By Daniel Lanyon on Thursday 16 February 2017
The US-based online lending platform for small businesses has seen a growth in loan origination but also an increase in costs.
Marketplace lending platform OnDeck clocked-up record levels of loans under management and origination volumes for the fourth quarter of 2016 but also saw losses widen to $29m for the quarter, versus a positive $0.3m in the same period in 2015, prompting a plan to cut the firm’s headcount by 11 per cent to lower costs.
The amount of money outstanding from its loans – the unpaid principal balance – surged to $980m at the end of 2016, up 80 per cent from 2015. The increase primarily reflected OnDeck's decision to retain more loans on its balance sheet in connection with reducing OnDeck Marketplace loan sales in 2016.
Total funding debt at the end of the fourth quarter of 2016 was $727m, up 93 per cent over the prior year period, which reflected the growth of unpaid principal balance during the period.
OnDeck increased loans under management by 35 per cent year-over-year to $1.2bn, originations by 13 per cent to $632m and gross revenue by 21 per cent to $81.8m, In 2016 overall OnDeck loaned over $2.4bn to small businesses in the U.S., Canada and Australia and earned $291.3m of gross revenue.
OnDeck has increasingly sought out diversification of its funding sources in recent months including the expansion of its corporate line of credit and the addition of a new warehouse facility with Credit Suisse. More recently, the company also expanded the funding capacity and extended the maturity of its existing warehouse facility with Ares.
Consumer-focused Lending Club reported its own Q4 numbers yesterday, also recording a net loss for 2016. While Lending Club's numbers showed it is still the largest marketplace lending platform byvolumes, it showed a fall in originations in contrast to OnDeck's growth.
OnDeck's revenue was $16.3m during the fourth quarter of 2016, down 62 per cent versus the comparable prior year period. The decline in net revenue, the firm said in a statement, reflects the reduction of OnDeck Marketplace sales, which higher provision expenses in the fourth quarter.
At the end of the fourth quarter of 2016 the firm had $80m of cash compared to $86m at September 30, 2016 and $160m at December 31, 2015. The decrease in cash and cash equivalents from December 31, 2015 primarily reflected the company's increased funding of loans on its balance sheet, the firm says.
Provision for loan losses during the fourth quarter of 2016 increased to $55.7m, up from $20m in the comparable prior year period. The reason for this is a hefty 53 per cent increase in originations of loans designated as held for investment. The increase also reflects an $18.7m addition to loan loss reserves for loans with original maturities of 15 months or longer whose performance has deviated, or is expected to deviate from prior estimates.
Its ‘provision rate’ in the fourth quarter of 2016 was 10.2 per cent compared to 5.6 per cent in the comparable prior year period. For 2016 the provision rate was 7.4 per cent.
"OnDeck made further progress executing our long-term plan during the fourth quarter of 2016," said Noah Breslow, OnDeck's chief executive officer. "We continued to benefit from steady growth of loans under management, the expansion of our funding sources, and the signing of new strategic partners."
"Portfolio delinquencies in the quarter continued to be generally consistent with historical levels."However, we recorded a higher provision expense, reflecting overall portfolio growth and a $19m addition to reserves resulting from a recalibration of loss estimates for loans with original maturities of 15 months or longer.”
“Most of these loans were originated in 2016 as part of our expanded offerings to OnDeck customers and, even with the updated loss estimates, continue to generate attractive returns."
Breslow added that the firm was committed to achieving positive EBITDA in 2017 and GAAP profitability in 2018, in part by cutting jobs.
“We are taking a number of actions to realign our cost structure while continuing to invest in OnDeck's future growth and market leadership. These actions will produce about $20m of annual savings relative to our 2016 exit operating expense run rate and will accelerate our path towards achieving our long-term financial targets," he said.
This “cost rationalisation plan” will deliver the $20m savings an approximate 11 per cent reduction in total headcount from layoffs and a reduction in non-labour expenses, primarily within sales & marketing and technology & analytics.
OnDeck's 15 day plus delinquency ratio was 6.6 per cent in the fourth quarter of 2016, flat with the prior year period but higher sequentially from 6.2 per cent due to the continued seasoning of the portfolio and the increase in delinquency roll rates from historically low levels.