By Ryan Weeks on Friday 4 November 2016
Leading small business lender OnDeck sees losses mount despite significant growth in origination and loans under management.
OnDeck, the New York Stock Exchange listed online lender for small businesses, has published its financial results for the third quarter. The company increased its loans under management by 44 per cent year-over-year to $1.1 billion, while bolstering originations by 27 per cent to $613m. Gross revenues rose by 15 per cent to $77.4m.
But despite the growth in lending, OnDeck posted an adjusted net loss of $12.9m on the quarter, down from $7.4m of adjusted net income in the prior year period. Its adjusted EBITDA was a loss of $10.8m on the quarter, compared to positive $9m in Q3 2015. The company expects to post an adjusted EBITDA of between a loss of $35m and a loss of $43m for 2016, with gross revenues for the year of between $280m and $290m.
OnDeck operates a hybrid lending model which involves keeping some loans on balance sheet while distributing others via an institutional marketplace, often for a mark-up. But the platform’s marketplace sales have been trending downwards in 2016, in keeping with a wider decline in investor appetite across the industry.
OnDeck CEO Noah Breslow (pictured above) highlighted the reduction in the firm’s marketplace sales as a significant drag on the Q3 numbers. “While we made progress on several fronts and remain well-positioned to execute on our strategy, our financial comparisons continue to be affected by our planned and previously communicated reduction in Marketplace sales and its resulting accounting impact,” he said.
The firm’s cost of funding during the third quarter of 2016 decreased to 5.7 per cent, down from 5.8 per cent in Q3 2015. Operating expenses were $49.4 million, up 16 per cent over last year as the company continued to invest in its technology and analytics capabilities.
Weighing on the platform’s credit performance through the third quarter, OnDeck’s chief financial officer Howard Katzenburg said: "From a credit perspective, our 15+ Day Delinquency Ratio remained below prior year period levels but, as expected, increased sequentially from historic lows. Our provision rate for the third quarter was 6.9%, which reflected consistent loss estimates for new originations and a reserve build for term loans originated in prior periods."
OnDeck’s common stockholders lost $16.6m in the third quarter, compared to net income of $3.7m across the same period in the previous year.