Net Income of $39.8 million; Diluted EPS of
$0.19 Adjusted EBITDA of $58.3 million with an Adjusted
EBITDA Margin of 45%
GreenSky, Inc. (NASDAQ: GSKY), a leading financial technology
company Powering Commerce at the Point of Sale®, reported financial
results today for the third quarter ended September 30, 2021.
“I am thrilled to report that GreenSky posted another strong
quarter of outstanding profitability metrics which underscores our
continued generation of attractive operating results,” said David
Zalik, GreenSky’s Chairman and Chief Executive Officer. “In
September, GreenSky entered into a definitive agreement to be
acquired by Goldman Sachs. This pending acquisition is a testament
to GreenSky’s strong underlying profitability, unparalleled
merchant and consumer network, impressive cloud native technology
platform and continued commitment to delight our customers.” Zalik
continued, “I would like to extend my deepest thanks to our entire
team for their collective commitment and contributions. On behalf
of GreenSky, we could not be more excited to join the Goldman Sachs
team and look forward to what we will accomplish together.”
Andrew Kang, GreenSky’s Chief Financial Officer, continued,
“GreenSky reported strong third quarter Net Income of $39.8 million
and Adjusted EBITDA of $58.3 million despite the ongoing supply
chain and labor disruption challenges in our home improvement
business. Cost of revenue continued to outperform expectations
driven by ongoing operational efficiencies, continued strength in
portfolio performance, lower cost of funds and exceptional cost
discipline.”
With the pending merger transaction expected to close in Q4 2021
or in Q1 2022, GreenSky will not be hosting an earnings conference
call and is suspending financial guidance going forward.
Third Quarter Financial Highlights:
- Transaction Volume: Third quarter transaction volume was
$1.5 billion, an increase of 4% when compared to the third quarter
of 2020. Home improvement approved credit lines were $2.6 billion
and represented an all-time third quarter record.
- Transaction Fee Rate and APR at Origination: For the
third quarter the average transaction fee rate was 6.40%, versus
6.63% for the second quarter of 2021, while the third quarter APR
at origination was 13.6%, compared to 13.5% for the second quarter
of 2021 as product mix continued to move toward higher APR
plans.
- Revenue: Third quarter total revenue was $128.1 million.
- Transaction fee revenue was $98.6 million, a decrease from the
third quarter of 2020 as the growth in transaction volume was
offset by the reduction in transaction fee rate.
- Total servicing revenue was $26.1 million in the third quarter
with servicing fee revenue flat year-over-year.
- Cost of Revenue: Total cost of revenue decreased $58.9
million, or 63%, compared to the third quarter of 2020. The
reduction includes a 13% improvement in operational costs due to
improved efficiency, a 46% improvement on our bank waterfall costs
due to strong credit performance and a 92% improvement in our loan
sale cost of funds.
- Credit Quality: Credit performance was stable, with
thirty-day plus delinquencies of 0.73% at September 30, 2021, an
improvement of 26 basis points versus 0.99% at year-end December
31, 2020.
- Net Income and Diluted Earnings per Share: For the third
quarter of 2021, the Company recognized net income of $39.8 million
compared to net income of $2.8 million for the same period of 2020,
resulting in diluted earnings per share of $0.19, compared to
diluted earnings per share of $0.01 in the third quarter of
2020.
- Adjusted Pro Forma Net Income and Adjusted Earnings per
Share(1): For the third quarter of 2021, the Company recognized
adjusted pro forma net income of $37.6 million, compared to $3.9
million for the third quarter of 2020, which resulted in adjusted
pro forma diluted earnings per share of $0.21, compared to $0.03
for the third quarter of 2020.
- Adjusted EBITDA(1): Third quarter Adjusted EBITDA was a
company record $58.3 million, an increase of 51% from $38.7 million
in the third quarter of 2020. Adjusted EBITDA margin improved to
45% in the third quarter of 2021, up from 27% in the third quarter
of 2020. The Company’s 2021 year-to-date Adjusted EBITDA margin is
40%.
(1) Adjusted Pro Forma Net Income, Adjusted
Pro Forma Diluted Earnings per Share, Adjusted EBITDA and Adjusted
EBITDA Margin are non-GAAP measures. Refer to “Non-GAAP Financial
Measures” for important additional information.
- Cash Flows: Net cash flows provided (used) by operating
activities for the nine months ended September 30, 2021 and 2020
were $301 million and ($430 million), respectively.
Business Updates:
- Merger Agreement: GreenSky entered into a definitive
agreement pursuant to which Goldman Sachs will acquire GreenSky in
an all-stock transaction valued at approximately $2.24 billion at
the time of announcement. The transaction, which is anticipated to
close in the fourth quarter of 2021 or first quarter of 2022, is
subject to approval by GreenSky stockholders, the receipt of
required regulatory approvals, and satisfaction of other customary
closing conditions.
- Funding: During the third quarter, GreenSky completed
$469 million in forward flow and other asset sales.
- Liquidity: At September 30, 2021, the Company had $342
million of available corporate liquidity, consisting of
unrestricted cash of $242 million and $100 million undrawn and
available under a revolving credit facility.
About GreenSky, Inc.
GreenSky, Inc. (NASDAQ: GSKY), headquartered in Atlanta, 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 and patented technology platform
enables merchants to offer frictionless promotional payment options
to consumers, driving increased sales volume and accelerated cash
flow. Banks leverage our technology to provide loans to super-prime
and prime consumers nationwide. We currently service a $10 billion
loan portfolio, and since our inception, approximately 4 million
consumers have financed more than $30 billion of commerce using our
paperless, real time “apply and buy” technology. 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, the proposed acquisition of GreenSky by Goldman Sachs and
the anticipated timing, results and benefits thereof; its
operations; and its operating and financial performance. 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, without limitation, risks and uncertainties
associated with Goldman Sachs’s and GreenSky’s ability to complete
the proposed acquisition on the proposed terms or on the
anticipated timeline, or at all, including: risks and uncertainties
related to securing the necessary regulatory and stockholder
approvals and satisfaction of other closing conditions to
consummate the proposed acquisition; the occurrence of any event,
change or other circumstance that could give rise to the
termination of the merger agreement relating to the proposed
acquisition; risks related to diverting the attention of Goldman
Sachs and/or GreenSky management from ongoing business operations;
failure to realize the expected benefits of the proposed
acquisition; significant transaction costs and/or unknown or
inestimable liabilities; the risk of litigation in connection with
the proposed acquisition, including resulting expense or delay; the
risk that GreenSky’s business will not be integrated successfully
or that such integration may be more difficult, time-consuming or
costly than expected; risks related to future opportunities and
plans for the GreenSky business, including the uncertainty of
financial performance and results of Goldman Sachs following
completion of the proposed acquisition; disruption from the
proposed acquisition, making it more difficult to conduct business
as usual or for GreenSky to maintain relationships with bank
partners, other funding sources or purchasers of receivables
related to, or economic participations in, loans originated by
GreenSky’s bank partners, merchants, sponsors of merchants,
consumers, suppliers, distributors, partners, employees, regulators
or other third parties; effects relating to the announcement of the
proposed acquisition or any further announcements or the
consummation of the proposed acquisition on the market price of
Goldman Sachs common stock or GreenSky common stock; the
possibility that, if Goldman Sachs does not achieve the perceived
benefits of the proposed acquisition as rapidly or to the extent
anticipated by financial analysts or investors or at all, the
market price of Goldman Sachs common stock could decline; the
definitive documentation in respect of the backstop participation
purchase facility is subject to negotiation between the parties;
regulatory initiatives and changes in tax laws; market volatility
and changes in economic conditions; and other risks and
uncertainties affecting Goldman Sachs and GreenSky, including those
described from time to time under the caption “Risk Factors” and
elsewhere in Goldman Sachs’s and GreenSky’s SEC filings and
reports, including Goldman Sachs’s Annual Report on Form 10-K for
the fiscal year ended December 31, 2020 and Quarterly Reports on
Form 10-Q for the fiscal quarters ended March 31, 2021 and June 30,
2021, GreenSky’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2020 and Quarterly Reports on Form 10-Q for the
fiscal quarters ended March 31, 2021 and June 30, 2021, and future
filings and reports by either company. Other risks and
uncertainties affecting GreenSky include, without limitation, the
extent and duration of the COVID-19 pandemic and its impact on the
Company, its bank partners, merchants and sponsors, 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 facilitate
additional whole loan or loan participation sales) and the economy
in general; the Company's ability to retain existing, and attract
new, merchants and bank partners or other funding sources,
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 outcome of litigation and regulatory
matters; 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, Adjusted EBITDA Margin, Adjusted Pro Forma Net
Income and Adjusted Pro Forma Diluted Earnings Per Share, 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 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 the 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 believe that Adjusted 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 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)
September 30, 2021
December 31, 2020
Assets
Cash and cash equivalents
$
241,970
$
147,775
Restricted cash
264,387
319,879
Loan receivables held for sale, net
327,045
571,415
Accounts receivable, net of allowance of
$168 and $313, respectively
17,629
21,958
Property, equipment and software, net
22,630
21,452
Deferred tax assets, net
407,239
387,951
Other assets
124,120
52,643
Total assets
$
1,405,020
$
1,523,073
Liabilities and Equity
(Deficit)
Liabilities
Accounts payable
$
10,797
$
15,418
Accrued compensation and benefits
16,624
13,666
Other accrued expenses
15,880
5,207
Finance charge reversal liability
139,307
185,134
Term loan
451,190
452,806
Warehouse facility
278,278
502,830
Tax receivable agreement liability
332,299
310,425
Financial guarantee liability
114,472
131,894
Other liabilities
120,695
81,169
Total liabilities
1,479,542
1,698,549
Commitments, Contingencies and
Guarantees
Equity (Deficit)
Class A common stock, $0.01 par value and
105,659,661 shares issued and 90,015,687 shares outstanding at
September 30, 2021 and 91,317,225 shares issued and 76,734,106
shares outstanding at December 31, 2020
1,056
912
Class B common stock, $0.001 par value and
94,279,039 shares issued and outstanding at September 30, 2021 and
106,165,105 shares issued and outstanding at December 31, 2020
95
107
Additional paid-in capital
115,234
110,938
Retained earnings
68,192
33,751
Treasury stock
(150,104)
(147,360)
Accumulated other comprehensive income
(loss)
(3,457)
(4,340)
Noncontrolling interests
(105,538)
(169,484)
Total equity (deficit)
(74,522)
(175,476)
Total liabilities and equity (deficit)
$
1,405,020
$
1,523,073
GreenSky, Inc.
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS (Unaudited)
(Dollars in thousands, except
per share data)
Three Months Ended September
30,
Nine Months Ended September
30,
2021
2020
2021
2020
Revenue
Transaction fees
$
98,597
$
107,538
$
286,694
$
299,199
Servicing
26,116
27,446
92,158
87,210
Interest and other
3,436
7,039
10,987
10,433
Total revenue
128,149
142,023
389,839
396,842
Costs and expenses
Cost of revenue (exclusive of depreciation
and amortization shown separately below)
33,867
92,728
141,799
230,410
Compensation and benefits
22,858
21,301
67,249
65,190
Property, office and technology
4,289
4,143
13,277
12,242
Depreciation and amortization
3,548
2,973
10,343
8,180
Sales, general and administrative
6,689
11,614
32,212
30,068
Financial guarantee expense (benefit)
2,033
(302)
(7,730)
28,354
Merger-related costs
5,036
—
5,036
—
Related party
435
350
1,339
1,304
Total costs and expenses
78,755
132,807
263,525
375,748
Operating profit
49,394
9,216
126,314
21,094
Other income (expense), net
Interest and dividend income
146
157
423
1,025
Interest expense
(6,801)
(6,775)
(20,136)
(18,289)
Other gains, net
1,406
410
2,834
2,216
Total other income (expense), net
(5,249)
(6,208)
(16,879)
(15,048)
Income before income tax expense
44,145
3,008
109,435
6,046
Income tax expense
4,368
197
10,822
799
Net income
$
39,777
$
2,811
$
98,613
$
5,247
Less: Net income attributable to
noncontrolling interests
25,388
1,850
64,096
3,487
Net income attributable to GreenSky,
Inc.
$
14,389
$
961
$
34,517
$
1,760
Earnings per share of Class A common
stock:
Basic
$
0.19
$
0.01
$
0.47
$
0.03
Diluted
$
0.19
$
0.01
$
0.46
$
0.02
Weighted average shares of Class A
common stock outstanding:
Basic
75,670,931
69,960,268
73,372,935
66,267,288
Diluted
180,926,632
178,057,682
180,109,622
177,536,866
GreenSky, Inc.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
Nine Months Ended September
30,
2021
2020
Cash flows from operating
activities
Net income
$
98,613
$
5,247
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization
10,343
8,180
Share-based compensation expense
11,769
11,306
Fair value change in servicing assets and
liabilities
(9,995)
(1,370)
Operating lease liability payments
105
(342)
Financial guarantee expense (benefit)
(20,286)
26,274
Amortization of debt related costs
2,535
1,748
Original issuance discount on term loan
payment
(54)
(18)
Income tax expense
10,820
799
Mark to market on loan receivables held
for sale
3,863
17,332
Other
7
200
Changes in assets and liabilities:
(Increase) decrease in loan receivables
held for sale
240,506
(508,722)
(Increase) decrease in accounts
receivable
4,329
(1,442)
(Increase) decrease in other assets
(54,082)
(3,354)
Increase (decrease) in accounts
payable
(4,621)
3,184
Increase (decrease) in finance charge
reversal liability
(45,827)
(18,523)
Increase (decrease) in guarantee
liability
(25,151)
(64)
Increase (decrease) in other
liabilities
77,980
29,073
Net cash provided by (used in) operating
activities
300,854
(430,492)
Cash flows from investing
activities
Purchases of property, equipment and
software
(11,311)
(12,120)
Net cash used in investing activities
(11,311)
(12,120)
Cash flows from financing
activities
Proceeds from term loan
—
70,494
Repayments of term loan
(3,509)
(3,170)
Proceeds from Warehouse facility
328,781
570,000
Repayments of Warehouse facility
(553,333)
(137,160)
Member distributions
(16,746)
(50,965)
Payments under tax receivable
agreement
(4,098)
(12,755)
Proceeds from option exercises
817
—
Tax withholding payments on equity
compensation
(2,752)
(1,166)
Net cash provided by (used in) financing
activities
(250,840)
435,278
Net increase (decrease) in cash and cash
equivalents and restricted cash
38,703
(7,334)
Cash and cash equivalents and restricted
cash at beginning of period
467,654
445,841
Cash and cash equivalents and restricted
cash at end of period
$
506,357
$
438,507
Supplemental non-cash investing and
financing activities
Distributions accrued but not paid
1,570
3,470
Capitalized software costs accrued but not
paid
605
435
Tax withholding on equity awards accrued
but not paid
38
21
Beneficial interest in contingent
consideration
19,350
—
Reconciliation of Adjusted
EBITDA
(Dollars in thousands)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2021
2020
2021
2020
Net income (loss)
$
39,777
$
2,811
$
98,613
$
5,247
Interest expense(1)
6,801
6,775
20,136
18,289
Income tax expense (benefit)
4,368
197
10,822
799
Depreciation and amortization
3,548
2,973
10,343
8,180
Share-based compensation expense(2)
4,033
4,338
11,776
11,318
Financial guarantee liability -
Escrow(3)
—
(2,382)
—
26,274
Servicing asset and liability
changes(4)
1,499
368
(9,995)
(1,370)
Mark-to-market on sales facilitation
obligations(5)
(6,955)
18,262
(6,174)
18,262
Merger-related costs(6)
5,036
—
5,036
—
Transaction and non-recurring
expenses(7)
157
5,367
13,608
8,625
Adjusted EBITDA
$
58,264
$
38,709
$
154,165
$
95,624
Total revenue
$
128,149
$
142,023
$
389,839
$
396,842
Adjusted EBITDA Margin
45.5%
27.3%
39.5%
24.1%
(1)
Interest expense on the Warehouse Facility
and interest income on the loan receivables held for sale are not
included in the adjustment above as amounts are components of cost
of revenue and revenue, respectively.
(2)
See Note 12 to the Unaudited Condensed
Consolidated Financial Statements included in Part I, Item 1 for
additional discussion of share-based compensation.
(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. In the
fourth quarter of 2020, due to expectations that some of these
financial guarantees may require cash settlement, the Company
discontinued adjusting EBITDA for financial guarantees.
(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.
(5)
Mark-to-market on sales facilitation
obligations reflects changes in the fair value in the embedded
derivative for sales facilitation obligations. The changes in fair
value are recognized as a mark-to-market expense in cost of revenue
for the period. See Note 3 to the Notes to Unaudited Condensed
Consolidated Financial Statements included in Part I, Item 1 for
additional discussion.
(6)
Includes professional services fees
related to the pending merger with Goldman Sachs.
(7)
The three and nine months ended September
30, 2021 primarily include legal fees associated with IPO
litigation and regulatory matter. The three and nine months ended
September 30, 2020 include legal fees associated with IPO
litigation and regulatory matter and professional fees associated
with our strategic alternatives review process.
Reconciliation of Adjusted Pro
Forma Net Income
(Dollars in thousands)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2021
2020
2021
2020
Net income (loss)
$
39,777
$
2,811
$
98,613
$
5,247
Merger-related costs(1)
5,036
—
5,036
—
Transaction and non-recurring
expenses(2)
157
5,367
13,608
8,625
Change in financial guarantee liability -
Escrow
0
(2,382)
0
26,274
Incremental pro forma tax expense(3)
(7,346)
(1,929)
(19,787)
(3,307)
Adjusted Pro Forma Net Income
$
37,624
$
3,867
$
97,470
$
36,839
(1)
Includes professional services fees
related to the pending merger with Goldman Sachs.
(2)
The three months ended September 30, 2021
primarily include legal fees associated with IPO litigation and
regulatory matter. The nine months September 30, 2020 include legal
fees associated with IPO litigation and regulatory matter and
professional fees associated with our strategic alternatives review
process.
(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 a full year effective tax rate of 23.74% and 23.9% for the
three and nine months ended September 30, 2021, respectively, and
for the three and nine months ended September 30, 2020, a tax rate
of 25.39%.
Reconciliation of Adjusted Pro
Forma Diluted EPS
(Dollars in thousands)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2021
2020
2021
2020
GAAP Diluted EPS
$
0.19
$
0.01
$
0.46
$
0.02
Merger-related costs
0.03
—
0.10
—
Transaction and non-recurring expenses
—
0.03
0.03
0.05
Incremental pro forma tax expense(1)
(0.01)
(0.01)
(0.02)
(0.01)
Adjusted Pro Forma Diluted
EPS(2)
$
0.21
$
0.03
$
0.57
$
0.06
Weighted average shares of Class A common
stock outstanding – diluted
180,926,632
178,057,682
180,109,622
177,536,866
(1)
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 a full year effective tax rate of 23.74% and 23.9% for the
three and nine months ended September 30, 2021, respectively, and
for the three and nine months ended September 30, 2020, a tax rate
of 25.39%.
(2)
Adjusted Pro Forma Diluted EPS represents
Adjusted Pro Forma Net Income divided by GAAP weighted average
diluted shares outstanding.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20211104006294/en/
Brinker Dailey (470) 284-7017 investors@greensky.com
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