, Orbitz, NexTag and, most recently, Clarivate Analytics. Technology is at the core of what we do at LendingClub and crucial to our mission of helping people achieve financial success. As such, we set an incredibly high bar for this position. In Bahman, we found just the right mix of experience, vision and leadership to take our world-class technology team to the next level. And lastly, as we recently announced, we're proud to have Susan Athey of Stanford University join our Board of Directors. Susan's experience as a tech economist with a focus on marketplaces is clearly aligned with our business, and we are lucky to have her on our board. Susan is also on the board at Expedia and Ripple. With Susan's addition, I would like to offer my thanks to Larry Summers for his guidance and contribution to LendingClub over the last 6 years and to me personally over the last 2.

With that, I'll turn it over to Tom to provide the details on our Q1 financials and outlook for Q2 2018, and then I'll come back to add some closing remarks before we turn it over to Q&A.

Thanks, Scott. We finished the first quarter with healthy core operations and are well positioned for our 2018 growth plan. We're also pleased to see some of our early cost management initiatives bear fruit this quarter as we aim to balance our growth plan with profitability. In the first quarter, we delivered revenue of $151.7 million, up 22% from a year ago, compared to operating expense growth of 10%. Our contribution margin came in above 49%, once again, at the high end of our 45% to 50% targeted range, and our adjusted EBITDA was $15.3 million, resulting in adjusted EBITDA margin of 10.1%.

Now before we go through the first quarter operating results in more detail, I'd like to spend a minute discussing the rising rate environment. I often get questions on how the model will operate in a rising rate environment and the impact it will have on borrowers, investors and LendingClub. Borrowers are starting to see the increased cost of credit as most credit card debt is indexed to prime, which has moved up 75 basis points from a year ago. We see this as an opportunity to further penetrate the credit card market with a compelling personal loan product that can offset the impact of higher rates and save borrowers money. The 36% year-over-year growth in application volumes we observed in Q1 is a strong indication that consumers are taking action. We're also seeing investor yield expectations increase as interest rates have risen. We closely monitor the competitive environment and make changes to our rates as the market warrants. We have observed a number of lenders increase rates to borrowers, and today, we have increased pricing by 10 to 45 basis points in our A, B and C grades, which are funded primarily by our bank partners. And for the higher-risk prime loans, where our investor cost of capital has increased due to rising rates, we are focused on improving investor yields through credit actions and price reductions to investors on certain loans.

And for LendingClub, we have been working with the rising rate environment over the last year, and we'll continue to monitor the environment closely. Our ability as a marketplace leader to balance the platform and find equilibrium in a shifting environment is a unique advantage that allows us to read signals and respond quickly. This advantage has been further enhanced by some of the new capabilities we've built in our capital markets area over the last year.

Now let's walk through the 1Q operating results in more detail. Again, revenues are up 22%. Transaction fee revenue of $111 million was up 13% year-over-year on originations of $2.3 billion, up 18% year-over-year. Transaction fees as a percent of originations were 4.82% in the first quarter, reflecting our strategy to shift our targeting to higher-grade loans that have lower origination fees. As you can see on Page 7 of our earnings press release, the mix of A and B loans through our personal loan standard program grew to 54% of all loans issued through the program, and that's up from 41% in the same period last year.

Now let's turn to investor fees. Investor fees grew $6.7 million or 32% annually, driven by both growth in our servicing book to $12 billion as well as an increase in overall servicing fees. Our gain on sale of loans grew to $12.7 million in Q1. The year-over-year increase of $10.8 million was driven by higher volumes and a higher average rate of servicing charged to loan investors.

Net interest income of $27.2 million was offset by fair value adjustments of $28.7 million for net negative $1.5 million for the quarter. Reminder that net interest income reflects interest earned from accumulating loans on the balance sheet prior to selling to loan investors, while the fair value adjustment reflects amortization of loans, adjustments to credit loss assumptions as well as pricing discounts to meet investor yield requirements while we implement our credit and pricing actions.

As we've broken out in previous quarters, our structured program revenue is a subset of investor fees, gain on sale, net interest income and fair value adjustments. I'd ask you to turn to Page 16 of our earnings presentation. We've broken out the economics from the program. This included revenue from securitizations, Club Certs, risk retention and residual yield, partially offset by the program costs and the financing costs as well as fair value marks on retained interest from these activities. You'll see, total structured program revenue was in line with the previous quarter at $2.7 million, driven by the completion of a near prime securitization and 5 Club Certificate sales in the quarter. We're very excited about the successful standing up of this program in 2017, and we'll continue our efforts to grow this new revenue stream as we execute in 2018.

Now let's jump back up to our total revenue yield. Total revenue yield of 6.58% as well as efficiencies in M&S and O&S drove our contribution margin of 49.1%. Sales and marketing expenses was 55.7% or 2.41% of originations, improving 26 basis points year-over-year. The improvement in marketing efficiency was driven primarily by effective calibration of our marketing channels as well as continued optimization of our channel mix. We're also doing some great work in expanding our marketing efforts into new channels. We've seen encouraging early results, and we expect to make some incremental investments to drive our future growth. Origination and servicing costs were $21.6 million in the first quarter, up $2.5 million annually or 13%. We have invested in this area over the last year and are encouraged by some of the early conversion improvements we're seeing through our efforts to increase speed and remove friction in the application funnel. I'd also like to highlight that we've made good progress in the agreement we discussed last quarter to augment our staff with a third-party operator out of a lower-cost location. We are pleased with the early results and are now ramping up support through the end of the year as we aim to drive further operational efficiencies.

Engineering operating expenses were $22.3 million in the first quarter, up $900,000 year-over-year or about 4% as a percent of revenue. Engineering and product development decreased by 2.5 points year-over-year, down to 14.7%. Our capitalized software development cost grew 12% year-over-year to $12.8 million. We continued to invest in technology infrastructure, credit model, platform development, data analytics and product features and capabilities.

Now turning to G&A costs. They were $36.8 million for the quarter. As you may recall, we are now excluding legacy cost as well as any insurance reimbursements in our adjusted EBITDA margin definition so that we can focus on what's happening in the underlying business performance. As a percent of revenue, G&A decreased 1.1 point year-over-year to 24.3% of revenue.

Some of you may recall me discussing margin expansion through our fixed cost base at our Investor Day back in December. As we emphasize driving operating leverage across the business, managing our operating cost continues to be a key focus area for myself and the entire management team. We look forward to sharing more progress towards our goal in the quarters to come.

For the quarter, adjusted EBITDA was $15.3 million with a margin at 10.1%, a full 10 point increase year-over-year, and we were pleased to deliver adjusted EBITDA above our guided range. I should note, half of this was from improved efficiencies in marketing, and the other half was largely driven by operating leverage in our fixed cost, where we believe we have further opportunity.

For the quarter, our GAAP net loss was $31.2 million or $14.2 million when you adjust for the $17 million of costs associated with legacy issues. This is well ahead of our guidance of negative $25 million to negative $20 million, benefiting from the outperformance in adjusted EBITDA I discussed earlier. Note that the $17 million reflects the latest discussions with the SEC, DOJ and the FTC as well as indemnification of legal costs of previous management. Other reconciling items from adjusted EBITDA to GAAP net income includes stock-based compensation of $17.8 million, which decreased by 4 points year-over-year to 11.7% of revenue, which is more in line with our expectations going forward. Adjustments for depreciation and amortization and other expenses were $11.7 million.

With that, let's turn to our outlook. We expect the business environment in 2Q to be similar to Q1 with continued strong consumer demand paired with higher interest rates and optimization of our platform. For the second quarter, we forecast revenue between $162 million and $172 million and adjusted EBITDA of $12 million to $22 million. The timing, size and price of asset sales may impact the quarter's earnings, so we've widened the range of EBITDA to $10 million. We expect stock-based compensation, depreciation and amortization will be about $32 million, resulting in net loss between $10 million and $20 million. Please remember that our GAAP guidance does not reflect the impact of any legacy issues for the quarter.

For the full year, I'd like to again reconfirm the guidance I gave you at our Investor Day in December. While we feel good about our volumes and expense management opportunities, we will continue to work through some of the pricing and credit adjustments I discussed earlier.

Overall, we reconfirm our outlook for the year. For 2018, we expect revenue of $680 million to $705 million and adjusted EBITDA of $75 million to $90 million. Consistent with what we've shared with you before, our GAAP net income guidance does not reflect forecasted costs related to legacy issues. However, with the legacy cost we recognized in the first quarter, we have updated our GAAP net income guidance. Our original GAAP net income guidance was negative $38 million to negative $53 million, and with the $17 million of legacy cost we recognized in Q1, our adjusted guidance is now negative $55 million to negative $70 million. We do not expect any changes in our outlook on stock-based compensation, depreciation and amortization, which we're estimating to be about $128 million.

And now I'd like to turn it back over to Scott for some closing remarks before we take your questions.

Thanks, Tom. Let me close by saying that we are pleased with our position as we start 2018. Last year was a time of rebuilding and transforming LendingClub. We ended 2017 delivering 2 of the highest revenue quarters in the company's history, and we continue to hit milestones quarterly. Most recently, $35 billion in originations, which further cement our lead as the consumer lender of choice and the #1 provider of unsecured personal loans in the country. And we continue to innovate on our product and experience on both sides of our platform to drive future growth. Our core business is solid, and we are confident that our marketplace model will absorb the changing environment and the short-term effects of addressing the legacy issues, which we are working to bring to resolution. Throughout 2018, our business will grow, and we'll focus on operational efficiencies to drive our profitability while simultaneously investing in the future of this company. 10 years ago, we transformed the lending industry with a whole new way to help Americans pay down their debt. Today, we are closing the credit gap in America by lending in areas where banks are pulling back and closing, offering better and more competitive prices, and we're increasing financial inclusion. Every day, we're invigorated by our mission to help strivers achieve financial success. And with that, I'd like to open it up for questions.

(Operator Instructions) Our first question will come from James Faucette with Morgan Stanley.

I just had a couple of quick questions. First, with the strong EBITDA outperformance that we saw in the first quarter, I'm curious why you're not moving the range for the entire year. Are you expecting some reversed or increased spending in other areas maybe that you hadn't planned on and so that's why we're seeing that? So just a little color there. And then my second question is, I know you don't want to comment on the FTC case directly, but can you talk about like how that impacts your operations through the year and any impact we should expect either on originations or expenses outside of those that you're already separating out as part of your adjusted results in -- for reporting?

Scott, maybe I'll do the EBITDA and pass on the FTC to you. So James, we feel very good about the start we had for the year. As we came out of the fourth quarter, we had a number of initiatives in place, a lot of those are performing quite well. And as you know, 1Q is typically a seasonally slower quarter. So we feel very good about where we are. Just start talking about increasing guidance at this point, I think, is premature. I think we feel good about our guidance for the year. Obviously, we'll continue to push hard for our growth and profitability, but it's too early to increase any guidance at this point. We have a lot of things we have in place. We feel good about it, but the interest rate environments are shifting, credit is normalizing, and we need to continue to be focused on managing and balancing that as we go through the rest of the year.

So the question on the FTC, James, I think it's hard to really kind of point to any specifics. I mean, overall, what I would say is we can't really indicate or speculate on any kind of changes that would be required of the business operation. As I think we made pretty clear in our public response, we believe our practices are currently in compliance. So -- and I think one thing -- and maybe I'm not sure if that's what you're getting at, but one thing to call out is what's been the short-term impact in terms of reactions from our investors. I'd say, overall, we've been pleased by the feedback from investors. So nothing to really report there. By that, I mean, loan investors.

And our next question comes from Brad Berning with Craig-Hallum.

One accounting-related follow-up detail, and I just want to make sure to understand the fair value adjustments. The $12.5 million that you've got in the supplemental, is that rates-related or is that a combination of credit and rates, in which you talked about the adjustment there, just seeing that you hit your revenue guidance despite that. So I just wonder what that detail, would be helpful.

Yes. Keep in mind that the way this works is that as we hold assets on the balance sheet to package them up in a structure, either securitization or a CLUB Certificate, we earn interest income. The short duration of these products have them amortizing rather quickly, and so what you're seeing there is any change in the underlying value, it could be changes in interest rates, it could be changes in expectations of yield, it can be credit, all those things come into account in what you ultimately sell it for. And so that's what you're seeing, is the -- is why you're seeing the offset against the interest income. So I point you to both of those lines. That's why we kind of -- there's a lot of pieces, that's why we give you this simple chart to show that for the quarter, the revenue was impacted by about $2.7 million, and we try to give you the breakout on that Page 16 to show you how it impacts the individual line items.

Understood. And then on the apps, you talked about the growth being up quite a bit this year year-over-year despite the marketing dollars weren't up as much. Can you talk about what you're seeing as far as increased execution on your part from the new marketing efforts versus what do you think is the backdrop of consumers seeing their credit card yields rising on their stuff? And what is the backdrop from a consumer standpoint? And can you decipher those 2?

It's hard to distinguish exactly. We know that consumers are feeling the increase in rates. Their amounts are repriced a lot, repriced to prime. And that occasionally does stimulate the customers to realize that there may be another way to pay down their debt and consolidate their debt. We provide a terrific opportunity to do that, and we're seeing continued strong growth in the applications where consumers are coming online, having a good experience and saving money, and we think that trend continues. It's hard to distinguish exactly, but I think the key for us is that we're making it easier for consumers. A lot of the efforts we had to generate demand are working, throughput through our funnel is also working, and we're quite encouraged with some of the early performance we're seeing.

Lastly, real quickly, can you expand on the new credit model and where you're seeing it's improved well for you? Where have you seen the adjustments that you're making? Can you kind of expand that discussion a little bit? You hinted on the call in the prepared remarks, but maybe you can go a little deeper.

Yes, I mean, Brad, this is Scott. I would say overall, one, it obviously remains very early to try and get a complete read, but I think the things we'd indicate are we're very pleased with the profiles of the people we're bringing on the platform. We are seeing increases in the overall kind of financial health, if you will, of the loans that we are booking with the implementation of the new model. We're also seeing, on a portfolio level, good indicators in terms of total portfolio delinquencies. So that's positive. We do expect that we'll have opportunity for some repricing within the portfolio as we learn more through the course of time.

And our next question comes from Henry Coffey with Wedbush.

I don't want to spend too much time on the FTC situation, and I know you really can't say much. But we've gone through this in both the student loan industry, and we watched the same thing go on in the mortgage industry for years. And it seems that most of these complaints are based on legacy issues. They come in. They look at something that happened 2 or 3 years ago, which in your case is a prior management team, and then ask you to fess up. I did go to your blog, that was very helpful. You obviously are very conscious of how to do the business today. So -- and if you can't respond to this question, I get it. But is this inquiry all about the past? Or is it about the present?

Well, what I would say is it sounds like you saw on the blog post is the majority of the items identified in the complaint are pointing to issues that were self identified by the company as opportunities for improvement and self-remediated prior to any contact with the FTC whatsoever. So the one open item -- ongoing item really relates to the disclosure of the origination fee. And again, where -- we believe that the complaint is really factually unwarranted and that we are in compliance with the requirements there.

And then in terms of looking at the overall business, how small can a CLUB Cert pool be?

We typically have it in the size somewhere in the $25 million to $50 million range, is typically the size that these come in.

And that's as they start as people are...

Yes. They -- typically, we're finding that people want to have a program of this. It's not just a one-off transaction. What you see, Henry, is that we're offering so many different products now for folks that want to buy individual loans on the platform, folks that want to buy securitizations with different credit profiles, folks that want to buy in CLUB Cert form. So there's a whole series of some new things we're doing with block trade. There's a whole host of investors that we are manufacturing and creating structures to meet their needs. And so the CLUB Certs are just one new way for us to reach those investors.

But the buyers are typically pretty large asset managers, so these -- what's Tom talking about, $25 million, $30 million, we would view as kind of that initial purchase as they're coming onto the platform, but we would expect that they would grow in size over time.

And then just the last question. I know with the credit card companies, they have a lot of flexibility around their marketing cost. As the year unfolds, and you look like you're headed to hit your EBITDA numbers, would that be an opportunity to get more aggressive there? Or what would your thoughts be? And then I'll get off.

Yes. It works a little differently for us than with a card company because they're building a portfolio, and an acquisition of a customer essentially is an expense that they're getting the revenue for over time as the consumers build balances. For us, it's more marketing spend leads quite directly to loan origination and revenue in the quarter. So there are certainly opportunities for optimization within quarter, and that's a part of what you saw in Q1, is we are kind of reallocating our mix to different channels, and we'll be more aggressive with testing in the second and third quarters, where we know consumers are more actively in the market, and we'll pull back in the fourth quarter and first quarter correspondingly, and that's what you see more relatively sequentially here in Q1 more modest growth.

The next question is from Mark May with Citi.

I just had one real quick one. I know that you guys are constantly optimizing your promotional messages, probably your onboarding, your applications, et cetera. Just wondering if you've made any changes to any of those things against sort of the applications, the disclosures on the applications, your promotional materials, your website, et cetera, in recent months or weeks, particularly around the fee disclosures.

Yes, I mean, we're always making changes. As of today, we would have something in the neighborhood of 80 or 90 different tests going that would incorporate all aspects of the experience from marketing messaging to product features to user flow. So we're always making changes, but nothing specifically in response to this latest development.

Our next question comes from Heath Terry with Goldman Sachs.

I know you've talked a little bit about sort of the advertising efficiency that you saw in the quarter. I'm wondering if you could sort of disaggregate that for us a little bit more in terms of what you're seeing from whether it's lower unit prices on your advertising, just simply better mix or higher response rates from advertisers. I caught your point before about rates potentially driving that piece higher. And then to what extent that higher or more efficient advertising spend is going to be reinvested into the business in a way where we might be able to expect some degree of growth acceleration as you go -- as you move back towards sort of your target advertising ROI.

So I think as we've said on the call, on our prepared remarks, most of the efficiency you're seeing is more in the line of mix and calibration to the new credit model that we talked about. Those are probably the 2 biggest drivers in -- and that's something that we continue to start to benefit from testing that we did frankly last year and in previous quarters as we saw opportunities to lean into new areas that are lower cost of origination. We clearly want to continue to invest in finding new ways, but at the same time, we are trying to also drive a level of profitability in our business. We're very encouraged with coming into that 2.5-type level of marketing. It seems to be the spot where we should be able to operate. Certain quarters that may go up a little bit, certain quarters may be down as we modulate certain tests, but we feel encouraged about our mix and the efforts we've got going and some of the conversion efforts that Scott was mentioning in product design and the funnel conversion efforts. So all those are really all contributing to all this productivity you're seeing, both in M&S and O&S, frankly. And we really got about half of that margin expansion was because of both those efforts.

Our next question comes from Rob Wildhack with Autonomous Research.

A question on operating expenses more broadly. To what degree should we consider this as sort of new run rate base going forward? Is this a new -- more normalized level? Or is there a possibility that OpEx ticks back up in the coming quarters or next year?

I think we've been talking about our expense base for quite some time as you think about the evolution of this business model. We now have enormous scale that we're relooking at the way we deploy some of those dollars. And so we've kind of think that we can get our margins up, I think, Investor Day, we like to exit the year about 15% of EBITDA margin. We think that is doable with the guidance we've given you, but it is leveraging our infrastructure. And really, it's about not growing as fast as revenue, right? So what you're seeing is our ability to create a wedge between revenue growth of that 20% and operating expenses only at 10%, that will drive a lot of operational leverage and expand our margins. And so we think we have sufficient investments that we can make within that. There'll be quarters where I'm sure we'll have some things we'll talk to you about that we're making investments that are coming through the financials, we'll make sure we call those out for you so you understand them compared to the run rate. But overall, we feel that we should be able to run at a higher margin.

Got it. And then transaction fees as a percentage of originations took a decent step down in the quarter, and I know you'll steer us more towards the total revenue yield, which was up. But I do think it'd be helpful if you can just provide some detail on the transaction fee decrease?

Yes. The transaction fee decrease really is a result of our efforts to remix. With moving more percentage to As and Bs, we obviously earn a lower rate there. That's where we have among some of the most demand in our platform, so we feel very good about that mix. But it does put some pressure on the transaction yield. As you indicated, we more than offset that with the additional revenue we're getting on the structuring -- structured program. So we're encouraged by that. But I don't -- I think that was a big shift in the first quarter. I wouldn't say that trend will necessarily continue at that same pace. We clearly made a change coming out of our Investor Day. You've seen that in the first quarter. I wouldn't expect as significant of a step function in 2Q and the rest of the year. I think we've made a lot of movement into the As, Bs and Cs, and we may see this move around a little bit, but I think most of that is in the numbers at this point.

Our next question comes from Jed Kelly with Oppenheimer.

Banks are up nicely sequentially. Can you kind of dig into some of the drivers behind that? And going forward, is that sort of the right base to look at for bank originations growing? And then, have you seen any changes in the consumer pull-through rate since the FTC lawsuit?

Just on the bank mix, Scott mentioned it in his prepared remarks, we saw an increase from about 36% mix of banks to 48%. That is consistent with what my previous comment was, is that as we increase the percentage of As, Bs and Cs, by its nature, those are sold to banks, so by definition, that should go up. It was also impacted by a bulk trade we made in the first quarter that also increased that percentage. So I think first quarter is a little bit higher than what we would expect on a run rate basis, but reflects those 2 events. The one will continue on as we have higher percentage of As, Bs and Cs, which are typically purchased by them.

And it gives you a good view into the relative flexibility of the platform with the long list of investors that we've got, its ability to kind of absorb changes in the mix like that from quarter-to-quarter. So on the question on customer response, I touched earlier on the fact that on the investor side, we've been very pleased with the response and feedback there. As many on the call know, investors do extensive diligence on LendingClub before they begin to buy and so are familiar with our operations. On the borrower side, we are monitoring very closely. We are not seeing any change in demand for the asset or any kind of increase in complaints.

And then on the, I think you called out, 2.8 million applications in the first quarter. So implying that as a percentage of originations fulfilled, that was in the single digits. Just a big picture question. How do you sort of think about potentially monetizing the traffic that doesn't ultimately turn into origination?

Yes. I would say a very exciting future opportunity for growth. Things like what we touched on today, the ability to look beyond the bureau by using bank transaction data is an example of a way that we can either provide better pricing to people we're already serving or potentially approve people that would've been declined prior to that. So that is part of the future growth opportunity for us. And we'd note, we really -- we're entering the quarter feeling really good about that overall demand we're seeing.

And this concludes our question-and-answer session as well as today's conference. We thank you for attending the presentation, and you may disconnect your lines at this time.