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."
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.
