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GreenSky, Inc. Reports Second Quarter 2019 Financial Results
[August 06, 2019]

GreenSky, Inc. Reports Second Quarter 2019 Financial Results


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 six months ended June 30, 2019.

"I am pleased to report that the Company generated solid operating results and posted record quarterly Transaction Volume of $1.6 billion, up 20% over the prior year, for the quarter ended June 30, 2019. Revenues for the second quarter grew 31% over the prior year to $138.7 million, with Adjusted EBITDA for the quarter of $52.9 million. Cash flow generated from operations for the six months ended June 30, 2019 was $89.8 million," said David Zalik, GreenSky Chairman and CEO.

"Notwithstanding the Company's solid operating results, in light of the complexity of the Company's operating model, we do not believe that the Company's current market value is reflective of the Company's strong record of cash flow generation and intrinsic value. Accordingly, GreenSky's Board of Directors, working together with its senior management team and legal and financial advisors, has commenced a process to explore, review and evaluate a range of potential strategic alternatives focused on maximizing stockholder value. In connection with this review, GreenSky has retained FTP Securities LLC ("FT Partners") and J.P. Morgan Securities LLC as its financial advisors, and Cravath, Swaine & Moore LLP and Troutman Sanders LLP as its legal advisors," Zalik continued.

"I am excited about what GreenSky has accomplished and our opportunities for continued growth and innovation in all of our product segments and verticals. We have nearly 17,000 active merchants and providers on our platform and have facilitated over $19 billion in point of sale financing for over 2.6 million consumers since inception. Our bank partner network is robust with aggregate funding commitments of $11.9 billion, of which $4.0 billion were unused, at June 30, 2019. Moreover, even after deploying more than $146 million to repurchase shares over the past eight months, our liquidity position is strong with over $209 million of unrestricted cash on hand at June 30, 2019. We continue to execute on our strategy and will always remain focused on providing exceptional value to all members of the GreenSky ecosystem: our merchants, bank partners, and consumers. Our Board of Directors is committed to enhancing value for our stockholders, and this review is an important next step for our continued success," added Zalik.

The Company's Board of Directors has not set a timetable for this process nor has it made any decisions related to strategic alternatives at this time, and there is no assurance that the Board's exploration of strategic alternatives will result in any change of strategy or transaction being entered into or consummated or, if a transaction is undertaken, as to its terms, structure or timing. The Company does not intend to make further public comment regarding these matters unless and until the Board has approved a specific transaction or alternative or otherwise concludes its review. As the Company evaluates its alternatives, it is suspending financial guidance, and investors should not rely on its previously issued guidance.

Second Quarter Financial Highlights:

  • Transaction Volume and Transaction Fee Rate: Second quarter transaction volume increased 20% over the prior year to $1.6 billion. The average transaction fee rate was 6.9% in the second quarter, up from 6.8% in the second quarter of 2018.
  • Revenue: Second quarter revenue grew 31% over the prior year to $138.7 million from $105.7 million. Consistent with our transaction volume growth, transaction fees were up 20% to $108.4 million. Servicing and other revenue of $30.3 million was up 96%, of which $5.9 million was primarily due to continued portfolio growth and $9.0 million was due to the recognition of a servicing asset associated with an increase to the contractual fixed servicing fee for one of the Bank Partner's servicing agreements.
  • Net Income and Pro Forma Net Income(1): GAAP Net Income for the second quarter of 2019 was $39.2 million or $0.19 per diluted share. Second quarter Pro Forma Net Income was $33.6 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 19.25%.
  • Adjusted EBITDA and Adjusted EBITDA Margin(1): Second quarter Adjusted EBITDA was $52.9 million and 38% of revenue compared to $51.9 million and 49% of revenue for the second quarter of 2018.
  • Operating Cash Flow and Free Cash Flow: For the six months ended June 30, 2019, operating cash flow and free cash flow were $89.8 million and $37.5 million, respectively.
  • Bank Partner Commitments: As of June 30, 2019, the Company had aggregate bank partner commitments of $11.9 billion from its nine Bank Partners, $4.0 billion of which were unused.
  • Liquidity: As of June 30, 2019, the Company had unrestricted cash of $209 million, in addition to an unused $100 million working capital line of credit available.

Key business metrics:





 

 

Three Months Ended June 30,

 

 

 

 

2019

 

2018

 

Growth

Active Merchants (at end of period)

 

16,603

 

 

13,440

 

 

24

%

Transaction Volume ($ millions)

 

$

1,578

 

 

$

1,318

 

 

20

%

Loan Servicing Portfolio ($ millions)(2)

 

$

8,191

 

 

$

6,253

 

 

31

%

Cumulative Consumer Accounts (in thousands)

 

2,632

 

 

1,897

 

 

39

%

Origination Productivity Index(3)

 

21.3

%

 

22.3

%

 

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) 

 

The average loan servicing portfolio for the three months ended June 30, 2019 and 2018 was $7,884 million and $5,931 million, respectively.

(3)

 

 

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 Second Quarter 2019 Earnings Presentation for additional information.

 Business update:

  • Data Science: The Company launched a Data Science division to strengthen its consumer protection capabilities by employing artificial intelligence and machine learning to detect suspicious activity earlier, alert consumers faster and remediate issues more efficiently.
  • New Chief Technology Officer: With over 20 years' experience leading technology strategy, software and product development, Minaz Vastani joined GreenSky's leadership team in the second quarter, and will focus on advancing the competitive differentiation of the Company's point of sale technology platform.
  • American Express Alliance: Augmenting GreenSky's low cost acquisition of highly qualified home improvement and elective healthcare providers, the American Express alliance, since its launch in early September 2018, has resulted in nearly 4,700 referrals to GreenSky for enrollment evaluation.
  • Share Repurchases: During the second quarter of 2019, the Company repurchased approximately 4.5 million shares of its Class A common stock at a cost of $51.3 million under the Company's Board-approved $150 million share repurchase program. Since announcing the share repurchase program, the Company has repurchased 13.4 million shares of its Class A common stock at a cost of $146.1 million. There will be no further share repurchases pursuant to this authorization.

Conference call and webcast:

As previously announced, the Company's management will host a conference call to discuss second 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 2.6 million consumers have financed over $19 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, the outcome of our exploration of strategic alternatives, including the terms, structure and timing of any resulting transaction; our operations and financial performance; demand for our products; launch of new products; and the benefit from the establishment of the data sciences division. 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.

 

 

GreenSky, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(Dollars in thousands, except share data)

 

 

June 30,
2019

 

December 31,
2018

Assets

 

 

 

Cash and cash equivalents

$

209,176

 

 

$

303,390

 

Restricted cash

200,252

 

 

155,109

 

Loan receivables held for sale, net

2,798

 

 

2,876

 

Accounts receivable, net

22,622

 

 

15,400

 

Related party receivables

100

 

 

142

 

Property, equipment and software, net

14,194

 

 

10,232

 

Operating lease right-of-use assets

12,895

 

 

-

 

Deferred tax assets, net

359,969

 

 

306,979

 

Other assets

18,863

 

 

8,777

 

Total assets

$

840,869

 

 

$

802,905

 

 

 

 

 

Liabilities and Equity (Deficit)

 

 

 

Liabilities

 

 

 

Accounts payable

$

14,430

 

 

$

5,357

 

Accrued compensation and benefits

6,858

 

 

8,484

 

Other accrued expenses

1,308

 

 

1,015

 

Finance charge reversal liability

164,979

 

 

138,589

 

Term loan

385,662

 

 

386,822

 

Tax receivable agreement liability

303,233

 

 

260,901

 

Related party liabilities

-

 

 

825

 

Operating lease liabilities

15,761

 

 

-

 

Other liabilities

45,396

 

 

35,677

 

Total liabilities

937,627

 

 

837,670

 

 

 

 

 

Commitments, Contingencies and Guarantees

 

 

 

 

 

 

 

Equity (Deficit)

 

 

 

Class A common stock, par value $0.01 and 75,356,311 shares issued and 61,772,014 shares outstanding at June 30, 2019 and 59,197,863 shares issued and 54,504,902 shares outstanding at December 31, 2018

753

 

 

591

 

Class B common stock, par value $0.001 and 115,309,728 and 128,549,555 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively

116

 

 

129

 

Additional paid-in capital

118,382

 

 

44,524

 

Retained earnings

39,163

 

 

24,218

 

Treasury stock

(146,119

)

 

(43,878

)

Accumulated other comprehensive income (loss)

(558

)

 

-

 

Noncontrolling interest

(108,495

)

 

(60,349

)

Total equity (deficit)

(96,758

)

 

(34,765

)

Total liabilities and equity (deficit)

$

840,869

 

 

$

802,905

 

GreenSky, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(Dollars in thousands, except per share data)

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

2019

 

2018

 

2019

 

2018

Revenue

 

 

 

 

 

 

 

Transaction fees

$

108,365

 

 

$

90,197

 

 

$

192,413

 

 

$

161,137

 

Servicing and other

30,330

 

 

15,507

 

 

49,982

 

 

29,893

 

Total revenue

138,695

 

 

105,704

 

 

242,395

 

 

191,030

 

Costs and expenses

 

 

 

 

 

 

 

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

56,228

 

 

33,765

 

 

114,265

 

 

69,895

 

Compensation and benefits

20,459

 

 

15,585

 

 

40,092

 

 

31,928

 

Sales and marketing

1,187

 

 

1,038

 

 

2,390

 

 

1,866

 

Property, office and technology

4,512

 

 

3,137

 

 

8,926

 

 

5,859

 

Depreciation and amortization

1,695

 

 

1,067

 

 

3,162

 

 

2,037

 

General and administrative

7,519

 

 

4,074

 

 

14,441

 

 

8,247

 

Related party expenses

589

 

 

230

 

 

1,125

 

 

813

 

Total costs and expenses

92,189

 

 

58,896

 

 

184,401

 

 

120,645

 

Operating profit

46,506

 

 

46,808

 

 

57,994

 

 

70,385

 

Other income (expense), net

 

 

 

 

 

 

 

Interest and dividend income

869

 

 

1,482

 

 

2,465

 

 

2,802

 

Interest expense

(6,323

)

 

(5,787

)

 

(12,566

)

 

(11,378

)

Other gains (losses)

(6,325

)

 

(93

)

 

(6,360

)

 

(795

)

Total other income (expense), net

(11,779

)

 

(4,398

)

 

(16,461

)

 

(9,371

)

Income before income tax expense (benefit)

34,727

 

 

42,410

 

 

41,533

 

 

61,014

 

Income tax expense (benefit)

(4,466

)

 

1,594

 

 

(5,061

)

 

1,594

 

Net income

$

39,193

 

 

$

40,816

 

 

$

46,594

 

 

$

59,420

 

Less: Net income attributable to noncontrolling interests

26,877

 

 

35,266

 

 

31,379

 

 

53,870

 

Net income attributable to GreenSky, Inc.

$

12,316

 

 

$

5,550

 

 

$

15,215

 

 

$

5,550

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

Basic

$

0.20

 

 

$

0.10

 

 

$

0.26

 

 

$

0.10

 

Diluted

$

0.19

 

 

$

0.09

 

 

$

0.23

 

 

$

0.09

 

(1)

 

 

For the three and six months ended June 30, 2018, basic and diluted earnings per share of Class A common stock is applicable only for the period from May 24, 2018 through June 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)

 

 

Six Months Ended
June 30,

2019

 

2018

Cash flows from operating activities

 

 

 

Net income

$

46,594

 

 

$

59,420

 

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

 

 

 

Depreciation and amortization

3,162

 

 

2,037

 

Share-based compensation expense

5,936

 

 

2,851

 

Equity-based payments to non-employees

7

 

 

8

 

Operating lease liability payments

(143

)

 

(193

)

Amortization of debt related costs

840

 

 

840

 

Fair value change in assets and liabilities

(7,999

)

 

201

 

Original issuance discount on term loan payment

(21

)

 

(10

)

Deferred tax expense (benefit)

(5,061

)

 

1,594

 

Loss on remeasurement of tax receivable agreement liability

6,383

 

 

-

 

Changes in assets and liabilities:

 

 

 

(Increase) decrease in loan receivables held for sale

78

 

 

30,116

 

(Increase) decrease in accounts receivable

(7,375

)

 

(2,065

)

(Increase) decrease in related party receivables

42

 

 

182

 

(Increase) decrease in other assets

(870

)

 

3,619

 

Increase (decrease) in accounts payable

9,378

 

 

(1,217

)

Increase (decrease) in finance charge reversal liability

26,390

 

 

12,899

 

Increase (decrease) in related party liabilities

-

 

 

(1,044

)

Increase (decrease) in other liabilities

12,448

 

 

366

 

Net cash provided by operating activities

89,789

 

 

109,604

 

Cash flows from investing activities

 

 

 

Purchases of property, equipment and software

(7,123

)

 

(2,707

)

Net cash used in investing activities

(7,123

)

 

(2,707

)

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

(1,979

)

 

(350,115

)

Member distributions

(17,757

)

 

(127,640

)

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

-

 

 

(2,749

)

Payment of equity transaction expenses, prior to Reorganization Transactions

-

 

 

(32

)

Payment of taxes on Class B common stock exchanges

(1,805

)

 

-

 

Proceeds from option exercises

290

 

 

-

 

Payment of option exercise taxes

(1,550

)

 

-

 

Net cash used in financing activities

(131,737

)

 

(81,564

)

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

(49,071

)

 

25,333

 

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

$

409,428

 

 

$

379,171

 

 

 

 

 

Supplemental non-cash financing activities

 

 

 

Equity transaction costs accrued but not paid

$

-

 

 

$

1,106

 

Distributions accrued but not paid

7,105

 

 

11,493

 

 

Reconciliation of Adjusted EBITDA

(Dollars in thousands)

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

2019

 

2018

 

2019

 

2018

Net income

$

39,193

 

 

$

40,816

 

 

$

46,594

 

 

$

59,420

 

Interest expense

6,323

 

 

5,787

 

 

12,566

 

 

11,378

 

Tax expense (benefit)

(4,466

)

 

1,594

 

 

(5,061

)

 

1,594

 

Depreciation and amortization

1,695

 

 

1,067

 

 

3,162

 

 

2,037

 

Equity-related expense(1)

3,275

 

 

1,854

 

 

5,943

 

 

2,859

 

Transaction expenses(2)

6,383

 

 

759

 

 

6,383

 

 

1,882

 

Non-recurring expenses(3)

524

 

 

-

 

 

1,740

 

 

-

 

Adjusted EBITDA

$

52,927

 

 

$

51,877

 

 

$

71,327

 

 

$

79,170

 

(1)

 

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

(2)

 

 

For the three and six months ended June 30, 2019, includes loss on remeasurement of our tax receivable agreement liability. For the three and six months ended June 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.

(3)

 

 

For the three months ended June 30, 2019, includes legal fees associated with IPO related litigation. For the six months ended June 30, 2019, includes the following: (i) legal fees associated with IPO related litigation of $959, (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
June 30,

 

Six Months Ended
June 30,

 

2019

 

2018

 

2019

 

2018

Net income

$

39,193

 

 

$

40,816

 

 

$

46,594

 

 

$

59,420

 

Transaction expenses(1)

6,383

 

 

759

 

 

6,383

 

 

1,882

 

Non-recurring expenses(2)

524

 

 

-

 

 

1,740

 

 

-

 

Incremental pro forma tax expense(3)

(12,481

)

 

(8,038

)

 

(14,620

)

 

(12,439

)

Pro Forma Net Income

$

33,619

 

 

$

33,537

 

 

$

40,097

 

 

$

48,863

 

(1)

 

 

For the three and six months ended June 30, 2019, includes loss on remeasurement of our tax receivable agreement liability. For the three and six months ended June 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 June 30, 2019, includes legal fees associated with IPO related litigation. For the six months ended June 30, 2019, includes the following: (i) legal fees associated with IPO related litigation of $959, (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 19.25% for the three and six months ended June 30, 2019 and 22.3% for the three and six months ended June 30, 2018.

 

Reconciliation of Diluted EPS to Pro Forma EPS

 

 

 

 

Three Months Ended
June 30, 2018

Diluted EPS

 

$

0.09

 

Net income prior to IPO(1)

 

0.11

 

Tax effect of net income prior to IPO(2)

 

(0.02

)

Pro Forma Diluted EPS(3)

 

$

0.18

 

 

 

 

Weighted average shares outstanding - diluted

 

188,889,922

 

(1)

 

Represents net income earned during the three months ended June 30, 2018, prior to the IPO, of $19,609 divided by weighted average shares outstanding on a fully diluted basis.

(2)

 

We assumed a full year effective tax rate of 22.3%.

(3)

 

Pro Forma Diluted EPS recalculates to $0.18. "Net income prior to IPO" was rounded up for footing purposes. Transaction expenses were excluded from the reconciliation because the per-share effect was less than $0.01.

 


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