LendingClub Corp (LC) Announces 4Q:16 and Full-Year Financial Results; Shares Fall 7%


LendingClub Corp (NYSE:LC) announced financial results for the fourth quarter and full year ended December 31, 2016 and provided guidance for the first quarter and full year 2017.

“Last quarter we accomplished the foundational work required to prepare Lending Club for the growth to come,” said CEO Scott Sanborn. “With a diverse, stable and scalable mix of investors, and an enhanced control environment, we are entering 2017 in a stronger position than ever to serve the needs of our customers.”

Key accomplishments in the fourth quarter across the Lending Club platform include:

Investors

  • Banks returned to purchasing at scale, funding 31% of total originations for the quarter, up from 13% in the third quarter – a clear testament to the strength of Lending Club’s control environment, and the attractiveness of the asset in helping banks efficiently deploy their capital and gain access to consumer credit
  • Lending Club supported the first rated securitization of Lending Club loans

Borrowers

  • Achieved targeted originations of nearly $2 billion, up 1% compared to third quarter 2016
  • Continued the company’s lead as the largest personal loan provider in the U.S. with a borrower base of over 1.8 million individuals
  • Lending Club has now facilitated nearly $25 billion in loans since inception

Other developments

  • Ended the year with a servicing portfolio of $11.1 billion, up 24% from the same period last year and delivering $1.8 billion of principal and interest payments to investors throughout the quarter
  • Completed planned remediation steps related to historical material weakness
  • Ended 2016 with cash, cash equivalents and securities available for sale totaling $803 million, with no outstanding debt

Fourth Quarter 2016 Financial Highlights

“2016 was a year of investment in the company. We developed better internal processes, stronger controls, and a diversified investor base that will help us compete in the future,” said Tom Casey, CFO. “Going forward, we are beginning to redeploy resources into areas of the business that will drive long-term growth and value creation.”

Originations – Loan originations in the fourth quarter of 2016 were $1.99 billion, up 1% compared to the $1.97 billion we reported in the third quarter of 2016 and down 23% compared to $2.58 billion in the same quarter last year.

Net Operating Revenue – Net operating revenue in the fourth quarter of 2016 was $129.2 million, up 15% quarter over quarter and down 4% compared to the same period last year. Net operating revenue as a percent of originations, or revenue yield, was 6.50% in the fourth quarter, up 79 basis points sequentially, driven primarily by a $4.3 million favorable adjustment to the servicing asset valuation and the elimination of $10.7 million in incentives recognized in the third quarter of 2016.

Net Loss – GAAP net loss was $(32.3) million for the fourth quarter of 2016, improving by $4.2 million compared to third quarter of 2016 and down compared to net income of $4.6 million in the same quarter last year. The fourth quarter net loss benefited sequentially from higher revenue but was offset by higher marketing expenses and the quarterly impact of the previously disclosed acceleration of the first quarter of 2017 stock grant. The results for the fourth quarter include approximately $16 million of expenses from events related to our board review disclosure earlier in 2016, including employee retention, legal, audit, and other professional service fees.

Adjusted EBITDA (3) Adjusted EBITDA was $(2.2) million in the fourth quarter of 2016, compared to $(11.1) million in the third quarter of 2016, and $24.6 million in the same quarter last year. As a percent of net operating revenue, Adjusted EBITDA margin increased to (1.7)% in the fourth quarter of 2016, up 8.2% from the third quarter and down from 18.3% in the same quarter last year. The results for the fourth quarter include approximately $13 million of expenses from events related to our board review disclosure earlier in 2016, including employee retention, legal, audit, and other professional service fees.

Earnings Per Share (EPS) – Basic and diluted EPS was $(0.08) for the fourth quarter of 2016, compared to basic and diluted EPS of $(0.09) in the third quarter of 2016 and $0.01 in the same quarter last year.

Adjusted EPS (3) Adjusted EPS was $(0.02) for the fourth quarter of 2016, compared to adjusted EPS of $(0.04) in the third quarter of 2016 and $0.05 in the same quarter last year.

Cash, Cash Equivalents and Securities Available for Sale – As of December 31, 2016, cash, cash equivalents and securities available for sale totaled $803 million, with no outstanding debt.

Outlook

Based on the information available as of February 14, 2017, Lending Club provides the following outlook for the full year and first quarter 2017:

Full Year 2017

Total Net Revenue in the range of $565 million to $595 million.

Net Income / (Loss) in the range of $(84) million to $(69) million.

Adjusted EBITDA(3)(4) in the range of $40 million to $55 million.

Reconciling Items between net loss and non-GAAP adjusted EBITDA consisting of stock based compensation of approximately $91 million, depreciation and amortization and other net adjustments of approximately $33 million.

First Quarter 2017

Total Net Revenue in the range of $117 million to $122 million.

Net Income / (Loss) in the range of $(43) million to $(38) million.

Adjusted EBITDA(3)(4) in the range of $(10) million to $(5) million.

Reconciling Items between net loss and non-GAAP adjusted EBITDA consisting of stock based compensation of approximately $25 million, depreciation and amortization and other net adjustments of approximately $8 million.

Shares of Lendingclub are falling over 7% to $6.12 in after-hours trading Tuesday. LC has a 1-year high of $9.80 and a 1-year low of $3.44. The stock’s 50-day moving average is $5.88 and its 200-day moving average is $5.60.

On the ratings front, LC has been the subject of a number of recent research reports. In a report issued on February 7, BTIG analyst Mark Palmer reiterated a Buy rating on the stock, with a price target of $9.00, which represents a potential upside of 35% from where the today’s closing price. On February 6, Canaccord’s Michael Graham reiterated a Hold rating on the stock and has a price target of $7.00.

According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Mark Palmer and Michael Graham have a yearly average return of 5.9% and 10.5% respectively. Palmer has a success rate of 56% and is ranked #454 out of 4430 analysts, while Graham has a success rate of 59% and is ranked #160.

Sentiment on the street is mostly neutral on LC stock. Out of 4 analysts who cover the stock, 3 suggest a Hold rating and one recommends to Buy the stock. The 12-month average price target assigned to the stock is $8.00, which represents a potential upside of 20% from where the stock is currently trading.

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.