Company Presentation. March 2015



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Transcription:

Company Presentation March 2015

Forward-Looking Statements This presentation, including the accompanying oral presentation (collectively, this presentation ), does not constitute an offer to sell or the solicitation of an offer to buy any securities. This presentation is provided by On Deck Capital, Inc. ( OnDeck ) for informational purposes only. No representations express or implied are being made by OnDeck or any other person as to the accuracy or completeness of the information contained herein. This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other legal authority. Forwardlooking statements include statements about scalability, growing distribution channels, credit predictability and information concerning our future financial performance, business plans and objectives, potential growth opportunities, financing plans, competitive position, industry environment and potential market opportunities. Forwardlooking statements can also be identified by words such as "will," "enables," "expects," "allows," "continues," "believes," "anticipates," "estimates" or similar expressions. Forward-looking statements are neither historical facts nor assurances of future performance. They are based only on our current beliefs, expectations and assumptions regarding the future of our business, anticipated events and trends, the economy and other future conditions. Moreover, we do not assume responsibility for the accuracy and completeness of forward-looking statements. As such, they are subject to inherent uncertainties, changes in circumstances, known and unknown risks and other factors that are difficult to predict and in many cases outside our control. As a result, you should not rely on any forward-looking statements. Our expected results may not be achieved, and actual results may differ materially from our expectations. Important factors that could cause actual results to differ from our forward-looking statements are the risks that we may not be able to manage our anticipated or actual growth effectively, that our credit models do not adequately identify potential risks, and other risks, including those in documents that we file with the Securities and Exchange Commission, or SEC, from time to time which are available on the SEC website at www.sec.gov. We undertake no obligation to publicly update any forwardlooking statements for any reason after the date of this presentation to conform these statements to actual results or to changes in our expectations, except as required by law. In addition to the U.S. GAAP financial information, this presentation includes certain non-gaap financial measures. We believe that non-gaap measures can provide useful supplemental information for period-to-period comparisons of our core business and is useful to investors and others in understanding and evaluating our operating results. These non-gaap measures have not been calculated in accordance with U.S. GAAP. You should not consider them in isolation or as a substitute for an analysis of our results under U.S. GAAP. There are a number of limitations related to the use of these non-gaap measures versus their nearest GAAP equivalents. For example, neither Adjusted EBITDA nor Adjusted Net (Loss) Income is a substitute for Net (Loss) Income. In addition, other companies may calculate non-gaap financial measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-gaap financial measures as tools for comparison. Adjusted EBITDA excludes some recurring costs, including interest expense associated with debt used for corporate purposes, non-cash stock-based compensation, depreciation and amortization expense and fair value adjustment for our warrant liability. Therefore Adjusted EBITDA does not reflect interest expense, the non-cash impact of stock-based compensation or working capital needs that will continue for the foreseeable future. Adjusted Net (Loss) Income excludes stock-based compensation expense and warrant liability fair value adjustment which will continue for the foreseeable future and therefore will generally be more favorable than Net (Loss) Income determined in accordance with GAAP. Please refer to the Non-GAAP Reconciliations at the end of this presentation for a description of these non-gaap measures and a reconciliation to Net (Loss) Income. 2

OnDeck Powers the Growth of Small Businesses Through Lending and Technology Innovation Card Quest Inc. Shannon Schofield Mojito Maintenance Dan Gonzalo Furry Tales Doggy Daycare Lena Botwright J.a.m.b.s Jewelry Mark S. Desrochers Seasons Gerald Palumbo 3

A Leading Online Platform for Small Business Lending $2 Billion+ total originations Originations $MM 1,158 150%+ y-o-y originations growth Scalable financial model 30,000+ small business served 459 168 369 2013 2014 Q4 '13 Q4 '14 Gross Revenue $MM 158 5 th Generation proprietary credit scoring model 73 net promoter score 65 50 23 2013 2014 Q4'13 Q4'14 4

Investment Highlights Massive and underserved market Proprietary analytics and scoring models Integrated and scalable technology platform Diversified customer acquisition channels Robust funding platform Experienced management team Attractive financial profile 5

Small Business Lending Market is Massive and Underserved 28MM U.S. Small Businesses $80-120Bn $80-120Bn Unmet Demand Unmet for Small Demand Business for Lines Small of Credit Business Lines of Credit $178Bn Business Loan Balances Under $250,000 in the U.S. in Q3 ꞌ14 30K OnDeck Unique Small Businesses Served $0.6Bn OnDeck Loans Under Management 1 Sources: U.S. SBA, FDIC, Oliver Wyman, How New-Form Lending Will Shape Banks Small Business Strategies, 2013 1. As of 12/31/2014; Loans under management represents the unpaid principal balance plus the amount of principal outstanding for loans held for sale, excluding net deferred origination costs, and the amount of principal outstanding of term loans the company serviced for others, each at the end of the period. 6

Diversity of Small Businesses Creates Challenges for Traditional Lenders Cash Flow Profile Restaurant Credit Card Rev. Cash Rev. Monthly Exp. Inventory & Payroll Landscaping Company Landscaping Rev. Snow Removal Rev. Monthly Exp. Fuel & Payroll Plumbing Company CHALLENGES FOR TRADITIONAL LENDERS Diverse businesses require manual underwriting Technology and data limitations Lack of standardized small business credit score Repair Rev. Subcontractor Rev. Monthly Exp. Supplies & Payroll Q1 Q2 Q3 Q4 7

Leading to a Frustrating Borrowing Experience for Small Businesses FRUSTRATIONS FOR SMALL BUSINESSES Time consuming offline process Non-tailored credit assessment Product mismatch Rigid collateral requirements 8

The OnDeck Score Proprietary and Purpose Built for Small Business 5 th Generation proprietary credit scoring model Transactional Data Score 100+ external data sources 10 Million+ small businesses in proprietary database 2,000+ data points per application Credit Data Proprietary Data Accounting Data Public Records Social Data Proprietary Data Analysis Platform Probabilistic record linkage Dimensionality reduction Ensemble learning Exhaustive cross validation Feature engineering Adaptive learning A B C D E F Risk Grading 9

We Rely on the OnDeck Score for Greater Accuracy, Predictability and Access % of Defaults Eliminated More Accurate than the Personal Credit Score at Predicting Bad Credit Risk 1 Resulting in Funding Significantly More Loans for the Same Risk 100% 90% 40 20 10 10% 0% 100% 40% 20% 10% 0% Acceptance Rate (%) Random Personal Credit Score OnDeck Score The OnDeck Score Personal Credit Score Random 1. Analysis on OnDeck Score v5 using actual OnDeck loan performance data. 10

The OnDeck Solution for Small Business Lending Apply Approve Fund Online Minutes 1 Automated Review As Fast As Immediately 3 As Fast As Same Day Traditional Lending Offline Manual Review 33 Hours 2 Weeks or Months Several Days 1. Application time depends on customer having the required documentation available. 2. Source: Small business survey conducted by the Federal Reserve Bank of New York, Spring 2014 3. Approximately 1/3 of customers are subjected to secondary, manual review process. 11

Tailored Products for Small Businesses Term Loan (Launched in 2007) Line of Credit (Launched in September 2013) Use Case Buying Inventory Hiring New Staff Marketing Managing Cash Flow Size $5,000 $250,000 $5,000 $25,000 Term 3 24 months 6 months Pricing 1 Average monthly cents-on-dollar of 2.23 Average 52% APR Average 36% APR Payment Automated daily or weekly payments Automated weekly payments Availability Renewal opportunity at ~50% paid down Draw on-demand 1. Based on Q4 ꞌ14. 12

Established and Diverse Customer Base $569,000 Median Annual Revenue 7.5 Years Median Time in Business 700+ Industries 30,000+ Small Businesses Served in all 50 U.S. states 13

Integrated and Scalable Technology Platform Online Customer Experience Data Aggregation, Analytics and Scoring Technology Powered Servicing & Collections $2 Billion+ Total Originations 52,000+ Total Loans 5.3 Million+ Customer Payments 14

Diversified and Growing Distribution Channels Direct Strategic Partners Funding Advisors 14,920 5,758 1,276 2012 2013 2014 3,870 437 1,346 2012 2013 2014 8,131 5,955 3,731 2012 2013 2014 Channel Mix 2014 30% 55% 14% Direct Funding Advisors Strategic Partners Numbers represent loan units. 15

Robust Funding Platform OnDeck Marketplace Diversified Securitization Scalable Durable Warehouse Lines Low-cost Capital-efficient Funding mix is shown as of December 31, 2014 based on unpaid principal balance on loans and line of credit with the exception of OnDeck-funded loans. 16

Consistent Portfolio Performance Over Time Net Charge-offs by Cohort 1 5.5% 9.0% 6.4% 4.4% 5.5% 6.9% 6.5% 2.1% 2007 2008 2009 2010 2011 2012 2013 2014 2 2 2 1. Percentage of dollars loaned that are charged off. 2. As of 12/31/14, principal balance still outstanding was 0% for all cohorts except the 2012, 2013 and 2014 cohorts, which had principal outstanding of 0.1%, 1.6% and 49.1%, respectively. 17

Growth Strategy Brand and direct marketing Product expansion Strategic partnerships Extend customer lifetime value Data and analytics International expansion 18

Industry Leading Management Team and Investors Management Team Team Experience Noah Breslow CEO Howard Katzenberg CFO James Hobson COO Pamela Rice Technology Paul Rosen Sales Krishna Venkatraman Data & Analytics Cynthia Chen Risk Andrea Gellert Marketing Zhengyuan Lu Capital Markets Board of Directors James Robinson III RRE Ventures American Express David Hartwig Sapphire Ventures Ron Verni Sage Software Sandy Miller Institutional Venture Partners Jane J. Thompson Walmart Financial Services CFPB Advisory Board Neil Wolfson SF Capital Group 19

Financial Highlights Rapid growth Compelling customer lifetime value Capital light funding model Demonstrated operating leverage 20

Rapid Originations Growth ($MM) $369 $313 $227 $248 $168 $28 $34 $50 $61 $75 $93 $122 Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 Q3 '14 Q4 '14 2012 2013 2014 The sum of the quarters may not exactly match the annual numbers due to rounding. 21

Strong Gross Revenue Growth ($MM) $44 $50 $36 $5 $5 $7 $9 $11 $14 $18 $23 $29 Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 Q3 '14 Q4 '14 2012 2013 2014 The sum of the quarters may not exactly match the annual numbers due to rounding. 22

Illustrative Loan Economics Revenues Expenses Origination Fee Acquisition Interest Income - Processing and Servicing Funding Costs = Loan Profit Losses 23

Reducing Pricing While Improving Margins Pricing Declined 1 Effective Interest Yields Remained Steady While NIM After Net-Charge- Offs Improved 2 69% 54% 41% 40% 17% 25% 2012 2014 2012 2014 2012 2014 1. Pricing quoted in APR. 2. Defined as (interest income - interest expense net charge-offs) / average loans during the period. 24

Compelling Customer Lifetime Value Customers Acquired in Q1 ꞌ13 Average 2.3 loans per customer in 8 quarters $4.1MM in interest still outstanding ($MM) $1.9 $1.5 $1.1 $1.4 $1.6 $1.4 $15.4 Return 3 or 3.0x+ ROI after 8 quarters $5.0 $2.8 $3.7 $5.0 Investment Acquisition Cost 1 Contribution 2 Q2 ꞌ13 Q3 ꞌ13 Q4 ꞌ13 Q1 ꞌ14 Q2 ꞌ14 Q1 ꞌ13 Q3 ꞌ14 Q4 ꞌ14 1. Includes upfront internal and external commissions as well as direct marketing expenses. 2. Contribution is defined to include interest income and fees collected on initial and repeat loans, less acquisition costs for repeat loans, less the following items for both initial and repeat loans: estimated third party processing and servicing expenses, estimated funding costs (excluding any cost of equity capital) and charge offs. For this purpose, processing and servicing expenses are estimated based on the mix of new and renewal originations and outstanding principal balances. 3. Figures may not foot due to rounding. 25

Demonstrated Operating Leverage Cost of Revenue Operating Expenses 81% 84% 61% 54% 68% 51% 2012 2013 2014 2012 2013 2014 Funding Costs Provision for Loan Losses Sales & Marketing Processing & Servicing Technology & Analytics General & Administrative Figures are based on a percentage of gross revenue. 26

Adjusted EBITDA and Adjusted Net Loss $0.6 ($0.2) ($4.6) ($2.1) ($3.2) ($0.8) ($16.3) ($20.2) 2013 2014 Q4 ꞌ13 Q4 ꞌ14 Adjusted EBITDA Adjusted Net Loss See appendix for a reconciliation of these non-gaap measures. 27

Investment Highlights Massive and underserved market Proprietary analytics and scoring models Integrated and scalable technology platform Diversified customer acquisition channels Robust funding platform Experienced management team Attractive financial profile 28

APPENDIX 1

Appendix: Non-GAAP Adjusted EBITDA Reconciliation Adjusted EBITDA Year Ended December 31, Three Months Ended December 31, (000s) 2013 2014 2013 2014 Net (Loss) Income ($24,356) ($18,708) ($5,607) ($4,291) Adjustments: Corporate Interest Expense 1,276 398 206 124 Income Tax Expense Depreciation and Amortization 2,645 4,071 881 1,223 Stock-Based Compensation Expense 438 2,842 171 1,395 Warrant Liability Fair Value Adjustment 3,739 11,232 2,243 2,110 Adjusted EBITDA ($16,258) ($165) ($2,106) $561 Adjusted EBITDA represents our net income (loss), adjusted to exclude interest expense associated with debt used for corporate purposes (rather than funding costs associated with lending activities), income tax expense, depreciation and amortization, stock-based compensation expense and warrant liability fair value adjustment. EBITDA is impacted by changes from period to period in the fair value of the liability related to preferred stock warrants. Management believes that adjusting EBITDA to eliminate the impact of the changes in fair value of these warrants is useful to analyze the operating performance of the business, unaffected by changes in the fair value of preferred stock warrants which are not relevant to the ongoing operations of the business. All such preferred stock warrants converted to common stock warrants upon initial our initial public offering in December 2014. 30

Appendix: Non-GAAP Adjusted Loss Reconciliation Adjusted Net Loss Year Ended December 31, Three Months Ended December 31, (000s) 2013 2014 2013 2014 Net Loss ($24,356) ($18,708) ($5,607) ($4,291) Adjustments: Stock-Based Compensation Expense 438 2,842 171 1,395 Warrant Liability Fair Value Adjustment 3,739 11,232 2,243 2,110 Adjusted Net Loss ($20,179) ($4,634) ($3,193) ($786) Adjusted net loss represents our net income (loss) adjusted to exclude stock-based compensation expense and warrant liability fair value adjustment, each on the same basis and with the same limitations as described before for Adjusted EBITDA. 31