|09/11/2023||OnDeck Canada unveils true LOC|
|07/13/2023||OnDeck prepares $227M ABS|
|07/27/2022||OnDeck now integrated with Stripe|
|06/09/2022||OnDeck announces data breach|
|05/26/2022||OnDeck teaming with SoFi and LendingTree|
ODX, OnDeck Canada & Australia
Episode 32 - OnDeck, Bitcoin, Super Bowl
Enova reported Q4 small business loan originations of $580M in its latest quarterly earnings report.
“As is evident by these numbers, our acquisition of OnDeck continues to pay dividends,” said Enova CEO David Fischer. “SMB Q4 originations were 26% higher than Q3 and 99% higher than a year ago, as it was enabled to effectively leverage the strong OnDeck brand and expertise.”
The company’s cost of funds has shrank from 8.3% in the 4th quarter of 2020 to 6.5% in the 4th quarter of 2021. This was made possible in part by adding a new two-year $150M revolving warehouse with JP Morgan.
Enova’s overall small business lending operation is complemented by a consumer arm. As of year-end 2021, small business lending represented 52% of the company’s portfolio while 48% was attributable to the consumer side.
“Within consumer, line of credit products represented 31%, installment products accounted for 67%, and short-term loans represented just 2%,” Fischer said.
Enova finished Q4 with a net income of $49M and full-year 2021 with a net income of $256M.
Enova, through OnDeck, originated $462M in small business loans in Q3, according to the company’s earnings call. That was up from $400M the quarter before.
“…as we’ve been predicting, small businesses have been beneficiaries of the pent-up consumer demand and the resulting increased spending,” said Enova CEO David Fisher.
Fisher also touched upon the CFPB regulatory inquiry disclosed in the earnings release, downplaying it somewhat as “routine.”
“I want to touch on the CID that we announced in our press release,” he said. “The CFPB is investigating a handful of issues several which were self reported by Enova. We have been cooperating fully with the CFPB as we always do. This is a routine process with the CFPB, particularly in our industry. We’ve been through it with them in the past. As a result, we anticipate being able to work with the CFPB to expeditiously complete this investigation.”
This story has been updated to fix typos
OnDeck CEO Noah Breslow announced that as of April 30th, he had left OnDeck. He wrote the following in a May 6th post on LinkedIn:
“It is hard to believe, after a nearly 14 year run, that last Friday was my final day as an OnDecker. Working to build OnDeck with our incredible team, our partners, our board members and investors, and of course, our small business customers was the greatest professional experience I’ve had, and I am eternally grateful for the efforts of everyone involved in the company over so many years. I am proud of everything we accomplished together – pioneering the online lending industry, delivering nearly $14 billion dollars to small businesses, building a trusted brand and phenomenal culture, and achieving numerous industry firsts along the way.
I am especially proud of the way our team and our leaders handled themselves last year under the pressure of COVID. We worked together to navigate a very challenging situation, and I’ll never forget the teamwork and collaboration under stress that allowed us to land the company safely and become part of Enova – a transaction that I firmly believe was the right thing to do for the company’s stakeholders.”
Though Breslow was not the founder of OnDeck, he was one of its earliest employees and he later steered the company as its chief executive up through and past the point of it going public on the NYSE. In 2020, OnDeck was acquired by Enova.
Breslow updated his LinkedIn profile to say that as of May, he is now an “Operator in Residence” for Bain Capital Ventures.
Bain Capital Ventures posted a lengthy welcome to Breslow on Medium immediately after.
“Noah joins BCV this week as an operating partner, and we couldn’t be more delighted,” wrote Matt Harris, partner at Bain Capital Ventures. “You can reach him at firstname.lastname@example.org with your next amazing idea.”
Breslow followed it with another post on LinkedIn:
“So, what’s next? Well, those who know me know I am passionate about the craft of entrepreneurship, and I have served as an angel investor and informal advisor to many startups and founders over the years.
After the OnDeck acquisition closed, Matt Harris, a longtime close friend and early OnDeck investor, reached out to me to chat about what might be next. Matt is a special person, and a renowned fintech investor – in fact, Matt was responsible for getting me into OnDeck 14 years ago, and that worked out pretty well! So, when he floated the idea of joining him at Bain Capital Ventures to do this type of work more formally, I was all ears.
I knew I wanted to spend some time working with innovative startups and exploring some new technology areas before diving into my next big thing – after all, it might last another 14 years! So, I am thrilled to announce I am joining Bain Capital Ventures as an operating partner – working with our portfolio CEOs and helping the firm invest in fintech and tech companies across all stages. Excited for what’s next!”
When Enova acquired OnDeck, it thought that the company’s legacy portfolio would have very little value. Now that the dust has settled, it’s become a gold mine. “We now expect to receive over $200 million of total cash from the acquired portfolio, net of securitization repayments,” said Enova CEO David Fisher in the company’s quarterly earnings call.
Enova reported that small business lending was now more than 50% of their portfolio and that they recorded originations of $322 million in small business funding in Q1.
“From an operational perspective, the integration of OnDeck is largely complete,” Fisher added. “Our three SMB products are working together as a single business, and we are on track to deliver more than the forecasted $50 million of annual cost synergies, primarily from eliminated duplicative resources as well as $15 million in run rate net revenue synergies.”
OnDeck’s lending business has also allowed the company to price a $300 million securitization debt facility, backed by OnDeck term loans and lines of credit.
“We’re pleased to report a record first quarter of profitability, driven by solid credit performance, improving originations, and disciplined expense management,” said Fisher. “We are encouraged by the recent signs of a recovery in demand and believe that our diverse product offerings, nimble machine-learning-powered credit risk management capabilities, and solid balance sheet position us well to profitably accelerate growth as the economy continues to recover.”
“We’re very pleased so far with the OnDeck acquisition and as we view the economic landscape, we continue to believe that it’s an excellent time to be increasing our focus on SMB lending,” Enova CEO David Fisher said on the company’s Q4 earnings call. Enova originated $120 million in small business loans in December and $95 million in November. The October figure wasn’t specified, but back-of-the-napkin math based on other provided statistics suggests it was about $54 million.
Growing those originations will continue to be their primary agenda as the economy improves, the company said, while the ODX side of the business may be shown the door.
“While ODX has been able to sign some high-profile bank clients, divesting ODX will allow for more efficient use of capital as the business has over 70 employees but less than $10 million in revenue,” Fisher said.
OnDeck Canada and OnDeck Australia may also be on the chopping block.
“The Australian and Canadian businesses are viable businesses in their respective market,” Fisher said, “but are small compared to OnDeck US operations and are unlikely to have a significant impact on Enova’s overall growth. In addition, OnDeck only has partial ownership of those two businesses.”
Meanwile, OnDeck’s portfolio outlook is improving.
“The percentage of OnDeck receivables past due 30 days and more declined during the quarter from 23.2% in closing to 15.6% at December 31,” said Enova CFO Steve Cunningham.
On the call, JMP analyst David Scharf asked when OnDeck would return to quarterly origination levels of $550M to $650M as it had been enjoying prior to the pandemic.
“I mean I think there’s just way too much uncertainty to be able to answer that,” Fisher replied. “I mean, does the vaccine work great and the economy opens up soon or is there a new strain of the COVID virus that requires lockdowns during the summer? I mean, there’s no way to know. But I think there’s a couple trends that are super encouraging for us and we saw great sequential growth as we talked about throughout the call.”
Fisher also added that they’ve seen a bunch of competitors go out of business. “We think we have a lot of share in the market that we don’t think has shrunk and so we think we’re really well positioned as this pandemic winds down,” he said.
On New Year’s Day, OnDeck Head of Business Development Kevin Chin announced he was parting ways with the company and joining Avant. “As we wrap up 2020,” Chin posted on LinkedIn, “I wanted to take a moment to thank all of my colleague at OnDeck as well as Noah Breslow and Cory Campfer for building such an outstanding company with great people and culture.”
Similarly, Matt Cluney, who was VP of Brand and Product Marketing at OnDeck, announced that he was leaving to become Chief Marketing Officer for Yardline Capital. On LinkedIn, he wrote: “New year, new adventures… excited to join Ari Horowitz, Tomo Matsuo, Seth Broman and the rest of the team at Yardline Capital at a time when ecommerce is booming and the opportunity to provide a differentiated growth capital solution for ecommerce sellers is big!” Cluney will be in good company at Yardline with another OnDeck veteran Dennis Chin.
“2019 was an important year for OnDeck and we finished strong,” said OnDeck CEO Noah Breslow in the year-end earnings call that took place on February 11, 2020. “Financially, we had our second full year of profitability. And strategically, we are making significant progress positioning the company for improved performance and even greater long-term success.”
OnDeck reported net income of $28 million for 2019 and its share price closed at $4.07 the day earnings were announced, giving it a market cap of roughly $240 million. This was down significantly from its IPO value of $1.3 billion, but up from the lows it had hit in 2017 and 2019.
Over the next 30 days, however, the price fell by 50% on fears that the looming novel coronavirus could cause catastrophic disruption. The company also announced the departure of its Chief Accounting Officer.
As the industry looked on with wonder, news coming out of the company seemed strangely at odds with reality. For example, OnDeck announced a “first-ever” NASCAR sponsorship on March 10th.
“OnDeck is proud to sponsor the JR Motorsports team and driver Daniel Hemric for races during the 2020 NASCAR Xfinity Series season,” said a senior vice president of marketing at OnDeck. “So many of our small business customers are avid motorsports fans and we look forward to joining them to cheer on Daniel and the No. 8 car decked out in OnDeck colors at the Atlanta 250 and the Chicago 300.”
On March 23, OnDeck closed at 70 cents. The market, it seemed, valued OnDeck at a paltry $41 million.
Publicly, OnDeck kept up the optimism. The company applied to be a PPP lender as the program was just beginning to roll out. “We are excited to be one of the fintechs delivering PPP loans as a direct lender,” Breslow said. “Our team has been working around the clock getting us ready and now we wait and hope we are approved soon!”
Simultaneously, the company suspended the funding of its “Core” loans and lines of credit to new and existing customers. The company then went on to report a Q1 net loss of $59M due to covid-related damage, wiping out all of its 2019 profits and more. It also furloughed many employees while reducing the pay for those that stayed on.
That same month, OnDeck’s management “commenced a review of potential financing options to secure additional liquidity and potentially replace [its] corporate line facility and began contacting potential sources of alternative financing, including mezzanine debt.”
The response it got was grim.
“The interest rates offered by those alternative financing sources ranged from 1-month LIBOR plus 900 basis points to 1,700 basis points (in addition to an upfront fee) and all but one required a significantly dilutive equity component,” the company later disclosed. “The one proposal that did not include an equity component was at an interest rate of 1-month LIBOR plus 1,400 basis points to 1,700 basis points.”
OnDeck engaged in negotiations with four potential sources of alternative financing, but two dropped out as the economic effects of the pandemic worsened. At the same time, it was speaking with Enova about something else entirely, a potential merger.
On the frontend, OnDeck was keeping the public abreast of its negotiations with creditors. The pandemic had put them in a technical breach of its terms with several of them but the company was experiencing some success with securing workouts and reprieves.
Regardless, the stock continued to trade below $1 as the world looked on to see what would become of their Q2.
On July 28th, bombshell news broke. Enova, an international lending conglomerate, announced it was acquiring OnDeck for the price of approximately $90 million.
“Following an extensive review of our strategic options, we believe this is the right path forward for our customers, employees, and shareholders,” Noah Breslow said on a call with Enova executives the following day.
Some shareholders had a different opinion and thought that the deal and the terms looked a little fishy, all considered. Nine different shareholder lawsuits were filed over the next two months with the intent to delay or block the acquisition.
How could this possibly be the best deal or the right path?!
That was the underlying question being posed between the lines of the various claims asserted. OnDeck ultimately settled with all the parties by releasing supplemental information to the public about its financial situation and thought process that led up to the Enova merger. All the objections appeared to fade as shareholders approved the deal by an overwhelming majority.
On October 13th, Enova announced that it had completed the acquisition of OnDeck.
But by that time, was OnDeck merely a hollowed out shell of its former self? Not quite, according to disclosures made two weeks later. Enova announced that OnDeck’s portfolio performance was already exceeding their expectations.
“On the small business side, the makeup of the demand is surprisingly similar to a year ago,” said David Fisher, CEO of Enova. “You would expect so many differences given what the economy has been through but there’s actually very very few. It’s pretty broad based. Credit quality look really really strong. If anything it’s stronger- I think it’s the stronger businesses that are trying to borrow at this point that are trying to lean into covid, not the ones that are just trying to survive so if anything on the demand there is a slight improvement on credit quality in small business.”
Fisher was also bullish going forward. “We believe now is a great time to be increasing our presence in
small business lending. The pandemic has devastated many small businesses across the country. Their
revenues are down and small business owners are digging into their savings to survive until the pandemic subsides and the economy reopens.”
Enova reported monster quarterly earnings of $94 million, a company record.
“Together Enova and OnDeck will be well positioned to further support small businesses and consumers in the wake of the pandemic,” Fisher said.
OnDeck more than doubled its Q2 loan volume, according to statements made on Enova’s latest quarterly earnings call. OnDeck originated $148M in Q3 versus the $66M in originated in Q2.
For frame of reference, this is still down significantly from the $618M that the company originated in Q4 2019, well before covid became a factor.
But expect the numbers to ramp up.
“We have basically all of our marketing channels turned on across consumer and small business [lending],” said David Fisher, Enova’s CEO.
“OnDeck is probably a little bit ahead of where we are on the Enova side. We were a little bit more cautious in our re-acceleration of our lending kind of going into the 3rd quarter but we are totally comfortable with that decision. If the biggest mistake we make during all of covid is waiting an extra 60 days to re-accelerate lending, we think that’s a great position to be in. We think that extra conservatism makes sense and with the rate that we’re re-accelerating lending, it won’t hurt that much in the long run.”
And apparently demand and credit quality are looking quite normal, despite covid, according to Fisher.
“On the small business side, the makeup of the demand is surprisingly similar to a year ago. You would expect so many differences given what the economy has been through but there’s actually very very few. It’s pretty broad based. Credit quality look really really strong. If anything it’s stronger- I think it’s the stronger businesses that are trying to borrow at this point that are trying to lean into covid, not the ones that are just trying to survive so if anything on the demand there is a slight improvement on credit quality in small business.”
OnDeck’s annualized quarterly net charge-off rate for the third quarter was 23% and its 15 day+ delinquency rate decreased from 40% at June 30th to 27% at September 30th.
Enova reported monster quarterly earnings of $94M. CEO David Fisher and CFO Steve Cunningham said it was a record-breaking quarter for profitability.
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