Market Overview

OnDeck Reports Third Quarter 2019 Financial Results

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NEW YORK, Oct. 24, 2019 /PRNewswire/ -- OnDeck® (NYSE:ONDK), the leader in online lending for small business, today announced third quarter 2019 Net income of $8.7 million, Adjusted Net Income of $7.8 million and Gross revenue of $112.6 million. Additionally, during the third quarter OnDeck repurchased 3.2 million shares for $11.0 million under its $50 million common stock repurchase program announced July 29th.

OnDeck Logo (PRNewsfoto/On Deck Capital, Inc.)

"Our third quarter financial results reflect solid results from our core US lending business and included sequential improvements in origination volume, net interest margin, credit quality metrics and profitability," said Noah Breslow, chief executive officer. "We remain focused on  the fundamentals of the core business and we are advancing our strategic priorities as we relaunched a combined OnDeck brand in Canada, commenced repurchasing shares under our $50 million buyback program and recently announced the signing of Investors Bank as the next ODX client. Additionally, we are making progress in our pursuit of a bank charter."

Review of Financial Results for the Third Quarter of 2019

Net income was $8.7 million, or $0.11 per diluted share, compared to $4.3 million, $0.05 per diluted share, in the prior quarter and $9.6 million, or $0.12 per diluted share, in the year-ago period.

Adjusted Net Income was $7.8 million, or $0.10 per diluted share, compared to $6.9 million, or $0.09 per diluted share, in the prior quarter and $13.0 million, or $0.16 per diluted share, in the year-ago period.

Loans and finance receivables grew $20 million, or 2%, sequentially and $110 million, or 10%, from a year ago to $1.2 billion reflecting growth in all loan types and the closing of the Evolocity transaction in April 2019. Origination volume was $629 million, up 6% from the prior quarter and down 3% from the year-ago quarter reflecting a tightening of underwriting criteria and market dynamics. Compared to the prior quarter, term loan unit volume increased 3%, average term loan size increased slightly to $56 thousand and the average term loan maturity increased to 13.5 months. Demand for lines of credit remained strong, and lines of credit now account for 21% of total loans and finance receivables at quarter-end, up from 15% a year ago.

Gross revenue of $112.6 million was up 2% from the prior quarter and 9% from the year-ago quarter, driven by higher Interest and finance income primarily resulting from portfolio growth. Portfolio Yield of 35.1% increased slightly from 35.0% in the prior quarter and decreased from 36.4% in the year-ago quarter reflecting a lower blended yield on new originations, higher past due balances and lower yields on the Canadian portfolio we acquired.

Interest expense decreased slightly from the prior quarter and prior year to $11.3 million  reflecting improved borrowing costs as outstanding debt grew in line with assets.  The Cost of Funds Rate improved to 5.3% from 6.1% in the year ago quarter and 5.5% in the prior quarter reflecting lower market interest rates and lower borrowing spreads on debt that was refinanced during the last year.

Net Interest Margin increased to 29.2% from 29.0% in the prior quarter reflecting the slight increase in Portfolio Yield and a lower Cost of Funds Rate and was unchanged from the year-ago quarter as yield contraction was offset by funding cost improvements.

Provision for credit losses was $43.1 million, unchanged from the prior quarter, as the impact from higher originations was offset by refinements to reserves for existing loans including the Canadian portfolio. The increase in provision from $39.1 million in the year-ago quarter primarily reflects higher delinquency. The Provision Rate of 6.8% decreased from 7.3% the prior quarter and increased from 6.0% the year-ago quarter. The Net Charge-off Rate decreased to 13.7% from 15.1% the prior quarter but remained above the prior year's rate. The 15+ Day Delinquency Ratio of  8.5% increased from 6.4% the prior year but was unchanged from the prior quarter as the impact from changes to collection practices implemented last year is largely reflected in the current run-rate.  The Reserve Ratio was 12.3% at September 30, 2019, essentially unchanged from the prior and year-ago quarters.

Total operating expense of $51.7 million was essentially flat with the prior quarter and increased from the year-ago quarter reflecting increased spend related to our strategic growth initiatives as well as the addition of Evolocity. The Efficiency Ratio of 45.9% improved from 47.1% the prior quarter primarily reflecting revenue growth and increased from 41.5% in the year-ago quarter reflecting our strategic investments. The Adjusted Efficiency Ratio* of 43.8% improved from 44.2% the prior quarter reflecting the aforementioned trends and lower stock-based compensation costs in the current quarter, and increased from 38.2% the year-ago quarter, which included $0.6 million of costs related to debt extinguishment.

We recorded a net benefit for income taxes of $1.6 million, which included a $2.8 million tax credit related to prior years' research and development costs. Excluding this benefit, Provision for income taxes was $1.2 million compared to $1.8 million the prior quarter. There was no income tax expense in the year-ago quarter as taxable income was completely offset by net operating loss carryforwards. The year-to-date 2019 effective tax rate was 11% and the year-to-date effective tax rate excluding the $2.8 million benefit was 27%.

Total assets increased 2% from the prior quarter and 12% from a year ago to $1.3 billion driven by portfolio growth. Cash and cash equivalents were $59 million, essentially flat with the prior quarter and down from $71 million a year ago. Debt of $871 million increased from $842 million the prior quarter driven by the funding of portfolio growth and share repurchase and increased 7% from $812 million a year ago largely reflecting the funding of loan growth.

Total OnDeck stockholders' equity of $315 million increased slightly from the prior quarter as retained earnings and equity issuance for stock-based compensation were offset by the repurchase of 3.2 million shares, or $11 million of common stock, and increased $32 million, or 11%, from a year ago. Book value per diluted common share outstanding of $4.15 increased from $3.98 at June 30, 2019 and $3.56 a year ago.

2019 Financial Guidance

OnDeck provided the following updated financial guidance for full-year 2019:

  • Gross revenue of $442 million to $446 million,
  • Net income of $21 million to $25 million and
  • Adjusted Net Income of $28 million to $32 million.

2020 Outlook

OnDeck expects the current operating environment to extend into 2020 with increased profitability reflecting the following trends relative to 2019:

  • Portfolio growth rate consistent with 2019,
  • Stable to slightly lower Net Interest Margin,
  • Improved Adjusted Efficiency Ratio,
  • Generally stable credit quality with a slightly lower Net Charge-off Rate and slightly higher Reserve Ratio, and
  • Continued execution of our $50 million share repurchase program.

The 2019 financial guidance and 2020 outlook assume the macro-economic, small business lending and capital market environments remain steady.

* 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) and Adjusted Efficiency Ratio are Non-GAAP financial measures. See "About Non-GAAP Financial Measures."

Conference Call

OnDeck will host a conference call to discuss its third quarter 2019 financial results on October 24, 2019 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 8199788. A live webcast of the call will also be available at https://investors.ondeck.com under the Press, Events & Presentations menu.

About OnDeck

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, lines of credit and secured equipment finance loans 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 $12 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" metrics including Adjusted Net income (loss), Adjusted Net income (loss) per share, Adjusted Efficiency Ratio, Adjusted Return on Assets and Adjusted Return on Equity. These financial measures are 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.  Adjusted metrics exclude items management deems to be non-representative of operating results or trends ("noteworthy items") and expenses related to stock-based compensation, which are non-cash expenses. 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 a substitute for or superior 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 the full-year 2019, and the assumed loan growth rate, Net Interest Margin, Net Charge-off Ratio, Reserve Ratio, Adjusted Efficiency Ratio, ongoing capital efficiency improvements, credit quality and macro-economic and other external factors. 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 such differences include risks relating to: (1) our ability to achieve consistent profitability in the future in light of our prior loss history and competition; (2) our growth strategies, including the introduction of new products or features, expanding our platform to other lenders through ODX and maintaining ODX's current clients, expansion into international markets, business development, offering equipment financing and our ability to effectively manage and fund our growth; (3) possible future acquisitions of complementary assets, businesses, technologies or products with the goal of growing our business, and the integration of any such acquisitions including Evolocity; (4) any material reduction in our interest rate spread and our ability to successfully mitigate this risk through interest rate hedging or raising interest rates or other means; (5) worsening economic conditions that may result in decreased demand for our loans or services and increase our customers' default rates; (6) supply and demand driven changes in credit and increases in the availability of capital for our competitors that negatively impacts our loan pricing; (7) our ability to accurately assess creditworthiness and forecast and reserve for loan losses; (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) incorrect or fraudulent information provided to us by customers causing us to misjudge their qualifications to receive a loan; (10) the effectiveness of our efforts to identify, manage and mitigate our credit, market, liquidity, operational and other risks associated with our business and strategic objectives; (11) our ability to continue to innovate or respond to evolving technological changes and protect our intellectual property; (12) our reputation and possible adverse publicity about us or our industry; (13) failure of operating controls, including customer or partner experience degradation, and related legal expenses, increased regulatory cost, significant fraud losses and vendor risk; and (14) changes in federal or state laws or regulations, or judicial decisions 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; (15) risks associated with pursuing a bank charter, and risks associated with either failing to obtain or obtaining a bank charter; and other risks, including those described in Part I - Item 1A. Risk Factors in our Annual Report on From 10-K for the year ended December 31, 2018, our Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 and other documents that we file with the Securities and Exchange Commission, or SEC, from time to time which are or will be available on the SEC website at www.sec.gov.

Investor Contact:
Steve Klimas
646.668.3582
sklimas@ondeck.com

Media Contact:
Jim Larkin
203.526.7457
jlarkin@ondeck.com

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

On Deck Capital, Inc. and Subsidiaries

Consolidated Statements of Operations

(unaudited, $ in thousands, except share and per share data)



Three Months Ended,


Nine Months Ended,


September 30,
2019


June 30,
2019


September 30,
2018


September 30,
2019


September 30,
2018

Revenue:










Interest and finance income

$

108,211



$

105,641



$

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