LendingClub Corp (NYSE:LC), the world’s largest online marketplace connecting borrowers and investors, reported solid growth in originations, operating revenue, and adjusted EBITDA, notwithstanding a difficult operating environment. Operating revenue in the first quarter of 2016 was $151.3 million, an increase of 87% year-over-year. Adjusted EBITDA was $25.2 million in the first quarter of 2016, an increase of 137% year-over-year.
Lending Club also reported that on May 6, 2016, the board of directors accepted the resignation of Renaud Laplanche as Chairman and CEO. His resignation followed an internal review of sales of $22 million in near-prime loans to a single investor, in contravention of the investor’s express instructions as to a non-credit and non-pricing element, in March and April 2016.
Scott Sanborn will continue in his role of President and will become acting CEO, assuming additional managerial responsibilities for the Company. Mr. Sanborn will be supported by director Hans Morris, who has assumed the newly created role of Executive Chairman.
“A key principle of the Company is maintaining the highest levels of trust with borrowers, investors, regulators, stockholders and employees. While the financial impact of this $22 million in loan sales was minor, a violation of the Company’s business practices along with a lack of full disclosure during the review was unacceptable to the board. Accordingly, the board took swift and decisive action, and authorized additional remedial steps to rectify these issues,” said Mr. Morris. “We have every confidence that Scott and the management team are well positioned to lead Lending Club forward.”
“As our first quarter results demonstrate, Lending Club’s business was strong despite the increasingly challenging investor environment,” said Lending Club President and acting CEO Scott Sanborn. “I will work closely with our valued borrowers, investors, and business partners to drive the continued success of Lending Club, and I am excited to be leading this exemplary team.”
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First Quarter 2016 Financial Highlights
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Quarter Ended March 31,
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($ in millions)
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2016
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2015
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% Change
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Originations
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$
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2,750.0
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$
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1,635.1
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68%
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Operating Revenue
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$
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151.3
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$
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81.0
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87%
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Adjusted EBITDA (1)
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$
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25.2
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$
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10.6
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137%
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Net Income (Loss)
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$
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4.1
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$
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(6.4)
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N/M
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N/M
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Not Meaningful
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(1)
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Adjusted EBITDA is a non-GAAP financial measure. Please see the discussion below under the heading “Non-GAAP Measures“ and the reconciliation at the end of this release.
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Originations – Loan originations in the first quarter of 2016 were $2.75 billion, compared to $1.64 billion in the same period last year, an increase of 68% year-over-year. The Lending Club platform has now facilitated nearly $19 billion in loans since inception.
Operating Revenue – Operating revenue in the first quarter of 2016 was $151.3 million, compared to $81.0 million in the same period last year, an increase of 87% year-over-year. Operating revenue as a percent of originations, or revenue yield, was 5.50% in the first quarter, up from 4.95% in the same period last year.
Adjusted EBITDA (2) – Adjusted EBITDA was $25.2 million in the first quarter of 2016, compared to $10.6 million in the same period last year. As a percent of operating revenue, adjusted EBITDA margin was 16.7% in the first quarter of 2016, up from 13.1% in the same period last year.
Net Income (Loss) – GAAP net income was $4.1 million for the first quarter of 2016, compared to net loss of $6.4 million in the same period last year. GAAP net income included $15.0 million of stock-based compensation expense in the first quarter of 2016, compared to $11.6 million in the same period last year.
Earnings Per Share (EPS) – Basic and diluted EPS was $0.01 for the first quarter, compared to basic and diluted EPS of ($0.02) in the same period last year.
Adjusted EPS (2) – Adjusted EPS was $0.05 for the first quarter of 2016, compared to $0.02 in the same period last year.
Cash, Cash Equivalents and Securities Available for Sale – As of March 31, 2016, cash, cash equivalents and securities available for sale totaled $868 million.
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(2)
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Adjusted EBITDA and Adjusted EPS are non-GAAP financial measures. Please see the discussion below under the heading “Non-GAAP Measures” and the reconciliations at the end of this release.
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Other Metrics & Business Highlights
- Lending Club’s servicing portfolio reached $10.2 billion at the end of the first quarter 2016, up from $5.6 billion in the same quarter last year, and Lending Club paid out $1.5 billion of principal and interest payments to investors during the first quarter of 2016.
- Lending Club’s platform had its first month with greater than $1 billion of originations in Q1, including two days at or above $99 million.
“The flexibility of our operating model enabled us to respond to market challenges such as economic uncertainty, capital market disruptions and negative seasonality,” said Carrie Dolan, Chief Financial Officer. “We were pleased with the Company’s growth in the face of these challenges.”
Board Review
Lending Club conducted a review, under the supervision of a sub-committee of the board of directors and with the assistance of independent outside counsel and other advisors, regarding non-conforming sales to a single, accredited institutional investor of $22 million of near-prime loans ($15 million in March and $7 million in April). The loans in question failed to conform to the investor’s express instructions as to a non-credit and non-pricing element. Certain personnel apparently were aware that the sale did not meet the investor’s criteria.
In early April 2016, Lending Club repurchased these loans at par and subsequently resold them at par to another investor. As a result of the repurchase, as of March 31, 2016, these loans were recorded as secured borrowings on the Company’s balance sheet and were also recorded at fair value. The financial impact of this reporting is that the Company was unable to recognize approximately $150,000 in revenue as of March 31, 2016, related to gains on sales of these loans.
The review began with discovery of a change in the application dates for $3.0 million of the loans described above, which was promptly remediated. The board also hired an outside expert firm to review all other loans facilitated in the first quarter of 2016 and the firm did not find changes to data in these or other Q1 loans.
The review further discovered another matter unrelated to the sale of the loans, involving a failure to inform the board’s Risk Committee of personal interests held in a third party fund while the Company was contemplating an investment in the same fund. This lack of disclosure had no impact on financial results for the first quarter.
Given the events above, the Company took, and will continue to take, remediation steps to resolve the material weaknesses in internal control over financial reporting identified in the first quarter of 2016 — one related to the sales of non-conforming loans and the other to the failure to disclose the personal investment interests — and to restore the effectiveness of its disclosure controls and procedures. These remediation steps included the termination or resignation of three senior managers involved in the sales of the $22 million of near-prime loans.
Lending Club will file an extension request with the Securities and Exchange Commission to file its quarterly report on Form 10-Q for the first quarter on or prior to May 16, 2016.
Outlook
In light of the recent events described above, the Company believes it is prudent not to provide guidance at this time. The Company intends to provide guidance as soon as appropriate.
Share Repurchase
In the first quarter, the board of directors approved a share repurchase program under which Lending Club may repurchase up to $150 million of the Company’s common stock in open market or privately negotiated transactions. This repurchase plan is valid for one year and does not obligate the Company to acquire any particular amount of common stock, and may be suspended at any time at Lending Club’s discretion. As of May 9, 2016, Lending Club has repurchased roughly 2.3 million shares for approximately $19.5 million, and has $130.5 million remaining under its authorization. (Original Source)
Shares of Lendingclub are currently falling over 25% to $5.24. LC has a 1-year high of $19.48 and a 1-year low of $6.34. The stock’s 50-day moving average is $7.82 and its 200-day moving average is $9.91.
On the ratings front, Lendingclub has been the subject of a number of recent research reports. In a report issued on May 6, Morgan Stanley analyst Vasundhara Govil reiterated a Buy rating on LC, with a price target of $16, which represents a potential upside of 125.4% from where the stock is currently trading. Separately, on May 5, Pacific Crest’s Josh Beck maintained a Buy rating on the stock and has a price target of $11.
According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Vasundhara Govil and Josh Beck have a total average return of -2.9% and 1.0% respectively. Govil has a success rate of 33.3% and is ranked #2531 out of 3828 analysts, while Beck has a success rate of 71.0% and is ranked #1739.
Overall, one research analyst has rated the stock with a Sell rating, one research analyst has assigned a Hold rating and 4 research analysts have given a Buy rating to the stock. When considering if perhaps the stock is under or overvalued, the average price target is $6.00 which is -15.5% under where the stock closed last Friday.
LendingClub Corp. operates as an online credit marketplace. It engages in the provision of facilitating personal loans, business loans, and financing for elective medical procedures. The company was founded by Renaud Laplanche in October 2006 and is headquartered in San Francisco, CA.
