On Deck Capital Inc (NYSE:ONDK), the leader in online lending for small business, today announced first quarter 2016 financial results highlighted by record originations and strong credit performance. For the three months ended March 31, 2016, OnDeck grew originations 37% year-over-year to $570 million and increased gross revenue and net revenue by 11% and 11% year-over-year, respectively.
“OnDeck’s first quarter 2016 operating performance was solid, highlighted by growth in all of our origination channels, and a sequential decrease in charge-offs during what is usually a seasonally higher charge-off period,” said Noah Breslow, OnDeck’s chief executive officer. “In addition, we reinforced our market leadership through recent milestones including the initial launch of our program with JPMorgan Chase and pricing of our second securitization transaction.”
Mr. Breslow added, “Our hybrid funding model is designed to adapt to changing capital markets conditions and is a point of competitive differentiation. In the first quarter, we utilized this flexibility and decided to sell fewer loans through OnDeck Marketplace. This decision optimized for long-term financial performance but, over the short-term, will lead to lower Gross revenue, higher provision expense, and lower Adjusted EBITDA than we previously planned. We will see greater financial benefits from our decision beginning in 2017.”
- Gross revenue was $62.6 million for the quarter, up 11% from the prior year period.
- Net revenue was $31.5 million for the quarter, up 11% from the prior year period.
- Adjusted EBITDA* was a loss of $7.3 million for the quarter, compared to a loss of $1.8 million in the prior year period.
- Adjusted Net Loss* was $8.8 million for the quarter, compared to a loss of $3.3 million in the prior year period.
- GAAP net loss attributable to OnDeck common stockholders was $12.6 million for the quarter, compared to a net loss of $5.3 million in the prior year period.
Key Business Highlights
- Origination volume increased to a record $570 million for the quarter, reflecting 37% growth over the prior year period.
- Unpaid Principal Balance grew to $652 million, up 20% from the prior year period, and Loans Under Management increased to$982 million, up 45% from the prior year period.
- The successful initial launch of the OnDeck as a Service program with JPMorgan Chase, opening up access to capital for participating Chase small business customers in limited U.S. markets.
- The OnDeck Line of Credit grew to 12% of Unpaid Principal Balance as draw volume increased 29% sequentially.
- OnDeck announced the pricing of its second securitization involving $250 million of new notes, expected to be rated by bothS&P and DBRS at the closing scheduled for May 17, 2016, subject to customary closing conditions.
“In the first quarter, we saw rapid growth of our loan book from Q4 levels given our growth in originations and our funding mix choices. At the same time, our operating expenses, net of stock-based compensation, as a percentage of total originations continued declining and was below the level achieved in Q1 2015. Combined, these two trends should drive significant shareholder value over time,” said Howard Katzenberg, OnDeck’s chief financial officer.
Mr. Katzenberg continued, “Importantly, OnDeck’s portfolio continued to perform well, with sequential and year over year improvements in both our 15+ Day Delinquency Ratio and Net Charge-off Rate during the first quarter of 2016. With the recent, successful pricing of our second securitization and the expanded capacity in two of our credit facilities, we are confident in our continued ability to grow our business while driving operating leverage.”
Review of Financial Results for the First Quarter of 2016
Originations grew to $570 million during the first quarter of 2016, up 37% from the comparable prior year period and 2% sequentially. Originations growth over the prior year primarily reflected strength in the company’s Direct and Strategic Partner channels which collectively increased 47% over the prior year period and 3% sequentially.
Gross revenue increased to $62.6 million during the first quarter of 2016, up 11% from the comparable prior year period. The increase in gross revenue was primarily due to growth in outstanding loan balances, leading to higher interest income. The Effective Interest Yield for the first quarter of 2016 was 34.5%, down from 37.6% in the comparable prior year period, reflecting the continued mix shift to lower cost distribution channels, an increase in average term loan length over the period, and OnDeck’s continuing efforts to lower pricing and origination fees for repeat loan customers.
OnDeck sold $123.7 million1 of loans through OnDeck Marketplace, constituting 26% of term loan originations, at a 5.7% Gain on Sale Rate during the first quarter of 2016.
Net revenue increased to $31.5 million during the first quarter of 2016, up 11% from the comparable prior year period. Net revenue margin remained flat at 50.2% during the first quarter of 2016 from 50.1% in the prior year period.
The Cost of Funds Rate during the first quarter of 2016 increased to 5.5% of Average Funding Debt Outstanding, up from 5.2% in the comparable prior year period. The increase reflected higher funding fees and expenses partially offset by lower interest rate facilities.
Provision for loan losses during the first quarter of 2016 increased to $25.4 million, up from $23.1 million in the comparable prior year period. The Provision Rate in the first quarter of 2016 was 5.8% compared to 7.2% in the comparable prior year period. The Provision Rate reflects the high credit quality of new originations and improved delinquency trends.
Operating expenses were $44.6 million during the first quarter of 2016, up 33% over the comparable prior year period as OnDeck increased customer acquisition marketing, continued investing in its “OnDeck as a Service” capabilities, and incurred additional general and administrative expenses related to operating as a public company.
Adjusted EBITDA was a loss of $7.3 million for the quarter, versus a loss of $1.8 million in the comparable prior year period.
Adjusted Net Loss was $8.8 million, or $0.13 per basic and per diluted share, for the quarter versus a loss of $3.3 million, or $0.05per basic and diluted share, in the comparable prior year period.
OnDeck had GAAP net loss attributable to On Deck Capital, Inc. common stockholders of $12.6 million, or $0.18 per basic and diluted share, for the quarter which compares to GAAP net loss attributable to On Deck Capital, Inc. common stockholders of $5.3 million, or $0.08 per basic and diluted share, in the comparable prior year period.
Guidance for Second Quarter and Full Year 2016
OnDeck provided the following guidance for the three months ending June 30, 2016 and full year ending December 31, 2016.
Second Quarter 2016
- Gross revenue between $67 million and $70 million.
- Adjusted EBITDA between a loss of $16 million and a loss of $18 million. This assumes lower Gain on sale revenue and higher provision costs as UPB growth accelerates.
Full Year 2016
- Gross revenue between $278 million and $288 million, which assumes year-over-year growth in total originations of between 30% to 35% and Marketplace sales between 15% and 25% of term loan originations.
- Adjusted EBITDA between a loss of $41 million and a loss of $49 million. This assumes lower Gain on sale revenue and higher provision costs as UPB growth accelerates. (Original Source)
Shares of On Deck Capital closed today at $8.28, down $0.35 or -4.06%). ONDK has a 1-year high of $20.39 and a 1-year low of $6.05. The stock’s 50-day moving average is $7.68 and its 200-day moving average is $8.66.
On the ratings front, ONDK has been the subject of a number of recent research reports. In a report issued on April 13, Merrill Lynch analyst Nat Schindler reiterated a Buy rating on ONDK, with a price target of $18, which implies an upside of 106.9% from current levels. Separately, on February 23, Needham’s Mayank Tandon reiterated a Buy rating on the stock and has a price target of $13.
According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Nat Schindler and Mayank Tandon have a total average return of -3.1% and 14.5% respectively. Schindler has a success rate of 44.6% and is ranked #3222 out of 3832 analysts, while Tandon has a success rate of 67.0% and is ranked #105.
Overall, 2 research analysts have assigned a Hold rating and 5 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 $10.63 which is 22.2% above where the stock opened today.
On Deck Capital, Inc. engages in online small business lending. It offers financing solution for small businesses, including short term loans, long term loans and lines of credit. Its proprietary data and analytics engine aggregates and analyzes the online and offline data attributes and the relationships among those attributes to assess the creditworthiness of a small business in real time. The company was founded on May 4, 2006 and is headquartered in New York, NY.