Net income* of $9.8 million, $0.12 per diluted share
Adjusted Net income* of $13.2 million, $0.17 per diluted share
Gross revenue of $103.0 million, up 8% sequentially and 23% from a year ago
Raised 2018 guidance for Net income to $20 to $24 million and Adjusted Net income to $40 to $44 million
NEW YORK, November 6, 2018 — OnDeck® (NYSE:ONDK), the leader in online lending for small business, today announced third quarter 2018 Net income of $9.8 million, Adjusted Net income of $13.2 million and Gross revenue of $103.0 million.
“We are pleased to report excellent third quarter results highlighted by record origination volume, improved margins and stable credit quality, all of which culminated in record profitability,” said Noah Breslow, chief executive officer, OnDeck. “We continued to improve our funding profile and advanced our strategic initiatives including our recent launch of ODX, our platform-as-a- service business, and announcement of PNC as ODX’s second major bank client. We surpassed $10 billion of cumulative originations, we are on track to announce our next lending product before year-end, we are investing in the future and business momentum is strong.”
Review of Financial Results for the Third Quarter of 2018
Net income was $9.8 million, or $0.12 per diluted share, improved from the Net loss of $4.1 million, or $0.06 per diluted share, in the year-ago period.
Adjusted Net income was $13.2 million, or $0.17 per diluted share, compared to the Adjusted Net loss of $1.0 million, or $0.01 per diluted share, in the year-ago period.
Unpaid Principal Balance grew 7% sequentially and 16% from a year ago to $1,096 million. Origination volume was an all- time high of $648 million, increasing 22% from a year-ago and 10% sequentially, with growth in term loans and lines of credit. Originations increased across all channels and all geographies from a year ago driven by increased unit volume as the average term loan size of $56 thousand was largely unchanged.
Gross revenue increased to $103.0 million, up 8% from the prior quarter and 23% from the year-ago quarter, driven by higher Interest income due to portfolio growth and higher yields. The Effective Interest Yield was 36.5%, up from 36.1% in the prior quarter and 33.1% in the year-ago quarter, primarily reflecting improved pricing and portfolio performance.
Funding costs decreased from the prior and year-ago quarters to $11.7 million despite higher debt balances to fund growth and higher market interest rates. The Cost of Funds Rate of 6.0%, improved from 6.6% the prior quarter and 6.4% in the year-ago quarter. The sequential improvement in funding costs and the cost of funds rate was driven by the refinancing of two secured debt facilities in August with a new $175 million facility priced at 1-month LIBOR plus 3%.
Net Interest Margin increased to 32.9% from 32.0% in the prior quarter and 28.9% in the year-ago quarter reflecting the improvements in Effective Interest Yield and Cost of Funds Rate.
Credit quality was stable reflecting our continued underwriting discipline, improved collection processes, and ongoing strength in the small business lending environment. Provision for loan losses was $39.1 million, up $5.8 million sequentially reflecting increased origination volume and essentially flat from a year ago; the Provision Rate was 6.0%. The 15+ Day
Delinquency Ratio improved to 6.4% from 6.8% the prior quarter and 7.5% a year ago, while the Net Charge-off Rate of 11.1% was essentially flat sequentially and improved considerably from a year ago. The Reserve Ratio of 12.2% was also essentially unchanged sequentially and up from 11.1% a year-ago.
Operating expense was $42.7 million and included $0.6 million of debt extinguishment charges related to the voluntary prepayment in full of two secured debt facilities. Our efficiency ratio, which is total operating expenses as a percentage of total revenue, improved to 41% excluding the debt extinguishment charge.
Total assets increased 6% sequentially and 12% from a year ago to $1,140 million driven by loan growth. Cash and cash equivalents were $71 million compared to $74 million in the prior quarter and $64 million a year ago. Funding debt of $812 million increased at a rate commensurate with the growth in loans over both periods.
Total OnDeck stockholders’ equity of $285 million increased $13 million, or 5%, from the prior quarter and $31 million, or 12%, from a year ago, and book value per diluted common share outstanding of $3.58 increased from $3.46 the prior quarter and $3.31 a year ago.
OnDeck increased its guidance for the year ending December 31, 2018 as follows:
- Gross revenue of $392 million to $396 million, up from $380 million to $386 million,
- Net income of $20 million to $24 million, up from $10 to $16 million, and
- Adjusted Net income of $40 million to $44 million, up from $30 million to $36 million.
The 2018 guidance assumes higher operating expenses and relatively stable portfolio assets in the fourth quarter, a full- year Provision Rate near the low end of our guidance range of 6% to 7%, and approximately $7 million of real estate disposition, severance and debt extinguishment costs already incurred.
OnDeck expects current operating trends to extend into 2019 with ongoing strength in originations resulting in low double- digit loan growth, a stable net interest margin as higher market interest rates mitigate lower borrowing spreads, and a stable annual efficiency ratio as positive operating leverage in the U.S. lending business offsets approximately $15 million of incremental investment in our strategic growth initiatives including ODX. These expectations assume the macro-economic, small business lending and capital market environments remain favorable.
Refer to the Non-GAAP Guidance Reconciliation section below for a reconciliation of Net income guidance to Adjusted Net income guidance.
* Net income (loss) as used in the narrative of this release is Net income (loss) attributable to On Deck Capital, Inc. common stockholders in the accompanying tables. Adjusted Net income (loss) is a Non-GAAP financial measure based on Net income (loss) attributable to On Deck Capital, Inc. common stockholders. See “About Non-GAAP Financial Measures.”
OnDeck will host a conference call to discuss third quarter 2018 financial results on November 6, 2018 at 8:00 AM ET. Hosting the call will be Noah Breslow, Chief Executive Officer, and Ken Brause, Chief Financial Officer. The conference call can be accessed toll free by dialing (866) 393-4306 for calls within the U.S., or by dialing (734) 385-2616 for international calls. The Conference ID is 7087747. 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 proven leader in transparent and responsible online lending to small business. Founded in 2006, the company pioneered the use of data analytics and technology to make real-time lending decisions and deliver capital rapidly to small businesses. Today, OnDeck offers a wide range of online term loans and lines of credit customized for the needs of small business owners. The company also offers bank clients a comprehensive technology and services platform that facilitates online lending to small business customers through ODX, a wholly-owned subsidiary. OnDeck has provided over $10 billion in loans to customers in 700 different industries across the United States, Canada and Australia. The company has an A+ rating with the Better Business Bureau and is rated 5 stars by Trustpilot. For more information, visit www.ondeck.com.
About Non-GAAP Financial Measures
This press release and its attachments include historical and projected Adjusted Net income (loss), Adjusted Net income (loss) per share, and Net Interest Margin. 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,” “enables,” “targets,” “expects,” “intends,” “may,” “allows,” “plans,” “continues,” “believes,” “anticipates,” “estimates” or similar expressions. These include statements regarding guidance on Gross revenue, Net income and Adjusted Net income for 2018, the “2019 Outlook,” expected growth in Unpaid Principal Balance and originations, expected levels of operating expense and efficiency ratio, the assumed Provision Rate, macro-economic and other external factors, and the amount and timing of possible additional real estate disposition, severance 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 actual results to differ from our forward-looking statements include risks relating to: (1) our ability to achieve consistent profitability in the future in light of our prior loss history; (2) worsening economic conditions that may result in decreased demand for our loans or services and increase our customers’ default rates; (3) the effectiveness of our risk management efforts; (4) our ability to accurately assess creditworthiness and forecast and reserve for losses; (5) disruptions in credit markets and the availability and cost of our key funding sources; (6) our growth strategies, including the introduction of new products or features, expanding ODX, our platform-as-a-service business, to other lenders, expansion into international markets, and our ability to effectively manage that growth; (7) changes in federal or state laws or regulations, or judicial decisions, if and when issued or enacted, involving licensing or supervision of commercial lenders, interest rate limitations, the enforceability of choice of law provisions in loan agreements, the validity of bank sponsor partnerships, the use of brokers or other significant changes; (8) our ability to prevent or discover security breaches, disruption in service and comparable events that could compromise confidential information held in our data systems or adversely impact our ability to service our loans; (9) our ability to hire and retain necessary qualified employees in a competitive labor market; and (10) the impact of competition in our industry and innovation by our competitors; and other risks, including those described in our Annual Report on Form 10-K for the year ended December 31, 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.