OnDeck Reports Record Fourth Quarter and Full Year 2018 Financial Results
NEW YORK, Feb. 12, 2019 /PRNewswire/ -- OnDeck® (NYSE:ONDK), the leader in online lending for small business, today announced fourth quarter 2018 Net income of $14.0 million, Adjusted Net income of $15.9 million and Gross revenue of $109.5 million, and full year 2018 Net income of $27.7 million, Adjusted Net income of $45.4 million and Gross revenue of $398.4 million.
"Our record fourth quarter earnings cap a year of significant progress at OnDeck, highlighted by strong growth and improved profitability," said Noah Breslow, chief executive officer. "We solidified our position as the leading online lender to small businesses in the US, launched ODX, our platform-as-a-service business, and announced plans to scale our international operations and enter the equipment finance market. We advanced these initiatives while strengthening our balance sheet, improving our funding profile and increasing profitability. OnDeck enters 2019 with considerable momentum fueled by our US lending franchise and is well-positioned to drive additional shareholder value through our high-growth strategic initiatives in 2019 and beyond."
Review of Financial Results for the Fourth Quarter of 2018
Net income was $14.0 million, or $0.18 per diluted share, and increased from $9.8 million, $0.12 per diluted share, in the prior quarter and $5.1 million, $0.07 per diluted share, in the year-ago period.
Adjusted Net income was $15.9 million, or $0.20 per diluted share, and increased from $13.2 million, $0.17 per diluted share, in the prior quarter and $8.1 million, $0.10 per diluted share, in the year-ago period.
Loans grew 5% sequentially and 23% from a year ago to $1,169 million. We had record origination volume of $658 million, a 2% increase from the third quarter and 21% increase from the year-ago quarter, the latter of which reflected growth across all channels. Compared to the prior quarter, term loan unit volume increased 4% to 9,677 while the average term loan size decreased slightly to $53 thousand.
Gross revenue increased to $109.5 million, up 6% from the prior quarter and 25% from the year-ago quarter, driven by higher Interest income that resulted from portfolio growth and higher yields. Loan Yield of 36.6% was essentially flat with the prior quarter and up from 34.8% the year-ago quarter reflecting improved pricing and portfolio performance.
Interest expense decreased from the prior quarter to $11.2 million despite a higher debt balance and higher market interest rates. The Cost of Funds Rate of 5.6%, improved from 6.1% the prior quarter and 6.5% in the year-ago quarter. The sequential improvement in funding costs and the cost of funds rate reflects the full period impact of debt refinancing completed in August. We also achieved an approximate 100 basis point savings on an approximately $120 million debt facility extension completed in December.
Net Interest Margin increased to 30.0% from 29.3% in the prior quarter and 27.2% in the year-ago quarter reflecting the improvements in Loan Yield and Cost of Funds Rate.
Provision for loan losses was $39.9 million, up slightly sequentially and $5.4 million from a year ago primarily reflecting increased origination volume. The Provision Rate of 6.0% remained at the low end of our annual guidance range. The 15+ Day Delinquency Ratio increased to 7.5% from 6.4% the prior quarter and 6.7% a year ago reflecting our decision to retain and collect on more 90-day plus delinquent loans and impacts from credit testing. The Net Charge-off Rate increased sequentially to 12.0% but remained below the prior year's rate of 12.9% and was at the low end of our target range of 12-14%. The Reserve Ratio was 12.2% at year-end 2018, flat sequentially and up approximately 60 basis points from a year ago reflecting the portfolio quality trends.
Operating expenses of $45.0 million, which included a $1.1 million sales tax refund, increased from the comparable periods to support growth in the business and investments in our strategic initiatives. Our Efficiency Ratio of 41.1% was essentially flat sequentially and improved from 42.9% in the year ago quarter, while our Adjusted Efficiency Ratio rose to 39.4% from 38.1% the prior quarter and was essentially flat with the year-ago quarter.
Total assets increased 2% sequentially and 17% from a year ago to $1,162 million driven by loan growth. Cash and cash equivalents were $60 million compared to $71 million in the prior and year-ago quarters. Debt of $816 million was up slightly from September 30, 2018 as sequential loan growth was largely funded with available liquidity and increased at a rate commensurate with total asset growth from a year ago.
Total OnDeck stockholders' equity of $300 million increased $15 million, or 5%, from the prior quarter and $38 million, or 14%, from a year ago. Book value per diluted common share outstanding of $3.77 increased from $3.58 the prior quarter and $3.39 a year ago.
Review of Financial Results for Full Year 2018
Net income of $27.7 million, or $0.35 per diluted share, improved from the Net loss of $11.5 million, $0.16 per diluted share, in 2017. Adjusted Net income was $45.4 million, or $0.58 per diluted share, improved from $4.2 million, $0.06 per diluted share, in 2017.
Gross revenue increased 14% to $398.4 million, driven by higher Interest income reflecting loan growth and higher yields. Loans grew 23% from a year ago driven by an 17% increase in origination volume to nearly $2.5 billion. Net Interest Margin increased from 26.1% a year ago to 29.0% as Loan Yield increased from 33.8% to 36.2% and the Cost of Funds Rate was essentially unchanged at 6.3%.
Credit costs decreased in 2018 with the Provision for loan losses declining $4.4 million to $148.5 million despite increased originations and a larger portfolio. The Net Charge-off Ratio improved to 11.3% from 15.8% during 2017 reflecting tightened underwriting standards and improved portfolio performance. The Reserve Ratio increased from 11.6% at year-end 2017 to 12.2% as we increased reserves to accommodate for the increase in late-stage delinquency that resulted from our decision to retain more past due loans for collection.
Operating expenses increased 7% to $177.5 million as efficiency initiatives in the U.S. lending operation were offset by investments in strategic growth initiatives. Our Efficiency Ratio improved from 47.3% in 2017 to 44.6% in 2018, while our Adjusted Efficiency Ratio improved from 42.9% to 40.1%, as the revenue growth rate outpaced the expense growth rate.
We had no provision for income taxes in 2017 or 2018.
2019 Full-Year and First Quarter Guidance
OnDeck provided following financial guidance for full-year 2019:
-- Gross revenue of $445 million to $465 million,
-- Net income of $20 million to $30 million and
-- Adjusted Net income of $30 million to $40 million.
The full-year 2019 financial guidance assumes the following trends relative to full-year 2018:
-- Low double-digit percentage growth in Loans,
-- A slight increase in Net Interest Margin driven by a lower cost of
funds,
-- A slight increase in the Efficiency Ratio reflecting a $15 million
incremental investment in growth initiatives,
-- A Provision Rate near the mid-point of our 6-7% target range, and
-- An effective tax rate of approximately 20% as the company expects to
fully utilize its remaining net operating loss carry forwards in 2019.
Additionally, OnDeck provided the following financial guidance for the first quarter of 2019:
-- Gross revenue of $108 million to $112 million,
-- Net income of $2 million to $6 million, and
-- Adjusted Net income of $5 million to $9 million.
This guidance excludes any impact from our anticipated business combination with Evolocity Financial Group in Canada and assumes 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) is a Non-GAAP financial measure based on Net income (loss) attributable to On Deck Capital, Inc. common stockholders. See "About Non-GAAP Financial Measures."
Conference Call
OnDeck will host a conference call to discuss fourth quarter and full-year 2018 financial results on February 12, 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 9480069. 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 and lines of credit 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 $10 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 and Net income for 2019, the assumed Loan growth rate, Net Interest Margin, Net Charge-off Ratio, Loan Loss Reserve Ratio, Efficiency Ratio and 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 actual results to differ from our forward-looking statements include risks relating to: (1) our ability to achieve consistent profitability in the future in light of our prior loss history; (2) worsening economic conditions that may result in decreased demand for our loans or services and increase our customers' default rates; (3) the effectiveness of our risk management efforts; (4) our ability to accurately assess creditworthiness and forecast and reserve for losses; (5) disruptions in credit markets and the availability and cost of our key funding sources; (6) our growth strategies, including the introduction of new products or features, expanding ODX, our platform-as-a-service business, to other lenders, expansion into international markets, and our ability to effectively manage that growth; (7) changes in federal or state laws or regulations, or judicial decisions, if and when issued or enacted, 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; (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) our ability to hire and retain necessary qualified employees in a competitive labor market; and (10) the impact of competition in our industry and innovation by our competitors; and other risks, including those described in our Annual Report on Form 10-K for the year ended December 31, 2017 and in other documents that we file with the Securities and Exchange Commission from time to time which are or will be available on the Commission's website at www.sec.gov. Except as required by law, we undertake no duty to update the information in this press release.
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.
Consolidated Statements of Operations
(unaudited, $ in thousands, except share and per share data)
Three Months Ended
Twelve Months Ended
December 31, December 31,
2018 2017 2018 2017
Revenue:
Interest income $
105,363 $
83,621 $
383,579 $
334,575
Gain on sales of loans 595 2,485
Other revenue 4,116 3,525 14,797 13,890
Gross revenue 109,479 87,741 398,376 350,950
Cost of revenue:
Provision for loan losses 39,853 34,431 148,541 152,926
Interest expense 11,230 11,270 47,075 46,199
Total cost of revenue 51,083 45,701 195,616 199,125
Net revenue 58,396 42,040 202,760 151,825
Operating expense:
Sales and marketing 11,207 10,696 44,082 52,786
Technology and analytics 13,642 11,432 50,866 53,392
Processing and servicing 5,645 4,555 21,209 18,076
General and
administrative 14,467 10,999 61,333 41,916
Total operating expense 44,961 37,682 177,490 166,170
Income (loss) from
operations, before
provision for income
taxes 13,435 4,358 25,270 (14,345)
Provision for income
taxes
Net income (loss) 13,435 4,358 25,270 (14,345)
Less: Net income (loss)
attributable to
noncontrolling interest (604) (738) (2,411) (2,811)
Net income (loss)
attributable to On Deck
Capital, Inc. common
stockholders $
14,039 $
5,096 $
27,681 $
(11,534)
Net income (loss) per share attributable
to On Deck Capital, Inc. common
stockholders:
Basic $
0.19 $
0.07 $
0.37 $
(0.16)
Diluted $
0.18 $
0.07 $
0.35 $
(0.16)
Weighted-average common shares
outstanding:
Basic 75,504,595 73,708,613 74,561,019 72,890,313
Diluted 79,591,252 77,153,920 78,549,940 72,890,313
On Deck Capital, Inc.
Percentage of Average Interest Earning Assets
(unaudited, $ in thousands)
Three Months Ended Twelve Months Ended
December 31, December 31,
2018 2017 2018 2017
Revenue:
Interest income 33.6 31.4 33.0 30.3
% % % %
Gain on sales of loans -
% 0.2
% 0.2
% %
Other revenue 1.3 1.3 1.3 1.3
% % % %
Gross revenue 34.9 33.0 34.3 31.8
% % % %
Cost of revenue:
Provision for loan losses 12.7 12.9 12.8 13.9
% % % %
Interest expense 3.6 4.2 4.1 4.2
% % % %
Total cost of revenue 16.3 17.2 16.8 18.1
% % % %
Net revenue 18.6 15.8 17.5 13.8
% % % %
Operating expense:
Sales and marketing 3.6 4.0 3.8 4.8
% % % %
Technology and analytics 4.4 4.3 4.4 4.8
% % % %
Processing and servicing 1.8 1.7 1.8 1.6
% % % %
General and 4.6 4.1 5.3 3.8
administrative % % % %
Total operating expense 14.3 14.2 15.3 15.1
% % % %
Income (loss) from 4.3 1.6 2.2 (1.3)
operations % % %
%
Net income (loss) before 4.3 1.6 2.2 (1.3)
provision for income % % %
taxes %
Provision for income
taxes -
%
%
%
%
Net income (loss) 4.3 1.6 2.2 (1.3)
% % %
%
Memo:
Average Interest Earning
Assets $1,245,057 $1,055,496 $1,161,608 $1,103,063
On Deck Capital, Inc. and Subsidiaries
Consolidated Balance Sheets
(unaudited, $ in thousands, except share and per share data)
December 31, 2018 December 31, 2017
---
Assets
Cash and cash equivalents $
59,859 $
71,362
Restricted cash 37,779 43,462
Loans held for investment 1,169,157 952,796
Less: Allowance for loan losses (140,040) (109,015)
Loans held for investment, net 1,029,117 843,781
Property, equipment and software, net 16,700 23,572
Other assets 18,115 13,867
Total assets $
1,161,570 $
996,044
Liabilities and equity
Liabilities:
Accounts payable $
4,011 $
2,674
Interest payable 2,385 2,330
Debt 816,231 692,254
Accrued expenses and other liabilities 34,654 32,730
Total liabilities 857,281 729,988
Stockholders' equity (deficit):
Common stock-$0.005 par value,
1,000,000,000 shares authorized and
79,135,510 and 77,284,266 shares issued
and 75,375,341 and 73,822,001
outstanding at December 31, 2018 and
2017, respectively. 396 386
Treasury stock-at cost (9,822) (7,965)
Additional paid-in capital 506,169 492,509
Accumulated deficit (195,155) (222,833)
Accumulated other comprehensive loss (1,832) (52)
Total On Deck Capital, Inc. stockholders'
equity 299,756 262,045
Noncontrolling interest 4,533 4,011
Total equity 304,289 266,056
Total liabilities and equity $
1,161,570 $
996,044
Memo:
Unpaid Principal Balance(1) $
1,144,954 $
936,239
Loans(2) $
1,169,157 $
952,796
Interest Earning Assets(3) $
1,266,795 $
1,067,619
Book Value Per Diluted Share $
3.77 $
3.39
On Deck Capital, Inc. and Subsidiaries
Consolidated Average Balance Sheets4
(unaudited, $ in thousands)
Average Three Months Average Twelve Months
Ended December 31, Ended December 31,
2018 2017 2018 2017
---
Assets
Cash and cash equivalents $
51,523 $
50,692 $
48,833 $
55,725
Restricted cash 52,133 51,312 54,944 57,053
Loans held for investment 1,141,401 953,492 1,057,831 990,285
Less: Allowance for loan losses (137,960) (106,199) (126,260) (108,821)
Loans held for investment, net 1,003,441 847,293 931,571 881,464
Loans held for sale - 355
Property, equipment and software,
net 16,364 24,110 17,949 26,636
Other assets 17,423 15,775 15,651 17,759
Total assets $
1,140,884 $
989,182 $
1,068,948 $
1,038,992
Liabilities and equity
Liabilities:
Accounts payable $
4,475 $
2,961 $
3,717 $
3,284
Interest payable 2,337 2,226 2,392 2,301
Debt 805,527 691,476 751,040 740,500
Accrued expenses and other
liabilities 31,768 31,392 31,355 33,265
Total liabilities 844,107 728,055 788,504 779,350
Total On Deck Capital, Inc.
stockholders' equity 291,893 256,848 275,525 254,641
Noncontrolling interest 4,884 4,279 4,919 5,001
Total equity 296,777 261,127 280,444 259,642
Total liabilities and equity $
1,140,884 $
989,182 $
1,068,948 $
1,038,992
Memo:
Unpaid Principal Balance $
1,118,140 $
937,021 $
1,037,563 $
972,269
Loans $
1,141,401 $
953,492 $
1,057,831 $
990,642
Interest Earning Assets $
1,245,057 $
1,055,496 $
1,161,608 $
1,103,063
Supplemental Information
---
Key Performance Metrics
($ in thousands, except percentage data)
Three Months Ended
Twelve Months Ended
December 31, December 31,
---
2018 2017 2018 2017
---
Originations5 $
658,487 $
546,360 $
2,483,596 $
2,114,663
Loan Yield6 36.6
% 34.8
% 36.2
% 33.8
%
Cost of Funds
Rate7 5.6
% 6.5
% 6.3
% 6.2
%
Net Interest
Margin8 30.0
% 27.2
% 29.0
% 26.1
%
Provision Rate9 6.0
% 6.4
% 6.0
% 7.5
%
Reserve Ratio10 12.2
% 11.6
% 12.2
% 11.6
%
15+ Day
Delinquency
Ratio11 7.5
% 6.7
% 7.5
% 6.7
%
Net Charge-off
Rate12 12.0
% 12.9
% 11.3
% 15.8
%
Efficiency Ratio13 41.1
% 42.9
% 44.6
% 47.3
%
Adjusted
Efficiency
Ratio14 (a) 39.4
% 39.5
% 40.1
% 42.9
%
Return on Assets15 4.9
% 2.1
% 2.6
% (1.1)
%
Adjusted Return on
Assets16 (a) 5.6
% 3.3
% 4.3
% 0.4
%
Return on Equity17 19.2
% 7.9
% 10.0
% (4.5)
%
Adjusted Return on
Equity18 (a) 21.8
% 12.6
% 16.5
% 1.6
%
Three Months Ended
Twelve Months Ended
December 31, December 31,
---
2018 2017 2018 2017
---
Activity in the Allowance for Loan
Losses
Allowance for loan
losses beginning
of period $133,644 $104,872 $109,015 $110,162
+ Provision for
loan losses 39,853 34,431 148,541 152,926
- Gross charge-
offs (36,779) (35,314) (130,695) (171,272)
+ Recoveries 3,322 5,026 13,179 17,199
Allowance for loan
losses end of
period $140,040 $109,015 $140,040 $109,015
===
Activity in Loan
Held for
Investment
Balances Three Months Ended
Twelve Months Ended
December 31, December 31,
2018 2017 2018 2017
---
Unpaid Principal
Balance beginning
of period $
1,095,792 $
940,881 $
936,239 $
980,451
+ Total
originations(b) 658,487 546,360 2,483,596 2,114,663
-Marketplace
originations - (7,100) (63,065)
-Sales of other
loans(c) - (9,998) (10,498)
+ Purchase of
Loans - 111 801 13,841
- Net charge-
offs (33,457) (30,288) (117,516) (154,073)
-Principal paid
down(d) (575,868) (503,727) (2,158,166) (1,945,080)
Unpaid Principal
Balance end of
period 1,144,954 936,239 1,144,954 936,239
+ Net deferred
origination costs 24,203 16,557 24,203 16,557
Loans held for
investment 1,169,157 952,796 1,169,157 952,796
-Allowance for
loan losses (140,040) (109,015) (140,040) (109,015)
Loans held for
investment, net $
1,029,117 $
843,781 $
1,029,117 $
843,781
(a) Non-GAAP measure. See "About Non-
GAAP Financial Measures," and "Non-
GAAP Reconciliations" and related
footnotes elsewhere in this press
release.
(b) Includes Unpaid Principal Balance
of term loans rolled into new
originations of $110.2 million and
$85.3 million in the three months
ended December 31, 2018 and 2017,
respectively, and $368.4 million and
$306.2 million for the twelve months
ended December 31, 2018 and 2017,
respectively.
(c) Includes loans sold that were
previously designated as held for
investment in at least one fiscal
quarter prior to the quarter in which
they were sold.
(d) Excludes principal that was paid
down related to renewed loans sold in
the period which were designated as
held for investment in the amount of
$0 and $0 million in the three months
ended December 31, 2018 and 2017,
respectively, and $0 million and $0.2
million for the twelve months ended
December 31, 2018 and 2017,
respectively.
Supplemental Information
---
Non-GAAP Reconciliations
(in thousands, except share and per share data)
Three Months Ended
Twelve Months Ended
December 31, December 31,
2018 2017 2018 2017
---
Net income (loss) attributable
to On Deck Capital, Inc.
common stockholders $
14,039 $
5,096 $
27,681 $
(11,534)
Stock-based compensation
expense 2,967 2,994 11,819 12,515
Real estate disposition charges - 4,187
Severance and executive
transition expenses - 911 3,183
Debt Extinguishment Costs - 1,935
Sales Tax Refund (1,097) (1,097)
Adjusted Net income (loss)19 $
15,909 $
8,090 $
45,436 $
4,164
Adjusted Net income (loss) per share20:
Basic $
0.21 $
0.11 $
0.61 $
0.06
Diluted $
0.20 $
0.10 $
0.58 $
0.06
Weighted-average common shares outstanding:
Basic 75,504,595 73,708,613 74,561,019 72,890,313
Diluted 79,591,252 77,153,920 78,549,940 72,890,313
Three Months Ended
Twelve Months Ended
December 31, December 31,
Reconciliation of Return on
Assets to Adjusted Return on
Assets 2018 2017 2018 2017
---
Net income (loss) attributable
to On Deck Capital, Inc.
common stockholders 14,039 5,096 27,681 (11,534)
Average Total Assets $
1,140,884 $
989,182 $
1,068,948 $
1,038,992
Return on Assets 4.9
% 2.1
% 2.6
% (1.1)
%
===
Adjustments:
Stock-based compensation
expense 2,967 2,994 11,819 12,515
Real estate disposition charges - 4,187
Severance and executive
transition expenses - 911 3,183
Debt Extinguishment Costs - 1,935
Sales Tax Refund (1,097) (1,097)
Adjusted Net income (loss) 15,909 8,090 45,436 4,164
Average Total Assets $
1,140,884 $
989,182 $
1,068,948 $
1,038,992
Adjusted Return on Assets 5.6
% 3.3
% 4.3
% 0.4
%
===
Three Months Ended
Twelve Months Ended
December 31, December 31,
Reconciliation of Return on
Equity to Adjusted Return on
Equity 2018 2017 2018 2017
---
Net income (loss) attributable
to On Deck Capital, Inc.
common stockholders 14,039 5,096 27,681 (11,534)
Average OnDeck Stockholders'
Equity $
291,893 $
256,848 $
275,525 $
254,641
Return on Equity 19.2
% 7.9
% 10.0
% (4.5)
%
===
Adjustments:
Stock-based compensation
expense 2,967 2,994 11,819 12,515
Real estate disposition charges - 4,187
Severance and executive
transition expenses - 911 3,183
Debt Extinguishment Costs - 1,935
Sales Tax Refund (1,097) (1,097)
Adjusted Net income (loss) 15,909 8,090 45,436 4,164
Average OnDeck Stockholders'
Equity $
291,893 $
256,848 $
275,525 $
254,641
Adjusted Return on Equity 21.8
% 12.6
% 16.5
% 1.6
%
===
Three Months Ended
Twelve Months Ended
December 31, December 31,
Reconciliation of Efficiency
Ratio to Adjusted Efficiency
Ratio 2018 2017 2018 2017
---
Total operating expense 44,961 37,682 177,490 166,170
Gross revenue $
109,479 $
87,741 $
398,376 $
350,950
Efficiency Ratio 41.1
% 42.9
% 44.6
% 47.3
%
===
Adjustments:
Stock-based compensation
expense 2,967 2,994 11,819 12,515
Real estate disposition charges - 4,187
Severance and executive
transition expenses - 911 3,183
Debt Extinguishment Costs - 1,935
Sales Tax Refund (1,097) (1,097)
Operating Expenses Less
Noteworthy Items 43,091 34,688 159,735 150,472
Gross revenue $
109,479 $
87,741 $
398,376 $
350,950
Adjusted Efficiency Ratio 39.4
% 39.5
% 40.1
% 42.9
%
===
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 adjustments 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.
Non-GAAP Guidance Reconciliation
(in millions)
Three Months Ending Twelve Months Ending
March 31, December 31,
2019 2019
Low High Low High
Net income (loss)
attributable to On
Deck Capital, Inc.
common stockholders $
2 $
6 $
20 $
30
Stock-based
compensation (after
tax) 3 3 10 10
Adjusted Net income $
5 $
9 $
30 $
40
Supplemental Channel Information
---
Quarterly Origination Channel Distribution
Three Months Ended Twelve Months Ended
December 31, December 31,
2018 2017 2018 2017
---
Percentage of originations
(dollars)
Direct 45 50 46 52
% % % %
Strategic Partner 27 22 25 21
% % % %
Funding Advisor 28 28 29 27
% % % %
Notes:
(1) Unpaid Principal Balance represents
the total amount of principal
outstanding of term loans held for
investment, amounts outstanding under
lines of credit and the amortized cost
of loans purchased from other than
issuing bank partners at the end of
the period. It excludes net deferred
origination costs, allowance for loan
losses and any loans sold or held for
sale at the end of the period.
(2) Loans represents the sum of Loans
held for investment and Loans held for
sale at end of the period.
(3) Interest Earning Assets represents
the sum of Loans plus Cash and Cash
Equivalents plus Restricted Cash.
Average Interest Earnings Assets is
calculated as the average of Interest
Earnings Assets at the beginning of
the period and the end of each month
in the period.
(4) Average Balance Sheet items for the
period represent the average as of the
beginning of the first month of the
period and as of the end of each month
of the period.
(5) Originations represent the total
principal amount of the term loans we
made during the period, plus the total
amount drawn on lines of credit during
the period. Many of our repeat term
loan customers renew their term loans
before their existing term loan is
fully repaid. In accordance with
industry practice, originations of
such repeat term loans are presented
as the full renewal loan principal,
rather than the net funded amount,
which would be the renewal term loan's
principal net of the unpaid principal
balance on the existing term loan.
Loans referred to, and funded by, our
issuing bank partners and later
purchased by us are included as part
of our originations.
(6) Loan Yield is the rate of return we
achieve on loans outstanding during a
period. It is calculated as annualized
Net Interest income on Loans including
Amortization of net deferred
origination costs divided by average
Loans. Annualization is based on 365
days per year and is calendar day-
adjusted.
(7) Cost of Funds Rate is calculated as
Interest expense divided by average
Debt outstanding for the period. For
periods of less than one year, the
metric is annualized based on four
quarters per year and is not business
day or calendar day-adjusted.
(8) Net Interest Margin is calculated
as annualized Net Interest income
divided by average Interest Earning
Assets. Net Interest income represents
Interest income less Interest expense
during the period. Annualization is
based on 365 days per year and is
calendar day-adjusted.
(9) Provision Rate equals the Provision
for loan losses for the period divided
by Originations of Loans held for
investment for the period. Because we
reserve for probable credit losses
inherent in the portfolio upon
origination, this rate is
significantly impacted by the
expectation of credit losses for the
period's originations volume. This
rate may also be impacted by changes
in loss expectations for loans
originated prior to the commencement
of the period.
(10) Reserve Ratio is our Allowance for
loan losses as of the end of the
period divided by the Unpaid Principal
Balance as of the end of the period.
(11) 15+ Day Delinquency Ratio equals
the aggregate Unpaid Principal Balance
for our loans that are 15 or more
calendar days past due as of the end
of the period as a percentage of the
Unpaid Principal Balance at the end of
the period. The Unpaid Principal
Balance for our loans that are 15 or
more calendar days past due includes
loans that are paying and non-paying.
Because our loans require daily and
weekly repayments, excluding weekends
and holidays, they may be deemed
delinquent more quickly than loans
from traditional lenders that require
only monthly payments.
(12) Net Charge-off Rate is calculated
as our annualized net charge-offs for
the period divided by the average
Unpaid Principal Balance outstanding
during the period. Net charge-offs
are charged-off loans in the period,
net of recoveries of prior charged-
off loans in the period. For periods
of less than one year, the metric is
annualized based on four quarters per
year and is not business day or
calendar day-adjusted.
(13) Efficiency Ratio is a measure of
operating efficiency and is calculated
as Total operating expense for the
period divided by Gross revenue for
the period.
(14) Adjusted Efficiency Ratio is non-
GAAP measure calculated as Total
operating expense divided by Gross
revenue for the period, adjusted to
exclude (a) stock-based compensation
expense and (b) items management deems
to be non-representative of operating
results or trends, all as shown in the
non-GAAP reconciliation presentation
of this metric. We believe Adjusted
Efficiency Ratio is a useful because
it provides investors and others with
a supplemental operating efficiency
metric to present our operating
efficiency across multiple periods
without the effects of stock-based
compensation, which is a non-cash
expense based on equity grants made to
participants in our equity plans at
specified prices and times but which
does not necessarily reflect how our
business is performing, and items
which may only affect our operating
results periodically. Our use of
Adjusted Efficiency Ratio has
limitations as an analytical tool and
you should not consider it in
isolation, as a substitute for or
superior to our Efficiency Ratio,
which is which is the most comparable
GAAP metric.
(15) Return on Assets is calculated as
annualized Net income (loss)
attributable to On Deck Capital, Inc.
common stockholders for the period
divided by average Total assets for
the period. For periods of less than
one year, the metric is annualized
based on four quarters per year and is
not business day or calendar day-
adjusted.
(16) Adjusted Return on Assets is a
non-GAAP measure calculated as
Adjusted Net income (loss) for the
period divided by average Total Assets
for the period. For periods of less
than one year, the metric is
annualized based on four quarters per
year and is not business day or
calendar day-adjusted. We believe
Adjusted Return on Assets is useful
because it provides investors and
others with a supplemental metric to
assess our performance across multiple
periods without the effects of stock-
based compensation, which is a non-
cash expense based on equity grants
made to participants in our equity
plans at specified prices and times
but which does not necessarily reflect
how our business is performing, and
items which may only affect our
operating results periodically, all as
shown in the non-GAAP reconciliation
presentation of this metric. Our use
of Adjusted Return on Assets has
limitations as an analytical tool and
you should not consider it in
isolation, as a substitute for or
superior to Return on Assets, which is
the most comparable GAAP metric.
(17) Return on Equity is calculated as
annualized Net income (loss)
attributable to On Deck Capital, Inc.
common stockholders for the period
divided by average Total On Deck
Capital, Inc. stockholders' equity for
the period. For periods of less than
one year, the metric is annualized
based on four quarters per year and is
not business day or calendar day-
adjusted.
(18) Adjusted Return on Equity is a
non-GAAP measure calculated as
Adjusted Net Income (Loss)
attributable to On Deck Capital, Inc.
common stockholders for the period
divided by average Total On Deck
Capital, Inc. stockholders' equity for
the period. For periods of less than
one year, the metric is annualized
based on four quarters per year and is
not business day or calendar day-
adjusted. We believe Adjusted Return
on Equity is a useful because it
provides investors with a supplemental
metric to assess our performance
across multiple periods without the
effects of stock-based compensation,
which is a non-cash expense based on
equity grants made to participants in
our equity plans at specified prices
and times but which does not
necessarily reflect how our business
is performing, and items which may
only affect our operating results
periodically, all as shown in the non-
GAAP reconciliation presentation of
this metric. Our use of Adjusted
Return on Equity has limitations as an
analytical tool and you should not
consider it in isolation, as a
substitute or superior to Return on
Equity, which is the most comparable
GAAP metric.
(19) Adjusted Net income (loss) is a
non-GAAP measure calculated as Net
income (loss) attributable to On Deck
Capital, Inc. common stockholders
adjusted to exclude from Net income
(loss) attributable to On Deck
Capital, Inc. common stockholders (a)
stock-based compensation expense and
(b) items management deems to be non-
representative of operating results or
trends, all as shown in the non-GAAP
reconciliation presentation of this
metric. We believe Adjusted Net income
(loss) is useful because it provides
investors and others with a
supplemental profitability metric to
present our performance across
multiple periods without the effects
of stock-based compensation, which is
a non-cash expense based on equity
grants made to participants in our
equity plans at specified prices and
times but which does not necessarily
reflect how our business is
performing, and items which may only
affect our operating results
periodically. Our use of Adjusted Net
income (loss) has limitations as an
analytical tool and you should not
consider it in isolation, as a
substitute for or superior to Net
income (loss) attributable to On Deck
Capital, Inc. common stockholders,
which is the most comparable GAAP
metric.
(20) Adjusted Net income (loss) per
share is a non-GAAP measure
calculated as Adjusted Net income
(loss) divided by the weighted average
common shares outstanding during the
period. We believe Adjusted Net
income (loss) per share is useful
because it provides investors and
others with a supplemental
profitability metric to present our
performance across multiple periods
without the effects of stock-based
compensation, which is a non-cash
expense based on equity grants made to
participants in our equity plans at
specified prices and times but which
does not necessarily reflect how our
business is performing, and items
which may only affect our operating
results periodically. Our use of
Adjusted Net income (loss) per share
has limitations as an analytical tool
and you should not consider it in
isolation, as a substitute for or
superior to Net income (loss)
attributable to On Deck Capital, Inc.
common stockholders per share, which
is the most comparable GAAP metric.
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SOURCE On Deck Capital, Inc.
