Author Topic: Lending Club 2Q 2016 Results  (Read 6463 times)

bdonovan

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Lending Club 2Q 2016 Results
« on: August 08, 2016, 04:36:32 PM »
http://ir.lendingclub.com/Cache/1001212877.PDF?Y=&O=PDF&D=&fid=1001212877&T=&iid=4213397

Lending Club Reports Second Quarter 2016 Results
Investors Re-engage in June
Total Originations Reach $2 Billion in the Second Quarter

SAN FRANCISCO – August 8, 2016 – Lending Club (NYSE:LC), the world’s largest online marketplace
connecting borrowers and investors, today announced financial results for the second quarter ended
June 30, 2016 and re-established guidance for the third quarter.

Quarter Ended June 30, Six Months Ended June 30,
($ in millions) 2016 2015 % Change 2016 2015 % Change
Originations $ 1,955.4 $ 1,911.8 2% $ 4,705.4 $ 3,546.8 33%
Operating Revenue $ 102.4 $ 96.1 7% $ 253.7 $ 177.2 43%
Net Loss(1 ) $ (81.4) $ (4.1) N/M $ (77.3) $ (10.5) N/M
Adjusted EBITDA(2) $ (30.1) $ 13.4 N/M $ (4.9) $ 24.0 N/M
N/M Not Meaningful

(1)
Includes $35.4 million of goodwill impairment in the quarter ended June 30, 2016
(2) Adjusted EBITDA is a non-GAAP financial measure. Please see the discussion below under the heading "Non-GAAP
Measures" and the reconciliation at the end of this release.
“Our efforts to reengage investors are working, with fifteen of our top twenty largest investors back
on the platform today,” said Lending Club’s CEO and President, Scott Sanborn. “Despite the unusual
disruption to our supply of capital in May, we facilitated nearly $2 billion of loans to nearly 170,000
borrowers. While we still have a lot of work ahead, the value that we bring to borrowers and
investors is stronger than ever, and we believe we have the resources and resolve to execute on our
mission.”

Second Quarter 2016 Financial Highlights

Originations – Loan originations in the second quarter of 2016 were $1.96 billion, compared to
$1.91 billion in the same period last year, an increase of 2% year-over-year. The Lending Club
platform has now facilitated loans totaling nearly $21 billion since inception.
Operating Revenue – Operating revenue in the second quarter of 2016 was $102.4 million,
compared to $96.1 million in the same period last year, an increase of 7% year-over-year. Operating
revenue as a percent of originations, or revenue yield, was 5.24% in the second quarter, up from
5.03% in the same period last year.

Net Loss – GAAP net loss was $81.4 million for the second quarter of 2016, compared to a net loss
of $4.1 million in the same period last year. The results for the second quarter of 2016 were
negatively affected by a Goodwill impairment charge of $35.4 million related to the 2014 acquisition
of Springstone, an increase in professional service fees of $14.9 million primarily due to matters
identified in the board review previously announced, approximately $14.0 million in incentives paid
to investors, and an increase in compensation related costs of $6.5 million associated with severance
costs and a retention program.

Adjusted EBITDA(2)

 – Adjusted EBITDA was $(30.1) million in the second quarter of 2016,
compared to $13.4 million in the same period last year. As a percent of operating revenue, Adjusted
EBITDA margin decreased to (29.4)% in the second quarter of 2016, down from 13.9% in the same
period last year.

Earnings Per Share (EPS) - Basic and diluted EPS was $(0.21) for the second quarter of 2016,
compared to basic and diluted EPS of $(0.01) in the same period last year.

Adjusted EPS(2)– Adjusted EPS was $(0.09) for the second quarter of 2016 compared to $0.03 in
the same period last year.

Cash, Cash Equivalents and Securities Available for Sale - As of June 30, 2016, cash, cash
equivalents and securities available for sale totaled $832 million, with no outstanding debt.

bdonovan

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Re: Lending Club 2Q 2016 Results
« Reply #1 on: August 08, 2016, 04:38:50 PM »
It appears to be a big miss by Lending Club.  EPS expectations were negative 5 cents.
"The report will be for the fiscal Quarter ending Jun 2016. According to Zacks Investment Research, based on 5 analysts' forecasts, the consensus EPS forecast for the quarter is $-0.05."

LC however lost 21 cents per share.

bdonovan

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Re: Lending Club 2Q 2016 Results
« Reply #2 on: August 08, 2016, 04:52:17 PM »
The PPT for the results are; some very interesting slides -
http://s000.tinyupload.com/index.php?file_id=46175123044862330388

Slide 4- Origination of loans took a hit; LC had grown loan originations every quarter since Q1'11; Q2 2016 was the first quarter->quarter drop (although year over year numbers are up).  2.75B in originations in Q1 2016 to 1.95B originations in Q2 2016.

See slide 10- Post-Scandal, Banks have largely dropped off the platform as far as buying.  Other Institutional is down too.  Managed Accounts (which I presume include are primarily financial advisers but not certain) is way up as a fraction of overall new loans bought.  Individual investors is steady.  Banks and Other Institutional combined made up 55% of loans in Q1 2016; post scandal Q2 they made up only 28%. 

Fred93

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Re: Lending Club 2Q 2016 Results
« Reply #3 on: August 08, 2016, 04:55:38 PM »
It appears to be a big miss by Lending Club.  EPS expectations were negative 5 cents.
"The report will be for the fiscal Quarter ending Jun 2016. According to Zacks Investment Research, based on 5 analysts' forecasts, the consensus EPS forecast for the quarter is $-0.05."

LC however lost 21 cents per share.

For the the normal operations of the company, that -$0.05 isn't far off.  However, there are some writedowns and scandal expenses, and downsizing expenses, specifically...
Quote
The results for the second quarter of 2016 were
negatively affected by a Goodwill impairment charge of $35.4 million related to the 2014 acquisition
of Springstone, an increase in professional service fees of $14.9 million primarily due to matters
identified in the board review previously announced, approximately $14.0 million in incentives paid
to investors, and an increase in compensation related costs of $6.5 million associated with severance
costs and a retention program.

Fred93

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Re: Lending Club 2Q 2016 Results
« Reply #4 on: August 08, 2016, 04:59:48 PM »
Ended the quarter with $832M cash + equivalents still on their balance sheet.  This means even thru all of the difficulties of this quarter, they didn't burn much cash.  That's excellent.

Remember all those naysayers who were saying that LC might use up all their cash doing stupid things?  Well, they didn't.

bdonovan

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Re: Lending Club 2Q 2016 Results
« Reply #5 on: August 08, 2016, 05:02:40 PM »
Slide 15: Expenses up to 66% of Revenue from 50-55% range of Revenue in prior quarters.
Slide 18: Adjusted EBITDA margin for 2q 2016 = -30.1 ; compared to 25.2 last quarter

Rob L

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Re: Lending Club 2Q 2016 Results
« Reply #6 on: August 08, 2016, 05:12:59 PM »
Waiting for the Q&A ...

bdonovan

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Re: Lending Club 2Q 2016 Results
« Reply #7 on: August 08, 2016, 05:32:44 PM »
It appears to be a big miss by Lending Club.  EPS expectations were negative 5 cents.
"The report will be for the fiscal Quarter ending Jun 2016. According to Zacks Investment Research, based on 5 analysts' forecasts, the consensus EPS forecast for the quarter is $-0.05."

LC however lost 21 cents per share.

For the the normal operations of the company, that -$0.05 isn't far off.  However, there are some writedowns and scandal expenses, and downsizing expenses, specifically...
Quote
The results for the second quarter of 2016 were
negatively affected by a Goodwill impairment charge of $35.4 million related to the 2014 acquisition
of Springstone, an increase in professional service fees of $14.9 million primarily due to matters
identified in the board review previously announced, approximately $14.0 million in incentives paid
to investors, and an increase in compensation related costs of $6.5 million associated with severance
costs and a retention program.

Some things:

-The professional services fee appears to be to improve controls and reporting necessary to improve confidence of institutional investors.  That along with incentives may not subside at end of Q2.  They seem to indicate that the $14.9M for professional service fees and $14M for incentives is already "paid"; I don't know per accounting if that takes the Q3 expected fees into account, but if it doesn't, I think it's not unreasonable to think that some of these fees will carry over to Q3.  Incentives are active in July and expire end of August so they will exist in 2/3rds at least of Q3.  Given that banks have stringent requirements for diligence, I think it's also possible the professional service fee to improve controls, report them in ways that satisfy the bank/other-institutional's needs, and ongoing engagement with them -- that these costs, even if lesser, continue to Q3. 

The key question is whether they can recover loan origination levels- either by recovering the investment by banks/other-i or growing other investor classes more rapidly. 

It appears they've made progress on this front.  They said it quickly but it sounded like 15 of 20 institutional investors are now back buying on LC after the scandal if at lower levels.  Also: "Jefferies successfully executed a three times oversubscribed near prime securitization in August 2016 for $134 million of unsecured Lending Club personal loans".  With news of Western Asset buying LC notes, that could be a key deal (and potentially encourage other firms to do the same).

Overall I'd say the earnings call was a disappointment- esp. with just how much originations slowed; key to turnaround is their execution esp. in the next 3 months to turn originations around and restore momentum and confidence of market.

bdonovan

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Re: Lending Club 2Q 2016 Results
« Reply #8 on: August 08, 2016, 05:39:16 PM »
Q&A notes
---

Q: Will 'unusual expenses' continue.
A: Unusual one-time expenses are said to be reduced by 80% by end of the year.  (These refer to: incentives, control/reporting professional services fees.  To my point earlier, these expenses on controls, reporting etc. will go beyond this quarter.)

Q: Of Large Investors back on the platform, how much reduced are their investments.
A: 15 of 20 largest investors- back on platform.  They are lower.  (Sanborn does not answer question; does not say how much their investments have reduced).

Q: Expenses in 2H
A: Legal, Due Dilligence costs will continue. 
« Last Edit: August 08, 2016, 05:42:28 PM by bdonovan »

Fred93

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Re: Lending Club 2Q 2016 Results
« Reply #9 on: August 08, 2016, 05:51:40 PM »
Overall I'd say the earnings call was a disappointment- esp. with just how much originations slowed;

6/28/2015 press release said they expected originations in Q2 to be down about one third from Q1.
http://ir.lendingclub.com/file.aspx?IID=4213397&FID=34897080

Q1 was $2,750,000. so down a third would have been $1,833,333.

Q2 came in at $1,955,400.  That's higher than what they told you to expect.   

That would only be a disappointment if you expected them to do much better than they told you to expect.  You certainly can't call doing about what they said they'd do as a negative surprise.

bdonovan

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Re: Lending Club 2Q 2016 Results
« Reply #10 on: August 08, 2016, 05:57:15 PM »
Overall I'd say the earnings call was a disappointment- esp. with just how much originations slowed;

6/28/2015 press release said they expected originations in Q2 to be down about one third from Q1.
http://ir.lendingclub.com/file.aspx?IID=4213397&FID=34897080

Q1 was $2,750,000. so down a third would have been $1,833,333.

Q2 came in at $1,955,400.  That's higher than what they told you to expect.   

That would only be a disappointment if you expected them to do much better than they told you to expect.  You certainly can't call doing about what they said they'd do as a negative surprise.

True.  LC is trading down after hours, I suppose that was a response to earnings not originations. 

Rob L

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Re: Lending Club 2Q 2016 Results
« Reply #11 on: August 08, 2016, 06:03:37 PM »
Think they said 50% of originations were done pre 5/9.
Got bad ears. Did I hear that correctly?

fliphusker

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Re: Lending Club 2Q 2016 Results
« Reply #12 on: August 08, 2016, 06:17:12 PM »
Think they said 50% of originations were done pre 5/9.
Got bad ears. Did I hear that correctly?
I believe I heard the same.  So the first five weeks really propped up Q2. 
$81 million down, basically what was to be expected. 
Did I catch it right though that there was only around $12 million of loans bought in Q2 that were still on the books?
They said that 80% of those added expenses would be gone by the end of Q4, how much of that will be listed in Q3?
Sandborn skirted the question about how much the 15 of the top 20 institutions money has returned.  Where the 5 that have not come back, who were they and were they in the top 5? 
Liked that they talked about the retail side bouncing back first, guess that is expected.  Now it boils down to added new investors and quality borrowers. 
Looks like the doom and gloomers who predicted the sky would fall today, will have to wait another day.  LC does not appear to be going anywhere anytime soon. 

bdonovan

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Re: Lending Club 2Q 2016 Results
« Reply #13 on: August 08, 2016, 06:41:04 PM »
They said that 80% of those added expenses would be gone by the end of Q4, how much of that will be listed in Q3?

This seemed to be on the minds of the attendees of the call in the QA- it was asked a few different ways.  They didn't clarify what would be the expected expenses for Q3.  However, we know the incentives will hit July and August.  The answer by the CFO seemed to imply to me that the legal and professional service fees would continue to be significant in Q3 because of regulatory/internal-risk concerns of banks.  I would suppose if the banks reviewed what LC put in place, and required further controls, LC would likely choose bear the cost to recover the investment.

rawraw

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Re: Lending Club 2Q 2016 Results
« Reply #14 on: August 08, 2016, 07:00:57 PM »
Very pleased to see the stability of cash on the balance sheet.  It'll be interesting to see how LC trades tomorrow.  Not sure how a miss due largely to goodwill will be perceived.