E-LOAN, Inc. Reports Third Quarter 2004 Results
Total Revenue of $35.1 Million and EPS of $0.01 Per Share; Home Equity Revenue Up 46% from Q2 2004; Auto Revenue Up 25% from Q2 2004; Diversified Product Revenue Comprises 79% of Total Revenue; Total Revenue Up 5% from Q2 2004
PLEASANTON, Calif., Nov. 4 -- E-LOAN(R) , an online consumer direct lender, today reported results for the third quarter ended September 30, 2004.
Overview of Results
* Total revenue of $35.1 million, up 5% from Q2 2004.
* Net income for the third quarter of 2004 was $0.7 million or
$0.01 per share on 65.5 million diluted shares.
* Diversified revenue -- comprising total revenue, excluding prime
refinance mortgage -- was $27.8 million, up 18% from Q2 2004, which
accounted for 79% of total revenue in Q3 2004.
* Home Equity revenue was $14.2 million, up 46% from Q2 2004 and nearly
double that of mortgage refinance revenue. Home equity sold loan volume
increased 22% in the quarter compared to Q2 2004. A 27% increase in
revenue per loan from Q2 2004 contributed to these results.
* Diversified mortgage revenue -- comprising purchase and non-prime
mortgage -- was $8.3 million, down 15% from the second quarter of 2004.
Diversified mortgage sold loan volume and revenue per loan decreased 5%
and 9%, respectively, in the quarter compared to Q2 2004.
* Auto revenue was $3.7 million, up 25% from Q2 2004. Auto sold loan
volume increased 9% in the quarter compared to Q2 2004. A 12% increase
in revenue per loan from Q2 2004 contributed to these results.
* Refinance mortgage revenue was $7.3 million, down 26% from Q2 2004.
Refinance mortgage sold loan volume decreased 33% in the quarter
compared to Q2 2004. The decreased loan volume was partially offset by
a 9% increase in revenue per loan from Q2 2004.
* Direct margin -- defined as revenue minus variable and fixed operations
expense -- was $17.6 million, up 3% from Q2 2004.
* Marketing expense totaled $12.1 million, down 3% from Q2 2004.
* General and administrative expenses increased $169 thousand or 7% to
$2.5 million from Q2 2004.
* E-LOAN's new subsidiary, Escrow Closing Services, Inc. (ECS), generated
$152 thousand positive direct margin in Q3 2004. Approximately 53% of
our home equity loans used ECS in Q3 2004, up from 45% in Q2 2004.
* Prior periods presented in this release have been restated to correct
the gain on sale of loans and interest income and interest expense
recognized on loans sold subsequent to the date of sale (see discussion
and table below).
"In the third quarter of 2004, we had a solid quarter overall and made outstanding progress in growing our diversified businesses," said Chris Larsen, Chairman and Chief Executive Officer of E-LOAN. "Total revenue was up 5 percent and diversified revenue was up 18 percent from the second quarter of 2004. Diversified revenue hit a record high and for the first time accounted for nearly 80 percent of total revenue, well ahead of earlier projections."
Larsen continued, "We also made good progress in optimizing our three key leverage points: capital markets revenue per loan, operations costs per loan, and marketing conversion. By continuing to focus on these three core areas, while at the same time maintaining a high level of revenue diversification, we believe we are well positioned as we enter 2005."
"Consistent with our last update, we continue to expect 2004 breakeven earnings," said Matt Roberts, E-LOAN's Chief Financial Officer. "Adjusted only for the revenue reclassification, we expect total 2004 revenues of approximately $134 million (or $139 million on a pre-reclassification basis)."
Key assumptions in the forecast for 2004 are as follows: * 10-year Treasury rates of 4.0% to 5.0% for the remainder of the year. * E-LOAN total 2004 sold loan volume of approximately $5.3 billion. * Marketing spend of approximately $48 million. * Combined technology and G&A expense of $20.5 million. * Average diluted shares outstanding of 66 million. Operating and Financial Tables Revenues
E-LOAN's revenues are primarily from the gain on sale of first mortgage, home equity and auto loans that we originate, fund and then sell. We also earn interest income on mortgage and home equity loans from the time of funding through the time of sale.
Components of Revenue Q3 2004 Q2 2004 Q3 2003
($ in thousands) % of % of % of
$ Total Revenue $ Total Revenue $ Total Revenue
Refi Mortgage $6,823 19% $8,430 25% $17,020 39%
Interest Income
on Refi Mortgage 472 1% 1,393 4% 2,324 5%
Diversified
Mortgage (1) 7,598 22% 8,659 26% 10,286 23%
Interest Income
on Diversified
Mortgage 688 2% 1,035 3% 2,211 5%
Home Equity 13,216 38% 8,738 26% 7,637 17%
Interest Income
on Home Equity 930 3% 943 3% 1,079 2%
Auto (2) 3,665 10% 2,921 9% 2,927 7%
Closing
Services (3) 1,407 4% 985 3% -- --
Other (4) 299 1% 295 1% 382 1%
Total Revenue $35,098 100% $33,400 100% $43,866 100%
Total Diversified
Revenue (5) $27,802 79% $23,578 71% $24,522 56%
(1) Diversified Mortgage comprises purchase and non-prime mortgage loans.
(2) Auto Revenues include interest income from the retained interest
asset, which was previously reported in Other Income, net.
(3) Closing Services Revenues are from Escrow Closing Services, Inc.,
a wholly-owned subsidiary, which provides mortgage closing services,
including HUD-1 Settlement Statement and document preparation,
signing, disbursement and recordation services for a portion of our
Home Equity business.
(4) Other Revenue comes from credit monitoring services and credit card,
personal loan and student loan referrals.
(5) Diversified Revenue is comprised of total revenues excluding prime
refinance mortgage and its related interest income.
Loan Volume
The following table provides a comparison of unit and volume statistics:
Q3'04 Q2 '04 Q3 '03
$ Millions Loans $ Millions Loans $ Millions Loans
Sold Loans
Refinance
Mortgage $332 1,568 $496 2,105 $650 3,144
Diversified
Mortgage 382 1,973 403 2,049 640 3,206
Home Equity 404 7,954 332 6,674 275 6,077
Auto 177 10,780 162 9,606 194 10,670
Total Sold
Loans $1,295 22,275 $1,393 20,434 $ 1,758 23,097
Closed Loans
Refinance
Mortgage $340 1,599 $460 1,951 $497 2,492
Diversified
Mortgage 388 2,015 387 1,967 573 2,931
Home Equity 408 8,049 328 6,590 259 5,682
Auto 177 10,773 161 9,568 194 10,701
Total Closed
Loans $1,312 22,436 $1,336 20,076 $1,523 21,806
Direct Margin
Direct margin is defined as revenue minus variable and fixed operations expense. The following table provides detail of direct margin classified by revenue-related categories, both in dollars and expressed as a percentage of its related revenue.
Direct Margins Q3 2004 Q2 2004 Q3 2003
($ in thousands) % of % of % of
$ Total Revenue $ Total Revenue $ Total Revenue
Mortgage $7,353 51% $10,212 60% $18,048 66%
Mortgage Interest
Margin 584 50% 1,424 59% 2,386 53%
Home Equity 7,148 54% 3,491 40% 3,754 49%
Home Equity
Interest Margin 430 46% 509 54% 559 52%
Auto 1,673 46% 1,085 37% 384 13%
Closing Services 152 11% 119 12% -- --
Other 299 100% 295 100% 382 100%
Total $17,639 $17,135 $25,514
Conversion Statistics
We release conversion rates on a one-quarter lagged basis because of the lag time that exists between the time an application is submitted and the time the associated loan actually funds. Our conversion rates are based on a static pool analysis calculated by dividing the number of qualified applications received in the quarter by the number of funded loans that resulted from those applications.
Conversion % Q3 '03 Q4 '03 Q1 '04 Q2 '04
Mortgage
Pre-Approval 6% 6% 6% 7%
Purchase 19% 17% 20% 13%
Refinance 21% 21% 22% 19%
Total Mortgage 14% 13% 16% 13%
Home Equity 29% 36% 34% 35%
Auto 19% 26% 28% 27%
Restatement of Prior Period's Gain on Sale of Loans
E-LOAN's historical practice has been to continue to recognize interest income and interest expense on loans sold under its Purchase and Sale Agreement with Greenwich Capital (see description of agreement below) in the period from the time of sale until the time of settlement with the committed loan purchaser. The Company has determined that this interest income and interest expense should have been included in the calculation of the gain on loans sold rather than to be recognized as additional interest income and interest expense in the period subsequent to the sale of the loans. To correct this accounting error the Company will restate its previously issued financial statements for the year ended December 31, 2003, and the interim periods within the year as well as for the quarters ended March 31, 2004 and June 30, 2004. All amounts included in this release have been restated accordingly and the impact of the restatement is reflected in the table below. The cumulative impact of this error was an understatement of income of $615,000 during a period in which the company earned $22 million.
Comparison Table
The impact of the error and reclassification to prior periods is shown in the following table:
Summary Reported Corrected Reported Corrected Reported Corrected
3 Months 3 Months Total Total 6 Months 6 Months
Q3 2003 Q3 2003 2003 2003 Q2 2004 Q2 2004
Interest Income $6,480 $5,614 $22,693 $18,581 $10,526 $5,110
Total Diversified
Revenue 24,541 24,522 80,737 80,200 46,877 45,169
Total Revenue 44,057 43,866 154,052 152,707 66,675 64,030
Interest Expense 3,082 2,669 11,199 9,151 4,882 2,324
Total Operating
Expense 35,023 34,610 130,410 128,362 67,550 64,992
Net Income 8,018 8,240 22,634 23,337 (850) (937)
EPS 0.12 0.12 0.34 0.35 (0.01) (0.01)
Detail Reported Corrected Reported Corrected Reported Corrected
Q1 2003 Q1 2003 Q2 2003 Q2 2003 Q3 2003 Q3 2003
Refi Mortgage $17,938 $18,242 $21,410 $21,625 $16,871 $17,020
Interest Income
on Refi Mortgage 3,015 2,731 3,258 2,997 2,646 2,324
Diversified
Mortgage (1) 5,913 5,980 10,096 10,223 9,985 10,286
Interest Income
on Diversified
Mortgage 1,849 1,774 1,894 1,761 2,492 2,211
Home Equity 3,939 4,006 5,334 5,420 7,412 7,637
Interest Income on
Home Equity 424 345 683 608 1,342 1,079
Mortgage Interest
Expense 2,398 2,178 2,506 2,314 2,435 2,149
Home Equity
Interest Expense 288 220 531 473 647 521
Total Diversified
Revenue $15,265 $15,246 $21,434 $21,441 $24,541 $24,522
Total Revenue 36,219 36,218 46,102 46,062 44,057 43,866
Total Operating
Expense -
w/ Int Exp 29,103 28,815 37,056 36,806 35,023 34,610
Net Income 6,332 6,620 8,076 8,286 8,018 8,240
EPS 0.10 0.10 0.12 0.12 0.12 0.12
Detail Reported Corrected Reported Corrected Reported Corrected
Q4 2003 Q4 2003 Q1 2004 Q1 2004 Q2 2004 Q2 2004
Refi Mortgage $6,663 $7,356 $7,856 $8,458 $7,888 $8,430
Interest Income
on Refi Mortgage 1,514 213 1,442 582 2,611 1,392
Diversified
Mortgage (1) 6,372 6,513 6,679 7,050 8,118 8,659
Interest Income
on Diversified
Mortgage 1,879 1,549 1,494 677 1,851 1,036
Home Equity 6,671 7,063 9,251 9,555 8,328 8,738
Interest Income on
Home Equity 1,697 988 1,473 480 1,654 944
Mortgage Interest
Expense 1,517 786 1,404 602 1,847 1,004
Home Equity
Interest Expense 876 510 868 283 763 435
Total Diversified
Revenue $19,497 $18,992 $22,726 $21,592 $24,151 $23,577
Total Revenue 27,674 26,561 32,024 30,631 34,651 33,399
Total Operating
Expense -
w/ Int Exp 29,228 28,132 33,159 31,772 34,391 33,220
Net Income 208 191 (1,120) (1,125) 270 189
EPS 0.00 0.00 (0.02) (0.02) 0.00 0.00
Purchase and Sale Agreement with Greenwich Capital
On June 17, 1999, the Company entered into a Mortgage Loan Purchase and Sale Agreement with Greenwich Capital Financial Products, Inc. ("Greenwich"). Under the terms of this agreement, mortgage and home equity loans that are allocated to a mandatory sell forward commitment between the Company and a loan purchaser, but have not yet been settled, may be sold to Greenwich Capital with the accompanying trade assignment. The Company accounts for these transfers as sales, in accordance with Statement of Financial Accounting Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" (FAS 140).
Conference Call and Webcast
Chris Larsen, Chairman and CEO of E-LOAN, will host a conference call to discuss the company's third quarter results today, November 4 at 7:30 a.m. (PST). Please dial 712-257-0021 at 7:25 a.m. (PST) and reference pass code "E-LOAN." A replay of the call will be available after 9:00 a.m. (PST) on November 4, 2004 until 11:59 p.m. (PST), November 11, 2004. The replay may be accessed by dialing 402-220-9119. A live webcast and replay of the conference call will be available via the investor relations section of the company's website at www.eloan.com.
This news release contains forward-looking statements based on current expectations that involve risks and uncertainties. E-LOAN's actual results may differ from the results described in the forward-looking statements. Factors that could cause actual results to differ include, but are not limited to, general conditions in the mortgage and auto industries, interest rate fluctuations, and the impact of competitive products. These and other risk factors are detailed in E-LOAN's periodic filings with the Securities and Exchange Commission.
About E-LOAN
E-LOAN is an online consumer direct lender dedicated to providing borrowers across the credit spectrum with a more enjoyable and affordable way to obtain mortgage, auto and home equity loans. By making credit scores freely available to consumers and integrating them with a suite of sophisticated advice tools, E-LOAN is pioneering the nascent debt management advice category -- helping consumers proactively manage their loan portfolios to lower their overall borrowing costs. The company relentlessly advocates eliminating the unnecessary processes, fees, hassle, haggle and lack of transparency traditionally associated with the consumer loan experience. Protecting consumers' financial privacy is a paramount concern, prompting E-LOAN to implement industry leading privacy practices and advocate strong consumer financial privacy protection laws. In June 2004, an independent study conducted by TRUSTe and The Ponemon Institute ranked E-LOAN as one of the top 20 most trusted companies for privacy in America. E-LOAN was the highest ranked online financial services company to make the top 20.
Consumers can log onto www.eloan.com or call 1-888-E-LOAN-22 to access E-LOAN's products, services and team of dedicated loan and debt advice professionals. E-LOAN is publicly traded on the Nasdaq National Market under the symbol EELN. From inception through September 2004, E-LOAN has originated and sold over $22.8 billion in consumer loans.
Press & Investor Contact:
Tiffany Fox
925/847-6314
tiffanyf@eloan.com
E-LOAN, Inc.
Statement of Operations
(in thousands, except per share amounts)
Three
Months
Three Months Ended Nine Months Ended Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30, June 30,
2004 2003 2004 2003 2004
Revenues $35,098 $43,866 $99,128 $126,146 $33,399
Operating Expenses
Operations 17,459 18,352 48,664 54,796 16,264
Sales &
marketing 12,105 11,890 35,744 31,815 12,506
Technology 2,271 2,205 6,528 6,559 2,091
General &
administration 2,528 2,162 8,419 7,060 2,359
Total
operating
expenses 34,363 34,609 99,355 100,230 33,220
Income from
operations 735 9,257 (227) 25,916 179
Other income, net 26 15 51 115 10
Income before taxes 761 9,272 (176) 26,031 189
Income taxes (51) (1,032) (51) (2,885) -
Net income/(loss) $710 $8,240 $(227) $23,146 $189
Net income/(loss) per share:
Income per share
Basic $0.01 $0.13 $(0.00) $0.38 $0.00
Diluted $0.01 $0.12 $(0.00) $0.35 $0.00
Weighted average shares
Basic 63,278 61,065 62,841 60,285 62,915
Diluted 65,458 67,142 62,841 65,972 65,784
E-LOAN, Inc.
Consolidated Balance Sheet
(in thousands)
September 30, December 31,
2004 2003
ASSETS
Current assets:
Cash and cash equivalents ($2,350
and $4,850 restricted cash) $46,110 $33,973
Loans held-for-sale 46,817 50,874
Accounts receivable, prepaids and
other current assets 24,494 28,990
Total current assets 117,421 113,837
Fixed assets, net 12,277 11,484
Retained interests in auto loans -
trading 13,852 11,658
Total assets $143,550 $136,979
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Warehouse and other lines payable $43,849 $44,283
Accounts payable, accrued
expenses and other liabilities 15,526 10,366
Total current liabilities 59,375 54,649
Total liabilities 59,375 54,649
Stockholders' equity:
Common stock 63 62
Additional paid-in-capital 267,215 265,144
Accumulated deficit (183,103) (182,876)
Total stockholders' equity 84,175 82,330
Total liabilities and
stockholders' equity $143,550 $136,979