Market Overview

GreenSky, Inc. Reports Second Quarter Financial Results

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Record Transaction Volume of $1.3B, up 36%
Record Revenue
of $106M, up 28%

Record Net income of $41M
Record
Adjusted EBITDA of $52M, Adjusted EBITDA margin of 49%

GreenSky, Inc. ("GreenSky" or the "Company") (NASDAQ:GSKY), a leading
financial technology company Powering Commerce at the Point of SaleSM,
today announced financial results for its second fiscal quarter ended
June 30, 2018.

"GreenSky is off to a great start as a public company as we continue to
expand our ecosystem of merchants, consumers and bank partners," said
David Zalik, President and CEO of GreenSky. "Our singular focus on
accelerating commerce was evidenced by a 36 percent increase in
transaction volume from our growing network of home improvement
merchants and elective health care providers. We also reached an
important milestone with quarterly revenue and adjusted EBITDA of well
over $100 million and $50 million, respectively, for the first time in
GreenSky's history."

Financial highlights for the second quarter 20181:

  • Revenue grew 28.3 percent to $105.7 million from $82.4 million in the
    second quarter of 2017.
  • GAAP Net income was $40.8 million and reflects tax expense on the
    portion of GreenSky's earnings attributable to the C-corporation
    ownership for the 38 days of the second quarter that the Company was a
    public entity. A prior period comparison is not meaningful.
  • Pro forma Net income was $33.5 million, or $0.18 per diluted share,
    and represents all of GreenSky's enterprise earnings for the period,
    net of tax at an assumed effective tax rate of 22.3 percent.
  • Adjusted EBITDA increased by 28 percent to $52.1 million from $40.8
    million in the second quarter of 2017. As a percentage of revenue,
    Adjusted EBITDA was 49 percent for both periods.
  • As of June 30, 2018, unrestricted cash totaled $236.6 million.
                   

Business metrics for the second quarter 2018:

                   
      Q2 2018     Q2 2017     Growth
Active Merchants 13,440 9,279 45%
Transaction Volume ($ millions) $ 1,318 $ 970 36%
Cumulative Consumer Accounts 1,896,710 1,312,374 45%

Origination Productivity Index2

22.3% 22.1% n/m
Loan Servicing Portfolio ($ millions)     $6,253     $4,433     41%

__________________________________

1  

Pro forma Net Income and Adjusted EBITDA are non-GAAP
measures.  Refer to "Non-GAAP Financial Measures" for important
additional information.

2

This index captures future cash flows to be generated related
to the subject quarter's originations, expressed as a percentage
of the quarters' dollar originations. Refer to the Q2 2018
Supplemental Financial Presentation for additional information.

 

Business update

The Company announced yesterday that it has entered into a comprehensive
strategic alliance with American Express (NYSE:AXP) whereby (i) American
Express will enable eligible U.S. merchants that accept American Express
to access the Company's digital loan technology platform to drive
incremental sales by offering their qualifying customers installment
loan options to finance large purchases at the point of sale, (ii)
GreenSky and American Express will jointly pilot an American Express
funded direct-to-consumer digital installment loan offering to select
American Express Card Members initially in the home improvement category
located in five U.S. markets, and (iii) GreenSky will obtain access to
American Express vPayment, a virtual payments solution used to
facilitate purchases via virtual account numbers issued to approved
customers.

2018 Financial Guidance

Based on the Company's performance through the end of the second quarter
and current market conditions, GreenSky expects the following for
full-year 2018:

  • Transaction volume to increase between 35 and 41 percent to between
    $5.1 and $5.3 billion.
  • Revenue to increase between 34 and 37 percent to between $433 and $445
    million.
  • Adjusted EBITDA to grow between 20 and 25 percent to a range of $192
    and $199 million.
  • Pro forma Net Income in the range of $121 to $125 million, or $0.64 to
    $0.66 per diluted share, assuming an effective tax rate of 22.3
    percent and weighted average shares outstanding of 189.2 million.

We have not reconciled Adjusted EBITDA, Pro forma Net Income and Pro
forma Net Income per diluted share to their GAAP equivalents as a result
of the uncertainty regarding, and the potential variability of,
reconciling items such as the income tax expenses of GreenSky, Inc. and
share-based compensation expense. Accordingly, a reconciliation of these
non-GAAP guidance metrics to their corresponding GAAP equivalents is not
available without unreasonable effort. It is important to note that the
actual amount of such reconciling items would have a significant impact
if they were included in our Adjusted EBITDA, Pro forma Net Income and
Pro forma Net Income per diluted share. However, we have provided a
reconciliation of GAAP to non-GAAP historical metrics in tables at the
end of this release.

See "Non-GAAP Financial Measures" for important additional information.

Conference call and webcast

As previously announced, the Company's management will host a conference
call to discuss second quarter 2018 results at 8:00 a.m. EDT today. A
live webcast of the conference call, together with a slide presentation
that includes supplemental financial information and reconciliations of
certain non-GAAP measures to their most directly comparable GAAP
measures, can be accessed through the company's Investor Relations
website at http://investors.greensky.com.
A replay of the webcast will be available within 2 hours of the
completion of the call and will be archived at the same location for one
year.

About GreenSky, Inc.

GreenSky, Inc. (NASDAQ:GSKY) is a leading technology company Powering
Commerce at the Point of SaleSM for a growing ecosystem of
merchants, consumers and banks. Our highly scalable, proprietary
technology platform enables over 13,000 merchants to offer frictionless
promotional payment options to consumers, driving increased sales volume
and accelerated cash flow. Banks leverage GreenSky's technology to
provide loans to super-prime and prime consumers nationwide. Since our
inception, approximately 1.9 million consumers have financed over $13
billion of commerce using our paperless, real time "apply and buy"
technology. GreenSky is headquartered in Atlanta, Georgia. For more
information, visit https://www.greensky.com.

Forward-Looking Statements

This press release contains forward-looking statements that reflect our
current views with respect to, among other things, our operations and
financial performance; growth in our ecosystem of merchants, consumers
and bank partners; and strategic relationships (including with American
Express). You generally can identify these statements by the use of
words such as "outlook," "potential," "continue," "may," "seek,"
"approximately," "predict," "believe," "expect," "plan," "intend,"
"estimate" or "anticipate" and similar expressions or the negative
versions of these words or comparable words, as well as future or
conditional verbs such as "will," "should," "would," "likely" and
"could." These statements are subject to certain risks and uncertainties
that could cause actual results to differ materially from those included
in the forward-looking statements. These risks and uncertainties include
those risks described in our filings with the Securities and Exchange
Commission and include, but are not limited to, risks related to our
ability to retain existing, and attract new, merchants and bank
partners; our future financial performance, including trends in revenue,
cost of revenue, gross profit or gross margin, operating expenses, and
free cash flow; changes in market interest rates; increases in loan
delinquencies; our ability to operate successfully in a highly regulated
industry; the effect of management changes; cyberattacks and security
vulnerabilities in our products and services; and our ability to compete
successfully in highly competitive markets. The forward-looking
statements speak only as of the date on which they are made, and, except
to the extent required by federal securities laws, we disclaim any
obligation to update any forward-looking statement to reflect events or
circumstances after the date on which the statement is made or to
reflect the occurrence of unanticipated events. In light of these risks
and uncertainties, there is no assurance that the events or results
suggested by the forward-looking statements will in fact occur, and you
should not place undue reliance on these forward-looking statements.

Non-GAAP Financial Measures

This press release presents information about the Company's Pro Forma
Net Income and Adjusted EBITDA, which are non-GAAP financial measures
provided as a supplement to the results provided in accordance with
accounting principles generally accepted in the United States of America
("GAAP"). We use Adjusted EBITDA to manage our business, make planning
decisions, evaluate our performance and allocate resources. We believe
that Adjusted EBITDA provides useful information about our financial
performance, enhance the overall understanding of our past performance
and future prospects, and allow for greater transparency with respect to
important metrics used by our management in connection with financial
and operational decision-making. We are presenting these non-GAAP
measures to assist investors in evaluating our financial performance and
because we believe that these measures provide an additional tool for
investors to use in comparing our core financial performance over
multiple periods with other companies in our industry.

These non-GAAP measures are presented for supplemental informational
purposes only and should not be considered a substitute for financial
information presented in accordance with GAAP. These non-GAAP measures
have limitations as analytical tools and should not be considered in
isolation or as a substitute for analysis of other GAAP financial
measures. The non-GAAP measures GreenSky uses may differ from the
non-GAAP measures used by other companies. A reconciliation of each of
the foregoing historical non-GAAP financial measures to the most
directly comparable historical GAAP financial measure is provided below
for each of the fiscal periods indicated.

(tables follow)

 
GreenSky, Inc.
Consolidated Balance Sheets (unaudited)
(Dollars in thousands, except share data)
    June 30, 2018     December 31, 2017
 
Assets
Cash $ 236,629 $ 224,614
Restricted cash 142,542 129,224
Loan receivables held for sale, net 43,489 73,606
Accounts receivable, net 20,424 18,358
Related party receivables 335 218
Property, equipment and software, net 8,518 7,848
Deferred tax assets, net 301,358
Other assets   5,401     9,021  
Total assets $ 758,696   $ 462,889  
 
Liabilities, Temporary and Permanent Equity (Deficit)
Liabilities
Accounts payable $ 6,342 $ 6,845
Accrued compensation and benefits 6,451 7,677
Other accrued expenses 1,077 1,606
Finance charge reversal liability 107,047 94,148
Term loan 387,979 338,263
Tax receivable agreement liability 255,823
Related party liabilities 825 1,548
Other liabilities   39,612     38,841  
Total liabilities $ 805,156   $ 488,928  
Commitments, Contingencies and Guarantees
Temporary Equity
Redeemable preferred units 430,348
Permanent Equity (Deficit)
Class A common stock, par value of $0.01 and 57,650,251 shares
issued and outstanding at June 30, 2018 and 0 shares issued and
outstanding at December 31, 2017
576
Class B common stock, par value of $.001 and 128,983,353 shares
issued and outstanding at June 30, 2018 and 0 shares issued and
outstanding at December 31, 2017
129
Additional paid-in capital 15,373 (554,906 )
Retained earnings 5,482 98,519
Noncontrolling interest   (68,020 )    
Total permanent equity (deficit)   (46,460 )   (456,387 )
Total liabilities, temporary and permanent equity (deficit) $ 758,696   $ 462,889  
 
 
GreenSky, Inc.
Consolidated Statements of Operations (unaudited)
(Dollars in thousands, except per share data)
 
    Three Months Ended June 30,     Six Months Ended June 30,
2018     2017 2018     2017
Revenue
Transaction fees $ 90,197 $ 71,452 $ 161,137 $ 126,373
Servicing and other   15,507     10,968     29,893     21,384  
Total revenue 105,704 82,420 191,030 147,757
Costs and expenses
Cost of revenue (exclusive of depreciation and amortization shown
separately below)
33,765 23,193 69,895 46,492
Compensation and benefits 15,585 13,167 31,928 25,597
Sales and marketing 1,038 339 1,866 572
Property, office and technology 3,137 2,754 5,859 5,280
Depreciation and amortization 1,067 909 2,037 1,875
General and administrative 4,074 4,226 8,247 8,006
Related party expenses   230     493     813     1,004  
Total costs and expenses   58,896     45,081     120,645     88,826  
Operating profit 46,808 37,339 70,385 58,931
Other income/(expense), net
Interest income 1,482 1,594 2,802 2,531
Interest expense (5,787 ) (110 ) (11,378 ) (174 )
Other gains/(losses)   (93 )   (230 )   (795 )   (684 )
Total other income/(expense), net   (4,398 )   1,254     (9,371 )   1,673  
Income before income tax expense 42,410 38,593 61,014 60,604
Income tax expense   1,594         1,594      
Net income $ 40,816   $ 38,593   $ 59,420   $ 60,604  
Less: Net income attributable to noncontrolling interests   35,266     N/A     53,870     N/A  
Net income attributable to GreenSky, Inc. $ 5,550     N/A   $ 5,550     N/A  
 
Earnings per share of Class A common stock:
Basic $ 0.10     N/A   $ 0.10     N/A  
Diluted $ 0.09     N/A   $ 0.09     N/A  
 
 
GreenSky, Inc.
Consolidated Statements of Cash Flows (unaudited)
(Dollars in thousands)
 
    Six Months Ended June 30,
2018     2017
Cash flows from operating activities
Net income $ 59,420 $ 60,604
Adjustments to reconcile net income to net cash provided by/(used
in) operating activities
Depreciation and amortization 2,037 1,875
Provision for bad debt expense 1,225 508
Share-based compensation expense 2,851 1,574
Equity-based payments to non-employees 8 198
Non-cash rent expense (193 ) (181 )
Amortization of debt related costs 840 75
Fair value change in assets and liabilities 201
Original issuance discount on term loan payment (10 )
Deferred tax expense 1,594
Changes in assets and liabilities:
(Increase)/decrease in loan receivables held for sale 29,896 (40,982 )
(Increase)/decrease in accounts receivable (3,070 ) (2,531 )
(Increase)/decrease in related party receivables 182 106
(Increase)/decrease in other assets 3,619 (1,659 )
Increase/(decrease) in accounts payable (1,217 ) 9,211
Increase/(decrease) in finance charge reversal liability 12,899 8,255
Increase/(decrease) in related party liabilities (1,044 ) (607 )
Increase/(decrease) in other liabilities   366     3,710  
Net cash provided by/(used in) operating activities   109,604     40,156  
 
Cash flows from investing activities
Purchases of property, equipment and software   (2,707 )   (1,985 )
Net cash used in investing activities   (2,707 )   (1,985 )
 
Cash flows from financing activities
Proceeds from IPO, net of underwriters discount and commissions 954,845
Purchases of GreenSky Holdings, LLC units (901,833 )
Purchases of Class A common stock (53,012 )
Issuances of Class B common stock 129
Redemptions of GreenSky Holdings, LLC units prior to Reorganization
Transactions
(496 )
Proceeds from term loan 399,000
Repayments of term loan (350,115 )
Member distributions (127,640 ) (55,283 )
Equity option exercises prior to Reorganization Transactions 339 15
Payment of IPO related expenses (2,749 )
Payment of equity transaction expenses, prior to Reorganization
Transactions
(32 )
Payment of debt issuance costs       (361 )
Net cash provided by/(used in) financing activities   (81,564 )   (55,629 )
 
Net increase/(decrease) in cash and restricted cash 25,333 (17,458 )
Cash and restricted cash at beginning of period   353,838     228,114  
Cash and restricted cash at end of period $ 379,171   $ 210,656  
 
Supplemental non-cash investing and financing activities
Equity transaction costs accrued but not paid $ 1,106 $
Distributions accrued but not paid 11,493
 
 
Reconciliation of Adjusted EBITDA (unaudited)
(Dollars in thousands)
 
    Three Months Ended June 30,     Six Months Ended June 30,
2018     2017 2018     2017
Net income $ 40,816 $ 38,593 $ 59,420 $ 60,604
Interest expense 5,787 110 11,378 174
Tax expense (1) 1,740 100 1,806 172
Depreciation and amortization 1,067 909 2,037 1,875
Equity-related expense (2) 1,854 1,078 2,859 1,772
Fair value change in servicing liabilities (3) 85 201
Non-recurring transaction expenses (4)   759     1,882  
Adjusted EBITDA $ 52,108 $ 40,790 $ 79,583 $ 64,597
 

(1)

 

Includes non-corporate tax expense. Non-corporate tax expense is
included within general and administrative expenses in our
Unaudited Consolidated Statements of Operations. Prior to the IPO
and Reorganization Transactions we did not have any corporate
income tax expense.

(2)

Includes equity-based compensation to employees and directors, as
well as equity-based payments to non-employees.

(3)

Includes the non-cash impact of the initial recognition of
servicing liabilities and subsequent fair value changes in such
servicing liabilities during the periods presented.

(4)

Non-recurring transaction expenses include certain costs
associated with the Company's IPO, which were not deferrable
against the proceeds of the IPO. Further, certain costs related to
the Company's March 2018 term loan upsizing were expensed as
incurred, rather than deferred against the balance of the term
loan, and therefore are being added back to net income given the
non-recurring nature of these expenses.

 
 
Reconciliation of Pro Forma Net Income (unaudited)
(Dollars in thousands)
 
    Three Months Ended June 30,     Six Months Ended June 30,
2018     2017 2018     2017
Net income $ 40,816 $ 38,593 $ 59,420 $ 60,604
Non-recurring transaction expenses (1) 759 1,882
Incremental pro forma tax expense (2)   (8,038 )   (8,611 )   (12,439 )   (13,522 )
Pro Forma Net Income $ 33,537   $ 29,982   $ 48,863   $ 47,082  
 

(1)

 

Non-recurring transaction expenses include certain costs
associated with the Company's IPO, which were not deferrable
against the proceeds of the IPO. Further, certain costs related to
the Company's March 2018 term loan upsizing were expensed as
incurred, rather than deferred against the balance of the term
loan, and therefore are being added back to net income given the
non-recurring nature of these expenses.

(2)

This adjustment represents the incremental tax effect on net
income, adjusted for non-recurring transaction expenses, assuming
that all consolidated net income was subject to corporate taxation
for the periods presented. For the three months ended June 30,
2018 and 2017, we assumed effective tax rates of 22.3% and 22.3%,
respectively. For the six months ended June 30, 2018 and 2017, we
assumed effective tax rates of 22.3% and 22.3%, respectively.

 
 

Reconciliation of Diluted EPS to Pro forma EPS (unaudited)

(Dollars in thousands, except share data)
for the three months ended
   
Quarter Ended June 30, 2018
 
Diluted EPS $ 0.09
Net income prior to IPO (1) 0.11
Tax effect of net income prior to IPO (2)   (0.02 )
Pro forma Diluted EPS (3) $ 0.18  
 
Weighted average shares outstanding diluted 188,889,922
 

(1)

 

Represents net income earned during Q2 2018, prior to the IPO, of
$19,609 divided by weighted average shares outstanding on a fully
diluted basis.

(2)

We assumed a tax rate of 22.3%.

(3)

Pro-forma Diluted EPS recalculates to $0.18. "Net income prior to
IPO" was rounded up for footing purposes. Non-recurring
transaction expenses were excluded from the reconciliation because
the per share effect was less than $.01.

 

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