This morning OnDeck announced their second quarter 2017 earnings. In addition to the earnings release and webcast, we were able to speak with OnDeck CEO Noah Breslow today to get additional perspective on the financials and the news they shared.
The big win for the quarter was that they have expanded their partnership with JPMorgan Chase by up to four years. When we spoke to Breslow he wasn’t able to provide much additional detail about the partnership but he did say that the credit performance of these Chase loans has met or exceeded expectations. He also said that the initial structure of the relationship is still in place in their new deal.
The other interesting tidbit Breslow shared was around the SMART Box. The SMART Box was announced in October 2016 by the Innovative Lending Platform Association (ILPA) and it has been part of all OnDeck loans and lines of credit for several months now. He said that Chase has also adopted the SMART Box in all the loans originated in their OnDeck partnership, so having the Chase stamp of approval is a big positive for this new initiative.
In the Q&A section of the call Breslow teased that there may be an opportunity to expand the reach of the product beyond Chase customers. Although he wouldn’t elaborate further it’s safe to say that there is much more opportunity to grow both the product offerings and the target market. Not surprisingly the Chase book is lower risk compared to OnDeck’s book and they have increased the maximum loan size from $100,000 to $200,000. The net promoter score of the product remains high at 84. OnDeck provided the below screenshot of how the Chase offering is presented to prospective borrowers.
On to the numbers from the Q2 earning report. OnDeck loan originations fell to $464 million down from $590 million in Q2 2016 as the company continues to tighten their credit policy. Gross revenue increased to $86.7 million, up 25% year over year. Loans sold or designated as held for sale on OnDeck’s marketplace fell to just 2.3%, continuing the trend of OnDeck holding more loans on their balance sheet. Adjusted EBITDA was $3.3 million for the quarter, up from a negative $12.4 million in the prior year period.
Last quarter we reported that the company was seeking to achieve GAAP profitability by the end of the year, something that they would have achieved this quarter but for the one-time $3 million of severance charges. Breslow noted that the company is on track to return to sequential originations growth in the third quarter. Below is a look at OnDeck’s EBITDA over the last seven quarters showing the progress they have made. [Read more…]