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Investor
Presentation
February 2017
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. Forward-looking
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. Forward-looking statements can also be
identified by words such as "will," "enables," "expects”, “may,” "allows," "continues," "believes,“, “intends,” "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, the timing and amount of expected savings from the cost rationalization program and other risks,
including those under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2015, our quarterly report on Form 10-Q for the quarter ended
September 30, 2016 and in other 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 forward-looking 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 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 are 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 compared to their nearest U.S. GAAP equivalents. 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. The non-GAAP measures contained in this presentation include Adjusted EBITDA, Adjusted Net Income (Loss), Adjusted Expense Ratio,
Adjusted Operating Yield and certain operating expense categories, all of which exclude stock-based compensation, as well as Net Interest Margin After Credit Losses. Please refer
to pages 36 through 47 in the Appendix of this presentation for a description of these non-GAAP measures, their respective limitations and reconciliations to U.S. GAAP.
Forward-Looking Statements
2
572890
1,203
12/31/14 12/31/15 12/31/16
1,8742,404
557 632
2015 2016 4Q '15 4Q '16
ORIGINATIONS$MM
• $6 Billion+ total originations
• 35% y-o-y Loans Under Management growth
• Scalable financial model
• 60,000+ small businesses served
• 5th Generation proprietary credit scoring model
• 79 net promoter score1
The Leading Online Platform for Small
Business Lending
1. Based on all OnDeck’s distribution channels as of December 31, 2016.3
255 291
68 82
2015 2016 4Q '15 4Q '16
GROSS REVENUE$MM
LOANS UNDER MANAGEMENT$MM
4
Investment Highlights
• Massive and underserved market
• Proprietary analytics and scoring models
• Integrated and scalable technology platform
• Robust customer acquisition channels
• Growth opportunity through “Platform-As-A-Service”
• Diversified funding platform
• Attractive financial profile
Small Business Lending Market is Massive
and Underserved
Sources: U.S. SBA, FDIC 9/30/16, Oliver Wyman, “Financing Small Business”
1. As of December 31, 2016; Loans under management represents the Unpaid Principal Balance plus the amount of principal outstanding for loans held for sale, excluding net deferred origination costs, plus the amount of principal
outstanding of term loans the company serviced for others, each at the end of the period.
5
28MMU.S. Small Businesses
OnDeck Unique US Small
Businesses Served
60K+
$80-120BnUnmet
Demand for Small
Business Lines
of Credit
$201BnBusiness Loan
Balances Under
$250,000 in
the U.S.
in Q3 ꞌ16
$1.2Bn
OnDeck Loans Under
Management1
Diversity of Small Businesses
Creates Challenges for
Traditional Lenders…
CHALLENGES FOR TRADITIONAL
LENDERS
• Diverse businesses require manual underwriting
• Technology and data limitations
• Lack of standardized small business credit score
6
Credit Card Rev. Cash Rev. Monthly Exp. Inventory & Payroll
Landscaping Rev. Snow Removal Rev. Monthly Exp. Fuel & Payroll
Repair Rev. Subcontractor Rev. Monthly Exp. Supplies & Payroll
CASH FLOW PROFILE
Restaurant
Landscaping Company
Plumbing Company
Q1 Q2 Q3 Q4
…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
77
• 5th Generationproprietary credit scoring model
• 100+ external data sources
• 10 Million+ small businesses in proprietary database
• 2,000+ data points per application
The OnDeck Score®
Proprietary and Purpose Built for Small Business
8
Score
A
B
C
D
E
RIS
K G
RA
DIN
G
• Probabilistic record linkage
• Dimensionality reduction
• Ensemble learning
• Exhaustive cross validation
• Feature engineering
• Adaptive learning
Proprietary Data
Analysis Platform
Public
RecordsCredit
Data
Social
Data
Proprietary
Data
Transactional
Data
Accounting
Data
F
We Rely on the OnDeck Score for Greater
Accuracy, Predictability and Access
(1) Analysis on OnDeck Score v5 using actual OnDeck loan performance data.9
10
20
40
Random Personal Credit Score OnDeck Score
More Accurate than the Personal Credit Score
at Predicting Bad Credit Risk1…Resulting in Funding Significantly More
Loans for the Same Risk…
ACCEPTANCE RATE (%)
The OnDeck Score Personal Credit Score Random
90%
100%
0%
100% 40% 20% 10% 0%
% O
F D
EF
AU
LT
S E
LIM
INA
TE
D
10%
Score
Manual ReviewWeeks or Months
Offline33 Hours2
The OnDeck Solution for Small Business
Lending
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 50% to 60% of our loan applicants are provided a loan decision using our proprietary automated approval process.
APPLY
TRADITIONAL LENDING
Several Days
OnlineMinutes1
Automated ReviewAs Fast as Immediately3
As Fast As Same Day
APPROVE FUND
10
TERM LOAN
(Launched in 2007)
LINE OF CREDIT
(Launched in 2013)
Use Case
Size $5,000 – $500,000 $5,000 – $100,000
Term 3 – 36 months 6 months3
Pricing4 Annual Interest Rate as low as 5.99%1
Average 44% APR2 12.99% – 39.9% APR
Payment Automated daily or weekly payments Automated weekly payments
Availability Renewal opportunity at ~50% paid down Draw on-demand
Tailored Products for Small Businesses
1. For select customers.
2. Based on Q4 ꞌ16 Originations.
3. 6 month reset upon each draw.
4. Pricing available through certain OnDeck strategic partners or channels may vary.
HiringNewStaff
Buying Inventory
Marketing Managing Cash Flow
11
60,000+Small Businesses Served
7 YearsMedian Time in Business
Established and Diverse Customer Base
1. Based on Q4 ꞌ16 Originations
$615,000Median Annual Revenue1
700+Industries
12
Online Customer
Experience
Integrated and Scalable Technology Platform
110,000+Total Loans
Data Aggregation, Analytics &
Scoring
13 Million+Customer Payments
Technology Powered
Servicing & Collections
13
$6 Billion+Total Originations
Numbers represent loan units.
8,131 7,625 8,642
2014 2015 2016
18,790
29,51633,882
2014 2015 2016
Diversified and Growing Distribution Channels
14
FUNDING ADVISORS
78%
22%
Direct and Strategic Partners Funding Advisors
CHANNEL MIX Q4 ‘16
Numbers represent loan units.
DIRECT & STRATEGIC PARTNERS
Expanding Partner Ecosystem
Includes affiliates, subsidiaries and divisions.
OnDeck Enabling Partners to Expand Core Solutions and Value Added Services
15
Banks
SMB Solution
Online Lending
ISOs/Processors
BALANCE SHEET
FUNDING MIX AS OF Q4 ‘16
Funding mix includes the principal balance outstanding in Loans Under Management as of December 31, 2016 for loans financed with funding debt or sold to OnDeck Marketplace investors.
Diverse Funding Model Focused on Flexibility
Target Mix85-95% of Term Loan
Originations
5-15% of Term Loan
Originations
Investor
Type
Investors Seeking Fixed
Returns
Investors Seeking Variable
Returns
FlexibilityScalable as Originations
Grow
Greater Product and Investor
Flexibility
Cost Low Cost Execution Profitable Revenue Stream
ResiliencyCapital-Light Structure, Equity
Contribution Aligns Interests
Diversified Risk Exposure,
Servicing Fee Aligns Interests
Securitization / Warehouse
Marketplace
Securitization
Warehouse Lines
OnDeck
Marketplace®
16
5.5%
9.0%
6.4%
4.4%
5.5%
6.9% 6.9% 7.1%6.6%
5.5%
3.9%
1.0%
0.0%
2007 2008 2009 2010 2011 2012 2013 2014 2015 Q1 '16 Q2 '16 Q3 '16 Q4 '162 2 2 2 2
Consistent Portfolio Performance Over Time
1. Represents net lifetime charge-offs of the unpaid principal balances charged off less recoveries of loans previously charged off. A given cohort’s net lifetime charge-off ratio equals the cohort’s net lifetime charge-offs through
December 31, 2016 divided by the cohort’s total original loan volume. Repeat loans in the denominator include the full renewal loan principal amount. The chart includes all term loan originations, regardless of funding source,
including loans sold through our OnDeck Marketplace or held for sale on our balance sheet.
2. As of December 31, 2016, principal balance of all term loans in Loans Under Management still outstanding was 0% for all cohorts except the 2015, Q1 ’16, Q2 ’16, Q3 ’16 and Q4 ‘16 cohorts, which had principal outstanding of
2.4%, 14.0%, 32.4%, 60.7%, and 89.0%, respectively.
3. Represents the initial contractual term at origination.
NET CHARGE-OFFS BY COHORT 1
9.6 11.1 8.8 7.5 8.7 9.2 10.0 11.2 12.4 13.2 13.7 13.1 12.8Avg. Term
(months)3
17
Growth StrategyBrand and direct
marketing
Strategic partnership
Data and analytics
Product expansion
Expand customer lifetime value
International expansion
18
Industry Leading Management Team
19
Paul
RosenSales
Howard
KatzenbergCFO
Barbara
LambotteCapital Markets
Krishna
VenkatramanData & Analytics
Andrea
GellertMarketing
Noah
BreslowCEO
Cory
KampferLegal
MANAGEMENT TEAM BOARD OF DIRECTORS
David HartwigSapphire Ventures
Bruce P. NolopFormer CFOE*TRADE Financial Corporation
Neil WolfsonSF Capital Group
Noah BreslowChairman of the Board
Jane J. ThompsonWalmart Financial ServicesCFPB Advisory Board
Ronald VerniFormer CEOSage Software
James Robinson IIIRRE VenturesFormer CEO, American Express
Daniel S. HensonFormer EVPGE Capital Corporation
TEAM EXPERIENCE
Gagan
KanjliaProduct
Robert
YoungInternational
Nick
BrownRisk
Lorna
HagenPeople Operations
Daniel
GorfineExternal Affairs
• Healthy growth trajectory
• Structural protections with product and portfolio design
• Compelling customer LTV
• Diversified funding model
• Inherent operating leverage with scale
20
Financial Highlights
$320$382
$466
$572
$675$719
$781
$890
$982
$1,053$1,124
$1,203
88% 89%91%
86% 81% 72% 65% 61%67%
75%79%
82%14%
19% 28% 35%39%
33%
25%
21%
18%
3/31 6/30 9/30 12/31 3/31 6/30 9/30 12/31 3/31 6/30 9/30 12/31
Consistent Loans Under Management Growth
($MM)
BALANCE SHEET LOANSONDECK MANAGED PORTFOLIO
2014
21
2015 2016
$29
$36
$44
$50
$56
$63$67 $68
$63
$70
$77 $82
92%93%
93%90% 86% 79% 72% 70%
85%92%
92%93%
14%21% 28% 30% 15%
8%
8%7%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Strong Revenue Growth
($MM)
2014
22
2015 2016
INTEREST INCOMEGAIN ON SALE AND OTHER REVENUE
Compelling Customer Lifetime Value
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 all loans including new, repeat and line of credit loans, less acquisition costs for repeat loans, less the following items for all loan types: estimated third party
processing and servicing expenses, estimated funding costs (excluding any cost of equity capital) and net charge-offs. For this purpose, processing and servicing expenses are estimated based on the mix of loan originations and
outstanding principal balances. Includes all loans originated in the period. Funding cost for new and repeat loans sold is estimated based on the average on-balance sheet cost of funds rate in the period. All estimates may be
adjusted in subsequent periods to reflect updated information.
3. Return on Investment (ROI) is contribution divided by initial acquisition cost. Acquisition costs include upfront internal and external commissions as well as direct marketing expenses.
4. Figures may not foot due to rounding.23
($MM)
2014
$47$34
$19
Acquisition
Cost1Contribution2 +Q1 +Q2 +Q3 +Q4
or
$167Return3
after 12 quarters
$47Investment
$42
$17
$15
+Q5
$13
Through
Dec 30, 2016+Q6
$11
ALL CUSTOMERS ACQUIRED IN 2014
• Average 2.2 loans per customer through 12 quarters
3.6x+ROI
$9
+Q7
$8
+Q8
Customer Lifetime Value Stable Over Time
1. Contribution as defined on the previous page.
2. Return on Investment (ROI) as defined on the previous pages.
3. Includes all loan types. 24
COHORT CONTRIBUTION PER CUSTOMER 1
--
1.0x
2.0x
3.0x
4.0x
-
5,000
10,000
RETURN ON INVESTMENT 2
ALL CUSTOMERS ACQUIRED IN 2014 AND 2015
2015
2014
+12 Quarters+8 Quarters
2015
2014
+12 Quarters+8 Quarters
30%
20%21%
17%
2013 2014 2015 2016
Operating Leverage Potential as LUM Scales
1. See appendix for a reconciliation of these non-GAAP measures.
PROVISION RATE
COST OF FUNDS RATE
OPERATING EXPENSE EX. SBC AS A PERCENTAGE OF
AVERAGE LUM 1
Operating leverage potential as LUM scales in 2016 and 2017
6.0%6.6%
5.8%
7.4%
2013 2014 2015 2016
11.3%
6.2%5.5% 5.9%
2013 2014 2015 2016 S&M ex. SBC T&A ex. SBC
P&S ex. SBC G&A ex. SBC
25
Adj. EBITDA and Adj. Net Income (Loss)
See appendix for a reconciliation of these non-GAAP measures.26
$16.2
($59.7)
$0.3
($29.2)
$10.3
($67.0)
($1.1)
($31.4)
Adjusted EBITDA Adjusted Net Income (Loss)
2016 Q4 ‘15 Q4 ‘162015
Building Shareholder Value
27
• Expand our addressable market and increase customer lifetime value
with a full spectrum of SMB credit products and by investing in long-term
customer relationships
• Drive sustainable improvements in operating performance, prioritizing
responsible portfolio growth and credit quality
• Leverage technology and analytics leadership to extend our competitive
“moats” while driving operating leverage and enhancing profitability
• Diversify our funding sources by type and investor to balance risk retention
with flexibility and resiliency over an economic cycle
27
Supplemental
Performance
Metrics
28
Additional Metrics for Evaluating
Performance
Note: See appendix for definitions of non-GAAP measures, their limitations and reconciliations to GAAP.
Note: Net Interest Margin After Credit Losses, Adjusted Expense Ratio and Adjusted Operating Yield are annualized metrics. Annualization is based on business days assuming 252 business days per year, which is typical weekdays
per year less U.S. Federal Reserve Bank holidays.
Funding Cost
Interest Income
Net Charge-offs
Net Interest Income After Credit Losses
Average Interest Earning Assets
Stock-based Comp. (SBC)
Operating Expense
Operating Expense (Ex. SBC)
Average LUM
÷
Net Interest Margin After Credit Losses Adjusted Expense Ratio Adjusted Operating Yield=
÷
29
• Describes earnings
potential (spread) of loan
book
• Comparable to reported
metrics of other finance
companies
Benefits of Metrics
Note: See appendix for definitions of non-GAAP measures, their limitations and reconciliations to GAAP.
Net Interest Margin After Credit Losses
Adjusted Expense Ratio Adjusted Operating Yield=
• Describes efficiency of
operating expense base
relative to LUM
• Should correlate with a
more traditional “efficiency
ratio” when funding mix
stabilizes
• Describes potential
operating income of LUM
at scale and with no
Marketplace
• Proxy for Return on Assets
(ROA) of LUM
30
Historical Performance
Note: See appendix for definitions of non-GAAP measures, their limitations and reconciliations to GAAP.
Figures may not exactly foot due to rounding.
Net Interest Margin After Credit Losses
22%
19% 20%
17%
20%19% 19%
15%
Q1 '15 Q2 '15 Q3 '15 Q4 '15 Q1 '16 Q2 '16 Q3 '16 Q4 '16
Adjusted Expense Ratio
21% 20% 20%21%
18% 17% 17% 17%
Q1 '15 Q2 '15 Q3 '15 Q4 '15 Q1 '16 Q2 '16 Q3 '16 Q4 '16
Adjusted Operating Yield
1%
(1%) (1%)
(5%)
3% 2% 2%
(2%)
Q1 '15 Q2 '15 Q3 '15 Q4 '15 Q1 '16 Q2 '16 Q3 '16 Q4 '16
31
Appendix
32
Net Cumulative Lifetime Charge-off Ratios –
All Term Loans
As of December 31, 2016, net charge-off as a percentage of original loan amount for all term loan originations, regardless of funding source, including loans sold through OnDeck Marketplace or held for sale on our balance sheet. 33
0%
1%
2%
3%
4%
5%
6%
7%
8%
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
2012
2013
2014
2015
Q1 '16
Q2 '16
Q3 '16
Q4 '16
ALL TERM LOAN CUSTOMERS ACQUIRED IN 2015
• Average 1.7 loans per customer through 8 quarters
or
$137Return3
after 8 quarters
$60Investment
2.3x+ROI
Customer Lifetime Value Stable Despite
Increased Competitive Pressures
1. Includes upfront internal and external commissions as well as direct marketing expenses.
2. Contribution is defined to include interest income and fees collected on all loans including new, repeat and line of credit loans, less acquisition costs for repeat loans, less the following items for all loan types: estimated third party
processing and servicing expenses, estimated funding costs (excluding any cost of equity capital) and net charge-offs. For this purpose, processing and servicing expenses are estimated based on the mix of loan originations and
outstanding principal balances. Includes all loans originated in the period. Funding cost for new and repeat loans sold is estimated based on the average on-balance sheet cost of funds rate in the period. All estimates may be
adjusted in subsequent periods to reflect updated information.
3. Return on Investment (ROI) is contribution divided by initial acquisition cost. Acquisition costs include upfront internal and external commissions as well as direct marketing expenses.
4. Figures may not foot due to rounding.34
($MM)
2015
$60$37
$25
Acquisition
Cost1Contribution2 +Q1 +Q2
$46
Through Dec 30, 2016
$16
+Q3
$14
+Q4
Current Debt Facilities
1. Total funding debt principal. Balances and capacities as of December 31, 2016, subject to borrowing conditions.
2. The period during which remaining cash flow can be used to purchase additional loans expires April 2018.
3. Lenders obligation consists of a commitment to make loans in amount of up to $125 million on a revolving basis. Lenders may also, in their sole discretion and on an uncommitted basis, make additional loans in amount of up to $75 million on a revolving basis.
4. The period during which new borrowings may be made under this facility expires in August 2018.
5. Maturity dates range from January 2017 through December 2018.
6. On November 17, 2016 the maturity date was extended to October 2018 and the credit limit was increased from $20.0 million to $30.0 million.
7. While the lenders under our corporate debt facility and partner synthetic participation have direct recourse to us as the borrower thereunder, lenders to our subsidiaries do not have direct recourse to us.
8. Funding Debt as of December 31, 2016 was $726.6 million. .
Borrower Maturity Date WA Interest Rate Principal Outstanding Borrowing Capacity
Funding Debt 1,7
OnDeck Asset Securitization Trust II LLC May-20 2 4.7% $250.0 $250.0
OnDeck Account Receivables Trust 2013-1 LLC Sept-17 3.4% 133.8 162.4
Receivable Assets of OnDeck, LLC May-17 3.8% 100.0 100.0
Prime OnDeck Receivable Trust II, LLC Dec-18 3.7% 52.4 200.0 3
OnDeck Asset Funding I, LLC Aug-19 4 8.0% 100.0 150.0
On Deck Asset Company, LLC May-17 10.0% 65.5 75.0
Other Agreements Various 5 Various 30.9 30.9
Total Funding Debt $732.5 7 $968.3
Corporate Debt 1,7
On Deck Capital, Inc. Oct-18 6 5.0% $28.0 $30.0
35
($MM)
Non-GAAP Net Interest Margin After Credit
Losses Calculation and Reconciliation
Note: See following slide for further definition, uses and limitations of this non-GAAP metric.
1. Annualization is based on business days assuming 252 business days per year, which is typical weekdays per year less U.S. Federal Reserve Bank holidays.36
$000s 2015 2016 Q1 ‘15 Q2 ‘15 Q3 ‘15 Q4 ‘15 Q1 ‘16 Q2 ‘16 Q3 ‘16 Q4 ‘16
Net Interest Margin After Credit Losses Reconciliation
Interest Income $195,048 $264,844 $48,699 $50,248 $48,624 $47,477 $53,479 $63,886 $71,361 $76,118
Funding Costs (20,244) (32,448) (5,045) (4,771) (5,126) (5,302) (5,722) (8,374) (8,452) (9,900)
Net Charge-offs (71,356) (93,112) (16,110) (19,269) (16,704) (19,274) (17,041) (20,129) (23,067) (32,875)
Net Interest Income After Credit Losses $103,448 $139,284 $27,544 $26,208 $26,794 $22,901 $30,716 $35,383 $39,842 $33,343
Divided By: Business Days in Period 252 251 61 64 65 62 62 64 64 61
Net Interest Income After Credit Losses Per Business Day $411 $555 $452 $410 $412 $369 $495 $553 $623 $547
Multiplied By: Average Business Days Per Year 1 252 252 252 252 252 252 252 252 252 252
Annualized Net Interest Income After Credit Losses $103,448 $139,860 $113,904 $103,320 $103,824 $92,988 $124,740 $139,356 $156,996 $137,844
Divided By: Average Interest Earning Assets $539,096 $783,762 $520,757 $537,819 $531,223 $555,423 $619,724 $741,226 $841,270 $930,238
Net Interest Margin After Credit Losses 19.2% 17.8% 21.9% 19.2% 19.5% 16.7% 20.1% 18.8% 18.7% 14.8%
Net Interest Margin After Credit Losses, or NIM After Credit Losses, is calculated as our business day adjusted annualized Net Interest Income After Credit Losses divided by Average Interest Earning Assets.
Net Interest Income After Credit Losses represents interest income less funding cost and net charge-offs. Interest income is net of deferred costs and fees on loans held for investment and held for sale. Net deferred origination costs in loans held for investment and loans held for sale consist of deferred origination costs as offset by corresponding deferred origination fees. Deferred origination fees include fees paid up front to us by customers when loans are funded. Deferred origination costs are limited to costs directly attributable to originating loans such as commissions, vendor costs and personnel costs directly related to the time spent by the personnel performing activities related to loan origination. Funding cost is the interest expense, fees, and amortization of deferred debt issuance costs we incur in connection with our lending activities across all of our debt facilities. Net charge-offs are charged-off loans in the period, net of recoveries. Annualization is based on business days assuming 252 business days per year, which is typical weekdays per year less U.S. Federal Reserve Bank holidays.
Management believes that using Net Interest Margin After Credit Losses is useful to analyze the lending operating performance of the business unaffected by the provision for loan losses impact of the growth in originations. In accordance with GAAP, we recognize revenue on loans over their term, but provide for probable credit losses on the loans at the time they are originated. With respect to the forward-looking guidance of this metric, OnDeck is not able to provide a reconciliation of this non-GAAP measure to GAAP. Certain items that impact these measures have not yet occurred, are out of OnDeck’s control and/or cannot be reasonably predicted, and as a result, reconciliation of the forward-looking non-GAAP guidance measures to GAAP is not available without unreasonable effort.
Our use of Net Interest Margin After Credit Losses has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:
• Net Interest Margin After Credit Losses is the rate of net return we achieve on our Average Interest Earning Assets outstanding during a period. It does not reflect the return from loans sold through OnDeck Marketplace, specifically our gain on sale revenue. Similarly, Average Interest Earning Assets does not include the unpaid principal balance of loans sold through Marketplace. Further, Net Interest Margin After Credit Losses does not include servicing revenue related to loans previously sold, fair value adjustments to servicing rights, monthly fees charged to customers for our line of credit, and marketing fees earned from our issuing bank partners, which are recognized as the related services are provided.
• Net Interest Margin After Credit Losses reflects net charge-offs in the period rather than provision for loan losses. To the extent that originations continue to grow significantly, our charge-offs will likely be lower than the probable credit losses inherent in the portfolio upon origination. Furthermore, provision for loan losses consists of amounts charged to income during the period to maintain an allowance for loan losses, or ALLL. In addition to net charge-offs, our ALLL represents our estimate of the expected credit losses inherent in our portfolio of term loans and lines of credit and is based on a variety of factors, including the composition and quality of the portfolio, loan specific information gathered through our collection efforts, delinquency levels, our historical loss experience and general economic conditions.
• Funding cost does not reflect interest associated with debt used for corporate purposes.
Net Interest Margin After Credit Losses
37
$000s 2015 2016 Q1 ‘15 Q2 ‘15 Q3 ‘15 Q4 ‘15 Q1 ‘16 Q2 ‘16 Q3 ‘16 Q4 ‘16
Adjusted Expense Ratio Reconciliation
Operating Expense $161,585 $193,974 $33,549 $38,193 $42,456 $47,387 $44,559 $47,528 $49,395 $52,492
Less: Stock-Based Compensation (11,582) (15,915) (2,042) (2,316) (3,707) (3,517) (3,752) (3,910) (3,761) (4,492)
Operating Expense (Ex. SBC) $150,003 $178,059 $31,507 $35,877 $38,749 $43,870 $40,807 $43,618 $45,634 $48,000
Divided By: Business Days in Period 252 251 61 64 65 62 62 64 64 61
Operating Expense (Ex. SBC) Per Business Day $595 $709 $517 $561 $596 $708 $658 $682 $713 $787
Multiplied By: Average Business Days Per Year 1 252 252 252 252 252 252 252 252 252 252
Operating Expense (Ex. SBC) $150,003 $178,668 $130,284 $141,372 $150,192 $178,416 $165,816 $171,864 $179,676 $198,324
Divided By: Average LUM $726,215 $1,050,504 $627,379 $692,490 $748,266 $835,930 $939,787 $1,020,752 $1,087,641 $1,155,687
Adjusted Expense Ratio 20.7% 17.0% 20.8% 20.4% 20.1% 21.3% 17.6% 16.8% 16.5% 17.2%
Non-GAAP Adjusted Expense Ratio
Calculation and Reconciliation
Note: See following page for further definition, uses and limitations of this non-GAAP metric.
1. Annualization is based on business days assuming 252 business days per year, which is typical weekdays per year less U.S. Federal Reserve Bank holidays.38
Adjusted Expense Ratio represents our annualized operating expense, adjusted to exclude the impact of stock-based compensation, divided
by Average Loans Under Management, or Average LUM. Loans Under Management represents the Unpaid Principal Balance plus the amount
of principal outstanding of loans held for sale, excluding net deferred origination costs, plus the amount of principal outstanding of term loans
we serviced for others at the end of the period. Average LUM is calculated as the average of Loans Under Management at the beginning of
the period and the end of each month in the period. Annualization is based on business days assuming 252 business days per year, which is
typical weekdays per year less U.S. Federal Reserve Bank holidays.
Management believes that using the Adjusted Expense Ratio is a useful to analyze the level of operating expenses incurred by the business
compared to the level outstanding principal of loans, regardless of the funding source deployed to fund the loan. With respect to the forward-
looking guidance of this metric, OnDeck is not able to provide a reconciliation of this non-GAAP measure to GAAP. Certain items that impact
these measures have not yet occurred, are out of OnDeck’s control and/or cannot be reasonably predicted, and as a result, reconciliation of
the forward-looking non-GAAP guidance measures to GAAP is not available without unreasonable effort.
Our use of Adjusted Expense Ratio has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for
analysis of our results as reported under GAAP. Some of these limitations are:
• Adjusted Expense Ratio does not reflect the potentially dilutive impact of equity-based compensation.
• Adjusted Expense Ratio is based on the unpaid principal balance of loans outstanding, regardless of funding source, and does not take into
account the revenue earned in the period and may not correspond with the timing of the expenses incurred to originate new loans.
Adjusted Expense Ratio
39
$000s 2015 2016 Q1 ‘15 Q2 ‘15 Q3 ‘15 Q4 ‘15 Q1 ‘16 Q2 ‘16 Q3 ’16 Q4 ’16
Sales and Marketing (Ex. SBC) / Average LUM Reconciliation
Sales and Marketing Expense $60,575 $67,011 $12,675 $14,981 $15,847 $17,072 $16,548 $16,757 $16,789 $16,917
Less: Sales and Marketing Stock-Based Compensation (3,081) (4,002) (575) (594) (1,011) (901) (888) (941) (920) (1,253)
Sales and Marketing Expense (Ex. SBC) $57,494 $63,009 $12,100 $14,387 $14,836 $16,171 $15,660 $15,816 $15,869 $15,664
Divided By: Business Days in Period 252 251 61 64 65 62 62 64 64 61
Sales and Marketing Expense (Ex. SBC) Per Business Day $228 $251 $198 $225 $228 $261 $253 $247 $248 $257
Multiplied By: Average Business Days Per Year 1 252 252 252 252 252 252 252 252 252 252
Annualized Sales and Marketing Expense (Ex. SBC) $57,494 $63,252 $49,896 $56,700 $57,456 $65,772 $63,756 $62,244 $62,496 $64,764
Divided By: Average LUM $726,215 $1,050,504 $627,379 $692,490 $748,266 $835,930 $939,787 $1,020,752 $1,087,641 $1,155,687
Sales and Marketing (Ex. SBC) / Average LUM 7.9% 6.0% 8.0% 8.2% 7.7% 7.9% 6.8% 6.1% 5.7% 5.6%
Non-GAAP Sales and Marketing
(Ex. SBC) / Average LUM Calculation and Reconciliation
Note: Sales and Marketing (Ex. SBC) / Average LUM is a component of the Adjusted Expense Ratio. Management believes that using Sales and Marketing (Ex. SBC) / Average LUM is useful to analyze operating expenses incurred
by the business compared to the level outstanding principal of loans, regardless of the funding source deployed to fund the loan. See slide titled “Adjusted Expense Ratio” in this appendix for the uses and limitations of these non-
GAAP metrics.
1. Annualization is based on business days assuming 252 business days per year, which is typical weekdays per year less U.S. Federal Reserve Bank holidays.40
$000s 2015 2016 Q1 ‘15 Q2 ‘15 Q3 ‘15 Q4 ‘15 Q1 ‘16 Q2 ‘16 Q3 ’16 Q4 ’16
Technology and Analytics (Ex. SBC) / Average LUM Reconciliation
Technology and Analytics Expense $42,653 $58,899 $8,587 $10,206 $11,111 $12,749 $14,087 $13,757 $15,050 $16,005
Less: Technology and Analytics Stock-Based Compensation (2,351) (3,199) (436) (504) (778) (632) (757) (887) (793) (762)
Technology and Analytics Expense (Ex. SBC) $40,302 $55,700 $8,151 $9,702 $10,333 $12,117 $13,330 $12,870 $14,257 $15,243
Divided By: Business Days in Period 252 251 61 64 65 62 62 64 64 61
Technology and Analytics Expense (Ex. SBC) Per Business Day $160 $222 $134 $152 $159 $195 $215 $201 $223 $250
Multiplied By: Average Business Days Per Year 1 252 252 252 252 252 252 252 252 252 252
Annualized Technology and Analytics Expense (Ex. SBC) $40,302 $55,944 $33,768 $38,304 $40,068 $49,140 $54,180 $50,652 $56,196 $63,000
Divided By: Average LUM $726,215 $1,050,504 $627,379 $692,490 $748,266 $835,930 $939,787 $1,020,752 $1,087,641 $1,155,687
Technology and Analytics (Ex. SBC) / Average LUM 5.6% 5.3% 5.4% 5.5% 5.4% 5.9% 5.8% 5.0% 5.2% 5.5%
Non-GAAP Technology and Analytics
(Ex. SBC) / Average LUM Calculation and Reconciliation
Note: Technology and Analytics (Ex. SBC) / Average LUM is a component of the Adjusted Expense Ratio. Management believes that using Technology and Analytics (Ex. SBC) / Average LUM is useful to analyze operating expenses
incurred by the business compared to the level outstanding principal of loans, regardless of the funding source deployed to fund the loan. See slide titled “Adjusted Expense Ratio” in this appendix for the uses and limitations of these
non-GAAP metrics.
1. Annualization is based on business days assuming 252 business days per year, which is typical weekdays per year less U.S. Federal Reserve Bank holidays.41
$000s 2015 2016 Q1 ‘15 Q2 ‘15 Q3 ‘15 Q4 ‘15 Q1 ‘16 Q2 ‘16 Q3 ’16 Q4 ’16
Processing and Servicing (Ex. SBC) / Average LUM Reconciliation
Processing and Servicing Expense $13,053 $19,719 $2,703 $3,015 $3,352 $3,983 $4,215 $4,865 $5,181 $5,458
Less: Processing and Servicing Stock-Based Compensation (775) (1,092) (147) (156) (227) (245) (343) (211) (227) (311)
Processing and Servicing Expense (Ex. SBC) $12,278 $18,627 $2,556 $2,859 $3,125 $3,738 $3,872 $4,654 $4,954 $5,147
Divided By: Business Days in Period 252 251 61 64 65 62 62 64 64 61
Processing and Servicing Expense (Ex. SBC) Per Business Day $49 $74 $42 $45 $48 $60 $62 $73 $77 $84
Multiplied By: Average Business Days Per Year 1 252 252 252 252 252 252 252 252 252 252
Annualized Processing and Servicing Expense (Ex. SBC) $12,278 $18,648 $10,584 $11,340 $12,096 $15,120 $15,624 $18,396 $19,404 $21,168
Divided By: Average LUM $726,215 $1,050,504 $627,379 $692,490 $748,266 $835,930 $939,787 $1,020,752 $1,087,641 $1,155,687
Processing and Servicing (Ex. SBC) / Average LUM 1.7% 1.8% 1.7% 1.6% 1.6% 1.8% 1.7% 1.8% 1.8% 1.8%
Non-GAAP Processing and Servicing
(Ex. SBC) / Average LUM Calculation and Reconciliation
Note: Processing and Servicing (Ex. SBC) / Average LUM is a component of the Adjusted Expense Ratio. Management believes that using Processing and Servicing (Ex. SBC) / Average LUM is useful to analyze operating expenses
incurred by the business compared to the level outstanding principal of loans, regardless of the funding source deployed to fund the loan. See slide titled “Adjusted Expense Ratio” in this appendix for the uses and limitations of these
non-GAAP metrics.
1. Annualization is based on business days assuming 252 business days per year, which is typical weekdays per year less U.S. Federal Reserve Bank holidays.42
$000s 2015 2016 Q1 ‘15 Q2 ‘15 Q3 ‘15 Q4 ‘15 Q1 ‘16 Q2 ‘16 Q3 ’16 Q4 ’16
General and Administrative (Ex. SBC) / Average LUM Reconciliation
General and Administrative Expense $45,304 $48,345 $9,584 $9,991 $12,146 $13,583 $9,709 $12,149 $12,375 $14,112
Less: General and Administrative Stock-Based Compensation (5,375) (7,622) (884) (1,062) (1,690) (1,739) (1,764) (1,871) (1,821) (2,166)
General and Administrative Expense (Ex. SBC) $39,929 $40,723 $8,700 $8,929 $10,456 $11,844 $7,945 $10,278 $10,554 $11,946
Divided By: Business Days in Period 252 251 61 64 65 62 62 64 64 61
General and Administrative Expense (Ex. SBC) Per Business
Day$158 $162 $143 $140 $161 $191 $128 $161 $165 $196
Multiplied By: Average Business Days Per Year 1 252 252 252 252 252 252 252 252 252 252
Annualized General and Administrative Expense (Ex. SBC) $39,816 $40,824 $36,036 $35,280 $40,572 $48,132 $32,256 $40,572 $41,580 $49,392
Divided By: Average LUM $726,215 $1,050,504 $627,379 $692,490 $748,266 $835,930 $939,787 $1,020,752 $1,087,641 $1,155,687
General and Administrative (Ex. SBC) / Average LUM 5.5% 3.9% 5.7% 5.1% 5.4% 5.8% 3.4% 4.0% 3.8% 4.3%
Non-GAAP General and Administrative
(Ex. SBC) / Average LUM Calculation and Reconciliation
Note: General and Administrative (Ex. SBC) / Average LUM is a component of the Adjusted Expense Ratio. Management believes that using General and Administrative (Ex. SBC) / Average LUM is useful to analyze operating
expenses incurred by the business compared to the level outstanding principal of loans, regardless of the funding source deployed to fund the loan. See slide titled “Adjusted Expense Ratio” in this appendix for the uses and
limitations of these non-GAAP metrics.
1. Annualization is based on business days assuming 252 business days per year, which is typical weekdays per year less U.S. Federal Reserve Bank holidays.43
2015 2016 Q1 ‘15 Q2 ‘15 Q3 ’15 Q4 ’15 Q1 ‘16 Q2 ‘16 Q3 ’16 Q4 ’16
Adjusted Operating Yield Reconciliation
Net Interest Margin After Losses 1 19.2% 17.8% 21.9% 19.2% 19.5% 16.7% 20.1% 18.8% 18.7% 14.8%
Less: Adjusted Expense Ratio 2 (20.7%) (17.0%) (20.8%) (20.4%) (20.1%) (21.3%) (17.6%) (16.8%) (16.5%) (17.2%)
Adjusted Operating Yield (1.5%) 0.8% 1.1% (1.2%) (0.5%) (4.6%) 2.5% 2.0% 2.2% (2.4%)
Non-GAAP Adjusted Operating Yield
Calculation and Reconciliation
Note: See following page for further definition, uses and limitations of this non-GAAP metric. Figures may not foot due to rounding.
1. See slide titled “Non-GAAP Net Interest Margin After Credit Losses Reconciliation.”
2. See slide titled “Non-GAAP Adjusted Expense Ratio Reconciliation.”44
Adjusted Operating Yield represents our Net Interest Margin After Credit Losses less the Adjusted Expense Ratio.
Management believes that using Adjusted Operating Yield is a useful tool to evaluate the operating performance of the business unaffected by
the growth in originations and regardless of funding strategy. With respect to the forward-looking guidance of this metric, OnDeck is not able to
provide a reconciliation of this non-GAAP measure to GAAP. Certain items that impact these measures have not yet occurred, are out of
OnDeck’s control and/or cannot be reasonably predicted, and as a result, reconciliation of the forward-looking non-GAAP guidance measures
to GAAP is not available without unreasonable effort.
Our use of Adjusted Operating Yield has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for
analysis of our results as reported under GAAP. Some of these limitations are:
• Net Interest Margin After Credit Losses uses Average Interest Earning Assets in the denominator of the calculation whereas Adjusted
Expense Ratio uses Average Loans Under Management in the denominator. Subtracting one metric from the other is purely illustrative and
does not reflect the operating performance of the business.
• Using Adjusted Operating Yield as a measure to compare Net Interest Margin After Credit Losses to Adjusted Expense Ratio assumes that
loans sold through the OnDeck Marketplace are of similar origination, performance characteristics and return as loans held for investment
and held for sale, which are funded on-balance sheet through our asset-backed revolving facilities, asset-backed securitization facilities,
and internal equity.
• Using Net Interest Margin After Credit Losses as a measure to compare against Adjusted Expense Ratio assumes that the rate of return of
loans funded through the OnDeck Marketplace is similar to that of our loans held for investment or held for sale. Should our Marketplace
Gain on Sale Rates materially differ, both positively or negatively, this may limit the utility of comparing Net Interest Margin After Credit
Losses to Adjusted Expense Ratio as a means of measuring the operations of the business.
Adjusted Operating Yield
45
Adjusted EBITDATwelve Months Ended
December 31,
Three Months Ended
December 31,
(000s) 2015 2016 2015 2016
Net Loss ($2,231) ($85,482) ($5,144) ($36,460)
Adjustments:
Corporate Interest Expense 306 414 56 228
Income Tax Expense - - - -
Depreciation and Amortization 6,508 9,462 1,886 2,575
Stock-Based Compensation Expense 11,582 15,915 3,517 4,492
Adjusted EBITDA $16,165 ($59,691) $315 ($29,165)
Non-GAAP Adjusted EBITDA Reconciliation
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 and stock-based compensation expense. 46
Adjusted Net Income (Loss)Twelve Months Ended
December 31,
Three Months Ended
December 31,
(000s) 2015 2016 2015 2016
Net Income (Loss) ($2,231) ($85,482) ($5,144) ($36,460)
Adjustments:
Net Loss Attributable to Noncontrolling Interest 958 2,524 500 603
Stock-Based Compensation Expense 11,582 15,915 3,517 4,492
Adjusted Net Income (Loss) $10,309 ($67,043) ($1,127) ($31,365)
Non-GAAP Adjusted Net Income (Loss)
Reconciliation
Adjusted Net Income (Loss) per share represents our net income (loss) adjusted to exclude net loss attributable to noncontrolling interest and stock-based compensation expense.47
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