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Classified in: Science and technology, Business, Covid-19 virus
Subjects: EARNINGS, Conference Call, Webcast

GreenSky, Inc. Reports Second Quarter 2020 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 second quarter ended June 30, 2020.

"As we all continue to navigate COVID-19, we are extremely pleased with our second quarter operating results and key business metrics, depicting strong resiliency of demand in our home improvement business, record levels of new merchant enrollments, outstanding credit performance, and effective expense discipline across our business," said David Zalik, GreenSky Chairman and CEO. "Following the COVID-19 impacted low point in April, transaction volumes had recovered by June to levels consistent with 2019," added Zalik.

"The successful implementation this quarter of our SPV serves to effectively supplement our funding capacity, as we plan to conduct periodic sales of loan participations to third parties or issue asset-backed securities. As the Company transitions to supporting a diversified funding model, evaluation of operating performance on a consistent basis is vitally important. Thus, management continues to believe that Adjusted EBITDA is a key indicator in evaluating the Company's business performance over the long-term. This non-GAAP measure adjusts for non-recurring income and expense items, non-cash charges, along with distortions attributable to non-cash CECL reserves established during the quarter," said Zalik.

"Notwithstanding the impact of COVID-19 on this quarter's transaction volumes, the Company reported second quarter Adjusted EBITDA of $40 million versus $37 million in 2019, reflecting an Adjusted EBITDA margin of 30% for the second quarter versus 27% for 2019. Moreover, for the six months ended June 30, 2020, Adjusted EBITDA of $59 million grew 21% versus $49 million for the comparable 2019 six-month period, further demonstrating the inherent operating leverage and attractiveness of the GreenSky recurring revenue operating model." added Zalik.

Second Quarter Financial Highlights:

Key Business Metrics:

 

 

Three Months Ended June 30,

 

 

 

 

2020

 

2019

 

Growth

Transaction Volume ($ millions)

 

$

1,358

 

 

$

1,578

 

 

(14

)%

Loan Servicing Portfolio ($ millions, at end of period)(2)

 

$

9,384

 

 

$

8,191

 

 

15

%

Active Merchants (at end of period)

 

17,553

 

 

16,603

 

 

6

%

________________

(1)

Adjusted EBITDA is a non-GAAP measure. Refer to "Non-GAAP Financial Measures" for important additional information.

(2)

The average loan servicing portfolio for the three months ended June 30, 2020 and 2019 was $9.3 billion and $7.9 billion, respectively.

 

Business Update:

Conference call and webcast:

As previously announced, the Company's management will host a conference call to discuss second quarter 2020 results at 8:00 a.m. EDT on August 11, 2020. A live webcast of the conference call, together with a slide presentation that includes supplemental financial information and reconciliation of non-GAAP measures to their most directly comparable GAAP measure, 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 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, 3.4 million consumers have financed $25 billion of commerce using our paperless, real time "apply and buy" technology and the Company services a $9 billion+ loan portfolio. 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 the Company's current views with respect to, among other things, its operations; its financial performance; the impact of COVID-19; bank partner commitments; sales of loan participations or issuances of asset-backed securities by the SPV; completion of New Institutional Financings; its funding capacity; and its credit losses. You generally can identify these statements by the use of words such as "outlook," "potential," "continue," "may," "seek," "approximately," "predict," "believe," "expect," "plan," "intend," "estimate" or "anticipate" and similar expressions or the negative versions of these words or comparable words, as well as future or conditional verbs such as "will," "should," "would," "likely" and "could." These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those included in the forward-looking statements. These risks and uncertainties include those risks described in GreenSky's filings with the Securities and Exchange Commission and include, but are not limited to, risks related to the extent and duration of the COVID-19 pandemic and its impact on the Company, its bank partners and merchants, GreenSky program borrowers, loan demand (including, in particular, for elective healthcare procedures), the capital markets (including the Company's ability to obtain additional funding or close New Institutional Financings) and the economy in general; the Company's ability to retain existing, and attract new, merchants and bank partners or other funding partners, including the risk that one or more bank partners do not renew their funding commitments or reduce existing commitments; its 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; its ability to operate successfully in a highly regulated industry; the effect of management changes; cyberattacks and security vulnerabilities in its products and services; and the Company's 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, GreenSky disclaims 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 Adjusted EBITDA Margin, which are non-GAAP financial measures provided as a supplement to the results provided in accordance with accounting principles generally accepted in the United States of America ("GAAP"). We believe that Adjusted EBITDA and Adjusted EBITDA Margin are key financial indicators of our business performance over the long term and provide 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 and Adjusted EBITDA Margin can provide useful supplemental information to help investors better understand the economics of our platform.

We are presenting these non-GAAP measures to assist investors in evaluating our financial performance and because we believe that these measures provide an additional tool for investors to use in comparing our core financial performance over multiple periods with other companies in our industry.

These non-GAAP measures are presented for supplemental informational purposes only. These non-GAAP measures have limitations as analytical tools and should not be considered in isolation from, or as a substitute for, the analysis of other GAAP financial measures, such as net income. The non-GAAP measures GreenSky uses may differ from the non-GAAP measures used by other companies. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measure is provided below for each of the fiscal periods indicated.

(tables follow)

 
 
 
 

GreenSky, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands, except share data)

 

June 30, 2020

 

December 31, 2019

Assets

 

 

 

Cash and cash equivalents

$

147,560

 

 

$

195,760

 

Restricted cash

289,844

 

 

250,081

 

Loan receivables held for sale, net

410,952

 

 

51,926

 

Accounts receivable, net of allowance of $218 and $238, respectively

20,066

 

 

19,493

 

Property, equipment and software, net

21,951

 

 

18,309

 

Deferred tax assets, net

383,107

 

 

364,841

 

Other assets

53,334

 

 

50,638

 

Total assets

$

1,326,814

 

 

$

951,048

 

 

 

 

 

Liabilities and Equity (Deficit)

 

 

 

Liabilities

 

 

 

Accounts payable

$

13,356

 

 

$

11,912

 

Accrued compensation and benefits

7,034

 

 

10,734

 

Other accrued expenses

3,947

 

 

3,244

 

Finance charge reversal liability

198,755

 

 

206,035

 

Term loan

453,879

 

 

384,497

 

SPV facility

299,000

 

 

?

 

Tax receivable agreement liability

317,823

 

 

311,670

 

Financial guarantee liability

163,301

 

 

16,698

 

Other liabilities

66,587

 

 

61,201

 

Total liabilities

1,523,682

 

 

1,005,991

 

 

 

 

 

Commitments, Contingencies and Guarantees

 

 

 

 

 

 

 

Equity (Deficit)

 

 

 

Class A common stock, $0.01 par value and 87,449,331 shares issued and 73,350,234 shares outstanding at June 30, 2020 and 80,089,739 shares issued and 66,424,838 shares outstanding at December 31, 2019

873

 

 

800

 

Class B common stock, $0.001 par value and 108,994,392 shares issued and outstanding at June 30, 2020 and 113,517,198 shares issued and outstanding at December 31, 2019

110

 

 

114

 

Additional paid-in capital

112,700

 

 

115,782

 

Retained earnings

24,512

 

 

56,109

 

Treasury stock

(147,005

)

 

(146,234

)

Accumulated other comprehensive income (loss)

(4,756

)

 

(756

)

Noncontrolling interests

(183,302

)

 

(80,758

)

Total equity (deficit)

(196,868

)

 

(54,943

)

Total liabilities and equity (deficit)

$

1,326,814

 

 

$

951,048

 

 

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,

 

2020

 

2019

 

2020

 

2019

Revenue

 

 

 

 

 

 

 

 

Transaction fees

 

$

101,777

 

 

 

$

108,365

 

 

 

$

191,661

 

 

 

$

192,413

 

 

Servicing

 

28,481

 

 

 

30,318

 

 

 

59,764

 

 

 

49,951

 

 

Interest and other

 

2,704

 

 

 

69

 

 

 

3,394

 

 

 

786

 

 

Total revenue

 

132,962

 

 

 

138,752

 

 

 

254,819

 

 

 

243,150

 

 

Costs and expenses

 

 

 

 

 

 

 

 

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

 

64,930

 

 

 

56,228

 

 

 

136,705

 

 

 

114,265

 

 

Compensation and benefits

 

22,041

 

 

 

20,459

 

 

 

44,475

 

 

 

40,092

 

 

Property, office and technology

 

4,244

 

 

 

4,512

 

 

 

8,266

 

 

 

8,926

 

 

Depreciation and amortization

 

2,762

 

 

 

1,695

 

 

 

5,207

 

 

 

3,162

 

 

Sales, general and administrative

 

8,590

 

 

 

7,302

 

 

 

18,678

 

 

 

14,555

 

 

Financial guarantee

 

10,248

 

 

 

1,696

 

 

 

28,656

 

 

 

2,918

 

 

Related party

 

477

 

 

 

589

 

 

 

954

 

 

 

1,125

 

 

Total costs and expenses

 

113,292

 

 

 

92,481

 

 

 

242,941

 

 

 

185,043

 

 

Operating profit

 

19,670

 

 

 

46,271

 

 

 

11,878

 

 

 

58,107

 

 

Other income (expense), net

 

 

 

 

 

 

 

 

Interest and dividend income

 

246

 

 

 

812

 

 

 

868

 

 

 

1,710

 

 

Interest expense

 

(5,894

)

 

 

(6,323

)

 

 

(11,514

)

 

 

(12,566

)

 

Other gains (losses), net

 

830

 

 

 

(6,033

)

 

 

1,806

 

 

 

(5,718

)

 

Total other income (expense), net

 

(4,818

)

 

 

(11,544

)

 

 

(8,840

)

 

 

(16,574

)

 

Income before income tax expense (benefit)

 

14,852

 

 

 

34,727

 

 

 

3,038

 

 

 

41,533

 

 

Income tax expense (benefit)

 

1,497

 

 

 

(4,466

)

 

 

602

 

 

 

(5,061

)

 

Net income

 

$

13,355

 

 

 

$

39,193

 

 

 

$

2,436

 

 

 

$

46,594

 

 

Less: Net income attributable to noncontrolling interests

 

9,222

 

 

 

26,877

 

 

 

1,637

 

 

 

31,379

 

Net income attributable to GreenSky, Inc.

 

$

4,133

 

 

 

$

12,316

 

 

 

$

799

 

 

 

$

15,215

 

 

 

 

 

 

 

 

 

 

 

Earnings per share of Class A common stock:

 

 

 

 

 

 

 

 

Basic

 

$

0.06

 

 

 

$

0.20

 

 

 

$

0.01

 

 

 

$

0.26

 

 

Diluted

 

$

0.06

 

 

 

$

0.19

 

 

 

$

0.01

 

 

 

$

0.23

 

 

 

GreenSky, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)

 

 

Six Months Ended June 30,

2020

 

2019

Cash flows from operating activities

 

 

 

Net income

$

2,436

 

 

 

$

46,594

 

 

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

Depreciation and amortization

5,207

 

 

 

3,162

 

 

Share-based compensation expense

6,972

 

 

 

5,936

 

 

Equity-based payments to non-employees

8

 

 

 

7

 

 

Fair value change in servicing assets and liabilities

(1,738

)

 

 

(8,635

)

 

Operating lease liability payments

(305

)

 

 

(143

)

 

Financial guarantee losses

28,656

 

 

 

284

 

 

Amortization of debt related costs

968

 

 

 

840

 

 

Original issuance discount on term loan payment

(10

)

 

 

(21

)

 

Income tax expense (benefit)

602

 

 

 

(5,061

)

 

Loss on remeasurement of tax receivable agreement liability

?

 

 

 

6,383

 

 

Impairment losses

174

 

 

 

?

 

 

Mark to market on loan receivables held for sale

10,072

 

 

 

?

 

 

Changes in assets and liabilities:

 

 

 

(Increase) decrease in loan receivables held for sale

(369,098

)

 

 

78

 

 

(Increase) decrease in accounts receivable

(573

)

 

 

(7,375

)

 

(Increase) decrease in other assets

(3,632

)

 

 

(828

)

 

Increase (decrease) in accounts payable

1,444

 

 

 

9,378

 

 

Increase (decrease) in finance charge reversal liability

(7,280

)

 

 

26,390

 

 

Increase (decrease) in guarantee liability

(63

)

 

 

?

 

 

Increase (decrease) in other liabilities

(7,682

)

 

 

12,800

 

 

Net cash provided by (used in) operating activities

(333,842

)

 

 

89,789

 

 

Cash flows from investing activities

 

 

 

Purchases of property, equipment and software

(8,524

)

 

 

(7,123

)

 

Net cash used in investing activities

(8,524

)

 

 

(7,123

)

 

Cash flows from financing activities

 

 

 

Proceeds from term loan

70,494

 

 

 

?

 

 

Repayments of term loan

(2,073

)

 

 

(1,979

)

 

Proceeds from SPV facility

299,000

 

 

 

?

 

 

Class A common stock repurchases

?

 

 

 

(104,272

)

 

Member distributions

(33,419

)

 

 

(17,757

)

 

Payments under tax receivable agreement

?

 

 

 

(4,664

)

 

Proceeds from option exercises

?

 

 

 

290

 

 

Payment of option exercise taxes

(73

)

 

 

(1,550

)

 

Payment of taxes on Class B common stock exchanges

?

 

 

 

(1,805

)

 

Net cash provided by (used in) financing activities

333,929

 

 

 

(131,737

)

 

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

(8,437

)

 

 

(49,071

)

 

Cash and cash equivalents and restricted cash at beginning of period

445,841

 

 

 

458,499

 

 

Cash and cash equivalents and restricted cash at end of period

$

437,404

 

 

 

$

409,428

 

 

 

 

 

 

Supplemental non-cash investing and financing activities

 

 

 

Distributions accrued but not paid

4,073

 

 

 

7,105

 

 

Capitalized software costs accrued but not paid

317

 

 

 

?

 

 

 

Reconciliation of Adjusted EBITDA
(Dollars in thousands)

 

 

 

Three Months Ended

June 30,

 

Six Months Ended

June 30,

 

 

2020

 

2019

 

2020

 

2019

Net income

 

$

13,355

 

 

$

39,193

 

 

$

2,436

 

 

$

46,594

 

Interest expense(1)

 

5,894

 

 

6,323

 

 

11,514

 

 

12,566

 

Income tax expense (benefit)

 

1,497

 

 

(4,466

)

 

602

 

 

(5,061

)

Depreciation and amortization

 

2,762

 

 

1,695

 

 

5,207

 

 

3,162

 

Equity-based compensation expense(2)

 

3,481

 

 

3,275

 

 

6,980

 

 

5,943

 

Change in financial guarantee liability(3)

 

10,248

 

 

(133

)

 

28,656

 

 

284

 

Servicing asset and liability changes(4)

 

454

 

 

(8,469

)

 

246

 

 

(7,999

)

Discontinued charged-off receivables program(5)

 

?

 

 

(7,427

)

 

?

 

 

(14,782

)

Transaction and non-recurring expenses(6)

 

2,025

 

 

6,907

 

 

3,258

 

 

8,123

 

Adjusted EBITDA

 

$

39,716

 

 

$

36,898

 

 

$

58,899

 

 

$

48,830

 

Total revenue

 

$

132,962

 

 

$

138,752

 

 

$

254,819

 

 

$

243,150

 

Adjusted EBITDA Margin

 

29.9

%

 

26.6

%

 

23.1

%

 

20.1

%

(1)

Includes interest expense on our term loan. Interest expense on the SPV Facility and its related loans receivables held for sale are excluded from the adjustment above as such amounts are a component of cost of revenue in our on-going business.

(2)

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

(3)

Includes non-cash charges related to our financial guarantee arrangements with our ongoing Bank Partners, which are primarily a function of new loans facilitated on our platform during the period increasing the contractual escrow balance and the associated financial guarantee liability.

(4)

Includes the non-cash changes in the fair value of servicing assets and servicing liabilities related to our servicing assets associated with Bank Partner agreements and other contractual arrangements. 2019 amounts have been updated to be consistent with the Company's 2020 presentation in accordance with our Non-GAAP policy.

(5)

Includes the amounts related to the now discontinued program of transferring our rights to charged-off receivables to third parties. 2019 amounts have been updated to be consistent with the Company's 2020 presentation in accordance with our Non-GAAP policy.

(6)

For the three and six months ended June 30, 2020, includes professional fees and other costs associated with our strategic alternatives review process, $307 thousand related to incremental technology costs associated with COVID-19, and IPO related litigation. For the three and six 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 thousand, (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 thousand, and (iii) lien filing expenses related to certain Bank Partner solar loans of $621 thousand.

 
 

 


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