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OnDeck Reports First Quarter 2016 Financial Results

NEW YORK, May 2, 2016 /PRNewswire/ -- OnDeck® ONDK, -3.82% 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."

Financial Highlights

  • 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 million [1] 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.

Conference Call 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. A live webcast of the call will also be available at https://investors.ondeck.com under the Press & Events menu.

About OnDeck OnDeck ONDK, -3.82% 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...


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