GreenSky, Inc. Reports Second Quarter 2020 Financial Results
Transaction Volume of
"As we all continue to navigate COVID-19, we are extremely pleased with our second quarter operating results and key business metrics, depicting strong resiliency of demand in our home improvement business, record levels of new merchant enrollments, outstanding credit performance, and effective expense discipline across our business," said
"The successful implementation this quarter of our SPV serves to effectively supplement our funding capacity, as we plan to conduct periodic sales of loan participations to third parties or issue asset-backed securities. As the Company transitions to supporting a diversified funding model, evaluation of operating performance on a consistent basis is vitally important. Thus, management continues to believe that Adjusted EBITDA is a key indicator in evaluating the Company's business performance over the long-term. This non-GAAP measure adjusts for non-recurring income and expense items, non-cash charges, along with distortions attributable to non-cash CECL reserves established during the quarter," said Zalik.
"Notwithstanding the impact of COVID-19 on this quarter’s transaction volumes, the Company reported second quarter Adjusted EBITDA of
Second Quarter Financial Highlights:
-
Transaction Volume: Transaction volume originated on our technology platform in the second quarter of 2020 declined 14% from the second quarter of 2019. Importantly, our volumes rebounded sharply over the course of Q2 with
April 2020 levels at only 74% ofApril 2019 volumes, May volumes at 84% of the same month in 2019, and June volumes at 100% of 2019 levels.
-
Transaction
Fee Rate : The average transaction fee rate was 7.5% in the second quarter, an increase of 9% from a transaction fee rate of 6.9% in the same quarter of prior year, reflecting normal variations in the mix of promotional products offered by our merchants and consumer preferences for certain promotional financing products in the current economic environment.
-
Revenue: Second quarter revenue declined 4%, driven by Q2 2019's recognition of a
$9.0 million service asset (revenue), versus a$0.9 million decrease in servicing assets in Q2 2020. The other changes in revenue aggregating a net$4.1 million increase reflect the growth in our average servicing portfolio, interest from loans receivable held for sale, and an increase in the transaction fee rate, largely offset by COVID-19 impacted transaction volumes.
-
Credit Quality: Credit performance continued to be strong. As of
June 30, 2020 , 30-day delinquencies were 0.74%, an improvement of 57 basis points over the 30 day-delinquencies atJune 30, 2019 . The weighted-average FICO score for originations in the second quarter of 2020 was 783 compared to 769 in the second quarter of 2019.
-
Hardship Requests: At
June 30 , slightly less than 4% of the total balances in the Company's servicing portfolio are in payment deferral under hardship programs, with the number of new requests declining sharply each successive month from the April peak for new requests.
-
Financial Guarantee Loss: The adoption of the new current expected credit loss ("CECL") standard in the first quarter of 2020 continues to impact the Company's accounting for the financial guarantees it provides to its bank partners. For the second quarter, the Company recorded a non-cash increase of
$10.2 million in the CECL reserve associated with these financial guarantees but no cash escrow under these financial guarantees was used during the quarter.
-
Net Income and Diluted Earnings per Share: For the second quarter of 2020, the Company recognized net income of
$13.4 million compared to net income of$39.2 million for the same period in 2019, which resulted in a diluted earnings per share of$0.06 , compared to diluted earnings per share of$0.19 in the second quarter of 2019.
-
Adjusted EBITDA(1) and Operating Cash Flow: Second quarter Adjusted EBITDA was
$39.7 million compared to$36.9 million for the same quarter in 2019. For the six months endedJune 30, 2020 , cash flows used in operating activities were$333.8 million due to the$369.1 million increase in loans receivable held for sale as we implemented our SPV this quarter in support of our diversified funding model. For the six months endedJune 30, 2019 , cash flows produced from operations was$89.8 million .
-
Expansion of Term Loan Facility: In June the Company closed on a
$75 million incremental amount on its term loan facility, the proceeds of which will be used for general corporate purposes and to enhance the Company's overall liquidity position. The incremental term loan has the same security, maturity (March 2025 ), principal amortization, prepayment, and covenant terms as the Company's existing term loan facility.
-
Liquidity: As of
June 30, 2020 , the Company had$247.6 million of available liquidity, consisting of unrestricted cash of$147.6 million and an undrawn$100 million revolving credit facility.
Key Business Metrics:
|
|
|
Three Months Ended |
|
|
|||||||
|
|
|
2020 |
|
2019 |
|
Growth |
|||||
|
Transaction Volume ($ millions) |
|
$ |
1,358 |
|
|
$ |
1,578 |
|
|
(14 |
)% |
|
Loan Servicing Portfolio ($ millions, at end of period)(2) |
|
$ |
9,384 |
|
|
$ |
8,191 |
|
|
15 |
% |
|
Active Merchants (at end of period) |
|
17,553 |
|
|
16,603 |
|
|
6 |
% |
||
| ________________ | |
|
(1) |
Adjusted EBITDA is a non-GAAP measure. Refer to “Non-GAAP Financial Measures” for important additional information. |
|
(2) |
The average loan servicing portfolio for the three months ended |
Business Update:
- COVID-19 workforce impacts: The Company's workforce continues the work-at-home program implemented in mid-March, allowing its associates to continue safely delivering uninterrupted, best-in-class service to its merchants and consumers.
-
Funding Diversification: In the second quarter GreenSky implemented certain funding diversification measures to support future growth of originations on its platform.
-
In
May 2020 , the Company put in place a critical component for the GreenSky program to be able to accomplish alternative funding structures by entering into agreements with an existing bank partner to provide a framework for the programmatic sale of loan participations and/or whole loans by the bank partner to third parties, including to the previously-announced special purpose vehicle sponsored by the Company (the “SPV”). -
In
May 2020 ,GreenSky andJPMorgan Chase Bank, N.A . closed on an asset-backed revolving credit facility of$500 million ($300 million was committed at closing, and an additional$200 million accordion was accessed inJuly 2020 ) to finance purchases by the SPV of participations in loans originated through the GreenSky program (the "SPV Facility"). The Company completed the first purchases by the SPV inMay 2020 . - The Company expects the SPV to conduct periodic sales of the loan participations to third parties or issue asset-backed securities, which would allow additional purchases to be financed through the SPV Facility. To the extent that such sales occur, the SPV Facility could facilitate substantial incremental GreenSky program loan volume.
- GreenSky continues to work with multiple institutional investors on both a whole loan sales program and a material forward flow financing arrangement (collectively, "New Institutional Financings"). GreenSky expects to close on one or more of these transactions in the second half of 2020.
-
In
-
Final Patent Approval: On
July 28, 2020 , the United States Patent and Trademark Office issued the Company’s firstU.S. patent. Originally filed in 2014, the patent relates to our mobile application process and credit decisioning model. This granted patent is an important recognition of a key component of our proprietary technology platform.
-
Strategic Alternatives Review Process: The Company’s Board of Directors, working together with its senior management team and legal and financial advisors, has now brought to a close the process, announced in
August 2019 , to explore, review and evaluate a range of potential strategic alternatives focused on maximizing stockholder value. The Company’s Board of Directors has determined that the Company can best drive future value creation by executing on a growth plan that leverages a renewed focus on the Company’s home improvement vertical, the cross marketing of complementary products to its consumer program borrowers, enhanced merchant productivity, scalability of operations, termination of the programmatic sale of charged-off receivables and funding diversification to support its continued profitable growth.
- Inaugural Investor Day: The Company anticipates hosting, in a virtual format, its first "Investor Day" later this year, where members of the GreenSky senior management team will be presenting key elements of GreenSky's strategic positioning, capabilities, technology pipeline, and commercial opportunities, along with the Company's key five-year growth objectives. Investor Day timing and other meeting logistics will be announced in the coming quarter.
Conference call and webcast:
As previously announced, the Company’s management will host a conference call to discuss second quarter 2020 results at
About
Forward-Looking Statements
This press release contains forward-looking statements that reflect the Company's current views with respect to, among other things, its operations; its financial performance; the impact of COVID-19; bank partner commitments; sales of loan participations or issuances of asset-backed securities by the SPV; completion of New Institutional Financings; its funding capacity; and its credit losses. You generally can identify these statements by the use of words such as “outlook,” “potential,” “continue,” “may,” “seek,” “approximately,” “predict,” “believe,” “expect,” “plan,” “intend,” “estimate” or “anticipate” and similar expressions or the negative versions of these words or comparable words, as well as future or conditional verbs such as “will,” “should,” “would,” “likely” and “could.” These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those included in the forward-looking statements. These risks and uncertainties include those risks described in GreenSky's filings with the
Non-GAAP Financial Measures
This press release presents information about the Company’s Adjusted EBITDA and Adjusted EBITDA Margin, which are non-GAAP financial measures provided as a supplement to the results provided in accordance with accounting principles generally accepted in
We are presenting these non-GAAP measures to assist investors in evaluating our financial performance and because we believe that these measures provide an additional tool for investors to use in comparing our core financial performance over multiple periods with other companies in our industry.
These non-GAAP measures are presented for supplemental informational purposes only. These non-GAAP measures have limitations as analytical tools and should not be considered in isolation from, or as a substitute for, the analysis of other GAAP financial measures, such as net income. The non-GAAP measures GreenSky uses may differ from the non-GAAP measures used by other companies. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measure is provided below for each of the fiscal periods indicated.
(tables follow)
|
|
|||||||
|
|
|
|
|
||||
|
Assets |
|
|
|
||||
|
Cash and cash equivalents |
$ |
147,560 |
|
|
$ |
195,760 |
|
|
Restricted cash |
289,844 |
|
|
250,081 |
|
||
|
Loan receivables held for sale, net |
410,952 |
|
|
51,926 |
|
||
|
Accounts receivable, net of allowance of |
20,066 |
|
|
19,493 |
|
||
|
Property, equipment and software, net |
21,951 |
|
|
18,309 |
|
||
|
Deferred tax assets, net |
383,107 |
|
|
364,841 |
|
||
|
Other assets |
53,334 |
|
|
50,638 |
|
||
|
Total assets |
$ |
1,326,814 |
|
|
$ |
951,048 |
|
|
|
|
|
|
||||
|
Liabilities and Equity (Deficit) |
|
|
|
||||
|
Liabilities |
|
|
|
||||
|
Accounts payable |
$ |
13,356 |
|
|
$ |
11,912 |
|
|
Accrued compensation and benefits |
7,034 |
|
|
10,734 |
|
||
|
Other accrued expenses |
3,947 |
|
|
3,244 |
|
||
|
Finance charge reversal liability |
198,755 |
|
|
206,035 |
|
||
|
Term loan |
453,879 |
|
|
384,497 |
|
||
|
SPV facility |
299,000 |
|
|
— |
|
||
|
Tax receivable agreement liability |
317,823 |
|
|
311,670 |
|
||
|
Financial guarantee liability |
163,301 |
|
|
16,698 |
|
||
|
Other liabilities |
66,587 |
|
|
61,201 |
|
||
|
Total liabilities |
1,523,682 |
|
|
1,005,991 |
|
||
|
|
|
|
|
||||
|
Commitments, Contingencies and Guarantees |
|
|
|
||||
|
|
|
|
|
||||
|
Equity (Deficit) |
|
|
|
||||
|
Class A common stock, |
873 |
|
|
800 |
|
||
|
Class B common stock, |
110 |
|
|
114 |
|
||
|
Additional paid-in capital |
112,700 |
|
|
115,782 |
|
||
|
Retained earnings |
24,512 |
|
|
56,109 |
|
||
|
|
(147,005 |
) |
|
(146,234 |
) |
||
|
Accumulated other comprehensive income (loss) |
(4,756 |
) |
|
(756 |
) |
||
|
Noncontrolling interests |
(183,302 |
) |
|
(80,758 |
) |
||
|
Total equity (deficit) |
(196,868 |
) |
|
(54,943 |
) |
||
|
Total liabilities and equity (deficit) |
$ |
1,326,814 |
|
|
$ |
951,048 |
|
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||||||
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|||||||||||||
|
Revenue |
|
|
|
|
|
|
|
|
||||||||||||
|
Transaction fees |
|
$ |
101,777 |
|
|
|
$ |
108,365 |
|
|
|
$ |
191,661 |
|
|
|
$ |
192,413 |
|
|
|
Servicing |
|
28,481 |
|
|
|
30,318 |
|
|
|
59,764 |
|
|
|
49,951 |
|
|
||||
|
Interest and other |
|
2,704 |
|
|
|
69 |
|
|
|
3,394 |
|
|
|
786 |
|
|
||||
|
Total revenue |
|
132,962 |
|
|
|
138,752 |
|
|
|
254,819 |
|
|
|
243,150 |
|
|
||||
|
Costs and expenses |
|
|
|
|
|
|
|
|
||||||||||||
|
Cost of revenue (exclusive of depreciation and amortization shown separately below) |
|
64,930 |
|
|
|
56,228 |
|
|
|
136,705 |
|
|
|
114,265 |
|
|
||||
|
Compensation and benefits |
|
22,041 |
|
|
|
20,459 |
|
|
|
44,475 |
|
|
|
40,092 |
|
|
||||
|
Property, office and technology |
|
4,244 |
|
|
|
4,512 |
|
|
|
8,266 |
|
|
|
8,926 |
|
|
||||
|
Depreciation and amortization |
|
2,762 |
|
|
|
1,695 |
|
|
|
5,207 |
|
|
|
3,162 |
|
|
||||
|
Sales, general and administrative |
|
8,590 |
|
|
|
7,302 |
|
|
|
18,678 |
|
|
|
14,555 |
|
|
||||
|
Financial guarantee |
|
10,248 |
|
|
|
1,696 |
|
|
|
28,656 |
|
|
|
2,918 |
|
|
||||
|
Related party |
|
477 |
|
|
|
589 |
|
|
|
954 |
|
|
|
1,125 |
|
|
||||
|
Total costs and expenses |
|
113,292 |
|
|
|
92,481 |
|
|
|
242,941 |
|
|
|
185,043 |
|
|
||||
|
Operating profit |
|
19,670 |
|
|
|
46,271 |
|
|
|
11,878 |
|
|
|
58,107 |
|
|
||||
|
Other income (expense), net |
|
|
|
|
|
|
|
|
||||||||||||
|
Interest and dividend income |
|
246 |
|
|
|
812 |
|
|
|
868 |
|
|
|
1,710 |
|
|
||||
|
Interest expense |
|
(5,894 |
) |
|
|
(6,323 |
) |
|
|
(11,514 |
) |
|
|
(12,566 |
) |
|
||||
|
Other gains (losses), net |
|
830 |
|
|
|
(6,033 |
) |
|
|
1,806 |
|
|
|
(5,718 |
) |
|
||||
|
Total other income (expense), net |
|
(4,818 |
) |
|
|
(11,544 |
) |
|
|
(8,840 |
) |
|
|
(16,574 |
) |
|
||||
|
Income before income tax expense (benefit) |
|
14,852 |
|
|
|
34,727 |
|
|
|
3,038 |
|
|
|
41,533 |
|
|
||||
|
Income tax expense (benefit) |
|
1,497 |
|
|
|
(4,466 |
) |
|
|
602 |
|
|
|
(5,061 |
) |
|
||||
|
Net income |
|
$ |
13,355 |
|
|
|
$ |
39,193 |
|
|
|
$ |
2,436 |
|
|
|
$ |
46,594 |
|
|
|
Less: Net income attributable to noncontrolling interests |
|
9,222 |
|
|
|
26,877 |
|
|
|
1,637 |
|
|
|
31,379 |
|
|||||
|
Net income attributable to |
|
$ |
4,133 |
|
|
|
$ |
12,316 |
|
|
|
$ |
799 |
|
|
|
$ |
15,215 |
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
Earnings per share of Class A common stock: |
|
|
|
|
|
|
|
|
||||||||||||
|
Basic |
|
$ |
0.06 |
|
|
|
$ |
0.20 |
|
|
|
$ |
0.01 |
|
|
|
$ |
0.26 |
|
|
|
Diluted |
|
$ |
0.06 |
|
|
|
$ |
0.19 |
|
|
|
$ |
0.01 |
|
|
|
$ |
0.23 |
|
|
|
|
|||||||||
|
|
|||||||||
|
|
Six Months Ended |
||||||||
|
2020 |
|
2019 |
|||||||
|
Cash flows from operating activities |
|
|
|
||||||
|
Net income |
$ |
2,436 |
|
|
|
$ |
46,594 |
|
|
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
||||||
|
Depreciation and amortization |
5,207 |
|
|
|
3,162 |
|
|
||
|
Share-based compensation expense |
6,972 |
|
|
|
5,936 |
|
|
||
|
Equity-based payments to non-employees |
8 |
|
|
|
7 |
|
|
||
|
Fair value change in servicing assets and liabilities |
(1,738 |
) |
|
|
(8,635 |
) |
|
||
|
Operating lease liability payments |
(305 |
) |
|
|
(143 |
) |
|
||
|
Financial guarantee losses |
28,656 |
|
|
|
284 |
|
|
||
|
Amortization of debt related costs |
968 |
|
|
|
840 |
|
|
||
|
Original issuance discount on term loan payment |
(10 |
) |
|
|
(21 |
) |
|
||
|
Income tax expense (benefit) |
602 |
|
|
|
(5,061 |
) |
|
||
|
Loss on remeasurement of tax receivable agreement liability |
— |
|
|
|
6,383 |
|
|
||
|
Impairment losses |
174 |
|
|
|
— |
|
|
||
|
Mark to market on loan receivables held for sale |
10,072 |
|
|
|
— |
|
|
||
|
Changes in assets and liabilities: |
|
|
|
||||||
|
(Increase) decrease in loan receivables held for sale |
(369,098 |
) |
|
|
78 |
|
|
||
|
(Increase) decrease in accounts receivable |
(573 |
) |
|
|
(7,375 |
) |
|
||
|
(Increase) decrease in other assets |
(3,632 |
) |
|
|
(828 |
) |
|
||
|
Increase (decrease) in accounts payable |
1,444 |
|
|
|
9,378 |
|
|
||
|
Increase (decrease) in finance charge reversal liability |
(7,280 |
) |
|
|
26,390 |
|
|
||
|
Increase (decrease) in guarantee liability |
(63 |
) |
|
|
— |
|
|
||
|
Increase (decrease) in other liabilities |
(7,682 |
) |
|
|
12,800 |
|
|
||
|
Net cash provided by (used in) operating activities |
(333,842 |
) |
|
|
89,789 |
|
|
||
|
Cash flows from investing activities |
|
|
|
||||||
|
Purchases of property, equipment and software |
(8,524 |
) |
|
|
(7,123 |
) |
|
||
|
Net cash used in investing activities |
(8,524 |
) |
|
|
(7,123 |
) |
|
||
|
Cash flows from financing activities |
|
|
|
||||||
|
Proceeds from term loan |
70,494 |
|
|
|
— |
|
|
||
|
Repayments of term loan |
(2,073 |
) |
|
|
(1,979 |
) |
|
||
|
Proceeds from SPV facility |
299,000 |
|
|
|
— |
|
|
||
|
Class A common stock repurchases |
— |
|
|
|
(104,272 |
) |
|
||
|
Member distributions |
(33,419 |
) |
|
|
(17,757 |
) |
|
||
|
Payments under tax receivable agreement |
— |
|
|
|
(4,664 |
) |
|
||
|
Proceeds from option exercises |
— |
|
|
|
290 |
|
|
||
|
Payment of option exercise taxes |
(73 |
) |
|
|
(1,550 |
) |
|
||
|
Payment of taxes on Class B common stock exchanges |
— |
|
|
|
(1,805 |
) |
|
||
|
Net cash provided by (used in) financing activities |
333,929 |
|
|
|
(131,737 |
) |
|
||
|
Net increase (decrease) in cash and cash equivalents and restricted cash |
(8,437 |
) |
|
|
(49,071 |
) |
|
||
|
Cash and cash equivalents and restricted cash at beginning of period |
445,841 |
|
|
|
458,499 |
|
|
||
|
Cash and cash equivalents and restricted cash at end of period |
$ |
437,404 |
|
|
|
$ |
409,428 |
|
|
|
|
|
|
|
||||||
|
Supplemental non-cash investing and financing activities |
|
|
|
||||||
|
Distributions accrued but not paid |
4,073 |
|
|
|
7,105 |
|
|
||
|
Capitalized software costs accrued but not paid |
317 |
|
|
|
— |
|
|
||
|
Reconciliation of Adjusted EBITDA
|
||||||||||||||||
|
|
||||||||||||||||
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
||||||||
|
Net income |
|
$ |
13,355 |
|
|
$ |
39,193 |
|
|
$ |
2,436 |
|
|
$ |
46,594 |
|
|
Interest expense(1) |
|
5,894 |
|
|
6,323 |
|
|
11,514 |
|
|
12,566 |
|
||||
|
Income tax expense (benefit) |
|
1,497 |
|
|
(4,466 |
) |
|
602 |
|
|
(5,061 |
) |
||||
|
Depreciation and amortization |
|
2,762 |
|
|
1,695 |
|
|
5,207 |
|
|
3,162 |
|
||||
|
Equity-based compensation expense(2) |
|
3,481 |
|
|
3,275 |
|
|
6,980 |
|
|
5,943 |
|
||||
|
Change in financial guarantee liability(3) |
|
10,248 |
|
|
(133 |
) |
|
28,656 |
|
|
284 |
|
||||
|
Servicing asset and liability changes(4) |
|
454 |
|
|
(8,469 |
) |
|
246 |
|
|
(7,999 |
) |
||||
|
Discontinued charged-off receivables program(5) |
|
— |
|
|
(7,427 |
) |
|
— |
|
|
(14,782 |
) |
||||
|
Transaction and non-recurring expenses(6) |
|
2,025 |
|
|
6,907 |
|
|
3,258 |
|
|
8,123 |
|
||||
|
Adjusted EBITDA |
|
$ |
39,716 |
|
|
$ |
36,898 |
|
|
$ |
58,899 |
|
|
$ |
48,830 |
|
|
Total revenue |
|
$ |
132,962 |
|
|
$ |
138,752 |
|
|
$ |
254,819 |
|
|
$ |
243,150 |
|
|
Adjusted EBITDA Margin |
|
29.9 |
% |
|
26.6 |
% |
|
23.1 |
% |
|
20.1 |
% |
||||
|
(1) |
Includes interest expense on our term loan. Interest expense on the SPV Facility and its related loans receivables held for sale are excluded from the adjustment above as such amounts are a component of cost of revenue in our on-going business. |
|
(2) |
Includes equity-based compensation to employees and directors, as well as equity-based payments to non-employees. |
|
(3) |
Includes non-cash charges related to our financial guarantee arrangements with our ongoing |
|
(4) |
Includes the non-cash changes in the fair value of servicing assets and servicing liabilities related to our servicing assets associated with Bank Partner agreements and other contractual arrangements. 2019 amounts have been updated to be consistent with the Company's 2020 presentation in accordance with our Non-GAAP policy. |
|
(5) |
Includes the amounts related to the now discontinued program of transferring our rights to charged-off receivables to third parties. 2019 amounts have been updated to be consistent with the Company's 2020 presentation in accordance with our Non-GAAP policy. |
|
(6) |
For the three and six months ended |
View source version on businesswire.com: https://www.businesswire.com/news/home/20200810005795/en/
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