Good morning and welcome to LendingClub's Fourth Quarter of 2015 Earnings Conference Call. All participants will be in 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, Head of Investor Relations. Please go ahead.

Thank you, and good afternoon. Welcome to LendingClub's fourth 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 reflect 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, and our Investor Relations website and our Form 10-K filed with the SEC on February 27, 2015 and our Form 10-Q filed on November 3, 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 new information of our future events. During this call, we will present both GAAP and non-GAAP financial 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 ir.lendingclub.com. Unless specifically stated, all references to this quarter relate to the fourth quarter of 2015 and all year-over-year comments are comparisons to the fourth quarter in the prior year. And now I'd like to turn the call over to Renaud.

Good morning. We had an amazing company performance in 2015. We continue to deliver on our mission to profoundly transform the banking system and make credit more affordable and investing more rewarding. We reached 1.4 million customers, have continued to deliver record level of customer satisfaction, paid consumers hundreds of millions of dollars in the cost of credit and generated an average 7.8% net return to platform investors. We enabled $8.4 billion in loans, doubled revenue and tripled our EBITDA. I’d like to thank all of our employees, customers, investors and partners, for making 2015 such a magic bond year. We are now looking ahead at 2016 with much confidence in terms of our ability to continue to grow at a rapid pace while maintaining high credit standards, investor returns, profitability, customer satisfaction and operational discipline. We believe the market for personal loans will continue to grow rapidly as more consumers discover the benefits of installment loans as well as a way to refinance the credit card balance or avoid charging their credit card altogether. A survey from Bankrate.com [deBanked] found that an estimated 24 million Americans or 10% of the adult U.S. population expect to take a personal loan in the next 12 months. In addition as previously announced, we will be entering into a new major consumer credit category in the first half of this year. Carrie will be discussing the results of the fourth quarter and the details of our efforts, but today I’d like to spend the rest of my time discussing the breadth and depth of our investor base, looking at our credit performance and highlighting some of the marketplace dynamics that continue to play in our favor and we believe would become even more of a competitive advantage in changing economic conditions. I will…

Thanks, Renaud. This has been a phenomenal year for Lending Club and given our continued business momentum, consistency and resiliency of our business model, it gives us confidence in our 2016 outlook for rapid and responsible growth along with continued margin expansion. I’d like to start today by walking you through our fourth quarter results. Following up on Renaud’s downturn scenario comments, I would then like to give you our thoughts on how we would expect our financial model to perform in an economic downturn. I will then wrap up our 2016 first quarter and full year guidance before opening up the call for questions. As a reminder, all year-over-year comments are comparisons to the fourth quarter and the prior year. Before reviewing our fourth quarter results, I wanted to highlight that we made a few adjustments between our operating expense lines. During the quarter we reviewed and refined the definitions we used to classify expenses. Our objective was to ensure that the expenses in our contribution margin directly relate to current revenue generation. As a result, some expenses were moved up into the contribution margin expense lines, while others were moved down into technology or G&A. The net change of these movements lowered our contribution margin expenses by roughly $1.8 million in the fourth quarter of 2015, which increased our contribution margin by 1.4 percentage points. To help facilitate comparability to prior quarters, we re-casted our prior period financials to reflect these expense adjustments. It is important to note that this recasting did not change or impact revenue, total expenses, adjusted EBITDA or our GAAP results. Page 41 in our earnings deck summarizes the impact within each expense lines over the last eight quarters. In addition, as a one-time accommodation, we have posted an excel file on our IR…

We will now begin the question-and-answer session [Operator Instructions]. Our first question comes from Vasu Govil with Morgan Stanley. Please go ahead.

I guess I'll start out with guidance. It appears that you guys are continuing to see pretty healthy growth despite increasing fears about a potential downturn. At this point are you baking in any conservatism in your view based on potential for economic stress or is it more of a business as usual approach?

We’re obviously watching the environment with I think as much question as of investors out there. We’re not currently seeing any sign of devaluation either in credit quality or in consumer demand for credit, or in investors' appetite for credit investments. What we have done is essentially raised yield on the platform quite a bit over the last couple of months with two interest rate hikes of 25 basis points and then another 32 basis points on average. That really gives investors additional loss coverage in case the economy does start slowing down later this year. So, with that in mind we are essentially confident to raise our guidance from where we were just a few months ago and continue to have a high level of confidence in our ability to deliver that growth.

And just a quick follow-up. There has been some recent press articles floating around that suggest that Lending Club may be open to securitizing its own loans for the first time. Just want to track if there is appetite to do that? And if there is, what sort of balance sheet risk would that expose you guys to?

We’re very attached to the market based model. We think it is a superior model than any other models. We have no intention as a matter of business model to start up investing our balance sheet and then take balance sheet risk in our loans. As we said in the past, we kind of always use our balance sheet on a temporary basis for test programs, but this will always be very small. So again no change in the business model. I think what’s going to continue to happen is some of our investors on the platform can turn around and refinance themselves on the securitization method and we want to support them and do what’s right for them.

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

Renaud on the call today you talked about a change in the investor mix and potentially more of a shift to retail investors that may be potentially a little bit sticky here in a softening economy. Can you talk about the marketing programs you have in place there? And then as a follow-up, as the VC funding environment assumingly sort of drying up, can you maybe talk about some more of the rational issues you’re seeing in the marketing channels and have some of your competitors started to kind of pull back in some of that rational spend? Thanks.

We continue to like the retail base. We started as a pure retail platform. I think over time we got into a rate of healthy mix of institutional and individual capital. So as the churn level, they -- so in the last quarter if you look at the standard program we had 45% of the funding coming from individual investors investing in managed account or fund and then another 17% investing on a [subjective] basis. So essentially the very vast majority, so 62% of the funding already comes from individual investors and we want to preserve and then potentially grow that share of retail investors. So make sure we are allocating more resources to that side of the marketplace and ramping up not just marketing programs but also product development and those management resources so we’re growing the retail theme factor than we had in previous years. So you’re going to see more focus on retail coming from us this year. And by the way, leading to your second question around competition, we really think that retail is a core competency and a core competitive advantage of Lending Club and pretty much no other platform has any scale in retail distribution. So we think that’s going to be a nice differentiator, particularly if and when the economy starts slowing down, because to your point we believe retail is more sticky than any other source of capital. But the competitive environment in general, I think you’re absolutely right to point out that I think venture capital investments in general and particularly in [syntax] has reached its peak last year and so we anticipate it's going to continue to slow down this year. So presumably providing less capital to smaller players and we expect as a result to start seeing the less competition from the smaller platforms. That being said we said last year that we didn’t see much of an impact from the increased competition. So in parallel we are not anticipating a huge boost from a lower spend from the smaller platforms, but still are going to be marginally helpful.

Next question comes from Stephen Ju with Credit Suisse. Please go ahead.

So Renaud your SMB focus business is still relatively nascent versus your consumer business, so can you give us your perspective on the similarities and differences there in terms of the data you can collect? How you’re scoring works differently? How many SMBs you have cumulatively reached and how many you think can be addressable? And Carrie I think this is consistent with your prior quarter disclosure and your contribution margin for the core consumer lending product is now above 50% and your newer categories are below that. So what needs to happen I guess from a product perspective with the other categories to someday approach the levels of consumer? Thanks.

So we are very happy with the fourth quarter in small business. As I mentioned earlier we just launched a new line of credit products that have got some instant traction and so we don’t track for that in November, by December that was already 20% of our origination volume due to small businesses. And it's a great product. It's a very low cost and convenient access to capital for small business owners with temporary cash flow needs. So you asked about differences and similarities with consumers. Maybe a lot of similarities in terms of the process we have in place, in terms of the marketing, the acquisition funnel, in terms of the sources of capital to fund these loans. Now there are lot of differences in terms of specific marketing channels that work with small business owners and also a lot of differences in the data available to us. The data used on the consumer side is really mostly credits that are enhanced with financial and a bit of transactional data and some macro data. With small business we have little bit more freedom in terms of being more innovative in terms of data sources, because I think there was less of a privacy concern from small business owners. I think they’re more willing more to share information about the business than an consumer would be willing to share about themselves and there is more data available on line that can be used to underwrite businesses. So we are using these additional data sources to the full expense. But just back to the small business compared to consumers I think the big news in the quarter was that the small business platform was the largest growing, the fastest growing segment of the portfolio. And that doesn’t have the same level of efficiency as consumer side yet but it's also a matter of scale. I think it's just not as mature, not as predictable and not as efficient as the consumer business, but that has been up and running for eight years. We only launched small business 18 months ago.

Yes, just to add to Renaud’s comments Stephen is that, I would also say in addition to the efficiency. I mean we are still testing new channels and really investing in building the businesses, and that will continue to keep those margins a lot sufficient over time. And as we continue to grow beyond what we’re doing today over the next couple of years, the efficiencies will just come based on the track record and the diversity of how we acquire new borrowers.

The next question is from Heath Terry with Goldman Sachs. Please go ahead.

The guidance for Q1 obviously implies some acceleration and given how far we already are in the quarter I would assume it’s largely because of what you’re seeing in the market. Can we get us a sense of to the extent that you are seeing acceleration? How much of that do you feel like is coming from share gains that are the result of your improving competitive position or some of your competitors being in a relatively weaker position given some of the changes in the market, versus an overall acceleration for demand as the space becomes more mature or consumers start to focus a little bit more on what they’re actually paying for credit?

I think we continue to see interest on -- but a lot of appetite both sides. I think with the awareness coming up on the consumer side and even the general level of interest rates coming up you see more need for refinancing and you see more consumers being aware of personal loans as an alternative to credit card. And there is this bank rate survey out there showing that 10% of U.S. adult population was considering taking a personal loan sometime in the next 12 months. So that's a very big increase in terms of awareness and likely able to transact compared to previous years, so a lot of tailwind on the consumer side. And on the investor side I think the markets are turbulent and so we see sometimes divergence of behavior from different buckets of capital but that’s where the diversification of funding sources really shows the power of the model. And in any type of environment, any type of interest rates or economic environment, we can increase the focus or decrease the focus on different sources of capital whether it's retail, or institutional. And within institutional there are very different behavior from asset managers, pension funds and insurance companies, but have different risk appetite and different investment objectives. So I think what you’re seeing reflected in our confidence is again the diversity and the breadth of the platform participants on both sides, borrowers and investors.

The next question comes from Josh Beck with Pacific Crest. Please go ahead.

I had a regulatory question for Renaud. It sounds like the operational and contractual changes that you’re putting in place with your issuing bank partners, is under the assumption that the current Madden decision is upheld and does not go to the Supreme Court where it maybe get overturned. Are those changes already in place and do you foresee any other changes in who you use as your primary issuing bank partner?

No. We do not foresee any other change and you are right, changes are being made now as we speak and will be completed by the end of this quarter. I wouldn’t put too much focus on this particular change. I think the main message regarding Madden is we strongly believe that we’re in a very different position than the parties were in that case and particularly our cash flow situation is very different. The changes we’re making really are made as of -- being made as in the balance of caution and desire to be prudent. But if you look at what’s happening on the platform we aren’t seeing as of any change in the volume of origination coming from or going into Connecticut, New York and Vermont, or any change in the mix of institutional and individual investors, investing in these loans. So really no change from that standpoint.

And when you think about any changes that would maybe prompt you to move to a series of state licenses, how are you thinking about that and is that a possibility of that at some point?

I think that’s a possibility, but it's an unlikely possibility. So certainly we have a large number of state licenses. We started operating under state licenses when we launched in 2007, that’s the way we operated. And what we found is that a bank issuance network, a bank issuance framework is more efficient, it's more cost efficient, it's a better experience for consumers who all get the same terms irrespective of their state of residence. I think it's more fair from that standpoint. And it's also a framework that provides more oversight because then you have a [majority] of regulated entities, so essentially providing -- receiving from in the case of Fed Bank from the FDIC and then providing a lot of oversight into the program. So we think it's better for consumers, it's a safer model and it's a more efficient model.

And Carrie I had a question for you on the sales and marketing efficiency. I know there is little bit of a reclassification in the last two quarters that healthcare, SMB and education was basically 12 basis points to 15 basis points headwind on a year-over-year basis. Restated does that change much and is there any further color you can give us on the Q4 impact from those channels?

So, previous comments around the mix between personal loans and the other business that I’ve shared hasn’t changed. This quarter the driver year-over-year and quarter-over-quarter was all due to personal loans, both education and patient finance and small business were relatively flat, relatively stable.

Our next question comes from Bob Ramsay with FBR. Please go ahead.

I just wanted to touch on, you mentioned that the increase in rates in January provided investors with a higher degree of loss coverage, whether you guys are not seeing any signs of higher delinquencies or softness anywhere in the book. I am just curious what prompted that change?

So I think environment, the global environment has changed quite a bit over the last just 40 days. There are more concerns about the global growth in the economy and hence concerns about how it's going to impact the U.S. economy. I think we don’t pretend to know more than anybody else as to where we’re going. But I think in times of uncertainty it pays to be prudent and that’s why we have acted. Essentially we represented a need for a rate increase and provided that additional loss coverage to investors and rates are very dynamic on the platform. So depending on how the economy evolves and we’re watching for any sign of potential slow down very carefully, both in terms of the economy in general but also in terms of our own portfolio. And if we see any other sign of degradation -- any sign of degradation we will act on it by raising interest rates and vice versa, if the economic outlook improves we might take interest rates down again. It's a very dynamic process. I think it's really a benefit of the market based model to be able to discover pricing equilibrium in a very nimble and quick way and adjust quickly. So we’re planning to take advantage of that and continue to be -- to continue to adjust rates on the platform as the environment continues to change and as we gain more visibility going into the future.

And I am curious did the change come following discussions with some of your larger institutional buyers of your loans or did it reflect any shifts you’ve seen in demand to invest in the loan product, or is this something that was more initiated purely from your zone?

Every interest rate decision is informed by what we see on the platform and that’s what I mean by the online marketplace and the discovery process. There is now other volume going through the platform where billions of dollars of capital changing hands on any given quarter. And we have a large number of touch points and we have some discussions and traditional investors. As I said it's a market, our investors -- many investors have different views in this market. So, there was no need to increase interest rates as a matter of driving the capital inflows. But there are definitely investors on the platform and in general in the market who have more bearish views on the economy and we incorporate that includes into our own views and again decided to be prudent.

Then just last question on this subject, in terms of rate sensitivity on the part of the borrowers from -- in the categories where you did change rates. Have you seen any real change in the demand for the product or have you seen other competitors in the place make other adjustments in rates as well?

So I think in general our customers are fairly rate sensitive. The rate increase was concentrated in the higher risk grades that are the least price sensitive. If you look at the areas of A, B, and C grade, higher credit quality, very price sensitive customers who’ve a lot of options, no particular need for additional credit and are making decisions, very rational decisions of optimizing the cost of their credit. As you move to down the grade there is less price sensitivity but also greater variability in different economic environment. So that’s what also led us to concentrate the rate increase in that segment.

Shifting gears, so just wanted to touch base on the buyback. I mean I think that obviously shows how undervalued, yes?

We’re going to have to shift to the next caller's question, sorry about that.

Our next question comes from Michael Graham with Canaccord. Please go ahead.

Just want to ask a couple of questions about your different products. First of all on the education and patient products. Is there any significant overlap there with your credit card consolidators? I am wondering, also if you could comment on repeat borrowing in the quarter and any trends you’re seeing there? And then just lastly quickly, do you have any update on sort of you just got a big new product coming later this year. Is your goal to become a broad based platform for consumers' financial needs, or is it more modest than that? Thanks.

The stated goal is quite ambitious and we believe we can profoundly transform the way consumers access credit, and the value we deliver to consumers and make credits in general more affordable. But also on the other side make investing more evolving and we can achieve both goals by operating efficiency at a low cost and delivering passing on the cost savings to both sides of borrowers and investors. And so more specifically in terms of consumer credit products, our goal is eventually to cover the entire range of credit products including the auto mortgages, student loans. So essentially it’d be helpful to our customers at every stage of their life when credits can be useful to them. So we said previously and then just confirmed on this call that we are now gearing up for a major consumer credit product launch in the first half of this year. And so that would be really the first of major expansion to our product suite but it's not going to be the last. The plan is really to cover all credit needs of a bank.

This concludes our question-and-answer session. The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.