LendingClub Reports Third Quarter 2020 Results

SAN FRANCISCO, Nov. 4, 2020 /PRNewswire/ -- LendingClub Corporation (NYSE: LC), America's leading online lending marketplace connecting borrowers and investors, today announced financial results for the third quarter ended September 30, 2020.

Commenting on the quarter, LendingClub CEO Scott Sanborn said, "While there is uncertainty about the economic outlook in the near-term, we are managing LendingClub for long term success and the actions we are taking to strengthen our business post-COVID are bearing fruit. Our loans are performing well, investor confidence is returning, we have improved cost efficiency, and have built a substantial amount of liquidity as we work towards completing the acquisition of Radius, which remains our top strategic priority."

We are navigating through this challenging environment by following five key guiding principles.

• Keep our employees safe, effective and engaged – Our employees have been working remotely since March with no plans to fully open the office at least until the summer of 2021. Employees remain engaged and they continue to serve our members effectively.
• Preserve liquidity – We grew cash and cash equivalents to $445.2 million from $338.4 million at the end of the second quarter through a combination of cash flows from operations and additional loan sales. During the third quarter, we also fully paid off our $70.0 million revolving credit facility and paid down other debt facilities by approximately $290 million, significantly reducing leverage and further strengthening our balance sheet. This positions the Company well for completing the acquisition of Radius and also for navigating through the current economic environment.
• Support our members – Since the onset of the pandemic, we have helped more than 217,000 of our members with forbearance relief and offered several hardship plans to support them. Forbearance usage is tapering off, with new requests down significantly and approximately 2% of our loans remaining on these plans at the end of Q3.
• Protect investor returns – Delinquencies are coming in lower than we had anticipated, and the strong performance of our loans is contributing to increased investor demand. Both our pre- and post-COVID loans are delivering attractive returns.
• Pre-COVID vintages – Internal Rates of Return (IRRs) on our more recently originated pre-COVID vintages, which are the most impacted by the weaker economy, are trending toward 4% and in-line with our historical pre-COVID portfolio performance. The strong performance reflects the effectiveness of our underwriting data and analytics capabilities, increased servicing capacity and the relatively high ranking that personal loans have in the consumer payment hierarchy. As the outstanding balances on our loans continue to pay down, the exposure for our loan investors continues to recede.
• Post-COVID vintages – Early data on our post-COVID vintages indicates IRRs of 5 to 6% reflecting our focus on marketing to our large base of existing members, tighter underwriting and increased loan pricing. Acquisition costs for these loans are significantly lower compared to loans made to new members and they also generate lower credit losses in general.
• Stay on track for the acquisition of Radius – We filed our Y-3 application with the Federal Reserve in September, deployed cross-functional teams across both organizations and announced the first deposit product we intend to offer as a bank. We are continuing to work closely with regulators during this process. Post-acquisition, we will be the first US public neobank and the only full spectrum fintech marketplace bank operating nationwide in the US. Acquiring Radius will enable us to help borrowers and depositors, build deeper relationships with customers and realize better economics.

Quarter-over-quarter results reflected an expected increase in origination volume and related transaction fees, as well as lower restructuring expenses, partially offset by lower net interest income.

GAAP Consolidated Net Loss for the quarter of $(34.3) million was an improvement of $44.2 million. The improvement was partly driven by growth in transaction fees, with about half of the increase reflecting higher origination volume and the rest due to an increase in the transaction fee refund reserve in the second quarter as borrower prepayments normalized. In addition, results for the third quarter benefited from lower fair value adjustments, higher investor fees, higher gains on sale related to the loans sold and lower restructuring expenses. These benefits were partially offset by lower net interest income due to loan sales.

Year-over-year results reflected an expected decline in origination volume and lower transaction fees, partially offset by higher net investor revenue and lower expenses.

GAAP Consolidated Net Loss of $(34.3) million primarily reflected an 83% year-over-year decrease in loan origination volumes, which was in line with our expectations. This primarily drove an 85% decline in transaction fees year over year. The impact of lower transaction fees was partly offset by higher net investor revenue and lower expenses. The increase in net investor revenue was primarily due to lower fair value adjustments reflecting a reduction in the volume of loans issued and sold at a discount in the third quarter of 2020. Lower expenses year over year primarily reflected a significant decrease in sales and marketing expense, consistent with the reduction in origination volume. The decrease in expenses also reflected actions taken by the Company in the second quarter to improve efficiency and mitigate the impact of COVID.

Summary of Q3 Results

• Loan originations of $584.1 million, down 83% year-over-year and improving 79% sequentially.
• Net Revenue of $74.7 million, down 64% year-over-year and improving 70% sequentially.
• GAAP Consolidated Net Loss of $(34.3) million ($(0.38) per share attributable to common stockholders), compared to a loss of $(0.4) million ($0.00 per share attributable to common stockholders) in the third quarter of 2019 and a loss of $(78.5) million ($(0.87) per share attributable to common stockholders) in the second quarter of 2020.
• Adjusted EBITDA of $4.3 million, down 89% year-over-year and improving 116% sequentially.
• Adjusted EBITDA Margin of 5.8%, down 13.7 percentage points year-over-year and up 68.8 percentage points sequentially.
• Adjusted Net Loss of $(23.1) million ($(0.25) adjusted net loss per share), compared to Adjusted Net Income of $8.0 million ($0.09 adjusted net income per share) in the third quarter of 2019 and an Adjusted Net Loss of $(54.3) million ($(0.60) adjusted net loss per share) in the second quarter of 2020.

Third Quarter 2020 Financial Highlights

Commenting on financial results, Tom Casey, CFO of LendingClub, said "As anticipated, we are seeing a recovery in originations from a low point in Q2 and a corresponding growth in revenue." He continued, "We also ended the quarter with a substantial increase in cash and cash equivalents as we executed on a strategic decision to sell loans and generate additional liquidity while paying down a significant amount of debt and de-risking the balance sheet."

Loan Originations – Loan originations in the third quarter of 2020 were $584.1 million, down 83% compared to the same quarter last year and improving 79% sequentially.

Net Revenue – Net Revenue in the third quarter of 2020 was $74.7 million, down 64% compared to the same quarter last year and improving 70% sequentially.

GAAP Consolidated Net Loss – GAAP Consolidated Net Loss was $(34.3) million for the third quarter of 2020, compared to $(0.4) million in the same quarter last year and $(78.5) million in the second quarter of 2020.

Adjusted EBITDA – Adjusted EBITDA was $4.3 million in the third quarter of 2020, compared to $40.0 million in the same quarter last year and $(27.6) million in the second quarter of 2020.

Adjusted Net Income (Loss) – Adjusted Net Loss was $(23.1) million in the third quarter of 2020, compared to Adjusted Net Income of $8.0 million in the same quarter last year and Adjusted Net Loss of $(54.3) million in the second quarter of 2020.

Contribution – Contribution was $53.4 million in the third quarter of 2020, compared to $105.8 million in the same quarter last year and $21.4 million in the second quarter of 2020, with Contribution Margin of 71.5% compared to 51.6% in the same quarter last year and 48.8 % in the second quarter of 2020.

Earnings Per Share (EPS) – Basic and diluted EPS attributable to common stockholders was $(0.38) in the third quarter of 2020, compared to basic and diluted EPS attributable to common stockholders of $0.00 in the same quarter last year and $(0.87) in the second quarter of 2020.

Adjusted EPS – Adjusted EPS was $(0.25) in the third quarter of 2020, compared to Adjusted EPS of $0.09 in the same quarter last year and $(0.60) in the second quarter of 2020.

Net Cash and Other Financial Assets – As of September 30, 2020, Net Cash and Other Financial Assets totaled $579.6 million compared to $704.5 million as of September 30, 2019 and $564.1 million as of June 30, 2020.

For a calculation of Adjusted EBITDA, Adjusted Net Income (Loss), Contribution, Adjusted EPS and Net Cash and Other Financial Assets, refer to the "Reconciliation of GAAP to Non-GAAP Measures" tables at the end of this release.

About LendingClub

LendingClub was founded to transform the banking system to make credit more affordable and investing more rewarding. Today, LendingClub's online credit marketplace connects borrowers and investors to deliver more efficient and affordable access to credit. Through its technology platform, LendingClub is able to create cost efficiencies and passes those savings onto borrowers in the form of lower rates and to investors in the form of risk-adjusted returns. LendingClub is based in San Francisco, California. All loans are made by federally regulated issuing bank partners. More information is available at https://www.lendingclub.com.

Conference Call and Webcast Information

The LendingClub third quarter 2020 webcast and teleconference is scheduled to begin at 2:00 p.m. Pacific Time (or 5:00 p.m. Eastern Time) on Wednesday, November 4, 2020. A live webcast of the call will be available at http://ir.lendingclub.com under the Filings & Financials menu in Quarterly Results. To access the call, please dial +1 (888) 317-6003, or outside the U.S. +1 (412) 317-6061, with conference ID 9448496, ten minutes prior to 2:00 p.m. Pacific Time (or 5:00 p.m. Eastern Time). An audio archive of the call will be available at http://ir.lendingclub.com. An audio replay will also be available 1 hour after the end of the call until August 11, 2020, by calling +1 (877) 344-7529 or outside the U.S. +1 (412) 317-0088, with Conference ID 10146417. LendingClub has used, and intends to use, its investor relations website, blog (http://blog.lendingclub.com), Twitter handle (@LendingClub) and Facebook page (https://www.facebook.com/LendingClubTeam) as a means of disclosing material non-public information and to comply with its disclosure obligations under Regulation FD.

Contacts

For Investors:[email protected]

Media Contact:[email protected]

Non-GAAP Financial Measures and Supplemental Financial Statement Information

To supplement our condensed consolidated financial statements, which are prepared and presented in accordance with GAAP, we use the following non-GAAP financial measures: Contribution, Contribution Margin, Adjusted Net Income (Loss), Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Earnings (Loss) Per Share (Adjusted EPS) and Net Cash and Other Financial Assets. Our non-GAAP measures do have limitations as analytical tools and you should not consider them in isolation or as a substitute for an analysis of our results under GAAP.

We believe these non-GAAP measures provide management and investors with useful supplemental information about the financial performance of our business, enable comparison of financial results between periods where certain items may vary independent of business performance, and enable comparison of our financial results with other public companies, many of which present similar non-GAAP financial measures.

In particular, we believe Contribution and Contribution Margin are useful measures of overall direct product profitability because the measures illustrate the relationship between costs most directly associated with revenue generating activities and the related revenue, and the effectiveness of the direct costs in obtaining revenue. Contribution is calculated as net revenue less "Sales and marketing" and "Origination and servicing" expenses on the Company's Statements of Operations, adjusted to exclude cost structure simplification, restructuring costs, other items (related to one-time expenses resulting from COVID-19) and non-cash stock-based compensation expenses within these captions and income or loss attributable to noncontrolling interests. The adjustment for cost structure simplification expense relates to a review of our cost structure and a number of expense initiatives underway, including the establishment of a site in the Salt Lake City area. The expense includes incremental and excess personnel-related expenses associated with establishing our Salt Lake City area site and external advisory fees. The adjustment for restructuring costs included severance and other personnel-related expenses, lease-related expenses and software impairment related to the impact of COVID-19 on the Company's business. Contribution Margin is a non-GAAP financial measure calculated by dividing Contribution by total net revenue.

We believe Adjusted Net Income (Loss) is an important measure because it directly reflects the financial performance of our business. Adjusted Net Income (Loss) adjusts for certain items that are either non-recurring, do not contribute directly to management's evaluation of its operating results, or non-cash items, such as (1) expenses related to our cost structure simplification, as discussed above, (2) goodwill impairment, (3) legal, regulatory and other expense related to legacy issues, (4) acquisition and related expenses, (5) restructuring costs and (6) other items (including certain non-legacy litigation and/or regulatory settlement expenses, gains on disposal of certain assets and expenses resulting from COVID-19), net of tax. Legacy items are generally those expenses that arose from the decisions of legacy management prior to the board review initiated in 2016 and resulted in the resignation of our former CEO, including legal and other costs associated with ongoing regulatory and government investigations, indemnification obligations, litigation, and termination of certain legacy contracts. In the second quarter of 2020, we added an adjustment to Adjusted Net Income (Loss) for "Restructuring costs" to adjust for severance and other personnel-related expenses, lease-related expenses and software impairment related to the impact of COVID-19 on the Company's business. In the fourth quarter of 2019, we added an adjustment to Adjusted Net Income (Loss) for "Acquisition and related expenses" to adjust for costs related to the acquisition of Radius. In the second quarter of 2019, we added an adjustment to Adjusted Net Income (Loss) and Adjusted EBITDA for Other items to adjust for expenses or gains that are not part of our core operating results.

We believe that Adjusted EBITDA and Adjusted EBITDA Margin are important measures of operating performance because they allow for the comparison of our core operating results, including our return on capital and operating efficiencies, from period to period. Adjusted EBITDA adjusts for certain items that are either non-recurring, do not contribute directly to management's evaluation of its operating results, or non-cash items, such as (1) cost structure simplification expense, (2) goodwill impairment, (3) legal, regulatory and other expense related to legacy issues, (4) acquisition and related expenses, (5) restructuring costs, (6) other items, as discussed above, (7) depreciation, impairment and amortization expense, (8) stock-based compensation expense and (9) income tax expense (benefit). Additionally, we utilize Adjusted EBITDA as an input into the Company's calculation of the annual bonus plan. Adjusted EBITDA Margin is a non-GAAP financial measure calculated by dividing Adjusted EBITDA by total net revenue.

We believe Adjusted EPS is an important measure because it directly reflects the financial performance of our business. Adjusted EPS is a non-GAAP financial measure calculated by dividing Adjusted Net Income (Loss) attributable to both common and preferred stockholders by the weighted-average diluted common and preferred shares outstanding.

We believe Net Cash and Other Financial Assets is a useful measure because it illustrates the overall financial stability and operating leverage of the Company. This measure is calculated as cash and certain other assets and liabilities, including loans and securities available for sale, which are partially secured and offset by related credit facilities, and working capital.

There are a number of limitations related to the use of these non-GAAP financial measures versus their most comparable GAAP measure. In particular, many of the adjustments to derive the non-GAAP financial measures reflect the exclusion of items that are recurring and will be reflected in our financial results for the foreseeable future. Other companies, including companies in our industry, may calculate these measures differently, which may reduce their usefulness as a comparative measure.

For more information on our non-GAAP financial measures and a reconciliation of such measures to the nearest GAAP measure, please see the "Reconciliation of GAAP to Non-GAAP Measures" tables at the end of this release.

Safe Harbor Statement

Some of the statements above, including statements regarding the ability and timing to satisfy the closing conditions for the Radius acquisition (including obtaining regulatory approval), our ability to effectuate and the effectiveness of certain strategy initiatives, borrower behavior and platform investor demand, anticipated future financial results, the impact of the coronavirus, our ability to navigate the current economic environment, and the impact of a bank charter on our business are "forward-looking statements." The words "anticipate," "believe," "estimate," "expect," "intend," "may," "outlook," "plan," "predict," "project," "will," "would" and similar expressions may identify forward-looking statements, although not all forward-looking statements contain these identifying words. Factors that could cause actual results to differ materially from those contemplated by these forward-looking statements include: the outcomes of pending governmental investigations and pending or threatened litigation, which are inherently uncertain; the impact of management changes and the ability to continue to retain key personnel; our ability to achieve cost savings from restructurings; our ability to continue to attract and retain new and existing borrowers and investors; our ability to obtain or add bank functionality and a bank charter; competition; overall economic conditions; demand for the types of loans facilitated by us; default rates and those factors set forth in the section titled "Risk Factors" in our most recent Quarterly Report on Form 10-Q and Annual Report on Form 10-K, each as filed with the Securities and Exchange Commission, as well as our subsequent reports on Form 10-Q and 10-K each as filed with the Securities and Exchange Commission. We may not actually achieve the plans, intentions or expectations disclosed in forward-looking statements, and you should not place undue reliance on forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in forward-looking statements. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Information in this press release is not an offer to sell securities or the solicitation of an offer to buy securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction.

 

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SOURCE LendingClub Corporation