Achieves Record Origination Volume
NEW YORK, May 2, 2016 /PRNewswire/ — OnDeck® (NYSE:ONDK), the leader in online lending for small business, today announced first quarter 2016 financial results highlighted by record originations and strong credit performance. For the three months ended March 31, 2016, OnDeck grew originations 37% year-over-year to $570 million and increased gross revenue and net revenue by 11% and 11% year-over-year, respectively.
“OnDeck’s first quarter 2016 operating performance was solid, highlighted by growth in all of our origination channels, and a sequential decrease in charge-offs during what is usually a seasonally higher charge-off period,” said Noah Breslow, OnDeck’s chief executive officer. “In addition, we reinforced our market leadership through recent milestones including the initial launch of our program with JPMorgan Chase and pricing of our second securitization transaction.”
Mr. Breslow added, “Our hybrid funding model is designed to adapt to changing capital markets conditions and is a point of competitive differentiation. In the first quarter, we utilized this flexibility and decided to sell fewer loans through OnDeck Marketplace. This decision optimized for long-term financial performance but, over the short-term, will lead to lower Gross revenue, higher provision expense, and lower Adjusted EBITDA than we previously planned. We will see greater financial benefits from our decision beginning in 2017.”
- Gross revenue was $62.6 million for the quarter, up 11% from the prior year period.
- Net revenue was $31.5 million for the quarter, up 11% from the prior year period.
- Adjusted EBITDA* was a loss of $7.3 million for the quarter, compared to a loss of $1.8 million in the prior year period.
- Adjusted Net Loss* was $8.8 million for the quarter, compared to a loss of $3.3 million in the prior year period.
- GAAP net loss attributable to OnDeck common stockholders was $12.6 million for the quarter, compared to a net loss of $5.3 million in the prior year period.
Key Business Highlights
- Origination volume increased to a record $570 million for the quarter, reflecting 37% growth over the prior year period.
- Unpaid Principal Balance grew to $652 million, up 20% from the prior year period, and Loans Under Management increased to $982 million, up 45% from the prior year period.
- The successful initial launch of the OnDeck as a Service program with JPMorgan Chase, opening up access to capital for participating Chase small business customers in limited U.S. markets.
- The OnDeck Line of Credit grew to 12% of Unpaid Principal Balance as draw volume increased 29% sequentially.
- OnDeck announced the pricing of its second securitization involving $250 million of new notes, expected to be rated by both S&P and DBRS at the closing scheduled for May 17, 2016, subject to customary closing conditions.
“In the first quarter, we saw rapid growth of our loan book from Q4 levels given our growth in originations and our funding mix choices. At the same time, our operating expenses, net of stock-based compensation, as a percentage of total originations continued declining and was below the level achieved in Q1 2015. Combined, these two trends should drive significant shareholder value over time,” said Howard Katzenberg, OnDeck’s chief financial officer.
Mr. Katzenberg continued, “Importantly, OnDeck’s portfolio continued to perform well, with sequential and year over year improvements in both our 15+ Day Delinquency Ratio and Net Charge-off Rate during the first quarter of 2016. With the recent, successful pricing of our second securitization and the expanded capacity in two of our credit facilities, we are confident in our continued ability to grow our business while driving operating leverage.”
Review of Financial Results for the First Quarter of 2016
Originations grew to $570 million during the first quarter of 2016, up 37% from the comparable prior year period and 2% sequentially. Originations growth over the prior year primarily reflected strength in the company’s Direct and Strategic Partner channels which collectively increased 47% over the prior year period and 3% sequentially.
Gross revenue increased to $62.6 million during the first quarter of 2016, up 11% from the comparable prior year period. The increase in gross revenue was primarily due to growth in outstanding loan balances, leading to higher interest income. The Effective Interest Yield for the first quarter of 2016 was 34.5%, down from 37.6% in the comparable prior year period, reflecting the continued mix shift to lower cost distribution channels, an increase in average term loan length over the period, and OnDeck’s continuing efforts to lower pricing and origination fees for repeat loan customers.
OnDeck sold $123.7 million1 of loans through OnDeck Marketplace, constituting 26% of term loan originations, at a 5.7% Gain on Sale Rate during the first quarter of 2016.
Net revenue increased to $31.5 million during the first quarter of 2016, up 11% from the comparable prior year period. Net revenue margin remained flat at 50.2% during the first quarter of 2016 from 50.1% in the prior year period.
The Cost of Funds Rate during the first quarter of 2016 increased to 5.5% of Average Funding Debt Outstanding, up from 5.2% in the comparable prior year period. The increase reflected higher funding fees and expenses partially offset by lower interest rate facilities.
Provision for loan losses during the first quarter of 2016 increased to $25.4 million, up from $23.1 million in the comparable prior year period. The Provision Rate in the first quarter of 2016 was 5.8% compared to 7.2% in the comparable prior year period. The Provision Rate reflects the high credit quality of new originations and improved delinquency trends.
Operating expenses were $44.6 million during the first quarter of 2016, up 33% over the comparable prior year period as OnDeck increased customer acquisition marketing, continued investing in its “OnDeck as a Service” capabilities, and incurred additional general and administrative expenses related to operating as a public company.
Adjusted EBITDA was a loss of $7.3 million for the quarter, versus a loss of $1.8 million in the comparable prior year period.
Adjusted Net Loss was $8.8 million, or $0.13 per basic and per diluted share, for the quarter versus a loss of $3.3 million, or $0.05 per basic and diluted share, in the comparable prior year period.
OnDeck had GAAP net loss attributable to On Deck Capital, Inc. common stockholders of $12.6 million, or $0.18 per basic and diluted share, for the quarter which compares to GAAP net loss attributable to On Deck Capital, Inc. common stockholders of $5.3 million, or $0.08 per basic and diluted share, in the comparable prior year period.
Guidance for Second Quarter and Full Year 2016
OnDeck provided the following guidance for the three months ending June 30, 2016 and full year ending December 31, 2016.
Second Quarter 2016
- Gross revenue between $67 million and $70 million.
- Adjusted EBITDA between a loss of $16 million and a loss of $18 million. This assumes lower Gain on sale revenue and higher provision costs as UPB growth accelerates.
Full Year 2016
- Gross revenue between $278 million and $288 million, which assumes year-over-year growth in total originations of between 30% to 35% and Marketplace sales between 15% and 25% of term loan originations.
- Adjusted EBITDA between a loss of $41 million and a loss of $49 million. This assumes lower Gain on sale revenue and higher provision costs as UPB growth accelerates.
OnDeck will host a conference call to discuss first quarter 2016 financial results on May 2, 2016 at 5:00 PM ET. Hosting the call will be Noah Breslow, Chief Executive Officer, and Howard Katzenberg, Chief Financial Officer. The conference call can be accessed toll free by dialing (877) 201-0168 for calls within the U.S., or by dialing (647) 788-4901 for international calls. The conference ID is 82200653.
OnDeck (NYSE: ONDK) is the leader in online small business lending. Since 2007, the company has powered Main Street’s growth through advanced lending technology and a constant dedication to customer service. OnDeck’s proprietary credit scoring system – the OnDeck Score® – leverages advanced analytics, enabling OnDeck to make real-time lending decisions and deliver capital to small businesses in as little as 24 hours. OnDeck offers business owners a complete financing solution, including the online lending industry’s widest range of term loans and lines of credit. To date, the company has deployed over $4 billion to more than 50,000 customers in 700 different industries across the United States, Canada and Australia. OnDeck has an A+ rating with the Better Business Bureau and operates the educational small business financing website BusinessLoans.com. For more information, please visit www.ondeck.com.
*About Non-GAAP Financial Measures
This press release and its attachments include Adjusted EBITDA and Adjusted Net Income (Loss), which are financial measures not calculated or presented in accordance with United States generally accepted accounting principles, or GAAP. We believe these non-GAAP measures provide useful supplemental information for period-to-period comparisons of our business and can assist investors and others in understanding and evaluating our operating results. However, these non-GAAP measures should not be considered in isolation or as an alternative to any measures of financial performance calculated and presented in accordance with GAAP. Other companies may calculate these or similarly titled non-GAAP measures differently than we do. See “Non-GAAP Reconciliation” later in this press release for a description of these non-GAAP measures and a reconciliation to the most directly comparable financial measures prepared in accordance with GAAP.
About Credit Ratings
This press release refers to credit ratings. Credit ratings are not facts; they are solely the opinion of the issuing rating agency. They are not recommendations to purchase, sell or hold any securities and can be changed or withdrawn at any time. OnDeck assumes no responsibility for such credit ratings.
Safe Harbor Statement
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other legal authority. Forward-looking statements can be identified by words such as “will,” “enables,” “expects,” “allows,” “continues,” “believes,” “anticipates,” “estimates” or similar expressions. These include statements regarding guidance on total originations growth and Marketplace sales for the full year 2016 and gross revenue, and Adjusted EBITDA for the second quarter and full year 2016. Forward-looking statements are neither historical facts nor assurances of future performance. They are based only on our current beliefs, expectations and assumptions regarding the future of our business, anticipated events and trends, the economy and other future conditions. As such, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and in many cases outside our control. Therefore, you should not rely on any of these forward-looking statements. Our expected results may not be achieved, and actual results may differ materially from our expectations. Factors that could cause or contribute to actual results to differing from our forward-looking statements include risks relating to: our ability to attract potential customers to our platform; the degree to which potential customers apply for, are approved for and actually borrow from us; our future financial performance, including our expectations regarding our revenue, cost of revenue, net profit or net margin, operating expenses, ability to generate cash flow, and ability to achieve, and maintain, future profitability; anticipated trends, growth rates and challenges in our business and in the markets in which we operate; the ability of our customers to repay loans; our continuing efforts to implement certain additional compliance measures related to our funding advisor channel and their potential impact; changes in product distribution channel mix; our ability to anticipate market needs and develop new and enhanced products and services to meet those needs; interest rates and origination fees on loans; maintaining and expanding our customer base; the impact of increased competition in our industry and innovation by our competitors; our anticipated growth and growth strategies, including through the possible introduction of new products and the possible expansion in existing or new international markets, and our ability to effectively manage that growth and our expenses; our ability to sell our products and expand; our reputation and possible adverse publicity about us or our industry; the availability and cost of our funding, including the availability and pricing of possible warehouse financing and securitization and OnDeck Marketplace transactions; our failure to anticipate or adapt to future changes in our industry; our ability to hire and retain necessary qualified employees to expand our operations; the impact of any failure of our solutions; our reliance on our third-party service providers; the evolution of technology affecting our products, services and markets; our compliance with applicable local, state and federal laws, rules and regulations and their application and interpretation, whether existing, modified or new; our ability to adequately protect our intellectual property; the effect of litigation or other disputes to which we are or may be a party; the increased expenses and administrative workload associated with being a public company; failure to maintain an effective system of internal controls necessary to accurately report our financial results and prevent fraud; our liquidity and working capital requirements; the estimates and estimate methodologies used in preparing our consolidated financial statements; the future trading prices of our common stock, the impact of securities analysts’ reports and shares eligible for future sale on these prices; and our ability to prevent or discover security breaks, disruption in service and comparable events that could compromise the personal and confidential information held in our data systems, reduce the attractiveness of the platform or adversely impact our ability to service the loans; and other risks, including those described in our Annual Report on Form 10-K for the year ended December 31, 2015 and in other documents that we file with the Securities and Exchange Commission from time to time which are or will be available on the Commission’s website at www.sec.gov. Except as required by law, we undertake no duty to update the information in this press release.
Kathryn Harmon Miller
OnDeck, the OnDeck logo, OnDeck Score and OnDeck Marketplace are trademarks of On Deck Capital, Inc.