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November 5, 2019 at 7:00 AM EST

GreenSky, Inc. Reports Third Quarter 2019 Financial Results

Record Transaction Volume of $1.6 Billion

Net Income of $44.1 Million; Adjusted EBITDA of $57.5 Million

Diluted EPS of $0.23

ATLANTA--(BUSINESS WIRE)--Nov. 5, 2019-- GreenSky, Inc. (“GreenSky” or the “Company”) (NASDAQ: GSKY), a leading financial technology company Powering Commerce at the Point of Sale®, reported financial results today for the three and nine months ended September 30, 2019.

“I am pleased to report that the Company generated another solid quarter of operating results, posting record quarterly Transaction Volume of $1.6 billion which, when excluding solar, represented a growth of 19% over the prior year. Adjusted EBITDA was $57.5 million for the third quarter," said David Zalik, GreenSky Chairman and CEO. “Moreover, 30-day delinquencies reached a three-year, third quarter-end low of 1.29%, evidencing the super-prime nature of the Company’s loan servicing portfolio and the outstanding work being performed by the Company’s credit and operations teams,” said Zalik.

"Consistent with our stated objective and commitment to deliver unrivaled value to each member of the GreenSky ecosystem, I am particularly proud to announce that this quarter we launched our proprietary 'Universal Credit Application'. This innovative application platform allows GreenSky merchants to seamlessly offer second look financing to consumers. Loans will be funded by participating second look providers, and GreenSky will take on no credit or volatility risk. This platform further eliminates the friction and administrative burden that our merchants experience with having to submit multiple credit applications in the event that a prospective customer is initially declined. This proprietary platform is another great step forward in GreenSky’s unwavering commitment to delivering a far superior user experience to our merchants' prospective consumer borrowers,” added Zalik.

Third Quarter Financial Highlights:

  • Transaction Volume: Third quarter transaction volume increased 17% over the prior year to $1.6 billion. Excluding solar, transaction volume increased 19% over the prior year.
  • Transaction Fee Rate: The average transaction fee rate was 6.9% in the third quarter, consistent with the third quarter of 2018.
  • Revenue: Third quarter revenue grew 35% over the prior year to $153.4 million from $113.9 million. Consistent with our transaction volume growth, transaction fees were up 17% to $112.8 million. Servicing and other revenue of $40.6 million was up 137%, of which $24.3 million was primarily due to continued portfolio growth and $16.4 million was due to the recognition of a servicing asset associated with an increase to the contractual fixed servicing fee for certain of the Bank Partners' servicing agreements.
  • Net Income and Pro Forma Net Income(1): GAAP Net Income for the third quarter of 2019 was $44.1 million or $0.23 per diluted share. Third quarter Pro Forma Net Income was $39.1 million, which reflected incremental tax expense assuming all of our noncontrolling interests were subject to corporate income taxation at our full year expected tax rate of 15.34%.
  • Adjusted EBITDA and Adjusted EBITDA Margin(1): Third quarter Adjusted EBITDA was $57.5 million and 37% of revenue compared to $58.3 million and 51% of revenue for the third quarter of 2018.
  • Operating Cash Flow and Free Cash Flow: For the nine months ended September 30, 2019, operating cash flow and free cash flow were $125.4 million and $52.3 million, respectively.
  • Bank Partner Commitments: As of September 30, 2019, the Company had aggregate Bank Partner commitments of $11.9 billion from its nine Bank Partners, $3.5 billion of which were unused.
  • Liquidity: As of September 30, 2019, the Company had unrestricted cash of $206 million, in addition to an unused $100.0 million working capital line of credit available.

Key business metrics:

 

 

Three Months Ended September 30,

 

 

 

 

 

2019

 

2018

 

Growth

 

Active Merchants (at end of period)

 

16,887

 

 

14,163

 

 

19

%

Transaction Volume ($ millions)(2)

 

$

1,644

 

 

$

1,400

 

 

17

%

Loan Servicing Portfolio ($ millions, at end of period)(3)

 

$

8,763

 

 

$

6,880

 

 

27

%

Cumulative Consumer Accounts (in thousands, at end of period)

 

2,846

 

 

2,082

 

 

37

%

Origination Productivity Index(4)

 

21.1

%

 

22.2

%

 

n/m

 

__________________________

(1)

 

Pro Forma Net Income and Adjusted EBITDA are non-GAAP measures. Refer to “Non-GAAP Financial Measures” for important additional information.

(2)

 

Excluding solar originations, transaction volume growth was 19%.

(3)

 

The average loan servicing portfolio for the three months ended September 30, 2019 and 2018 was $8,488 million and $6,573 million, respectively.

(4)

 

 

This index captures projected future gross cash flows related to the respective period's originations, expressed as a percentage of the period's originations. Refer to the Third Quarter 2019 Earnings Presentation for additional information.

 Business Update:

  • Subsequent to the end of the third quarter, GreenSky reached agreement with an unaffiliated nationally licensed mortgage banker to launch a mortgage cross-marketing campaign, which would be conducted with a GreenSky bank partner and targeted at select GreenSky® Program home improvement borrowers. With over 2.8 million GreenSky Program borrowers from inception, this first mortgage loan product represents the first of a family of digitally delivered loan and savings products that GreenSky envisions ultimately facilitating. GreenSky anticipates this first marketing campaign to commence in the fourth quarter of 2019.
  • American Express Alliance:
    • The American Express Merchant Referral Program continues to accelerate the growth of GreenSky's merchant ecosystem. Since the launch of the program in late September 2018, over 5,500 merchants and providers have been referred to GreenSky for enrollment evaluation.
    • In August, American Express commenced an American Express Home Improvement Loan pilot, powered by GreenSky for select American Express Card Members located in 5 metropolitan markets (Atlanta, Chicago, Dallas, Los Angeles and Tampa), where they can access top-rated GreenSky contractors. Along with sharing in transaction economics, GreenSky earns a servicing fee on the resulting loan portfolio.

Conference call and webcast:

As previously announced, the Company’s management will host a conference call to discuss third quarter 2019 results at 8:00 a.m. EST today. A live webcast of the conference call, together with a slide presentation that includes supplemental financial information and reconciliations of certain non-GAAP measures to their most directly comparable GAAP measures, can be accessed through the Company's Investor Relations website at http://investors.greensky.com. A replay of the webcast will be available within 2 hours of the completion of the call and will be archived at the same location for one year.

About GreenSky, Inc.

GreenSky, Inc. (NASDAQ: GSKY) is a leading technology company Powering Commerce at the Point of Sale® for a growing ecosystem of merchants, consumers and banks. Our highly scalable, proprietary technology platform enables nearly 17,000 active merchants to offer frictionless promotional payment options to consumers, driving increased sales volume and accelerated cash flow. Banks leverage GreenSky’s technology to provide loans to super-prime and prime consumers nationwide. Since our inception, over 2.8 million consumers have financed nearly $21 billion of commerce using our paperless, real time “apply and buy” technology. GreenSky is headquartered in Atlanta, Georgia. For more information, visit https://www.greensky.com.

Forward-Looking Statements

This press release contains forward-looking statements that reflect our current views with respect to, among other things, our operations and financial performance; demand for our products; and our launch and performance of new products. 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 our filings with the Securities and Exchange Commission and include, but are not limited to, risks related to our ability to retain existing, and attract new, merchants and Bank Partners; our future financial performance, including trends in revenue, cost of revenue, gross profit or gross margin, operating expenses, and free cash flow; changes in market interest rates; increases in loan delinquencies; our ability to operate successfully in a highly regulated industry; the effect of management changes; cyberattacks and security vulnerabilities in our products and services; and our ability to compete successfully in highly competitive markets. The forward-looking statements speak only as of the date on which they are made, and, except to the extent required by federal securities laws, we disclaim any obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. In light of these risks and uncertainties, there is no assurance that the events or results suggested by the forward-looking statements will in fact occur, and you should not place undue reliance on these forward-looking statements.

Non-GAAP Financial Measures

This press release presents information about the Company’s Adjusted EBITDA and Pro Forma Net Income, which are non-GAAP financial measures provided as supplements to the results provided in accordance with accounting principles generally accepted in the United States of America (“GAAP”). We believe that Adjusted EBITDA is one of the key financial indicators of our business performance over the long term and provides useful information regarding whether cash provided by operating activities is sufficient to maintain and grow our business. We believe that this methodology for determining Adjusted EBITDA can provide useful supplemental information to help investors better understand the economics of our platform.

We believe that Pro Forma Net Income is a useful measure because it makes our results more directly comparable to public companies that have the vast majority of their earnings subject to corporate income taxation. 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 substitutes 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 each of the foregoing non-GAAP financial measures to the most directly comparable GAAP financial measure is provided below for each of the fiscal periods indicated.

 

(tables follow)

 

       

GreenSky, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(Dollars in thousands, except share data)

       

 

September 30, 2019

 

December 31, 2018

Assets

 

 

 

Cash and cash equivalents

$

206,403

 

 

$

303,390

 

Restricted cash

217,282

 

 

155,109

 

Loan receivables held for sale, net

30,369

 

 

2,876

 

Accounts receivable, net

20,810

 

 

15,400

 

Related party receivables

198

 

 

142

 

Property, equipment and software, net

16,036

 

 

10,232

 

Operating lease right-of-use assets

12,086

 

 

 

Deferred tax assets, net

361,535

 

 

306,979

 

Other assets

32,383

 

 

8,777

 

Total assets

$

897,102

 

 

$

802,905

 

 

 

 

 

Liabilities and Equity (Deficit)

 

 

 

Liabilities

 

 

 

Accounts payable

$

13,679

 

 

$

5,357

 

Accrued compensation and benefits

7,918

 

 

8,484

 

Other accrued expenses

1,708

 

 

1,015

 

Finance charge reversal liability

182,990

 

 

138,589

 

Term loan

385,080

 

 

386,822

 

Tax receivable agreement liability

308,532

 

 

260,901

 

Related party liabilities

 

 

825

 

Operating lease liabilities

14,841

 

 

 

Other liabilities

48,817

 

 

35,677

 

Total liabilities

963,565

 

 

837,670

 

 

 

 

 

Commitments, Contingencies and Guarantees

 

 

 

 

 

 

 

Equity (Deficit)

 

 

 

Class A common stock, $0.01 par value and 80,051,516 shares issued and 66,431,301 shares outstanding at September 30, 2019 and 59,197,863 shares issued and 54,504,902 shares outstanding at December 31, 2018

800

 

 

591

 

Class B common stock, $0.001 par value and 113,524,198 shares issued and outstanding at September 30, 2019 and 128,549,555 shares issued and outstanding at December 31, 2018

114

 

 

129

 

Additional paid-in capital

114,170

 

 

44,524

 

Retained earnings

53,872

 

 

24,218

 

Treasury stock

(146,183

)

 

(43,878

)

Accumulated other comprehensive income (loss)

(1,325

)

 

 

Noncontrolling interest

(87,911

)

 

(60,349

)

Total equity (deficit)

(66,463

)

 

(34,765

)

Total liabilities and equity (deficit)

$

897,102

 

 

$

802,905

 

 

 

       

GreenSky, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(Dollars in thousands, except per share data)

       

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

2019

 

2018

 

2019

 

2018

Revenue

 

 

 

 

 

 

 

Transaction fees

$

112,782

 

 

$

96,770

 

 

$

305,195

 

 

$

257,907

 

Servicing and other

40,633

 

 

17,142

 

 

90,615

 

 

47,035

 

Total revenue

153,415

 

 

113,912

 

 

395,810

 

 

304,942

 

Costs and expenses

 

 

 

 

 

 

 

Cost of revenue (exclusive of depreciation and amortization shown separately below)

64,957

 

 

35,374

 

 

179,222

 

 

105,269

 

Compensation and benefits

21,799

 

 

14,326

 

 

61,891

 

 

46,254

 

Sales and marketing

946

 

 

975

 

 

3,336

 

 

2,841

 

Property, office and technology

4,017

 

 

3,792

 

 

12,943

 

 

9,651

 

Depreciation and amortization

1,955

 

 

1,192

 

 

5,117

 

 

3,229

 

General and administrative

6,673

 

 

3,132

 

 

21,114

 

 

11,379

 

Related party expenses

670

 

 

864

 

 

1,795

 

 

1,677

 

Total costs and expenses

101,017

 

 

59,655

 

 

285,418

 

 

180,300

 

Operating profit

52,398

 

 

54,257

 

 

110,392

 

 

124,642

 

Other income (expense), net

 

 

 

 

 

 

 

Interest and dividend income

894

 

 

1,912

 

 

3,359

 

 

4,714

 

Interest expense

(5,634

)

 

(6,013

)

 

(18,200

)

 

(17,391

)

Other gains (losses), net

(2,050

)

 

(1,069

)

 

(8,410

)

 

(1,864

)

Total other income (expense), net

(6,790

)

 

(5,170

)

 

(23,251

)

 

(14,541

)

Income before income tax expense (benefit)

45,608

 

 

49,087

 

 

87,141

 

 

110,101

 

Income tax expense (benefit)

1,533

 

 

3,375

 

 

(3,528

)

 

4,969

 

Net income

$

44,075

 

 

$

45,712

 

 

$

90,669

 

 

$

105,132

 

Less: Net income attributable to noncontrolling interests

29,349

 

 

33,711

 

 

60,728

 

 

87,581

 

Net income attributable to GreenSky, Inc.

$

14,726

 

 

$

12,001

 

 

$

29,941

 

 

$

17,551

 

 

 

 

 

 

 

 

 

Earnings per share of Class A common stock(1):

 

 

 

 

 

 

 

 Basic

$

0.24

 

 

$

0.21

 

 

$

0.50

 

 

$

0.31

 

 Diluted

$

0.23

 

 

$

0.20

 

 

$

0.46

 

 

$

0.30

 

(1)

 

For the nine months ended September 30, 2018, basic and diluted earnings per share of Class A common stock is applicable only for the period from May 24, 2018 through September 30, 2018, which is the period following the initial public offering and related Reorganization Transactions.

 

 

   

GreenSky, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(Dollars in thousands)

   

 

Nine Months Ended September 30,

2019

 

2018

Cash flows from operating activities

 

 

 

Net income

$

90,669

 

 

$

105,132

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

Depreciation and amortization

5,117

 

 

3,229

 

Share-based compensation expense

9,713

 

 

4,304

 

Equity-based payments to non-employees

11

 

 

12

 

Operating lease liability payments

(255

)

 

(293

)

Amortization of debt related costs

1,258

 

 

1,262

 

Fair value change in servicing assets and liabilities

(24,809

)

 

621

 

Original issuance discount on term loan payment

(31

)

 

(20

)

Deferred tax expense (benefit)

(3,528

)

 

4,969

 

Loss on remeasurement of tax receivable agreement liability

6,383

 

 

 

Changes in assets and liabilities:

 

 

 

(Increase) decrease in loan receivables held for sale

(27,493

)

 

58,841

 

(Increase) decrease in accounts receivable

(5,690

)

 

(264

)

(Increase) decrease in related party receivables

(56

)

 

96

 

(Increase) decrease in other assets

1,975

 

 

4,032

 

Increase (decrease) in accounts payable

8,627

 

 

(711

)

Increase (decrease) in finance charge reversal liability

44,401

 

 

23,054

 

Increase (decrease) in related party liabilities

 

 

(933

)

Increase (decrease) in other liabilities

19,141

 

 

90

 

Net cash provided by operating activities

125,433

 

 

203,421

 

Cash flows from investing activities

 

 

 

Purchases of property, equipment and software

(10,921

)

 

(4,849

)

Net cash used in investing activities

(10,921

)

 

(4,849

)

Cash flows from financing activities

 

 

 

Proceeds from IPO, net of underwriters discount and commissions

 

 

954,845

 

Purchases of GreenSky Holdings, LLC units

 

 

(901,833

)

Purchases of Class A common stock

 

 

(53,012

)

Issuances of Class B common stock

 

 

129

 

Redemptions of GreenSky Holdings, LLC units prior to Reorganization Transactions

 

 

(496

)

Proceeds from term loan

 

 

399,000

 

Repayments of term loan

(2,969

)

 

(351,105

)

Member distributions

(23,181

)

 

(141,019

)

Payments under tax receivable agreement

(4,664

)

 

 

Class A common stock repurchases

(104,272

)

 

 

Equity option exercises prior to Reorganization Transactions

 

 

339

 

Payment of IPO related expenses

 

 

(3,855

)

Payment of equity transaction expenses, prior to Reorganization Transactions

 

 

(32

)

Payment of taxes on Class B common stock exchanges

(2,198

)

 

 

Proceeds from option exercises

308

 

 

 

Payment of option exercise taxes

(12,350

)

 

(126

)

Net cash used in financing activities

(149,326

)

 

(97,165

)

Net increase (decrease) in cash and cash equivalents and restricted cash

(34,814

)

 

101,407

 

Cash and cash equivalents and restricted cash at beginning of period

458,499

 

 

353,838

 

Cash and cash equivalents and restricted cash at end of period

$

423,685

 

 

$

455,245

 

 

 

 

 

Supplemental non-cash financing activities

 

 

 

Leasehold improvements acquired but not paid

$

 

 

$

300

 

Distributions accrued but not paid

6,351

 

 

10,887

 

Tax withholding on equity awards accrued but not paid

64

 

 

 

 

 

       

Reconciliation of Adjusted EBITDA

(Dollars in thousands)

       

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

2019

 

2018(1)

 

2019

 

2018(1)

Net income

$

44,075

 

 

$

45,712

 

 

$

90,669

 

 

$

105,132

 

Interest expense

5,634

 

 

6,013

 

 

18,200

 

 

17,391

 

Tax expense (benefit)

1,533

 

 

3,375

 

 

(3,528

)

 

4,969

 

Depreciation and amortization

1,955

 

 

1,192

 

 

5,117

 

 

3,229

 

Equity-related expense(2)

3,781

 

 

1,457

 

 

9,724

 

 

4,316

 

Transaction expenses(3)

 

 

511

 

 

6,383

 

 

2,393

 

Non-recurring expenses(4)

549

 

 

 

 

2,289

 

 

 

Adjusted EBITDA

$

57,527

 

 

$

58,260

 

 

$

128,854

 

 

$

137,430

 

(1)

 

 

In the current period, management removed the EBITDA adjustments for the non-cash impact of the initial recognition and subsequent fair value changes in our servicing liabilities, and for non-corporate tax expenses. The Adjusted EBITDA measures for the three and nine months ended September 30, 2018 were adjusted accordingly, which resulted in decreases of those measures by $617 and $1,030, respectively.

(2) 

 

Includes equity-based compensation to employees and directors, as well as equity-based payments to non-employees.

(3)

 

 

For the nine months ended September 30, 2019, includes loss on remeasurement of our tax receivable agreement liability. For the three and nine months ended September 30, 2018, includes certain costs associated with our IPO, which were not deferrable against the proceeds of the IPO. Further, includes certain costs, such as legal and debt arrangement costs, related to our March 2018 term loan upsizing.

(4)

 

 

For the three months ended September 30, 2019, includes legal fees associated with IPO related litigation. For the nine months ended September 30, 2019, includes the following: (i) legal fees associated with IPO related litigation of $1,508, (ii) one-time tax compliance fees related to filing the final tax return for the Former Corporate Investors associated with the Reorganization Transactions of $160, and (iii) lien filing expenses related to certain Bank Partner solar loans of $621.

 

 

       

Reconciliation of Pro Forma Net Income

(Dollars in thousands)

       

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

2019

 

2018

 

2019

 

2018

Net income

$

44,075

 

 

$

45,712

 

 

$

90,669

 

 

$

105,132

 

Transaction expenses(1)

 

 

511

 

 

6,383

 

 

2,393

 

Non-recurring expenses(2)

549

 

 

 

 

2,289

 

 

 

Incremental pro forma tax expense(3)

(5,547

)

 

(7,414

)

 

(18,226

)

 

(19,853

)

Pro Forma Net Income

$

39,077

 

 

$

38,809

 

 

$

81,115

 

 

$

87,672

 

(1)

 

 

For the nine months ended September 30, 2019, includes loss on remeasurement of our tax receivable agreement liability. For the three and nine months ended September 30, 2018, includes certain costs associated with our IPO, which were not deferrable against the proceeds of the IPO. Further, includes certain costs, such as legal and debt arrangement costs, related to our March 2018 term loan upsizing.

(2)

 

 

For the three months ended September 30, 2019, includes legal fees associated with IPO related litigation. For the nine months ended September 30, 2019, includes the following: (i) legal fees associated with IPO related litigation of $1,508, (ii) one-time tax compliance fees related to filing the final tax return for the Former Corporate Investors associated with the Reorganization Transactions of $160, and (iii) lien filing expenses related to certain Bank Partner solar loans of $621.

(3)

 

 

 Represents the incremental tax effect on net income, adjusted for transaction and non-recurring expenses, assuming that all consolidated net income was subject to corporate taxation at a full year effective tax rate of 15.34% for the three and nine months ended September 30, 2019 and effective tax rates of 21.8% and 22.1% for the three and nine months ended September 30, 2018, respectively.

 

Source: GreenSky, Inc.

Investor Relations
Rebecca Gardy
404-334-7334
Rebecca.gardy@greensky.com

Media
Julia Sahin, Edelman
212.738.6131
media@greensky.com