OnDeck Reports Second Quarter 2019 Financial Results and Announces Share Repurchase Program

NEW YORK, July 29, 2019 /PRNewswire/ -- OnDeck® (NYSE:ONDK), the leader in online lending for small business, today announced second quarter 2019 Net income of $4.3 million, Adjusted Net Income of $6.9 million and Gross revenue of $110.2 million. Second quarter 2019 results reflect the full quarter impact of the company's business combination with Evolocity Financial Group ("Evolocity") that closed on April 1, 2019.

"Our second quarter financial results reflect the continued execution of our 2019 priorities focused on growing the U.S. lending business, investing in growth adjacencies and advancing our risk, technology and funding disciplines," said Noah Breslow, chief executive officer. "We are excited about our opportunities to create value for shareholders and our Board has authorized a significant stock repurchase program in recognition of our strong liquidity and capital positions.  Further, after careful consideration and analysis, we have decided to pursue a bank charter, which will enable us to offer our small business customers a wider range of products while improving our financial profile."

Review of Financial Results for the Second Quarter of 2019

Net income was $4.3 million, or $0.05 per diluted share, compared to  $5.7 million, $0.07 per diluted share, in the prior quarter and $5.6 million, or $0.07 per diluted share, in the year-ago period.

Adjusted Net Income was $6.9 million, or $0.09 per diluted share, compared to $8.1 million, or $0.10 per diluted share, in the prior quarter and $9.8 million, or $0.13 per diluted share, in the year-ago period.

Loans and finance receivables were essentially flat sequentially and increased 15% from a year ago to $1.2 billion, reflecting annual growth in all loan types and the closing of the Evolocity transaction in April 2019. Origination volume was $592 million, down from the prior quarter, as second quarter volume has historically been softer, and up 1% from the year-ago quarter. Compared to the prior quarter, term loan unit volume decreased 5%, average term loan size decreased slightly to $52 thousand and the average term loan maturity increased to 12.2 months.

Gross revenue of $110.2 million was essentially unchanged from the prior quarter and up 15% from the year-ago quarter, driven by higher Interest and finance income. Portfolio Yield of 35.0% decreased from 35.6% in the prior quarter, reflecting the addition of the Evolocity portfolio and a lower blended yield on new originations, and from 36.1% in the year-ago quarter which also reflects increased delinquencies.

Interest expense and the Cost of Funds Rate increased slightly from the prior quarter to $11.4 million and 5.5%, respectively, primarily reflecting the addition of the Evolocity debt to our balance sheet, and improved significantly from the year-ago quarter primarily due to lower borrowing spreads on debt that was refinanced.

Net Interest Margin decreased to 29.0% from 29.5% in the prior quarter and increased from 28.2% in the year-ago quarter reflecting the aforementioned drivers of Portfolio Yield and Cost of Funds Rate.

Provision for loan and finance receivable losses was $43.0 million, essentially flat sequentially, as the impacts from higher charge-offs and lower originations largely offset, and increased from $33.3 million a year ago primarily reflecting higher charge-offs and portfolio growth. The Provision Rate of 7.3% increased from 6.8% the prior quarter and 5.7% the year-ago quarter. The Net Charge-off Rate increased to 15.1% driven by the write-off of loans originated in the second half of 2018 as part of our credit expansion testing. The 15+ Day Delinquency Ratio improved 20 basis points from the prior quarter to 8.5% as the benefit from elevated charge-offs and improved performance from more recent vintages was partially offset by a continued increase in 90-plus day delinquency reflecting previously implemented changes to our collection practices. The Reserve Ratio was 12.3% at June 30, 2019, down 20 basis points from the prior quarter but remains above the prior-year figure reflecting overall portfolio quality trends and loss expectations.

Operating expense of $52.0 million increased from the comparable periods and reflects increased spend related to our strategic growth initiatives, including the addition of Evolocity. Our Efficiency Ratio of 47.1%, increased from 43.9% the prior quarter reflecting our investments  and improved from 47.5% in the year-ago quarter which included $1.4 million of expense related to debt extinguishment. Our Adjusted Efficiency Ratio* was 44.2% up from 41.1% the prior quarter and 43.1% the year-ago quarter.

Provision for income taxes was $1.8 million compared to $1.7 million the prior quarter and zero the year-ago quarter when taxable income was completely offset by operating loss carryforwards.  The effective tax rate was 45% compared to 25% the prior quarter with the increase driven by a greater proportion of international losses. The year-to-date 2019 effective tax rate was 32%.

Total assets increased 2% from the prior quarter and 16% from a year ago to $1.2 billion driven by portfolio growth. Cash and cash equivalents was $59 million compared to $60 million the prior quarter and $74 million a year ago. Debt of $842 million was essentially unchanged from the prior quarter and increased 11% from $756 million a year ago, largely reflecting the funding of loan growth.

Total OnDeck stockholders' equity of $314 million increased $7 million, or 2%, from the prior quarter and $44 million, or 16%, from a year ago.  Book value per diluted common share outstanding of $3.98 increased from $3.87 the prior quarter and $3.44 a year ago.

2019 Third Quarter and Full-year Financial Guidance

OnDeck provided the following guidance for the three months ending September 30, 2019:

• Gross revenue between $108 million and $112 million,
• Net income between $1 million and $5 million, and
• Adjusted Net Income between $4 million and $8 million.

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

• Gross revenue of $438 million to $448 million,
• Net income of $12 million to $20 million and
• Adjusted Net income of $22 million to $30 million.

The full-year 2019 financial guidance assumes the following trends relative to full-year 2018:

• A high single-digit percentage growth rate in Loans and finance receivables,
• A stable Net Interest Margin,
• A slight increase in the Adjusted Efficiency Ratio,
• A Provision Rate of approximately 7%, and
• An effective tax rate of 30-35%.

* 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."

Authorization to Repurchase Common Shares

The OnDeck Board has  authorized the repurchase of up to $50 million of common stock with the shares to be retained in Treasury and available for possible reissuance. Any share repurchases under the program will be made from time to time in the open market, in privately negotiated transactions or otherwise.  The timing and amount of any share repurchases will be subject to market conditions and other factors determined by the company. The repurchase authorization expires August 31, 2020, however, the company may suspend, modify or discontinue the program at any time in its discretion without prior notice.  This press release is neither an offer to purchase nor a solicitation of an offer to buy any securities.

Revision of Prior Period Financial Statements for Immaterial Errors

During the second quarter of 2019, we identified an immaterial error in our historical financial statements relating to the accrual of commissions on a small portion of our renewal loans.  As a result, we under-accrued the commissions payable on those renewal loans.  The aggregate amount of the under-accrual was $2.4 million, approximately 90% of which relates to 2015 and subsequent periods, and represents less than 1%, of our total stockholders' equity at March 31, 2019. The amount of the error in each of the impacted annual and interim periods was less than 1% of total commissions paid for such period. Prior period data in this release and accompanying tables and future SEC filings will reflect this revision.

Conference Call

OnDeck will host a conference call to discuss its second quarter 2019 financial results on July 29, 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 9792174. A live webcast of the call will also be available at https://investors.ondeck.com under the Press & Events 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 third quarter and full-year 2019, and the assumed loan growth rate, Net Interest Margin, Net Charge-off Ratio, Provision Rate,  Loan Loss Reserve Ratio, Adjusted Efficiency Ratio, effective tax rate, 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 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
[email protected]

Media Contact:
Jim Larkin
203.526.7457
[email protected]

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

Adjusted Net Income is used in the calculation of Adjusted Return on Assets and Adjusted Return on Equity, all of which are Non-GAAP measures.  Additionally, the same adjustment items contained in the above reconciliation of Net Income to Adjusted Net Income are used to adjust operating expense in the calculation of the Adjusted Efficiency Ratio, a Non-GAAP measure.  Amounts may differ due to taxes.

SOURCE On Deck Capital, Inc.