ondk investor presentation feb'16 (1)

8/20/2019 ONDK Investor Presentation Feb'16 (1)

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Company Presentation

February 2016


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Forward

-

Looking Statements

This presentation, including the accompanying oral presentation (collectively, this “presentation”), does not constitute an offer to sell or the ssecurities. This presentation is provided by On Deck Capital, Inc. (“OnDeck”) for informational purposes only. No representations expressOnDeck 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 andlooking statements include statements about scalability, growing distribution channels, credit predictability and information concerning oubusiness plans and objectives, potential growth opportunities, financing plans, competitive position, industry environment and potential mlooking statements can also be identified by words such as "will," "enables," "expects," "allows," "continues," "believes," "anticipates," "estForward-looking statements are neither historical facts nor assurances of future performance. They are based only on our current beliefs,regarding the future of our business, anticipated events and trends, the economy and other future conditions. Moreover, we do not assumeand completeness of forward-looking statements. As such, they are subject to inherent uncertainties, changes in circumstances, knownfactors 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 resultsexpectations. Important factors that could cause actual results to differ from our forward-looking statements are the risks that we may not beor actual growth effectively, that our credit models do not adequately identify potential risks, and other risks, including those under the headiReport on Form 10-K for the year ended December 31, 2014 and in other documents that we file with the Securities and Exchange Commiswhich are available on the SEC website at www.sec.gov. We undertake no obligation to publicly update any forward-looking statements for apresentation to conform these statements to actual results or to changes in our expectations, except as required by law.

In addition to the U.S. GAAP financial information, this presentation includes certain non-GAAP financial measures. We believe that nonuseful supplemental information for period-to-period comparisons of our core business and is useful to investors and others in understandinresults. These non-GAAP measures have not been calculated in accordance with U.S. GAAP. You should not consider them in isolation or aour results under U.S. GAAP. There are a number of limitations related to the use of these non-GAAP measures versus their nearest GAneither Adjusted EBITDA nor Adjusted Net (Loss) Income is a substitute for Net (Loss) Income and Operating expense (or any of its cocompensation is not a substitute for Operating expense (or any of its components) presented under GAAP. In addition, other companies mameasures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAPcomparison. Adjusted EBITDA excludes some recurring costs, including interest expense associated with debt used for corporate pucompensation, depreciation and amortization expense and fair value adjustment for our warrant liability. Therefore Adjusted EBITDA does nnon-cash impact of stock-based compensation or working capital needs that will continue for the foreseeable future. Adjusted Net (Loss)compensation expense and warrant liability fair value adjustment which will continue for the foreseeable future and therefore will general(Loss) Income determined in accordance with GAAP. Please refer to the Non-GAAP Reconciliations at the end of this presentation for a dmeasures and a reconciliation to Net (Loss) Income.


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$4 Billion+ total originations1

Scalable financial model

5th Generation proprietary credit scoring model

45,000+ small businesses served

76 net promoter score 2

62% y-o-y originations growth

A Leading Online Platform for Small Business Le

1. Occurred subsequent to December 31, 2015.2. Based on OnDeck’s Direct channel.

1,1581,874

369

2014 2015 4Q '1

Originations$MM

158255

50

2014 2015 4Q '1

Gross Revenue$MM

73160

25

2014 2015 4Q '1

Net Revenue$MM


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Investment Highlights

Massive and underserved market

Proprietary analytics and scoring models

Integrated and scalable technology platform

Diversified customer acquisition channels

Robust funding platform

Experienced management team

Attractive financial profile


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Small Business Lending Market is Massive and U

Sources: U.S. SBA, FDIC 09/30/15, OliverWyman, How “New-Form Lending” Will Shape Banks’ Small Business Strategies, 2013

1. As of December 31, 2015. Loans Under Management represents the unpaid principal balance of loans held for investment 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 theperiod.

$80-120Bn

UnmetDemand for Small

Business Linesof Credit

On

$80-120BnUnmet

Demand for SmallBusiness Lines

of Credit

$186BnBusiness Loan

Balances Under$250,000 inthe U.S.in Q3 ꞌ15

28MMU.S. Small Businesses

OnDeck Unique Small

Businesses Served

45K+


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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

• Diverse businmanual under

• Technology an

limitations

• Lack of standabusiness cred

Diversity of Small Businesses Creates Challengefor Traditional Lenders…

CHALLENGETRADITIONA

Cash Flow ProfileRestaurant

Landscaping Company

Plumbing Company

Q1 Q2 Q3 Q4


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…Leading to a Frustrating Borrowing Experiencefor Small Businesses

FRUSTRATIONS FSMALL BUSINESS

• Time consuming offli

• Non-tailored credit as

• Product mismatch

• Rigid collateral requir


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The OnDeck Score ® Proprietary and Purpose Built for Small Business

100+external data sources

5th Generationproprietary credit scoring model

10 Million+small businesses in proprietary database

2,000+data points per application

• Probabilistic record linkag

• Dimensionality reduction

• Ensemble learning

• Exhaustive cross validatio

• Feature engineering

• Adaptive learning

Proprietary DataAnalysis Platform

PublicRecords

Credit

Data

Social

Data

Proprietary

Data

Transactional

Data

Accounting

Data


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Acceptance Rate (%)

OnDeck Score Personal Credit Score Random

Resulting in Funding SignLoans for the Same Risk…

More Accurate than the Personal Credit Scoreat Predicting Bad Credit Risk1…

We Rely on the OnDeck Score for Greater AccuraPredictability and Access

1. Analysis on OnDeck Score v5 using actual OnDeck loan performance data.

90%

100%

0%100% 40% 20% 10% 0%

% o

f D e

f a u l t s E l i m i n a t e d

10%

10

20

Random Personal CrediScore

OnDeck Score


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OnlineMinutes1

AutomatedReview As Fast AsImmediately3

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 1/3 of customers are subjected to secondary, manual review process.

ApproveApply

Offline33 Hours2

ManualReviewWeeks or Months

Traditional

Lending


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Use Case

Size $5,000 – $500,000 $5,000 – $1

Term 3 – 36 months 6 mont

PricingAnnual Interest Rate as low as 5.99%1

Average 42% APR213.99% – 36

Payment Automated daily or weekly payments Automated week

Availability Renewal opportunity at ~50% paid down Draw on-de

Tailored Products for Small Businesses

1. For select customers.2. Based on 4Q ꞌ15.

Term Loan(Launched in 2007)

Line of C(Launched

HiringNewStaff

BuyingInventory

Marketing Managing Ca


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7 YeMedian Time

$580,000Median Annual Revenue

700+Industries

45,0Small Busine

in all 50 U

Established and Diverse Customer Base


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OnlineCustomerExperience

DataAggregation,

Analyticsand Scoring

TechnologyPowered

Servicing &Collections

Integrated and Scalable Technology Platform

$4 Billion+Total Originations1

80,000+Total Loans

9 Million+Customer Payment

1. Occurred intra-quarter 1Q ’16.


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Diversified and Growing Distribution Channels

Numbers represent loan units.

7,103

18,79029,516

2013 2014 2015

Direct &StrategicPartners

5,9558,131 7,625

2013 2014 2015

FundingAdvisors

80%

Direct and Strategic Pa

Channel Mi


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Expanding Partner EcosystemOnDeck Enabling Partners to Expand Core Solutions and Value Added

ISOProce

SMBSolutions

OnlineLending

Banks

as a service

Includes affiliates, subsidiaries and divisions. Pending partnership with Chaseannounced in 12/1/2015 Form 8-K.


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Hybrid Funding Model Focused on Diversity

Funding mix includes the principal balance outstanding in Loans Under Management as of December 31, 2015 for loans financed with funding debt or sold to OnDeckMarketplace investors.

OnDeck

Marketplace ® Target Mix

55-65% of Term LoanOriginations

35-45% of Term LoanOriginations

InvestorType

Investors Seeking FixedReturns

Investors Seeking VariableReturns

FlexibilityScalable as Originations

Grow

Greater Product and

Investor Flexibility

Cost Low Cost Execution Profitable Revenue Stream

ResiliencyCapital-Light Structure,

Equity Contribution AlignsInterests

Diversified Risk Exposure,Servicing Fee Aligns

Interests

Securitization /

Warehouse

Marketplace

Funding M


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2

Net Charge-offs by Cohort 1

Consistent Portfolio Performance Over Time

1. Percentage of dollars loaned that arecharged off.

2. As of December 31, 2015, principal balance of all term loans in Loans Under Managment still outstanding was 0% for all cohorts except the 2013, 2014, 1Q ‘15, 2Q ’15, 3Qcohorts, which hadprincipal outstanding of 0.1%, 1.8%, 11.5%, 26.1%, 56.8% and 88.2%, respectively.

5.5%

9.0%

6.4%

4.4%

5.5%

6.9% 6.9% 6.8%

5.2%

2.9%

2007 2008 2009 2010 2011 2012 2013 2014 1Q '15 2Q '1522


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Growth Strategy

Brand and direct

marketing

Strategic partnerships

Data and analytics

Product expa

Expand custlifetime value

International


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Industry Leading Management Team

Noah

BreslowCEO

James

HobsonCOO

Paul

RosenSales

Howard

KatzenbergCFO

Zhengyuan

LuCapital Markets

Krishna

VenkatramanData & Analytics

Pamela

RiceTechnology

Cynthia

ChenRisk

Andrea

GellertMarketing

Management Team Team Experience

Board of Directors

David HartwigSapphire Ventures

Bruce P. NolopE*TRADE Financial Corporation

Neil WolfsonSF Capital Group

Sandy Miller Institutional Venture Partners

Noah BreslowChairman of the Board

Jane J. ThompsonWalmart Financial ServicesCFPB Advisory Board

Ronald VerniSage Software

James Robinson IIIRRE Ventures American Express


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Capital Light Funding Model

Compelling Customer LTV

Demonstrated Operating Leverage

Rapid Growth

Financial Highlights

1,158

1,874

369

2014 2015 4Q '1

Originations$MM

158255

50

2014 2015 4Q '1

Gross Revenue$MM

73160

25

2014 2015 4Q '1

Net Revenue$MM


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Revenues Expenses

–

Illustrative Loan Economics

=

Origination Fee

Interest Income

Losses

Funding Costs

Processingand Servicing

Acquisition

-


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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 initial and repeat loans, less acquisition costs for repeat loans, less the following items for both initial aestimatedthird party processing andservicing expenses, estimated funding costs (excluding anycost of equity capital) andcharge offs. For this purpose, processing and servicinestimated based on the mix of new and renewal originations and outstanding principal balances. Includes all loans originated in the period. New and repeat loans sold funding cbased on the average on-balance sheet cost of funds rate in the period. Estimates may be adjustedin subsequent periods to reflect updated information.

3. Return on Investment (ROI) is contribution divided by initial acquisition cost. Acquisitioncosts include upfront internal and external commissions as well as direct marketing expen

4. Figures may not foot due to rounding

All Customers Acquired in 2013• Average 2.3 loans per customer through 9 quarters

($MM)

2013

$27$17

$8

$9

$7

$7

AcquisitionCost1

Contribution2 +2Q +3Q +4Q +5Q +6Q

$6

+7Q

$20

$5

+8Q

$3

+9Q


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Lifetime Value Improving Over Time

1. Cumulative Contribution as defined on theprevious page.

2. Return on Investment (ROI) as defined on the previous page.

Return on InvestmCohort Contribution Per Customer 1

$(2,000)

$3,000

$8,000

2014

2013

All Customers Acquired in 2013 and 2014

• At comparable seasoning points, 2014 shows improved returns.

2014

0.5x

1.5x

2.5x

3.5x

+5 Quarters +9 Quarters +5 Quarters


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81%

61%54%

37%

2012 2013 2014 2015

Driving Efficiencies in Cost of Revenues Expanding OpEx Investment to S

84%

68%

51

2012 2013 20

Provision for Loan LossesFunding CostsSales & Marketing Tech

Processing & Servicing Gene

Demonstrated Operating Leverage, but Investing

Figures are based on a percentage of gross revenue.

Operating LevePotential

Adj t d EBITDA d Adj t d N t I (L


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Adjusted EBITDA and Adjusted Net Income (Loss

See appendix for a reconciliation of these non-GAAP measures.

($0.2)

$16.2

$0.6 $0.3

($4.6)

$10.3

($0.8)

Adjusted EBITDA Adjusted Net Income (Loss)

2014 2015 4Q ꞌ14 4

B ildi Sh h ld V l


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Building Shareholder Value

Expand our addressable market and increase customer lifetime vaspectrum of SMB credit products and by investing in long-term custome

Drive sustainable net revenue growth for the longer term, prioritizing quality across the portfolio

Leverage technology and analytics leadership to extend our competwhile driving operating leverage and enhancing profitability

Diversify our funding sources by type and investor to balance risk retflexibility and resiliency over an economic cycle


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APPENDIX

1

S l t l K

P f

M t i R i i


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Supplemental Key Performance Metrics Revision

Revised H

Average Loans

Loans Held for Investment and Loan Held for Sale Average of Months in the Period

Loans H Average of the

Effective Interest Yield

Business Day Adjusted Interest IncomeDivided by Revised Average Loans

InteDivided

Average Funding Debt Outstanding

Funding Debt Outstanding Adjusted for ASC 835-302

Average of Months in the PeriodFunding

Average of the

Cost of Funds Rate

Funding CostDivided by Revised Average Funding Debt Outstanding

FuDivided by Averag

1. For summary purposes only and is qualified in its entirety by thedescriptions of the Key Performance Metrics in our earnings release issuedFebruary 22, 2016.

2. In April 2015, the Financial Accounting Standards Board issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, which amends ASC 835-30, Interest - ImInterest. ASU2015-03 requires entities to reclassify the presentation of deferred debt issuance costs in their financial statements. Under the update to the accounting standard, abe required to present such deferred costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. This accounting standard is effectiveJanuary 1, 2016 and is to be applied retrospectively.

Supplemental Key

Performance Metrics

Revision


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530.3 535.2513.2

532.6534.5550.5 541.2

564.8

1Q '15 2Q '15 3Q '15 4Q '15

Supplemental Key Performance Metrics Revision

Average Loans$MM

Revised Historical

393.2 383.4

359.8 365.6385.6

363.9351.7

364.4

1Q '15 2Q '15 3Q '15 4Q '15

Average Funding Debt Outstanding$MM

36.7% 37.6% 3

37.6%35.9%

3

1Q '15 2Q '15 3

Effective Interest Yield

Cost of Funds Rate

5.1% 5.0%

5

5.2% 5.2%

5

1Q '15 2Q '15 3Q

1. Beginning with the quarter ending March 31, 2016, the Company is refining the calculation of Effective Interest Yield (EIY) and certain related definitions to reflect the substanimpact of OnDeck Marketplace and to present EIYon a business day adjusted basis. In addition, effective January 1, 2016, the company is adopting a new a GAAP requiremenpresentation of deferred debt issuance costs related to average funding debt outstanding. In preparation for these changes and to enhance comparability of prior periods, thcontains the relevant Key Performance Metrics (1) as originally presented historically and (2) as revised to conform to the pending adoption of the 2016 calculation method

retrospective application of the new GAAP requirement regarding the presentation of deferred debt issuance costs. For summary purposes only and is qualified in its entirety by tof the Key Performance Metrics in our earnings release issued February 22, 2016.

Three Months Ended / Ending

Annualization Table 1Q ‘15 2Q ‘15 3Q ‘15 4Q ‘15 1Q ‘16 2Q ‘16

Business Days in Period 61 64 65 62 62 64

Annualization Factor 4.1311 3.9375 3.8769 4.0645 4.0484 3.9219

Current Debt Facilities: Considerable Existing Ca


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Current Debt Facilities: Considerable Existing Ca

1. Balances and Capacities as of December 31, 2015.

2. The period during which remaining cash flow can be used to purchase additional loans expires April 30, 2016.

3. The period during which new borrowings may be made expires in August 2016.

4. 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 hdirect recourse to us.

($MM) Maturity DateWA Interest

RatePrincipal

Outstanding

Funding Debt 1,4

OnDeck Asset Securitization Trust LLC May-18 2 3.4% $175.0

Prime OnDeck Receivable Trust, LLC June-17 2.7% 59.4

Receivable Assets of OnDeck, LLC May-17 3.3% 47.5

OnDeck Account Receivables Trust 2013-1 LLC Sept-17 2.6% 42.1

On Deck Asset Company, LLC May-17 8.6% 27.7

Small Business Asset Fund 2009 LLC Jan 2016 through Aug 2017 6.9% 12.8

On Deck Asset Pool, LLC Aug-173

5.0% 8.7Partner Synthetic Participations 4 Jan 2016 through Oct 2017 Various 6.9

Total Funding Debt $380.1

Corporate Debt 1,4

On Deck Capital, Inc. Oct-16 4.50% $2.7

Net Cumulative Lifetime Charge

off

Ratios

All L


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Net Cumulative Lifetime Charge-off Ratios – All L

As of December 31, 2015, net charge-off as a percentage of original Unpaid Principal Balance, all term loans in Loans Under Management represented.

Non GAAP Operating Expense Reconciliation


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Non-GAAP Operating Expense Reconciliation

Sales and Marketing Non-GAAP Expense Reconciliation

($MM) 4Q '15 4Q '14 2015 2014

GAAP expense $17.1 $11.4 $60.6 $33.2

Stock-based compensation (0.9) (0.4) (3.1) (0.7)

Expense excluding stock-based compensation $16.2 $11.0 $57.5 $32.5

Percentage of Gross Revenue

GAAP expense 25.3% 22.6% 23.8% 21.0%


Expense excluding stock-based compensation 23.9% 21.9% 22.6% 20.6%

Percentage of Originations

GAAP expense 3.1% 3.1% 3.2% 2.9%



Technology and Analytics Non-GAAP Expense Reconciliation

($MM) 4Q '15 4Q '14 2015 2014

GAAP expense 12.7 6.0 42.7 17.4


Expense excluding stock-based compensation $12.1 $5.8 $40.3 $16.9


GAAP expense 18.9% 12.0% 16.7% 11.0%



Processing and Servicing Non-GAAP Expense Recon

($MM) 4Q '1

GAAP expense $4

Stock-based compensation (0

Expense excluding stock-based compensation $3


GAAP expense 5.9


Expense excluding stock-based compensation 5.5

General and Administrative Non-GAAP Expense Reco

($MM) 4Q '1

GAAP expense $13


Expense excluding stock-based compensation $11Percentage of Gross Revenue

GAAP expense 20.1


Expense excluding stock-based compensation 17.5

Operating expense (or its components) excluding stock-based compensation expense and the percentages computed using those metrics are not presented in accordance with GAAPnon-GAAP financial measures. Management believes they can provide useful supplemental information to investors and others for comparisons in understanding and evaluating our oexpenses without the impact of non-cash stock-based compensation which can vary significantly from period to period.

Non

GAAP Adjusted EBITDA Reconciliation


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Adjusted EBITDATwelve Months Ended

December 31,Three Months Ended

December 31,

(000s) 2014 2015 2014 2015

Net Loss ($18,708) ($2,231) ($4,291) ($5,1

Adjustments:

Corporate Interest Expense 398 306 124

Income Tax Expense – – –

Depreciation and Amortization 4,071 6,508 1,223 1,

Stock-Based Compensation Expense 2,842 11,582 1,395 3,

Warrant Liability Fair Value Adjustment 11,232 – 2,110

Adjusted EBITDA ($165) $16,165 $561 $

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 wlending activities), income tax expense, depreciation and amortization, stock-based compensation expense and warrant liability fair value adjustment. EBITDA is impacted by changfrom period to period in the fair value of the liability related to preferred stock warrants . Management believes that adjust ing EBITDA to eliminate the impact of the changes in fair vof these warrants is useful to analyze the operating performance of the business, unaffected by changes in the fair value of preferred stock warrants which are not relevant to the

ongoing operations of the business. All such preferred stock warrants converted to common stock warrants upon initial our initial public offering in December 2014.

Non

-

GAAP Adjusted (Loss)

Income

Reconciliatio


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Adjusted Net (Loss) IncomeTwelve Months Ended

December 31,Three Months Ended

December 31,

(000s) 2014 2015 2014 2015

Net (Loss) Income ($18,708) ($2,231) ($4,291) ($5,

Adjustments:

Stock-Based Compensation Expense 2,842 11,582 1,395 3

Net loss attributable to non-controlling interest – 958 –

Warrant Liability Fair Value Adjustment 11,232 – 2,110

Adjusted Net (Loss) Income ($4,634) $10,309 ($786) ($1,

Non-GAAP Adjusted (Loss) Income Reconciliatio

Adjusted Net Income (Loss) per share represents our net income (loss) adjusted to exclude net loss attributable to non-controlling interest, stock-based compensation expense andliability fair value adjustment, each on the same basis and with the same limitations as described above for Adjusted EBITDA, divided by the weighted average common shares ouduring the period. Adjusted Net Income (Loss) per share does not include the impact of accretion of dividends on redeemable convertible preferred stock or Series A and B preferr

redemptions. All such preferred stock converted to common stock upon our initial public offering in December 2014.

Deferred Tax Asset


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Deferred Tax Asset

1. Our net operating loss carryforwards for federal income tax purposes were approximately $50.6 million, $32.2 million and $47.5 million at December 31, 2015, 2014 and 2013, resand, if not utilized, will expire at various dates beginning in 2027. State net operating loss carryforwards were $49.8 million, $31.4 million and $47.2 million at December 31, 2015,

2013, respectively. Net operating loss carryforwards and tax credit carryforwards reflected above may be limited due to historical and future ownership changes.

(000s) As of December 31, 2015 As of December 31, 201

Deferred tax assets relating to:

Net operating loss carryforwards $19,183 $12,27

Loan loss reserve 20,231 18,98Imputed interest income 729 44

Loss on sublease (20) 14

Deferred rent 1,613 66

Miscellaneous items 5

Total gross deferred tax assets $41,741 $32,5

Deferred tax liabilities:

Internally developed software $1,756 $1,04

Property, equipment and software 4,613 2Origination costs 3,394 5,16

Total gross deferred tax liabilities $9,763 $6,4

Deferred assets less liabilities 31,978 26,09

Less: valuation allowance (31,978) (26,09

Net deferred tax asset $— $

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