Achieved Record $5 Million of GAAP Net Income in Fourth Quarter
Delivered Key Credit, Originations and Margin Improvements
Expects Double Digit Loan Growth and Increased Profit in 2018
NEW YORK, Feb. 13, 2018 /PRNewswire/ — OnDeck® (NYSE: ONDK), the leader in online lending for small business, today announced fourth quarter and full year 2017 financial results, including fourth quarter GAAP net income of $5 million and its expectation for continued margin improvement and profit growth in 2018.
“2017 was a transformative year for OnDeck, marked by our strategic decision to strengthen our financial profile and accelerate our path to profitability,” said Noah Breslow, OnDeck’s chief executive officer. “In the fourth quarter, we delivered on this objective, achieving over $5 million of GAAP profit, $41 million better than 2016’s fourth quarter results. In addition to this significant profit growth, we grew origination volume, controlled expenses and increased our Effective Interest Yield to its highest levels since 2015. Credit performance continued improving in the fourth quarter while our Provision Rate, 15+ Day Delinquency Ratio and Net Charge-Off Rate all achieved their lowest quarterly levels of 2017.”
Breslow added, “Looking ahead to 2018, we expect to drive double digit loan growth due to our strong customer demand, disciplined risk management and focus on scaling responsibly. With improved credit performance and loan yields, our realigned cost structure and a secure funding base, we are well-positioned to build on our success and continue margin expansion.”
Review of Financial Results for the Fourth Quarter of 2017
Originations were $546 million, up 3% from the prior quarter. Credit quality of new originations, as measured by both OnDeck Score® and personal credit scores, achieved record levels.
Gross revenue increased to $87.7 million, up 7% year-over-year driven primarily by higher interest income. Effective Interest Yield was 35.6%, up from 33.2% in the prior year period, reflecting increases in average loan pricing and credit improvements.
Gain on sale was $0.6 million. Loans sold or designated as held for sale through OnDeck Marketplace® represented 3.9% of term loan originations. Other Revenue was $3.5 million, up from $3.4 million in the prior quarter, primarily reflecting increased revenues from the company’s OnDeck-as-a-Service (ODaaS) business, offset by a $0.7 millionreduction in the fair value of the Company’s loan servicing asset.
Net revenue was $42.1 million, up 159% versus the prior year period, driven primarily by higher gross revenue and lower provision expense.
Provision for loan losses was $34.4 million and the Provision Rate was 6.4%. The Provision Rate improved sequentially from 7.5% largely due to stable credit and continued collections improvements, as well as the additional provision in the third quarter from Hurricanes Harvey and Irma.
The fourth quarter 15+ Day Delinquency Ratio was 6.7% and the average term loan age in OnDeck’s portfolio was 4.2 months. The Net Charge-off rate in the fourth quarter was 12.9%, down from 16.9% in the third quarter of 2017.
The Cost of Funds Rate was 6.5%. Additionally in the fourth quarter an investment advisor subsidiary of BlackRock joined OnDeck’s platform of financing partners.
Operating expense was $37.7 million. Operating expense as a percent of revenue improved to 42.9% in the quarter, down from 64.1% in the prior year period. Operating expense continued to benefit from the company’s cost rationalization plan implemented in 2017. Subsequent to quarter-end, the company terminated a portion of its New York headquarters lease. This transaction, after giving effect to an associated $3.2 million charge to be recorded in the first quarter of 2018, is expected to result in approximately $2 million of annual savings through 2026, when the lease would have expired. The company continues to actively explore additional opportunities to reduce its real estate footprint.
GAAP Net income attributable to On Deck Capital, Inc. common stockholders was $5.1 million, or $0.07 per basic and diluted share, for the quarter, which compares to GAAP net loss of $35.9 million, or a loss of $0.50 per basic and diluted share, in the prior year period.
Adjusted Net income* was $8.1 million, or $0.11 per basic and $0.10 per diluted share, for the quarter, compared to negative $31.4 million, or a loss of $0.44 per basic and diluted share, in the prior year period.
Adjusted EBITDA* was $9.7 million for the quarter.
Unpaid Principal Balance was $936 million at the end of the fourth quarter of 2017, 0.5% lower than the end of the third quarter of 2017. The company expects Unpaid Principal Balance to grow again in the first quarter of 2018.
Total Funding Debt at the end of the fourth quarter of 2017 was $684 million, down 2.7% sequentially, primarily reflecting the changes in Unpaid Principal Balance.
Cash and cash equivalents were $71.4 million at the end of the quarter.
The Tax Cut and Jobs Act of 2017 had no impact on fourth quarter earnings.
Guidance for Full Year and First Quarter 2018
OnDeck provided the following guidance for the full year ending December 31, 2018 and three months ending March 31, 2018.
Full Year 2018
- Gross revenue between $370 million and $382 million.
- GAAP Net income (loss) attributable to OnDeck between $(2) million and $10 million.
- Adjusted Net income between $16 million and $28 million.
This outlook assumes unpaid principal balance growth between 10% and 15%, a full year provision rate between 6% and 7%, noteworthy real estate disposition and debt extinguishment costs between $4 million and $5 million, and an additional approximately $5 million investment compared to the annualized Technology and Analytics operating expense of the fourth quarter 2017.
First Quarter 2018
- Gross revenue between $86 million and $90 million.
- GAAP Net income (loss) attributable to OnDeck between $(5.5) million and $(1.5) million.
- Adjusted Net income between $1 million and $5 million.
This outlook assumes between 5% and 10% sequential originations growth and approximately $43 million of operating expense which includes the $3.2 million charge for the partial termination of our New York office lease.
OnDeck also noted that it may be able to make additional dispositions of portions of its office space during 2018, which would produce multi-year savings but would likely require cash or non-cash charges or both in the quarter the transaction(s) are booked. OnDeck’s first quarter and full year 2018 guidance includes the $3.2 million charge related to the partial termination of our New York office lease. Any future real estate disposition charges are not included. Refer to the Non-GAAP Guidance Reconciliation section below for a reconciliation of Adjusted Net Income guidance to GAAP Net income guidance.
OnDeck will host a conference call to discuss fourth quarter 2017 financial results on February 13, 2018 at 8:00 AM 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 (833) 227-5836 for calls within the U.S., or by dialing (647) 689-4063 for international calls. The Conference ID is 5468078. A live webcast of the call will also be available at https://investors.ondeck.com under the Press & Events menu.
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 $8 billion to more than 80,000 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, historical and projected Adjusted Net income (loss), Pre-Provision Operating Income and Pre-Provision Operating Yield. All of these are financial measures not calculated or presented in accordance with United States generally accepted accounting principles, or GAAP, because they all exclude items required to be included in the most directly comparable measure calculated and presented in accordance with 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” and “Non-GAAP Guidance 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.
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,” “targets,” “expects,” “intends, “may,” “allows,” “continues,” “believes,” “anticipates,” “estimates” or similar expressions. These include statements regarding guidance on gross revenue, GAAP Net income (loss) and Adjusted Net income for the first quarter and full year 2018, expected growth in Unpaid Principal Balance and originations, increased profits in 2018, the Provision Rate, incremental Technology and Analytics investment and the amount and timing of possible additional real estate dispositions and debt extinguishment costs. 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. Important 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 and broaden our distribution capabilities and offerings; the degree to which potential customers apply for loans are approved and borrow from us; anticipated trends, growth rates, loan originations, volume of loans sold and challenges in our business and in the markets in which we operate; the ability of our customers to repay loans and our ability to accurately assess creditworthiness; our ability to adequately reserve for loan losses; the impact of our decision to tighten our credit policies; our liquidity and working capital requirements, including the availability and pricing of new debt facilities, extensions and increases to existing debt facilities, increases in our corporate line of credit, securitizations and OnDeck Marketplace sales to fund our existing operations and planned growth, including the consequences of having inadequate resources to fund additional loans or draws on lines of credit; our ability to hire and retain necessary qualified employees, particularly following our workforce reductions announced in February and May 2017; our reliance on our third-party service providers and the effect on our business of originating loans without third-party funding sources; the impact of increased utilization of cash or incurred debt to fund originations; the effect on our business of utilizing cash for voluntary loan purchases from third parties; the effect on our business of the current credit environment and increases in interest rate benchmarks; our continuing compliance measures related to our funding advisor channel and their impact; changes in our product distribution channel mix and/or funding mix; our ability to anticipate market needs and develop new and enhanced offerings to meet those needs; the impact of increases in interest rates and origination fees we charge on loans; maintaining and expanding our customer base; the impact of competition in our industry and innovation by our competitors; our anticipated and unanticipated growth and growth strategies, including the possible introduction of new types of loans and possible expansion in existing or new international markets, and our ability to effectively manage that growth; our reputation and possible adverse publicity about us or our industry; the availability and cost of our funding, including challenges faced by the expiration of existing debt facilities; locating funding sources for new types of loans that are ineligible for funding under our existing credit or securitization facilities and the possibility of reducing originations of these loan types; our expected utilization of OnDeck Marketplace transactions and the available OnDeck Marketplace premiums; our failure to anticipate or adapt to future changes in our industry; the lack of customer acceptance or failure of our loans; the impact and effect of the Tax Cuts and Jobs Act of 2017 and any related Treasury regulations, rules or interpretations, if and when issued; our ability to offer loans to our small business customers that have terms that are competitive with alternative sources of capital; our ability to issue new loans to existing customers that seek additional capital; the evolution of technology affecting our offerings and our markets; our compliance with applicable local, state and federal and non-U.S. 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; 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; 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 our platform or adversely impact our ability to service our loans; and other risks, including those described in our Annual Report on Form 10-K for the year ended December 31, 2016, our Quarterly Reports on Form 10-Q for the quarters ended June 30 and September 30, 2017 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.