OnDeck Reports Second Quarter 2016 Financial Results

Achieves Record Loans Under Management, Originations and Gross Revenue

NEW YORK, Aug. 8, 2016 /PRNewswire/ — OnDeck® (NYSE:ONDK), the leader in online lending for small business, today announced second quarter 2016 financial results highlighted by strong credit performance and record levels of Loans Under Management, Originations and gross revenue. For the three months ended June 30, 2016, OnDeck increased Loans Under Management by 47% year-over-year to $1 billion, grew Originations 41% to $590 million, and increased gross revenue by 10% to $69.5 million.

“Our leadership position and diversified funding model enabled us to produce solid results this quarter,” said Noah Breslow, OnDeck’s chief executive officer. “Although financial comparisons continue to be affected by our planned reduction in Marketplace sales and its resulting accounting impacts, we believe that retaining a greater percentage of loans on our balance sheet is the right decision for the long-term economics of the business. To that end, our Unpaid Principal Balance grew 57% year-over-year, which will drive future gross revenue.”

Mr. Breslow continued, “In addition, we are encouraged by credit performance trends across OnDeck’s portfolio, which continued to be strong, demonstrated by both sequential and year-over-year improvements in our 15+ Day Delinquency Ratio. We will continue to prioritize responsible growth of Loans Under Management as we progress through the remainder of the year.”

Financial Highlights

Gross revenue was $69.5 million for the quarter, up 10% from the prior year period.
Net revenue was $28.9 million for the quarter, down 33% from the prior year period.
GAAP net loss attributable to OnDeck common stockholders was $17.9 million for the quarter, compared to net income of $5.0 million in the prior year period.
Adjusted EBITDA* was a loss of $12.4 million for the quarter, compared to positive $8.7 million in the prior year period.
Adjusted Net Loss* was $14.0 million for the quarter, compared to Adjusted Net Income* of $7.3 million in the prior year period.

Key Business Highlights

Origination volume increased to a record $590 million for the quarter, reflecting 41% growth over the prior year. Lifetime Originations also reached a new milestone of over $5 billion during the second quarter.
Loans Under Management reached $1 billion, up 47% from the prior year period.
Unpaid Principal Balance grew to $790 million, up 57% from the prior year period.

“Overall, OnDeck’s performance during the second quarter demonstrated our ability to grow our business responsibly while improving operating efficiencies. Our loan book grew at a healthy pace while our Adjusted Expense Ratio also declined,” said Howard Katzenberg, OnDeck’s chief financial officer. “We remain confident in the strong financial foundation we’ve built at OnDeck, which is powered by our sophisticated OnDeck Score, proprietary small business database, and diversified funding model. We believe these competitive advantages uniquely position OnDeck to build shareholder value over time.”

Review of Financial Results for the Second Quarter of 2016
Loans Under Management increased to $1 billion, up 47% from the comparable prior year period, driven primarily by 41% growth in originations. Originations were $590 million during the second quarter of 2016 and reflected strength in the company’s Direct and Strategic Partner channels, which collectively increased 45% over the prior year period.

Gross revenue increased to $69.5 million during the second quarter of 2016, up 10% from the comparable prior year period. The increase in gross revenue was primarily driven by higher interest income, partially offset by lower gain on sale revenue. Interest income increased to $63.9 million during the quarter, up 27%, and primarily reflected the growth of average loans, which increased 37%. The Effective Interest Yield for the second quarter of 2016 was 33.3%, down from 35.9% 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 lower pricing and origination fees for repeat loan customers.

Gain on sale was $2.8 million during the second quarter of 2016, down 76% from the comparable prior year period. The decline in gain on sale primarily reflected a lower Gain on Sale Rate during the quarter and the reduction of loans sold through OnDeck Marketplace. OnDeck sold $79.3 million1 of loans sold through OnDeck Marketplace at a 3.5% Gain on Sale Rate during the second quarter of 2016, compared to $149.7 million of loans through Marketplace at a 7.8% Gain on Sale rate in the second quarter of 2015. Loans sold or designated as held for sale through OnDeck Marketplace represented 15.6% of term loan originations in the second quarter of 2016 compared to 32.8% of term loan originations in the comparable prior year period.

Net revenue was $28.9 million during the second quarter of 2016, down 33% from the comparable prior year period. The decline in net revenue primarily reflected the reduction of Marketplace sales in the second quarter, which led to lower gain on sale revenue, higher provision expense and higher funding costs for the period. Net revenue margin decreased to 41.5% during the second quarter of 2016 from 67.9% in the prior year period, reflecting the decline in net revenue.

Provision for loan losses during the second quarter of 2016 increased to $32.3 million, up from $15.5 million in the comparable prior year period. The increase in provision expense primarily reflected the 74% increase in originations of loans designated as held for investment in connection with the planned reduction of Marketplace sales during the second quarter of 2016. The Provision Rate in the second quarter of 2016 was 6.3% compared to 5.3% in the comparable prior year period. The prior period’s Provision Rate benefited from a release of loan loss reserves related to the sale of loans that had previously been designated as loans held for investment. Overall, credit performance in the second quarter of 2016 was strong, with the 15+ Day Delinquency Ratio decreasing to 5.3% from 8.0% in the prior year period and from 5.7% sequentially.

The Cost of Funds Rate during the second quarter of 2016 increased to 6.7% of Average Funding Debt Outstanding, up from 5.2% in the comparable prior year period. The increase primarily reflected the acceleration of $1.6 million of deferred debt issuance costs due to the early voluntary prepayment in full of our prior securitization issuance.

Operating expenses were $47.5 million during the second quarter of 2016, up 24% over the comparable prior year period as OnDeck continued investing in our technology and analytics capabilities and incurred expenses related to supporting OnDeck’s overall growth.

OnDeck had GAAP net loss attributable to On Deck Capital, Inc. common stockholders of $17.9 million, or $0.25 per basic and diluted share, for the quarter which compares to GAAP net income attributable to On Deck Capital, Inc. common stockholders of $5.0 million, or $0.07 per basic and diluted share, in the comparable prior year period.

Adjusted EBITDA was a loss of $12.4 million for the quarter, versus positive $8.7 million in the comparable prior year period.

Adjusted Net Loss was $14.0 million, or $0.20 per basic and per diluted share for the quarter versus income of $7.3 million, or $0.11 per basic share and $0.10 per diluted share, in the comparable prior year period.

Unpaid Principal Balance, or “UPB”, was $790 million at the end of the second quarter, up 57% over the prior year period. The increase primarily reflected OnDeck’s decision to retain more loans on balance sheet in connection with reducing Marketplace loan sales in the quarter.

Total Funding Debt at the end of the second quarter of 2016 was $554 million, up 52% over the prior year period. The increase in total funding debt reflected the growth of Unpaid Principal Balance during the period. OnDeck continues to actively explore opportunities to further strengthen its financial flexibility, including upsizing existing debt facilities, adding new debt facilities, entering into additional securitizations, increasing Marketplace sales, and increasing its corporate line of credit. While no assurance can be given, OnDeck expects that it will continue to be able to obtain sufficient financing to maintain its current level and planned growth of originations.

At the end of the second quarter of 2016, cash and cash equivalents were $78 million, down from $160 million at December 31, 2015. The decrease in cash and cash equivalents primarily reflected the company’s increased funding of loans on balance sheet.

Guidance for Third Quarter and Full Year 2016
OnDeck provided the following guidance for the three months ending September 30, 2016 and full year ending December 31, 2016.

Third Quarter 2016

Gross revenue between $73 million and $76 million.
Adjusted EBITDA between a loss of $9 million and a loss of $11 million.

Full Year 2016

Gross revenue between $280 million and $290 million.
Adjusted EBITDA between a loss of $35 million and a loss of $43 million.

We have not reconciled our Adjusted EBITDA outlook for the third quarter and full year 2016 to a net income (loss) outlook because we do not provide guidance for stock-based compensation, which is a necessary reconciling item between those non-GAAP and GAAP measures. Because of the significant volatility in our operating model (timing of equity grants, hiring of new employees, employee turnover and revisions to forfeiture rates), we are unable to forecast future stock-based compensation grants under our option and restricted stock unit plan with any reasonable accuracy. The value of compensation expense under our Employee Stock Purchase Plan, which are elements of our total ongoing share-based compensation expenses, are determined using a complex formula that incorporates factors, such as market volatility and forfeiture rates, that are beyond our control. Because of this variability, we cannot reasonably estimate future stock-based compensation expense, and we expect the variability of the above charges to have a significant, and potentially unpredictable, impact on our future U.S. GAAP financial results.

Conference Call
OnDeck will host a conference call to discuss second quarter 2016 financial results on August 8, 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 43189502.

About OnDeck
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 $5 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, Adjusted Net Income (Loss), Net Interest Margin After Losses, Adjusted Expense Ratio and Adjusted Operating Yield which exclude stock-based compensation and 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.

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 gross revenue and Adjusted EBITDA for the third 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; our liquidity and working capital requirements, including the availability and pricing of debt facilities, securitizations and Marketplace sales to fund our existing operations and planned growth, and the consequences of mismatches in the timing or amounts of resources available to fund additional loans or draws on lines of credit; the effect on our business of originating loans without third-party funding sources; the impact of increased utilization of cash to fund originations; and the effect on our business of utilizing cash for voluntary loan purchases from third parties; 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; 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.

Investor Contact:
Kathryn Harmon Miller
646.558.7860
kmiller@ondeck.com

Media Contact:
Miranda Eifler
917.677.7112
meifler@ondeck.com

OnDeck, the OnDeck logo, OnDeck Score and OnDeck Marketplace are trademarks of On Deck Capital, Inc.