Yesterday, Prosper reported their Q2 2018 results. The company facilitated $867 million in loans for the quarter, up 12% from the prior year period. Prosper reported a net loss of approximately 12.6 million. While this is significantly better than the prior year period of $41.4 million, their losses increased slightly from the first quarter ($11.4 million). Total net revenues for Q2 2018 were $31.7 million, up slightly from the prior year period.

Below is a summary of Prosper’s key operating and financial metrics:

With their recent quarter, Prosper crossed the 1 million loan mark and surpassed $13 billion in loans total. David Kimball, Prosper CEO provided his perspective on the company’s progress related to adjusted EBITDA as well as platform changes in a prepared statement included in the press release:

“For the fifth consecutive quarter we successfully balanced growth with generating positive Adjusted EBITDA…Maintaining a balanced marketplace that provides value to both borrowers and investors remains our highest priority. Throughout 2018, Prosper has been raising interest rates and significantly tightening credit in order to ensure that we continue to provide a fair price for borrowers and a solid risk-adjusted return for investors.”

Prosper also highlighted that they have upsized their committed revolving warehouse facility to $200 million to continue to participate alongside their investors. We’ve seen this elsewhere in the marketplace lending space with LendingClub holding more loans on balance sheet for the purposes of selling these loans to investors at a future date. As of June 30, 2018 Prosper had $116.8 million of loans on their balance sheet held for sale.

You can view Prosper’s full 10-Q report on the SEC website.

It was only a couple of months ago that we wrote about Prosper’s 2017 results. The major highlights were growing originations to $2.9 billion and the consortium deal that closed at the beginning of the year. Yesterday Prosper shared their Q1 2018 results.

The company continued its growth in originations which totaled $744 million in Q1 2018. Remember, as discussed last week in LendingClub’s earnings that Q1 is typically a lighter quarter for originations.

Prosper’s originations were up 27% from the prior year period. For comparison purposes, LendingClub increased originations 18% over the same period although it’s worth mentioning that LendingClub originated about three times as many loans in the first quarter.

Prosper also made progress in improving their financials, producing a net loss of $11.4 million compared to a net loss of $24 million in Q1 2017. The company produced a net loss of 22.7 million in Q4 2017. Total net revenue was approximately flat year over year coming in at $30.5 million in Q1 2018. Prosper highlighted in their press release that this includes the non-cash impact related to warrants to purchase preferred stock. Excluding these warrants, Prosper reported that core revenue increased to $45.7 million, up 34% from the prior year period.

Prosper included their fourth and largest securitization as a milestone for the company which closed in the first quarter. It was a $650 million transaction which put the company over the $2 billion mark in securitizations. Prosper also closed their first $100 million revolving warehouse facility to participate in loans originated by the platform.

Below is a table which summarizes their financials for the quarter:

Prosper’s 10-Q is available in its entirety on the SEC’s Edgar website. While there are plenty of details about Prosper’s business there, I’ve taken our a snippet below which discusses Prosper’s investor concentration. There are two takeaways here. One is that Prosper is relying significantly on one whole loan buyer. The second is that the retail channel continues to shrink. Only 7% of loans are funded through the fractional marketplace, down 3% from the prior quarter.

Prosper is dependent on third party funding sources such as banks, assets managers and investment funds to provide the funds to allow WebBank to originate Borrower Loans that the third party funding sources will later purchase. Of all Borrower Loans originated in the quarter ended March 31, 2018, the largest party purchased a total of 45% of those loans. This compares to 33%, 24% and 12% for the three largest parties for the three months ended March 31, 2017.  The party purchasing 24% for the three months ended March 31, 2017 is a member of the Consortium and purchased these loans prior to the closing of the Consortium Agreement on February 27, 2017. Further, a significant portion of our business is dependent on funding through the Whole Loan Channel, for which 93% and 90% of Borrower Loans were originated through the Whole Loan Channel in the three months ended March 31, 2018 and March 31, 2017, respectively.

One piece not explicit in Prosper’s press release is loan performance. One of the other resources I get value out of is Prosper’s monthly performance updates which they post to their blog. The latest post highlights takeaways from March. These are a great way to better understand how loans are performing, how loan grades are shifting and what Prosper is seeing overall from their borrowers without having to dig deep into their 10-Q.

Conclusion

Prosper has made significant progress over the last year. While it is apparent that the consortium has had an effect on their net revenue it also has allowed the business to grow over the same time period. It’s going to be interesting to see whether we continue to see significant origination growth over the coming quarters and how that effects the company’s bottom line.

There has been a shift in focus at the large online lending companies over the last year and a half in the US. Gone are the days of relentless growth and now we see a focus on cash generation and the bottom line. Companies have proved that they can use technology to better serve borrowers, but many investors are wondering if they can do it profitably. Last week we shared third quarter earnings releases from LendingClub and OnDeck and yesterday Prosper released their third quarter results.

Originations grew to $821 million in the quarter, up from $311 million in the same period last year and grew 6% from the previous quarter. The company also increased the fees it collected. Prosper reported a net loss of $26.9 million for the quarter, which was an increase of about $10 million from last year. According to the press release the amount, “included $28.1 million in non-cash charges related to warrants to purchase preferred stock that were issued to a consortium of investors and a third party in connection with a settlement agreement.”

The consortium referenced was announced earlier this year and included loan purchases of up to $5 billion over two years. This is the reason you’ll notice an Adjusted EBITDA of about $7 million for the quarter in the table below. More importantly, you will see net cash flow in Q3 of $9.9 million up from $8.6 million in Q2 and -$4.2 million in the same period last year.

Other highlights for the quarter include a third securitization totaling approximately $500 million of notes. In total Prosper has closed three securitizations this year, totaling $1.5 billion.

David Kimball, CEO of Prosper stated in the press release:

We continued to see growth during the third quarter as people turned to Prosper’s personal loan product to refinance high-interest debt, pay for medical expenses, and finance home improvement projects. As we look to the end of the year and 2018, our ability to consistently generate positive operating cash flow along with the $50 million capital raise in the third quarter will help drive strategic investments in the company’s platform and products.

Conclusion

Clearly the consortium deal is having an effect on Prosper’s financial results, but as discussed previously this deal was critical to ensure the success of Prosper over the long run. Coming off from a significant decrease in originations in the second quarter of 2016, Prosper has steadily increased originations again. The company also closed their Series G round in September albeit at a much lower valuation than the round in April, 2015. Looking towards the future I expect the company will steadily grow the business while at the same time continuing to generate cash. What will be interesting, though, is what new projects they decide to invest in with the influx of cash.

The full 10-Q report for the third quarter is available on Prosper’s website.