Commission File Number | Exact Name of Registrant as Specified in its Charter, State or Other Jurisdiction of Incorporation, Address of Principal Executive Offices, Zip Code and Telephone Number (Including Area Code) | I.R.S. Employer Identification Number | ||
333-147019 333-179941-01 333-204880 | PROSPER MARKETPLACE, INC. a Delaware corporation 221 Main Street, 3rd Floor San Francisco, CA 94105 Telephone: (415)593-5400 | 73-1733867 | ||
333-179941 333-204880-01 | PROSPER FUNDING LLC a Delaware limited liability company 221 Main Street, 3rd Floor San Francisco, CA 94105 Telephone: (415)593-5479 | 45-4526070 |
Registrant | Title of Each Class | Name of Each Exchange on Which Registered | ||
Prosper Marketplace, Inc. | None | None | ||
Prosper Funding LLC | None | None |
Registrant | Title of Each Class | |||
Prosper Marketplace, Inc. | None | |||
Prosper Funding LLC | None |
Large Accelerated Filer | Accelerated Filer | Non-Accelerated Filer | Smaller Reporting Company | ||||
Prosper Marketplace, Inc. | ¨ | ¨ | ý | ¨ | |||
Prosper Funding LLC | ¨ | ¨ | ý | ¨ |
Registrant | Aggregate Market Value of Voting and Non-Voting Common Equity Held by Non-Affiliates of the Registrant at June 30, 2016 | Number of Shares of Common Stock of the Registrant Outstanding at March 5, 2018 | ||
Prosper Marketplace, Inc. | (a) | 70,313,915 ($.01 par value) | ||
Prosper Funding LLC | (a)(b) | None |
(a) | Not applicable. |
(b) | All voting and non-voting common equity is owned by Prosper Marketplace, Inc. |
ITEM | Page | |||
PART I | ||||
ITEM 1 | ||||
ITEM 1A | ||||
ITEM 1B | ||||
ITEM 2 | ||||
ITEM 3 | ||||
ITEM 4 | ||||
PART II | ||||
ITEM 5 | ||||
ITEM 6 | ||||
ITEM 7 | ||||
ITEM 7A | ||||
ITEM 8 | ||||
ITEM 9 | ||||
ITEM 9A | ||||
ITEM 9B | ||||
PART III | ||||
ITEM 10 | ||||
ITEM 11 | ||||
ITEM 12 | ||||
ITEM 13 | ||||
ITEM 14 | ||||
PART IV | ||||
ITEM 15 | ||||
Exhibit 31.1 | ||||
Exhibit 31.2 | ||||
Exhibit 32.1 | ||||
XBRL Content |
• | the performance of the Notes, which, in addition to being speculative investments, are special, limited obligations that are not guaranteed or insured; |
• | PFL’s ability to make payments on the Notes, including in the event that borrowers fail to make payments on the corresponding Borrower Loans; |
• | our ability to attract potential borrowers and investors to our marketplace; |
• | the reliability of the information about borrowers that is supplied by borrowers including actions by some borrowers to defraud investors; |
• | our ability to service the Borrower Loans, and our ability or the ability of a third party debt collector to pursue collection against any borrower, including in the event of fraud or identity theft; |
• | credit risks posed by the credit worthiness of borrowers and the effectiveness of our credit rating systems; |
• | potential efforts by state regulators or litigants to impose liability that could affect PFL’s (or any subsequent assignee’s) ability to continue to charge to borrowers the interest rates that they agreed to pay at origination of their loans; |
• | the impact of future economic conditions on the performance of the Notes and the loss rates for the Notes; |
• | our compliance with applicable local, state and federal law, including the Investment Advisers Act of 1940, the Investment Company Act of 1940 and other laws; |
• | our compliance with applicable regulations and regulatory developments or court decisions affecting our business; |
• | potential efforts by state regulators or litigants to characterize PFL or PMI, rather than WebBank, as the lender of the loans originated through our marketplace; |
• | the application of federal and state bankruptcy and insolvency laws to borrowers and to PFL and PMI; |
• | the impact of borrower delinquencies, defaults and prepayments on the returns on the Notes; |
• | the lack of a public trading market for the Notes and the current lack of any trading platform on which investors can resell the Notes; |
• | the federal income tax treatment of an investment in the Notes and the PMI Management Rights; |
• | our ability to prevent security breaches, disruptions in service, and comparable events that could compromise the personal and confidential information held on our data systems, reduce the attractiveness of the platform or adversely impact our ability to service Borrower Loans; and |
• | the other risks discussed under the “Risk Factors” section of this Annual Report on Form 10-K. |
Item 1. | Business |
• | Leading Online Marketplace: Since inception, our marketplace has facilitated $11.2 billion in loan originations, of which $2.9 billion was for the year-ended December 31, 2017. As our business grows, our brand, reputation and scale strengthens. This allows us to attract top talent, speed up product innovation, attract market place participants and drive down our cost structure, all of which further benefit borrowers and investors. |
• | Robust Network Effect: The attractiveness of our marketplace increases as the number of participants on our marketplace increases, yielding a classic network effect. Our marketplace offers consumer borrowers access to affordable credit, and allows individual and institutional investors to invest in an asset class with attractive risk-adjusted returns. The diversity of investors brings scale and breadth of funding to our marketplace and makes credit more affordable. As both sides of the equation grow, the advantages (reduced risk, lower cost) scale accordingly, attracting even more borrowers and investors. The increased participant pool reduces costs and generates more data which we use to improve the effectiveness of our credit decisioning and scoring models. This enhances our aggregate loan performance and builds increased trust in our marketplace, which in turn attracts more borrowers and investors. |
• | Technology Platform: Our technology platform automates key aspects of our operations, including the borrower application process, data gathering, underwriting, credit scoring, loan funding, investing and servicing, regulatory compliance and fraud detection. This provides a significant time and cost advantage over traditional consumer lending business models and, we believe, enables us to provide a superior user experience to our borrowers and investors. Using our accumulated performance data, we continually invest in incremental improvements in our algorithms thus extending our technological advantage. |
• | Proprietary Risk Management Capabilities: We have developed a proprietary risk model based on consumer loan performance data, which we believe allows us to accurately assess the credit risk profile of borrowers and which we believe also allows investors to earn attractive risk adjusted returns. We leverage the results from our growing data stream to continually refine this risk model and more accurately predict loan performance. |
• | Unique Corporate Structure: Our corporate structure was designed to offer our investors extra protection. The organization and operation of PFL and PMI as separate and distinct entities should serve to protect our Note investors in the event of a bankruptcy filing by or against PMI. This organizational structure, along with the federal and state registration process, is expensive and time consuming to undertake, and is not easily duplicated by competitors. |
• | Efficient and Attractive Financial Model: We have multiple revenue streams and an efficient cost model. We generate revenue from transaction fees from our marketplace’s role in matching borrowers with investors to enable loan originations, as well as from servicing fees related to Borrower Loans for which we retain the servicing rights. Additionally, our technology platform significantly reduces the need for physical infrastructure and therefore allows our business to grow with a lower cost operating model, providing us with significant operating leverage. |
Employees | ||
Origination and Servicing | 163 | |
Sales and Marketing | 13 | |
General and Administrative - Research and Development | 81 | |
General and Administrative – Other | 120 | |
Total Headcount | 377 |
Item 1A. | Risk Factors |
• | the federal Truth-in-Lending Act and Regulation Z promulgated thereunder, which require certain disclosures to borrowers regarding the terms of their loans; |
• | the federal Equal Credit Opportunity Act and Regulation B promulgated thereunder, which prohibit discrimination in the extension of credit on the basis of age, race, color, sex, religion, marital status, national origin, receipt of public assistance or the exercise of any right under the Consumer Credit Protection Act; |
• | the federal Fair Credit Reporting Act, which regulates the use, reporting and disclosure of information related to each applicant’s credit history; |
• | the federal Fair Debt Collection Practices Act, which regulates debt collection practices by “debt collectors” and prohibits debt collectors from engaging in certain practices in collecting, and attempting to collect, outstanding consumer loans; |
• | state counterparts to the above consumer protection laws; |
• | state and federal securities laws, which require that any non-exempt offers and sales of the Notes be registered; |
• | Section 5 of the Federal Trade Commission Act, which prohibits unfair and deceptive acts or practices in or affecting commerce, and Section 1031 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which prohibits unfair, deceptive or abusive acts or practices in connection with any consumer financial product or service; |
• | the federal Gramm-Leach-Bliley Act, which includes limitations on financial institutions’ disclosure of nonpublic personal information about a consumer to nonaffiliated third parties, in certain circumstances requires financial institutions to limit the use and further disclosure of nonpublic personal information by nonaffiliated third parties to whom they disclose such information and requires financial institutions to disclose certain privacy policies and practices with respect to information sharing with affiliated and nonaffiliated entities as well as to safeguard personal customer information, and other privacy laws and regulations; |
• | the Bankruptcy Code, which limits the extent to which creditors may seek to enforce debts against parties who have filed for bankruptcy protection; |
• | the federal Servicemembers Civil Relief Act, which allows military members to suspend or postpone certain civil obligations so that the military member can devote his or her full attention to military duties; |
• | the federal Military Lending Act, which provides specific protections for active duty service members and their dependents (or covered borrowers) in consumer credit transactions; |
• | the federal Electronic Fund Transfer Act and Regulation E promulgated thereunder, which provide disclosure requirements, guidelines and restrictions on the electronic transfer of funds from consumers’ bank accounts; |
• | the federal Electronic Signatures in Global and National Commerce Act and similar state laws, particularly the Uniform Electronic Transactions Act, which authorize the creation of legally binding and enforceable agreements utilizing electronic records and signatures; and |
• | the federal Bank Secrecy Act, which relates to compliance with anti-money laundering, customer due diligence and record-keeping policies and procedures. |
Item 1B. | Unresolved Staff Comments |
Item 2. | Properties |
Item 3. | Legal Proceedings |
Item 4. | Mine Safety Disclosures |
Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities |
Period | (a) Total Number of Shares Purchased | (b) Average Price Paid Per Share | (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | (d) Approximate Dollar Value of Shares that May Yet by Purchased Under the Plans or Programs | ||||||||||
October 1 to October 31 | — | $ | — | — | $ | — | ||||||||
November 1 to November 31 | — | — | — | — | ||||||||||
December 1 to December 31 | — | — | — | — | ||||||||||
Total | — | $ | — | — | $ | — |
Item 6. | Selected Financial Data |
Year Ended December 31, | |||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||
(dollar amounts in thousands, except per share information) | |||||||||||||||
Revenues | |||||||||||||||
Operating Revenues | |||||||||||||||
Transaction Fees, Net | $ | 130,174 | $ | 95,130 | $ | 161,708 | $ | 68,229 | $ | 15,330 | |||||
Servicing Fees, Net | 27,206 | 28,903 | 17,238 | 4,552 | 259 | ||||||||||
Gain (Loss) on Sale of Borrower Loans | 11,431 | 3,637 | 14,151 | 3,227 | (193 | ) | |||||||||
Fair Value of Warrants Vested on Sale of Borrower Loans | (60,122 | ) | — | — | — | — | |||||||||
Other Revenues | 4,806 | 5,245 | 7,687 | 1,828 | 1,130 | ||||||||||
Total Operating Revenues | 113,495 | 132,915 | 200,784 | 77,836 | 16,526 | ||||||||||
Interest Income | |||||||||||||||
Interest Income on Borrower Loans | 47,208 | 44,649 | 41,606 | 42,087 | 34,995 | ||||||||||
Interest Expense on Notes | (43,954 | ) | (41,187 | ) | (38,174 | ) | (38,734 | ) | (33,321 | ) | |||||
Net Interest Income | 3,254 | 3,462 | 3,432 | 3,353 | 1,674 | ||||||||||
Change in Fair Value of Borrower Loans, Loans Held for Sale and Notes, Net | (514 | ) | (372 | ) | 59 | 128 | 181 | ||||||||
Total Net Revenues | 116,235 | 136,005 | 204,275 | 81,317 | 18,381 | ||||||||||
Expenses | |||||||||||||||
Origination and Servicing | 34,881 | 33,944 | 31,139 | 14,098 | 6,384 | ||||||||||
Sales and Marketing | 83,462 | 70,146 | 112,284 | 41,971 | 16,731 | ||||||||||
General and Administrative | 75,686 | 102,735 | 86,480 | 27,917 | 22,273 | ||||||||||
Restructuring Charges | 1,340 | 17,027 | — | — | — | ||||||||||
Change in Fair Value of Convertible Preferred Stock Warrants | 29,140 | 7 | — | — | — | ||||||||||
Other Expenses, Net | 7,392 | 30,341 | — | — | — | ||||||||||
Total Expenses | 231,901 | 254,200 | 229,903 | 83,986 | 45,388 | ||||||||||
Net Loss Before Taxes | (115,666 | ) | (118,195 | ) | (25,628 | ) | (2,669 | ) | (27,007 | ) | |||||
Income Tax Expense | (508 | ) | 546 | 340 | — | ||||||||||
Net Loss | (115,158 | ) | (118,741 | ) | (25,968 | ) | (2,669 | ) | (27,007 | ) | |||||
Excess Return to Preferred Shareholders on Repurchase | — | — | — | (14,892 | ) | — | |||||||||
Net Loss Applicable to Common Shareholders | $ | (115,158 | ) | $ | (118,741 | ) | $ | (25,968 | ) | $ | (17,561 | ) | $ | (27,007 | ) |
Net Loss Per Share – Basic and Diluted | $ | (1.65 | ) | $ | (1.85 | ) | $ | (0.47 | ) | $ | (0.39 | ) | $ | (0.82 | ) |
Weighted-Average Shares - Basic and Diluted | 69,687,836 | 64,196.537 | 55,547,408 | 44,484,005 | 32,984,135 |
Year Ended December 31, | |||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||
Origination and Servicing | $ | 996 | $ | 2,004 | $ | 1,231 | $ | 104 | $ | 16 | |||||
Sales and Marketing | 553 | 2,914 | 2,561 | 767 | 24 | ||||||||||
General and Administrative | 10,689 | 14,824 | 9,219 | 1,150 | 182 | ||||||||||
Restructuring | — | 45 | — | — | — | ||||||||||
Total stock based compensation | $ | 12,238 | $ | 19,742 | $ | 13,011 | $ | 2,021 | $ | 222 |
As of December 31, | |||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||
Consolidated Balance Sheet Data: | |||||||||||||||
Cash and cash equivalents | $ | 45,795 | $ | 22,337 | $ | 66,295 | $ | 50,557 | $ | 18,339 | |||||
Restricted cash | 152,668 | 163,907 | 151,223 | 81,300 | 49,824 | ||||||||||
Available for sale investments, at fair value | 53,147 | 32,769 | 73,187 | — | — | ||||||||||
Borrower loans, at fair value | 293,005 | 315,627 | 297,273 | 273,243 | 233,105 | ||||||||||
Total assets | 623,735 | 623,846 | 685,624 | 440,158 | 310,259 | ||||||||||
Notes at fair value | 293,948 | 316,236 | 297,405 | 273,783 | 234,218 | ||||||||||
Total liabilities | 567,357 | 512,781 | 477,056 | 364,387 | 285,929 | ||||||||||
Total convertible preferred stock and stockholders' deficit | 56,378 | 111,065 | 208,568 | 75,771 | 24,330 |
Year Ended December 31, | |||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||
(dollar amounts in thousands, except per share information) | |||||||||||||||
Revenues | |||||||||||||||
Operating Revenues | |||||||||||||||
Administration Fee Revenue – Related Party | $ | 101,500 | $ | 36,630 | $ | 57,919 | $ | 28,519 | $ | 7,632 | |||||
Servicing Fees, Net | 25,963 | 28,604 | 16,218 | 4,168 | 372 | ||||||||||
Gain on Sale of Borrower Loans | (48,691 | ) | 3,637 | 14,151 | — | — | |||||||||
Other Revenues | 170 | 478 | 1,500 | 3,733 | 233 | ||||||||||
Total Operating Revenues | 78,942 | 69,349 | 89,788 | 36,420 | 8,237 | ||||||||||
Interest Income on Borrower Loans | 47,208 | 44,649 | 41,380 | 42,370 | 32,605 | ||||||||||
Interest Expense on Notes | (43,954 | ) | (41,187 | ) | (38,174 | ) | (38,734 | ) | (30,756 | ) | |||||
Net Interest Income | 3,254 | 3,462 | 3,206 | 3,636 | 1,849 | ||||||||||
Change in Fair Value on Borrower Loans, Loans Held for Sale and Notes, Net | (514 | ) | (372 | ) | 59 | 209 | 849 | ||||||||
Total Net Revenues | 81,682 | 72,439 | 93,053 | 40,265 | 10,935 | ||||||||||
Expenses | |||||||||||||||
Administration Fee – Related Party | 70,359 | 62,203 | 62,786 | 24,966 | 6,331 | ||||||||||
Servicing | 6,103 | 5,395 | 3,705 | 1,509 | 744 | ||||||||||
General and Administrative | 379 | 1,321 | 1,227 | 506 | 267 | ||||||||||
Other Expenses, Net | — | 30,704 | — | — | — | ||||||||||
Total Expenses | 76,841 | 99,623 | 67,718 | 26,981 | 7,342 | ||||||||||
Total Net Income (Loss) | $ | 4,841 | $ | (27,184 | ) | $ | 25,335 | $ | 13,284 | $ | 3,593 |
As of December 31, | ||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||
Consolidated Balance Sheet Data: | ||||||||||
Cash and cash equivalents | 8,223 | 6,929 | 15,026 | 23,777 | 5,789 | |||||
Restricted cash | 140,092 | 147,983 | 139,937 | 73,103 | 46,650 | |||||
Borrower Loans Receivable at Fair Value | 293,005 | 315,627 | 297,273 | 273,243 | 233,105 | |||||
Total assets | 464,045 | 495,185 | 475,691 | 385,240 | 292,074 | |||||
Notes at fair value | 293,948 | 316,236 | 297,405 | 273,783 | 234,218 | |||||
Total liabilities | 433,679 | 463,860 | 439,386 | 338,949 | 272,850 |
Item 7. |
Year Ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
Loan Originations | $ | 2,876,055 | $ | 2,187,600 | $ | 3,722,887 | |||||
Transaction Fees, Net | 130,174 | 95,130 | 161,708 | ||||||||
Whole Loans Outstanding (1) | 3,717,825 | 3,543,522 | 3,804,268 | ||||||||
Servicing Fees, Net | 27,206 | 28,903 | 17,238 | ||||||||
Net Loss | (115,158 | ) | (118,741 | ) | (25,968 | ) | |||||
Adjusted EBITDA (2) | 5,460 | (37,991 | ) | (5,145 | ) | ||||||
Net Cash Provided by (Used in) Operating Activities | 1,081 | (62,667 | ) | 5,444 |
Year Ended December 31, | |||||||||||||||||||||
2017 | 2016 | % Change | 2016 | 2015 | % Change | ||||||||||||||||
Total Net Revenues | $ | 116,235 | $ | 136,005 | (15 | )% | $ | 136,005 | $ | 204,275 | (33 | )% | |||||||||
Total Expenses | 231,901 | 254,200 | (9 | )% | 254,200 | 229,903 | 11 | % | |||||||||||||
Net Loss Before Taxes | (115,666 | ) | (118,195 | ) | (2 | )% | (118,195 | ) | (25,628 | ) | 361 | % | |||||||||
Income Tax Expense | (508 | ) | 546 | (193 | )% | 546 | 340 | 100 | % | ||||||||||||
Net Loss | $ | (115,158 | ) | $ | (118,741 | ) | (3 | )% | $ | (118,741 | ) | (25,968 | ) | 357 | % |
Year Ended December 31, | ||||||||||||||||||||
2017 | 2016 | 2015 | ||||||||||||||||||
Amount | % | Amount | % | Amount | % | |||||||||||||||
AA | $ | 197 | 7 | % | $ | 240 | 11 | % | $ | 327 | 9 | % | ||||||||
A | 365 | 13 | % | 459 | 21 | % | 815 | 22 | % | |||||||||||
B | 641 | 22 | % | 528 | 24 | % | 988 | 27 | % | |||||||||||
C | 872 | 30 | % | 575 | 26 | % | 988 | 27 | % | |||||||||||
D | 501 | 17 | % | 259 | 12 | % | 421 | 11 | % | |||||||||||
E | 236 | 8 | % | 96 | 4 | % | 149 | 4 | % | |||||||||||
HR | 64 | 2 | % | 31 | 1 | % | 36 | 1 | % | |||||||||||
Total | $ | 2,876 | $ | 2,188 | $ | 3,724 |
Year Ended December 31, | ||||||||||||||||||||
2017 | 2016 | % Change | 2016 | 2015 | % Change | |||||||||||||||
Operating Revenues | ||||||||||||||||||||
Transaction Fees, Net | $ | 130,174 | $ | 95,130 | 37 | % | $ | 95,130 | 161,708 | (41 | )% | |||||||||
Servicing Fees, Net | 27,206 | 28,903 | (6 | )% | 28,903 | 17,238 | 68 | % | ||||||||||||
Gain on Sale of Borrower Loans | 11,431 | 3,637 | 214 | % | 3,637 | 14,151 | (74 | )% | ||||||||||||
Fair Value of Warrants Vested on Sale of Borrower Loans | (60,122 | ) | — | 100 | % | — | — | — | % | |||||||||||
Other Revenues | 4,806 | 5,245 | (8 | )% | 5,245 | 7,687 | (32 | )% | ||||||||||||
Total Operating Revenues | 113,495 | 132,915 | (15 | )% | 132,915 | 200,784 | (34 | )% | ||||||||||||
Interest Income | ||||||||||||||||||||
Interest Income on Borrower Loans | 47,208 | 44,649 | 6 | % | 44,649 | 41,606 | 7 | % | ||||||||||||
Interest Expense on Notes | (43,954 | ) | (41,187 | ) | 7 | % | (41,187 | ) | (38,174 | ) | 8 | % | ||||||||
Net Interest Income | 3,254 | 3,462 | (6 | )% | 3,462 | 3,432 | 1 | % | ||||||||||||
Change in Fair Value of Borrower Loans, Loans Held for Sale and Notes, Net | (514 | ) | (372 | ) | 38 | % | (372 | ) | 59 | (731 | )% | |||||||||
Total Net Revenues | 116,235 | 136,005 | (15 | )% | 136,005 | 204,275 | (33 | )% |
Year ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
Borrower Loans | $ | (25,552 | ) | $ | (25,934 | ) | $ | (21,594 | ) | ||
Loans Held for Sale | 7 | (7 | ) | (121 | ) | ||||||
Notes | 25,031 | 25,569 | 21,774 | ||||||||
Total | $ | (514 | ) | $ | (372 | ) | $ | 59 |
Year ended December 31, | |||||||||||||||||||
2017 | 2016 | % Change | 2016 | 2015 | % Change | ||||||||||||||
Expenses | |||||||||||||||||||
Origination and Servicing | $ | 34,881 | $ | 33,944 | 3 | % | 33,944 | 31,139 | 9 | % | |||||||||
Sales and Marketing | 83,462 | 70,146 | 19 | % | 70,146 | 112,284 | (38 | )% | |||||||||||
General and Administrative - Research and Development | 16,383 | 26,214 | (38 | )% | 26,214 | 18,014 | 46 | % | |||||||||||
General and Administrative - Other | 59,303 | 76,521 | (23 | )% | 76,521 | 68,466 | 12 | % | |||||||||||
Change in Fair Value of Convertible Preferred Stock Warrants | 29,140 | 7 | 100 | % | 7 | — | 100 | % | |||||||||||
Restructuring Charges | 1,340 | 17,027 | (92 | )% | 17,027 | — | 100 | % | |||||||||||
Other Expenses | 7,392 | 30,341 | (76 | )% | 30,341 | — | 100 | % | |||||||||||
Total Expenses | $ | 231,901 | $ | 254,200 | (9 | )% | 254,200 | 229,903 | 11 | % |
December 31, | ||||||||
2017 | 2016 | 2015 | ||||||
Origination and Servicing | 163 | 151 | 221 | |||||
Sales and Marketing | 13 | 28 | 115 | |||||
General and Administrative - Research and Development | 81 | 78 | 133 | |||||
General and Administrative - Other | 120 | 98 | 150 | |||||
Total Headcount | 377 | 355 | 619 |
• | although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements; |
• | Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; |
• | Adjusted EBITDA does not consider the potentially dilutive impact of equity-based charges; |
• | Adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us; and |
• | other companies, including companies in our industry, may calculate Adjusted EBITDA differently, which reduces its usefulness as a comparative measure. |
• | Fair value of warrants vested on the sale of borrower loans and change in the fair value of convertible preferred stock warrants liability. We exclude these charges primarily because they are non-cash charges and the fair value varies based |
• | Stock-based compensation expense. This consists of expenses for equity awards under our equity incentive plans. Although stock-based compensation is an important aspect of the compensation paid to our employees, the grant date fair value varies based on the stock price at the time of grant, varying valuation methodologies, subjective assumptions and the variety of award types. This makes the comparison of our current financial results to previous and future periods difficult to evaluate; therefore, we believe it is useful to exclude stock-based compensation. We also excluded these expenses because they are non-cash. |
• | Amortization or impairment of acquired intangible assets and impairment of goodwill. We incur amortization or impairment of acquired intangible assets and goodwill in connection with acquisitions and therefore exclude these amounts from our non-GAAP measures. We exclude these items because management does not believe they are reflective of our ongoing operating results. |
• | Restructuring charges - We have incurred restructuring charges that are included in our GAAP financial statements, related to workforce reductions and estimated costs of exiting facility lease commitments due to our May 2016 restructuring. We exclude these items from our non-GAAP financial measures when evaluating our continuing business performance as such items do not reflect expected future operating expenses. In addition, these charges do not necessarily provide meaningful insight into the fundamentals of current or historical operations of our business. |
• | Contract termination charges - We have incurred contract termination charges that are included in our GAAP financial statements, related to a material contract termination. We exclude this item from our non-GAAP financial measures when evaluating our continuing business performance as such items do not reflect expected future operating expenses. In addition, these charges do not necessarily provide meaningful insight into the fundamentals of current or historical operations of our business. |
Year Ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
Net Loss | $ | (115,158 | ) | $ | (118,741 | ) | $ | (25,968 | ) | ||
Fair Value of Warrants Vested on Sale of Borrower Loans | 60,122 | — | — | ||||||||
Depreciation expense: | |||||||||||
Servicing and Origination | 5,853 | 4,083 | 3,161 | ||||||||
General & Administration - Other | 5,110 | 5,298 | 2,919 | ||||||||
Amortization of Intangibles | 1,385 | 3,838 | 1,569 | ||||||||
Impairment of Intangibles | 6,399 | — | — | ||||||||
Stock-based Compensation | 12,238 | 19,787 | 13,011 | ||||||||
Restructuring Charges | 1,340 | 17,027 | — | ||||||||
Change in the Fair Value of Warrants | 29,140 | 7 | — | ||||||||
Interest Income on Available for Sale Securities, Cash and Cash Equivalents | (461 | ) | (547 | ) | (177 | ) | |||||
Contract Termination | — | 30,711 | — | ||||||||
Income Tax Expense | (508 | ) | 546 | 340 | |||||||
Adjusted EBITDA | $ | 5,460 | $ | (37,991 | ) | $ | (5,145 | ) |
Year Ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
Origination and servicing | $ | 996 | $ | 2,004 | $ | 1,231 | |||||
Sales and marketing | 553 | 2,914 | 2,561 | ||||||||
General and administrative | 10,689 | 14,824 | 9,219 | ||||||||
Restructuring | — | 45 | — | ||||||||
Total stock based compensation | $ | 12,238 | $ | 19,787 | $ | 13,011 |
Quarters Ended | December 31, 2017 | September 30, 2017 | June 30, 2017 | March 31, 2017 | ||||||||
Revenues | ||||||||||||
Operating Revenues | ||||||||||||
Transaction Fees, Net | $ | 30,632 | $ | 37,250 | $ | 35,423 | $ | 26,869 | ||||
Servicing Fees, Net | 7,284 | 6,976 | 6,793 | 6,154 | ||||||||
Gain (Loss) on Sale of Borrower Loans | 3,574 | 4,373 | 3,803 | (318 | ) | |||||||
Fair Value of Warrants Vested on Sale of Borrower Loans | (18,157 | ) | (21,772 | ) | (16,887 | ) | (3,307 | ) | ||||
Other Revenues | 1,280 | 1,390 | 1,415 | 720 | ||||||||
Total Operating Revenues | 24,613 | 28,217 | 30,547 | 30,118 | ||||||||
Interest Income | ||||||||||||
Interest Income on Borrower Loans | 11,636 | 12,065 | 12,007 | 11,499 | ||||||||
Interest Expense on Notes | (10,851 | ) | (11,247 | ) | (11,177 | ) | (10,678 | ) | ||||
Net Interest Income | 785 | 818 | 830 | 821 | ||||||||
Change in Fair Value of Borrower Loans, Loans Held for Sale and Notes, Net | (317 | ) | (173 | ) | 70 | (94 | ) | |||||
Total Net Revenues | 25,081 | 28,862 | 31,447 | 30,845 | ||||||||
Expenses | ||||||||||||
Origination and Servicing | 8,341 | 9,263 | 8,873 | 8,404 | ||||||||
Sales and Marketing | 21,829 | 21,947 | 20,131 | 19,555 | ||||||||
General and Administrative | 18,088 | 18,123 | 18,758 | 20,717 | ||||||||
Restructuring Charges, Net | 682 | 86 | 647 | (75 | ) | |||||||
Change in Fair Value of Convertible Preferred Stock Warrants | — | 6,323 | 22,416 | 401 | ||||||||
Other Expenses, Net | (213 | ) | (25 | ) | 1,930 | 5,700 | ||||||
Total Expenses | 48,727 | 55,717 | 72,755 | 54,702 | ||||||||
Net Loss Before Taxes | (23,646 | ) | (26,855 | ) | (41,308 | ) | (23,857 | ) | ||||
Income Tax Expense | (854 | ) | 85 | 97 | 164 | |||||||
Net Loss Applicable to Common Shareholders | $ | (22,792 | ) | $ | (26,940 | ) | $ | (41,405 | ) | $ | (24,021 | ) |
Net Loss Per Share – Basic and Diluted | $ | (0.33 | ) | $ | (0.39 | ) | $ | (0.59 | ) | $ | (0.35 | ) |
Weighted-Average Shares - Basic and Diluted | 70,058,880 | 69,811,534 | 69,691,841 | 69,178,049 |
Quarters Ended | December 31, 2016 | September 30, 2016 | June 30, 2016 | March 31, 2016 | ||||||||
Revenues | ||||||||||||
Operating Revenues | ||||||||||||
Transaction Fees, Net | $ | 19,944 | $ | 14,086 | $ | 19,276 | $ | 41,824 | ||||
Servicing Fees, Net | 7,004 | 7,079 | 7,676 | 7,144 | ||||||||
Gain on Sale of Borrower Loans | (228 | ) | 761 | (687 | ) | 3,791 | ||||||
Other Revenues | 683 | 973 | 816 | 2,773 | ||||||||
Total Operating Revenues | 27,403 | 22,899 | 27,081 | 55,532 | ||||||||
Interest Income | ||||||||||||
Interest Income on Borrower Loans | 10,939 | 11,735 | 11,192 | 10,783 | ||||||||
Interest Expense on Notes | (10,731 | ) | (10,636 | ) | (10,098 | ) | (9,722 | ) | ||||
Net Interest Income | 208 | 1,099 | 1,094 | 1,061 | ||||||||
Change in Fair Value of Borrower Loans, Loans Held for Sale and Notes, Net | (245 | ) | (47 | ) | (2 | ) | (78 | ) | ||||
Total Net Revenues | 27,366 | 23,951 | 28,173 | 56,515 | ||||||||
Expenses | ||||||||||||
Origination and Servicing | 7,029 | 7,633 | 8,833 | 10,449 | ||||||||
Sales and Marketing | 15,732 | 9,391 | 12,303 | 32,720 | ||||||||
General and Administrative | 18,851 | 24,740 | 28,499 | 30,645 | ||||||||
Restructuring Charges, Net | 3,436 | (470 | ) | 14,061 | — | |||||||
Other Expenses, Net | 30,348 | — | — | — | ||||||||
Total Expenses | 75,396 | 41,294 | 63,696 | 73,814 | ||||||||
Net Loss Before Taxes | (48,030 | ) | (17,343 | ) | (35,523 | ) | (17,299 | ) | ||||
Income Tax Expense | 202 | 74 | 105 | 165 | ||||||||
Net Loss Applicable to Common Shareholders | $ | (48,232 | ) | $ | (17,417 | ) | $ | (35,628 | ) | $ | (17,464 | ) |
Net Loss Per Share – Basic and Diluted | $ | (0.71 | ) | $ | (0.27 | ) | $ | (0.56 | ) | $ | (0.29 | ) |
Weighted-Average Shares - Basic and Diluted | 67,713,630 | 65,393,175 | 63,270,058 | 60,357,488 |
For the Year Ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
Net Loss | $ | (115,158 | ) | $ | (118,741 | ) | $ | (25,968 | ) | ||
Net cash provided by (used in) operating activities | 1,081 | (62,667 | ) | 5,444 | |||||||
Net cash used in investing activities | (28,085 | ) | (21,542 | ) | (174,213 | ) | |||||
Net cash provided by financing activities | 50,462 | 40,251 | 184,507 | ||||||||
Net Increase (decrease) in cash and cash equivalents | 23,458 | (43,958 | ) | 15,738 | |||||||
Cash and cash equivalents at the beginning of the period | 22,337 | 66,295 | 50,557 | ||||||||
Cash and cash equivalents at the end of the period | $ | 45,795 | $ | 22,337 | $ | 66,295 |
Payments Due by Period | |||||||||||||||
Total | Less Than 1 Year | 1 - 3 Years | 3 - 5 Years | More Than 5 Years | |||||||||||
Operating lease obligations, net of minimum sublease rentals | $ | 31,580 | $ | 4,529 | $ | 10,580 | $ | 10,869 | $ | 5,602 | |||||
WebBank purchase obligations | 29,322 | 29,322 | — | — | — | ||||||||||
Total contractual obligations | $ | 60,902 | $ | 33,851 | $ | 10,580 | $ | 10,869 | $ | 5,602 |
• | the time and expenses that would be necessary to recreate the asset; |
• | the profit margin a market participant would receive; |
• | cash flows that an asset is expected to generate in the future; and |
• | discount rates. |
Year Ended December 31, | |||||||||||||||||||
2017 | 2016 | % Change | 2016 | 2015 | % Change | ||||||||||||||
Total Net Revenue | $ | 81,682 | $ | 72,439 | 13 | % | 72,439 | 93,053 | (22 | )% | |||||||||
Total Expenses | 76,841 | 99,623 | (23 | )% | 99,623 | 67,718 | 47 | % | |||||||||||
Net Income (Loss) | $ | 4,841 | $ | (27,184 | ) | (118 | )% | (27,184 | ) | 25,335 | (207 | )% |
Year ended December 31, | ||||||||||||||||||||
2017 | 2016 | % Change | 2016 | 2015 | % Change | |||||||||||||||
Revenues | ||||||||||||||||||||
Operating Revenues | ||||||||||||||||||||
Administration Fee Revenue - Related Party | $ | 101,500 | $ | 36,630 | 177 | % | $ | 36,630 | 57,919 | (37 | )% | |||||||||
Servicing Fees, Net | 25,963 | 28,604 | (9 | )% | $ | 28,604 | 16,218 | 76 | % | |||||||||||
Gain on Sale of Borrower Loans | (48,691 | ) | 3,637 | (1,439 | )% | $ | 3,637 | 14,151 | (74 | )% | ||||||||||
Other Revenues | 170 | 478 | (64 | )% | $ | 478 | 1,500 | (68 | )% | |||||||||||
Total Operating Revenues | 78,942 | 69,349 | 14 | % | $ | 69,349 | 89,788 | (23 | )% | |||||||||||
Interest Income on Borrower Loans | $ | 47,208 | $ | 44,649 | 6 | % | $ | 44,649 | 41,380 | 8 | % | |||||||||
Interest Expense on Notes | $ | (43,954 | ) | $ | (41,187 | ) | 7 | % | $ | (41,187 | ) | (38,174 | ) | 8 | % | |||||
Net Interest Income | 3,254 | 3,462 | (6 | )% | $ | 3,462 | 3,206 | 8 | % | |||||||||||
Change in Fair Value on Borrower Loans, Loans Held for Sale and Notes, Net | (514 | ) | (372 | ) | 38 | % | $ | (372 | ) | 59 | (731 | )% | ||||||||
Total Revenues | $ | 81,682 | $ | 72,439 | 13 | % | $ | 72,439 | 93,053 | (22 | )% |
Year ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
Borrower Loans | $ | (25,552 | ) | $ | (25,934 | ) | $ | (21,594 | ) | ||
Notes | 25,031 | 25,569 | 21,774 | ||||||||
Loans Held for Sale | 7 | (7 | ) | (121 | ) | ||||||
Total | $ | (514 | ) | $ | (372 | ) | $ | 59 |
Year ended December 31, | |||||||||||||||||||||
2017 | 2016 | % Change | 2016 | 2015 | % Change | ||||||||||||||||
Expenses | |||||||||||||||||||||
Administration Fee Expense – Related Party | $ | 70,359 | $ | 62,203 | 13 | % | $ | 62,203 | $ | 62,786 | (1 | )% | |||||||||
Servicing | 6,103 | 5,395 | 13 | % | 5,395 | 3,705 | 46 | % | |||||||||||||
General and Administrative | 379 | 1,321 | (71 | )% | 1,321 | 1,227 | 8 | % | |||||||||||||
Other | — | 30,704 | (100 | )% | 30,704 | — | 100 | % | |||||||||||||
Total Expenses | $ | 76,841 | $ | 99,623 | (23 | )% | $ | 99,623 | $ | 67,718 | 47 | % |
Quarters Ended | December 31, 2017 | September 30, 2017 | June 30, 2017 | March 31, 2017 | ||||
Revenues | ||||||||
Operating Revenues | ||||||||
Administration Fee Revenue – Related Party | 26,840 | 32,198 | 27,309 | 15,153 | ||||
Servicing Fees, Net | 6,937 | 6,626 | 6,520 | 5,879 | ||||
Gain (Loss) on Sale of Borrower Loans | (14,583 | ) | (17,399 | ) | (13,084 | ) | (3,625 | ) |
Other Revenues | 60 | 45 | 34 | 32 | ||||
Total Operating Revenues | 19,254 | 21,470 | 20,779 | 17,439 | ||||
Interest Income on Borrower Loans | 11,637 | 12,066 | 12,007 | 11,499 | ||||
Interest Expense on Notes | (10,853 | ) | (11,247 | ) | (11,177 | ) | (10,678 | ) |
Net Interest Income | 784 | 819 | 830 | 821 | ||||
Change in Fair Value on Borrower Loans, Loans Held for Sale and Notes, Net | (317 | ) | (173 | ) | 70 | (94 | ) | |
Total Net Revenues | 19,721 | 22,116 | 21,679 | 18,166 | ||||
Expenses | ||||||||
Administration Fee – Related Party | 17,000 | 19,078 | 18,466 | 15,815 | ||||
Servicing | 1,296 | 1,553 | 1,524 | 1,730 | ||||
General and Administrative | (125 | ) | 186 | 145 | 173 | |||
Total Expenses | 18,171 | 20,817 | 20,135 | 17,718 | ||||
Total Net Income | 1,550 | 1,299 | 1,544 | 448 |
Quarters Ended | December 31, 2016 | September 30, 2016 | June 30, 2016 | March 31, 2016 | ||||
Revenues | ||||||||
Operating Revenues | ||||||||
Administration Fee Revenue – Related Party | 8,753 | 5,530 | 6,930 | 15,417 | ||||
Servicing Fees, Net | 6,955 | 7,026 | 7,589 | 7,034 | ||||
Gain on Sale of Borrower Loans | (228 | ) | 761 | (687 | ) | 3,791 | ||
Other Revenues | 30 | 30 | 26 | 392 | ||||
Total Operating Revenues | 15,510 | 13,347 | 13,858 | 26,634 | ||||
Interest Income on Borrower Loans | 11,588 | 11,566 | 10,988 | 10,507 | ||||
Interest Expense on Notes | (10,731 | ) | (10,636 | ) | (10,098 | ) | (9,722 | ) |
Net Interest Income | 857 | 930 | 890 | 785 | ||||
Change in Fair Value on Borrower Loans, Loans Held for Sale and Notes, Net | (245 | ) | (47 | ) | (2 | ) | (78 | ) |
Total Net Revenues | 16,122 | 14,230 | 14,746 | 27,341 | ||||
Expenses | ||||||||
Administration Fee – Related Party | 13,701 | 12,243 | 15,652 | 20,607 | ||||
Servicing | 1,258 | 1,374 | 1,536 | 1,227 | ||||
General and Administrative | 245 | 342 | 380 | 357 | ||||
Other | 30,701 | |||||||
Total Expenses | 45,905 | 13,959 | 17,568 | 22,191 | ||||
Total Net Income | (29,783 | ) | 271 | (2,822 | ) | 5,150 |
December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
Net Income | $ | 4,841 | $ | (27,184 | ) | $ | 25,335 | ||||
Net cash provided in operating activities | 14,508 | 8,836 | 34,174 | ||||||||
Net cash used in investing activities | (9,977 | ) | (52,242 | ) | (52,815 | ) | |||||
Net cash (used in) provided by financing activities | (3,237 | ) | 35,309 | 9,890 | |||||||
Net increase (decrease) in cash and cash equivalents | 1,294 | (8,097 | ) | (8,751 | ) | ||||||
Cash and cash equivalents at the beginning of the period | 6,929 | 15,026 | 23,777 | ||||||||
Cash and cash equivalents at the end of the period | $ | 8,223 | $ | 6,929 | $ | 15,026 |
Item 7A. | Quantitative and Qualitative Disclosures about Market Risk |
Item 8. | Financial Statements and Supplementary Data |
Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
Item 9A. | Controls and Procedures |
Item 9B. | Other Information |
Item 10. | Directors, Executive Officers, and Corporate Governance |
Name | Age | Position(s) | ||
David Kimball | 47 | Chief Executive Officer and Director | ||
Usama Ashraf | 41 | Chief Financial Officer | ||
Brad Pennington | 36 | Chief Risk Officer | ||
Kunal Kaul | 41 | Executive Vice President, Operations | ||
Sachin D. Adarkar | 51 | General Counsel and Secretary | ||
Nasos Topakas | 53 | Chief Technology Officer | ||
Rajeev V. Date | 46 | Director | ||
Patrick W. Grady | 35 | Director | ||
David R. Golob | 50 | Director | ||
Claire A. Huang | 55 | Director | ||
Nigel W. Morris | 59 | Director | ||
Mason D. Haupt | 62 | Director |
• | any breach of the director’s duty of loyalty to PMI or PMI’s stockholders; |
• | any act or omission not in good faith, believed to be contrary to the interests of PMI or its shareholders, involving reckless disregard for the director’s duty, for acts that involve an unexcused pattern of inattention that amounts to an abdication of duty, or that involves intentional misconduct or knowing or culpable violation of law; |
• | any unlawful payments related to dividends, unlawful stock repurchases, redemptions, loans, guarantees or other distributions; or |
• | any transaction from which the director derived an improper personal benefit. |
• | PMI will indemnify its directors and officers to the fullest extent permitted by law; |
• | PMI may indemnify its other employees and other agents to the same extent that PMI indemnifies its officers and directors; and |
• | PMI will advance expenses to its directors and officers in connection with a legal proceeding, and may advance expenses to any employee or agent; provided, however, that such advancement of expenses shall be made only upon receipt of an undertaking by the person to repay all amounts advanced if it should be ultimately determined that the person was not entitled to be indemnified. |
Item 11. | Executive Compensation |
• | David Kimball, our Chief Executive Officer, and our Chief Financial Officer until February 27, 2017; |
• | Usama Ashraf, our Chief Financial Officer as of February 27, 2017; |
• | Brad Pennington, our Chief Risk Officer; |
• | Kunal Kaul, our Executive Vice President, Operations; and |
• | Nasos Topakas, our Chief Technology Officer as of April 17, 2017. |
• | attract, retain and motivate senior management leaders who are capable of advancing PMI's mission and strategy and ultimately, creating and maintaining its long-term equity value; |
• | reward executive officers for their contributions to PMI's overall performance as well as for their individual performance. |
Name | 2017 Base Salary | |||
David Kimball (1) | $ | 500,000 | ||
Usama Ashraf (2) | $ | 350,000 | ||
Brad Pennington (3) | $ | 350,000 | ||
Kunal Kaul (4) | $ | 315,000 | ||
Nasos Topakas (5) | $ | 350,000 |
(1) | In early 2017, PMI’s Compensation Committee reviewed executive base salaries and decided to keep Mr. Kimball’s annual base salary at $500,000, the same level as the previous year. |
(2) | In February of 2017, PMI hired Mr. Ashraf as its new Chief Financial Officer, with an annual base salary of $350,000. |
(3) | In early 2017, PMI’s Compensation Committee reviewed executive base salaries and decided to keep Mr. Pennington's annual base salary at $350,000, the same level as the previous year. |
(4) | Mr. Kaul’s annual base salary was increased from $300,000 to $315,000 in March of 2017. |
(5) | In April of 2017, PMI hired Mr. Topakas as its new Chief Technology Officer, with an annual base salary of $350,000. |
Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($)(1) | Option Awards ($)(1) | All Other Compensation ($)(2) | Totals ($) | |||||||||||||||||||
David Kimball (3) | 2017 | $ | 500 | $ | 542 | $ | — | $ | 2,572 | $ | 14 | $ | 3,628 | |||||||||||||
Chief Executive Officer and | 2016 | 305 | 383 | 1,510 | 3,351 | 31 | 5,580 | |||||||||||||||||||
former Chief Financial Officer | ||||||||||||||||||||||||||
Usama Ashraf (4) | 2017 | 294 | 283 | — | 472 | 64 | 1,113 | |||||||||||||||||||
Chief Financial Officer | ||||||||||||||||||||||||||
Brad Pennington | 2017 | 350 | 263 | — | 291 | 14 | 918 | |||||||||||||||||||
Chief Risk Officer | 2016 | 316 | 263 | — | 2,572 | 11 | 3,162 | |||||||||||||||||||
Kunal Kaul (5) | 2017 | 313 | 236 | — | 119 | 12 | 680 | |||||||||||||||||||
Executive Vice President, | 2016 | 300 | 225 | 268 | 1,185 | 31 | 2,009 | |||||||||||||||||||
Operations | ||||||||||||||||||||||||||
Nasos Topakas (6) | 2017 | 248 | 197 | — | 943 | 8 | 1,396 | |||||||||||||||||||
Chief Technology Officer |
(1) | The amounts reported represent the grant date fair value of the restricted stock units and stock options granted to the named executive officers as calculated in accordance with the Financial Accounting Board’s Topic ASC 718, Compensation –Stock Compensation (“ASC 718”) using a Black-Scholes model to purchase shares of PMI’s common stock. The key assumptions used in PMI’s ASC 718 calculation are discussed in Note 2 of PMI’s consolidated financial statements, which are incorporated by reference into this Annual Report. |
(2) | “All Other Compensation” consists of compensation received from employer matching contributions to PMI’s 401(k) plan and relocation reimbursement paid by PMI for each named executive officer. |
(3) | Mr. Kimball joined PMI in March 2016 as its Chief Financial Officer. He was appointed PMI's Chief Executive Officer in December 2016. Mr. Kimball's Total Compensation for 2016 includes relocation expenses of $31,141 and a sign-on bonus of $125,000. |
(4) | Mr. Ashraf joined PMI in February 2017 as its Chief Financial Officer. Mr. Ashraf's total compensation for 2017 includes relocation expenses of $50,052 and a signing bonus of $20,000. |
(5) | Mr. Kaul's Total Compensation for 2016 includes relocation expenses of $20,583. |
(6) | Mr. Topakas joined PMI in April 2017 as its Chief Technology Officer. |
Name | Grant Date (2) | All Other Option Awards: Number of Securities Underlying Options (#) | Exercise or Base Price of Option Awards ($/Sh) | Grant Date Fair Value of Stock and Option Awards ($)(3) | ||||||||||||
David Kimball | 3/17/17 | 21,156,579 | $ | 0.22 | $ | 2,245 | ||||||||||
3,526,628 | (4) | 0.22 | 326 | (5) | ||||||||||||
Usama Ashraf | 3/17/17 | 3,397,242 | 0.22 | 372 | ||||||||||||
11/7/17 | 402,848 | 0.53 | 100 | |||||||||||||
Brad Pennington | 3,226,649 | (4) | 0.22 | 291 | (5) | |||||||||||
Kunal Kaul | 1,293,916 | (4) | 0.22 | 119 | (5) | |||||||||||
Nasos Topakas | 11/7/17 | 3,800,000 | 0.53 | 943 |
(1) | The following columns are intentionally omitted from this table: Estimated Future Payouts under Non-Equity Incentive Plan Awards, and Estimated Future Payouts under Equity Incentive Plan Awards. |
(2) | The equity awards granted to the NEOs in 2017 were granted under, and governed by the terms of, PMI's 2015 Incentive Plan and the applicable award agreements. See the footnotes to the Outstanding Equity Awards at 2017 Fiscal Year-End table below for a description of the vesting schedule of the equity awards granted in 2017 and reported in the Table above. |
(3) | The amounts reported represent the grant date fair value of the restricted stock units and stock options granted to the named executive officers as calculated in accordance with the Financial Accounting Board’s Topic ASC 718, Compensation –Stock Compensation (“ASC 718”) using a Black-Scholes model to purchase shares of PMI’s common stock. The key assumptions used in PMI’s ASC 718 calculation are discussed in Note 2 of PMI’s consolidated financial statements, which are incorporated by reference into this Annual Report. |
(4) | On March 17, 2017, the Compensation Committee of the Board of Directors of PMI approved the repricing of all outstanding stock options held by employees and directors that had an exercise price above the then current fair market value of PMI’s common stock (the "Reprice"), effectively reducing the exercise price of such options to $0.22 per share. These options were granted in prior periods and repriced in connection with the Reprice. |
(5) | The incremental fair value of the holder's eligible outstanding options as of the repricing date are as follows: $326,000 for Mr. Kimball; $291,000 for Mr. Pennington; and $119,000 for Mr. Kaul. |
Name | Grant Date | Vesting Commencement Date | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) (1) | |||||||||||||
David Kimball | 5/3/2016 | (2) | 3/18/2016 | 617,279 | 793,646 | 0.22 | 5/2/2026 | |||||||||||||
5/3/2016 | (3) | 3/18/2016 | — | — | — | — | 705,465 | |||||||||||||
6/17/2016 | (4) | 4/28/2016 | 1,175,391 | 940,312 | 0.22 | 6/16/2026 | — | |||||||||||||
3/17/2017 | (5) | 12/1/2016 | 10,578,290 | 10,578,289 | 0.22 | 3/16/2027 | — | |||||||||||||
Usama Ashraf | 3/17/2017 | (2) | 2/27/2017 | — | 3,397,242 | 0.22 | 3/16/2027 | — | ||||||||||||
11/7/2017 | (2) | 2/27/2017 | — | 402,758 | 0.53 | 11/6/2027 | — | |||||||||||||
Brad Pennington | 3/28/2012 | (6) | 2/27/2012 | 62,500 | — | 0.22 | 2/27/2022 | — | ||||||||||||
1/28/2014 | (6) | 1/1/2014 | 125,000 | — | 0.11 | 1/28/2024 | — | |||||||||||||
1/23/2015 | (6) | 1/16/2015 | 200,000 | — | 0.22 | 1/22/2025 | — | |||||||||||||
2/20/2015 | (6) | 2/13/2015 | 85,000 | — | 0.22 | 2/19/2025 | — | |||||||||||||
2/27/2015 | (7) | 2/27/2015 | 115,000 | — | 0.22 | 2/26/2025 | — | |||||||||||||
6/17/2016 | (4) | 4/28/2016 | 1,535,638 | 1,228,511 | 0.22 | 6/16/2026 | — | |||||||||||||
Kunal Kaul | 3/15/2016 | (3) | 12/28/2015 | — | — | — | 3/14/2026 | 125,000 | ||||||||||||
5/3/2016 | (2) | 12/28/2015 | 125,000 | 125,000 | 0.22 | 5/2/2026 | — | |||||||||||||
6/17/2016 | (4) | 4/28/2016 | 579,953 | 463,963 | 0.22 | 6/16/2026 | — | |||||||||||||
Nasos Topakas | 11/7/2017 | (2) | 4/17/2017 | — | 3,800,000 | 0.53 | 11/6/2027 | — |
(1) | Represents restricted stock units (“RSUs”), in each case that remained unvested as of December 31, 2017. |
(2) | This option vests over four years, with 1/4 vesting on the first anniversary of the applicable vesting commencement date set forth in the table (the "Vesting Commencement Date") and 1/48 vesting each month thereafter for the following three years, except that, in the event the NEO is terminated without cause within 12 months of a change in control of PMI, a sale of all or substantially all of PMI's assets, or a liquidation, dissolution or winding up of PMI (each, a "Corporate Transaction"), any unvested options will vest in full immediately. |
(3) | These RSUs initially vest, if at all, when PMI files for an initial public offering and the lock-up period expires or there is a corporate transaction (as defined in the RSU grant notice), whichever occurs first (each, a “Triggering Event”). The number of RSUs that vest upon a Triggering Event will be equal to the number of RSUs that would |
(4) | This option vests over three years, with 1/36 vesting on the one month anniversary of the Vesting Commencement Date and 1/36 vesting each month thereafter on the same day of the month as the Vesting Commencement Date (and if there is no corresponding day, on the last day of the month), except that, in the event the NEO is terminated without cause within 12 months of a Corporate Transaction, any unvested options will vest in full immediately. |
(5) | This option vests over three years, with 1/2 vesting on the first anniversary of the applicable Vesting Commencement Date and 1/48 vesting each month thereafter for the following two years, except that, in the event of a Corporate Transaction, any unvested options will vest in full immediately prior to the effective time of the Corporate Transaction. |
(6) | This option is subject to an early exercise provision and is immediately exercisable. This option vests over four years, with 1/4 vesting on the first anniversary of the applicable Vesting Commencement Date and 1/48 vesting each month thereafter for the following three years. |
(7) | This option is subject to an early exercise provision and is immediately exercisable. This option vests over four years, with 1/2 vesting on the second anniversary of the applicable Vesting Commencement Date and 1/48 vesting each month thereafter for the following two years. |
Option Awards | Stock Awards | |||||||||||||
Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting/Settlement ($) (1) | ||||||||||
David Kimball | — | — | — | — | ||||||||||
Usama Ashraf | — | — | — | — | ||||||||||
Brad Pennington | — | — | 14,220 | $ | 3 | |||||||||
Kunal Kaul | — | — | — | — | ||||||||||
Nasos Topakas | — | — | — | — |
(1) | The amount reported as value realized on vesting/settlement of restricted stock units is calculated by multiplying the fair value of PMI's common stock as of the vesting date of the award by the number of RSUs. |
Name | Cash Severance ($) | Number of Unvested Options (#) | Estimated Value of Unvested Options at December 31, 2017 ($) | Number of Unvested RSUs and Stock Awards (#) | Estimated Value of Unvested RSUs and Stock Awards at December 31, 2017 ($) | Total Estimated Value ($) | |||||||||||||||||
(dollar amounts in thousands) | |||||||||||||||||||||||
David Kimball | |||||||||||||||||||||||
Involuntary Termination | $ | 250 | — | — | — | $ | — | $ | 250 | ||||||||||||||
Change in Control | 12,312,247 | $ | 3,940 | 705,465 | $ | 381 | $ | 4,321 | |||||||||||||||
Involuntary Termination following Change in Control | — | — | — | — | — | — | |||||||||||||||||
Usama Ashraf | |||||||||||||||||||||||
Change in Control | — | — | — | $ | — | — | — | $ | — | ||||||||||||||
Involuntary Termination following Change in Control | — | 3,800,000 | $ | 1,091 | — | — | 1,091 | ||||||||||||||||
Brad Pennington | |||||||||||||||||||||||
Involuntary Termination | $ | 175 | — | — | — | — | — | $ | 175 | ||||||||||||||
Change in Control | — | — | — | — | $ | — | |||||||||||||||||
Involuntary Termination following Change in Control | — | 1,228,511 | $ | 393 | — | $ | — | $ | 393 | ||||||||||||||
Kunal Kaul | |||||||||||||||||||||||
Change in Control | — | — | — | — | — | $ | — | ||||||||||||||||
Involuntary Termination following Change in Control | — | 588,963 | $ | 188 | 125,000 | $ | 68 | $ | 256 | ||||||||||||||
Nasos Topakas | |||||||||||||||||||||||
Involuntary Termination | $ | 175 | — | — | — | — | $ | 175 | |||||||||||||||
Change in Control | — | — | — | — | — | — | |||||||||||||||||
Involuntary Termination following Change in Control | — | 3,800,000 | $ | 38 | — | — | $ | 38 |
Name | Fees earned or paid in cash ($) | Equity awards ($) | Total | |||||||||
Patrick W. Grady | — | — | — | |||||||||
Rajeev V. Date | $ | 37.5 | — | $ | 37.5 | |||||||
Christopher M. Bishko (1) | — | — | — | |||||||||
David R. Golob | — | — | — | |||||||||
Nigel W. Morris | $ | 37.5 | — | $ | 37.5 | |||||||
Aaron Vermut (2) | — | — | — | |||||||||
Claire A. Huang | — | — | — |
(1) | Mr. Bishko resigned as a Director of PMI effective February 22, 2018. |
(2) | Mr. Vermut resigned as a Director of PMI effective September 21, 2017. |
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
• | each of PMI’s directors; |
• | each of PMI’s named executive officers; |
• | each person, or group of affiliated persons, who is known by PMI to beneficially own more than 5% of PMI’s common stock; and |
• | all of PMI’s directors and executive officers as a group. |
Name of Beneficial Owner | Number of Shares Owned (1) | Number of Shares Underlying Options, and Warrants Exercisable Currently or Within 60 Days (2) | Total Number of Shares Beneficially Owned (3) | Beneficial Ownership Percentage | ||||||||
Directors and Executive Officers | ||||||||||||
Rajeev V. Date (4) | 26,115 | 523,284 | 549,399 | * | ||||||||
Patrick W. Grady (5) | 51,247,915 | — | 51,247,915 | 19.70 | % | |||||||
David R. Golob (6) | 17,413,325 | — | 17,413,325 | 6.69 | % | |||||||
Nigel W. Morris (7) | 1,073,970 | 829,608 | 1,903,578 | * | ||||||||
Claire A. Huang | — | — | — | * | ||||||||
Mason D. Haupt (8) | — | 77,793 | 77,793 | |||||||||
David Kimball | — | 14,898,041 | 14,898,041 | 5.42 | % | |||||||
Usama Ashraf | — | 1,108,332 | 1,108,332 | * | ||||||||
Nasos Topakas | — | 950,000 | 950,000 | * | ||||||||
Brad Pennington | 175,095 | 2,391,875 | 2,566,970 | * | ||||||||
Sachin Adarkar | — | 1,486,074 | 1,486,074 | * | ||||||||
Kunal Kaul | — | 841,777 | 841,777 | * | ||||||||
All directors and executive officers as a group (9) | 69,936,420 | 23,106,784 | 93,043,204 | 32.84 | % | |||||||
5% Shareholders | ||||||||||||
Sequoia Capital (10) | 51,247,915 | — | 51,247,915 | 19.70 | % | |||||||
Pinecone Investments LLC (11) | — | 35,544,141 | 35,544,141 | 12.02 | % | |||||||
LPG Capital GP Limited (12) | 37,249,497 | 37,249,497 | 14.32 | % | ||||||||
PF WarrantCo (13) | 723,902 | 69,274,534 | 69,998,436 | 21.25 | % | |||||||
Accel Partners (14) | 24,320,667 | — | 24,320,667 | 9.35 | % | |||||||
IDG Capital Partners (15) | 24,320,667 | — | 24,320,667 | 9.35 | % |
(1) | Includes shares of common stock (including common stock issuable upon the conversion of preferred stock) owned directly or indirectly, but does not include shares subject to options and warrants. |
(2) | Includes shares subject to options or warrants owned directly or indirectly that are currently exercisable or will become exercisable within 60 days of March 3, 2017. |
(3) | The amounts and percentages of common stock beneficially owned are reported on the basis of regulations of the Securities and Exchange Commission governing the determination of beneficial ownership of securities. Under the rules of the Commission, a person is deemed to be a “beneficial owner” of a security if that person has or shares “voting power,” which includes the power to vote or to direct the voting of such security, or “investment power,” which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities for which that person has a right to acquire beneficial ownership within 60 days. |
(4) | Consists of 523,284 shares of common stock issuable upon the exercise of stock options and 26,115 shares of common stock issuable upon the conversion of preferred stock held by Mr. Date or his affiliate. |
(5) | Consists of 51,247,915 shares of common stock issuable upon the conversion of preferred stock held by Sequoia Capital through certain of its affiliates. Mr. Grady is a partner of Sequoia Capital and therefore may be deemed to share voting and investment power over these shares. Mr. Grady disclaims beneficial ownership with respect to the shares except to the extent of his pecuniary interest therein. |
(6) | Consists of 17,413,325 shares of common stock issuable upon the conversion of preferred stock held by Francisco Partners through certain of its affiliates. Mr. Golob is a partner of Francisco Partners and therefore may be deemed |
(7) | Consists of 1,005,935 shares of common stock, 68,035 shares of common stock issuable upon the conversion of preferred stock and 829,608 shares of common stock issuable upon the exercise of warrants held by QED Investors through certain of its affiliates. Mr. Morris is a partner of QED Investors and therefore may be deemed to share voting and investment power over these shares. Mr. Morris disclaims beneficial ownership with respect to the shares except to the extent of his pecuniary interest therein. |
(8) | Consists of 77,793 shares of common stock issuable upon the exercise and conversion of the preferred stock warrants held by Mr. Haupt. |
(9) | Consists of 1,207,145, shares of common stock, 68,729,725 shares of common stock issuable upon the conversion of preferred stock, 22,199,383 shares of common stock issuable upon the exercise of stock options, 829,608 shares of common stock issuable upon the exercise of warrants and 77,793 shares of common stock issuable upon the exercise and conversion of the preferred stock warrants. |
(10) | Represents 51,247,915 shares of common stock issuable upon the conversion of preferred stock held by Sequoia Capital through certain of its affiliates. Sequoia Capital is deemed to have voting and investment power over the shares. The address for Sequoia Capital is 3000 Sand Hill Road, 4-250, Menlo Park, California 94025. |
(11) | Represents 35,544,141 shares of common stock issuable upon the exercise and conversion of the preferred stock warrant held by Pinecone Investments LLC, an affiliate of Colchis Capital Management, L.P. The members of Pinecone Investments LLC are all of the partners of Colchis Capital Management, L.P., or entities established by one or more of them. The address for Colchis Capital Management, L.P. is 150 California St., 18th Floor, San Francisco, CA 94111. |
(12) | Represents 37,249,497 shares of common stock issuable upon the conversion of preferred stock held by LPG Capital through certain of its affiliates. LPG Capital l is deemed to have voting and investment power over the shares. The address for LPG Capital is 199-203 Hennessy Road, Flat 1002, Hong Kong, China. |
(13) | Consists of (i) 2 shares of common stock issuable upon the conversion of preferred stock and 63,283,414 shares of common stock issuable upon the exercise and conversion of the preferred stock warrants, in each case, held by PF WarrantCo Holdings, LP, a Delaware limited partnership (the “PF WarrantCo Shares”); (ii) 5,747,582 shares of common stock issuable upon the exercise and conversion of the preferred stock warrants held by QPL Holdings (PF) LP, a Delaware limited partnership (the “QPL Shares”); (iii) 243,538 shares of common stock issuable upon the exercise and conversion of the preferred stock warrants held by QPB Holdings Ltd., a Cayman Islands exempted company (the “QPB Shares”); and (iv) 723,900 shares of common stock issuable upon the conversion of preferred stock held by Quantum Strategic Partners Ltd., a Cayman Islands exempted company (the “Quantum Strategic Shares”). |
(14) | Represents 5,703,470 shares of common stock and 7,245,859 shares of common stock issuable upon the conversion of preferred stock held by Accel Partners through certain of its affiliates (collectively, the “Accel Shares”); 3,498,765 shares of common stock and 4,722,733 shares of common stock issuable upon the conversion of preferred stock held by IDG Capital Partners through certain of its affiliates (the “IDG Shares”); and 877,185 shares of common stock |
(15) | Represents 3,498,765 shares of common stock and 4,722,733 shares of common stock issuable upon the conversion of preferred stock held by IDG Capital Partners through certain of its affiliates (“IDG Shares”); 5,703,470 shares of common stock and 7,245,859 shares of common stock issuable upon the conversion of preferred held by Accel Partners through certain of its affiliates (collectively, the “Accel Shares”); and 877,185 shares of common stock and 2,272,655 shares of common stock issuable upon the conversion of preferred stock held by Breyer Capital, LLC and James W. Breyer 2005 Trust dated 2/25/2005 (collectively, the “Breyer Shares”). IDG Capital Partners is deemed to have voting and investment power over the IDG Shares. IDG Capital Partners is an affiliate of Accel Partners and may also therefore be deemed to share voting and investment power over the Accel Shares. Mr. Breyer is a partner of Accel Partners, which is an affiliate of IDG Capital Partners, and therefore IDG Capital Partners may also be deemed to share voting and investment power over the Breyer Shares. IDG Capital Partners disclaims beneficial ownership of the Accel Shares and Breyer Shares except to the extent of its pecuniary interest therein. The address for IDG Capital Partners is 99 Queen’s Road Central, Unit 1509, The Center, Hong Kong, China. |
Plan Category | Number of shares of common stock to be issued upon exercise of outstanding options, warrants, RSUs and rights (1) | Weighted average exercise price of outstanding options, warrants and rights | Number of shares of common stock remaining available for future issuance under equity compensation plans | |||||||||||
Equity compensation plans approved by stockholders: | ||||||||||||||
Prosper Marketplace, Inc. 2005 Stock Plan, as amended and restated | 8,507,570 | $ | 0.16 | — | ||||||||||
Prosper Marketplace, Inc. 2015 Equity Incentive Plan, as amended | 51,281,644 | $ | 0.27 | 10,403,252 | ||||||||||
All stockholder approved plans | 59,789,214 | $ | 0.25 | 10,403,252 | ||||||||||
Equity compensation plans not approved by stockholders: | ||||||||||||||
Outstanding Common Stock Warrants | 1,088,549 | $ | 0.22 | — | ||||||||||
All non-stockholder approved plans | 1,088,549 | $ | 0.22 | — | ||||||||||
Total | 60,877,763 | $ | 0.25 | 10,403,252 |
(1) | Includes option and RSU issuances to employees, directors and certain consultants, advisors or vendors; however it does not include warrants granted to outside individuals, consultants, advisors and vendors. |
Item 13. | Certain Relationships and Related Transactions, and Director Independence |
(i) | fund any repurchase obligation with respect to the transferred Notes, and indemnify PFL for any other losses that arise out of any registration agreement related to the transferred Notes or Borrower Loans, including as a result of a breach by PMI of any of its representations or warranties made therein; |
(ii) | fund any arbitration filing or administrative fees or arbitrator fees payable under any registration agreement related to the transferred Notes or Borrower Loans; and |
(iii) | fund any indemnification obligations that arise under any registration agreement entered into by PMI prior to the date of the asset transfer. |
Item 14. | Principal Accounting Fees and Services |
Item 15. | Exhibits and Financial Statement Schedule |
(a) Reports of Independent Registered Public Accounting Firms | |
(a1) Report of Independent Registered Public Accounting Firm for PMI | |
(a2) Report of Independent Registered Public Accounting Firm for Prosper Funding LLC | |
(b) Documents List | |
1. Financial Statements as of and for the year ended December 31, 2017 | |
Prosper Marketplace, Inc. | |
Prosper Funding LLC | |
December 31, | December 31, | ||||||
ASSETS | 2017 | 2016 | |||||
Cash and Cash Equivalents | $ | 45,795 | $ | 22,337 | |||
Restricted Cash | 152,668 | 163,907 | |||||
Available for Sale Investments, at Fair Value | 53,147 | 32,769 | |||||
Accounts Receivable | 683 | 757 | |||||
Loans Held for Sale, at Fair Value | 49 | 624 | |||||
Borrower Loans, at Fair Value | 293,005 | 315,627 | |||||
Property and Equipment, Net | 18,136 | 24,853 | |||||
Prepaid and Other Assets | 7,796 | 4,606 | |||||
Servicing Assets | 14,711 | 12,786 | |||||
Goodwill | 36,368 | 36,368 | |||||
Intangible Assets, Net | 1,377 | 9,212 | |||||
Total Assets | $ | 623,735 | $ | 623,846 | |||
LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT | |||||||
Accounts Payable and Accrued Liabilities | $ | 11,942 | $ | 15,017 | |||
Payable to Investors | 132,432 | 142,644 | |||||
Notes, at Fair Value | 293,948 | 316,236 | |||||
Other Liabilities | 12,669 | 17,173 | |||||
Convertible Preferred Stock Warrant Liability | 116,366 | 21,711 | |||||
Total Liabilities | 567,357 | 512,781 | |||||
Commitments and Contingencies (see Note 16) | |||||||
Convertible Preferred Stock – $0.01 par value; 444,760,848 shares authorized; 214,637,925 issued and outstanding as of December 31, 2017; and 217,388,425 shares authorized, 177,388,425 issued and outstanding as of December 31, 2016. Aggregate liquidation preference of $375,952 and $325,952 as of December 31, 2017 and December 31, 2016, respectively. | 323,793 | 275,938 | |||||
Stockholders' Deficit | |||||||
Common Stock – $0.01 par value; 625,000,000 shares authorized; 71,226,934 shares issued, and 70,290,999 shares outstanding, as of December 31, 2017; 338,222,103 shares authorized; 70,843,044 shares issued and 69,907,109 outstanding as of December 31, 2016. | 228 | 212 | |||||
Additional Paid-In Capital | 136,653 | 123,988 | |||||
Less: Treasury Stock | (23,417 | ) | (23,417 | ) | |||
Accumulated Deficit | (380,806 | ) | (265,648 | ) | |||
Accumulated Other Comprehensive Loss | (73 | ) | (8 | ) | |||
Total Stockholders' Deficit | $ | (267,415 | ) | $ | (164,873 | ) | |
Total Liabilities, Convertible Preferred Stock and Stockholders' Deficit | $ | 623,735 | $ | 623,846 |
Year ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
Revenues | |||||||||||
Operating Revenues | |||||||||||
Transaction Fees, Net | $ | 130,174 | $ | 95,130 | $ | 161,708 | |||||
Servicing Fees, Net | 27,206 | 28,903 | 17,238 | ||||||||
Gain on Sale of Borrower Loans | 11,431 | 3,637 | 14,151 | ||||||||
Fair Value of Warrants Vested on Sale of Borrower Loans | (60,122 | ) | — | — | |||||||
Other Revenues | 4,806 | 5,245 | 7,687 | ||||||||
Total Operating Revenues | 113,495 | 132,915 | 200,784 | ||||||||
Interest Income | |||||||||||
Interest Income on Borrower Loans | 47,208 | 44,649 | 41,606 | ||||||||
Interest Expense on Notes | (43,954 | ) | (41,187 | ) | (38,174 | ) | |||||
Net Interest Income | 3,254 | 3,462 | 3,432 | ||||||||
Change in Fair Value of Borrower Loans, Loans Held for Sale and Notes, Net | (514 | ) | (372 | ) | 59 | ||||||
Total Net Revenues | 116,235 | 136,005 | 204,275 | ||||||||
Expenses | |||||||||||
Origination and Servicing | 34,881 | 33,944 | 31,139 | ||||||||
Sales and Marketing | 83,462 | 70,146 | 112,284 | ||||||||
General and Administrative | 75,686 | 102,735 | 86,480 | ||||||||
Restructuring Charges, Net | 1,340 | 17,027 | — | ||||||||
Change in Fair Value of Convertible Stock Warrants | 29,140 | 7 | — | ||||||||
Other Expenses, Net | 7,392 | 30,341 | — | ||||||||
Total Expenses | 231,901 | 254,200 | 229,903 | ||||||||
Net Loss Before Taxes | (115,666 | ) | (118,195 | ) | (25,628 | ) | |||||
Income Tax Expense | (508 | ) | 546 | 340 | |||||||
Net Loss | $ | (115,158 | ) | $ | (118,741 | ) | $ | (25,968 | ) | ||
Net Loss Per Share – Basic and Diluted | $ | (1.65 | ) | $ | (1.85 | ) | $ | (0.47 | ) | ||
Weighted-Average Shares - Basic and Diluted | 69,687,836 | 64,196,537 | 55,547,408 |
Year ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
Net Loss | $ | (115,158 | ) | $ | (118,741 | ) | $ | (25,968 | ) | ||
Other Comprehensive Income (Loss), Before Tax | |||||||||||
Change in Net Unrealized Gain (Loss) on Available for Sale Investments, at Fair Value | (74 | ) | 148 | (144 | ) | ||||||
Realized (Gain) Loss on Sale of Available for Sale Investments, at Fair Value | 9 | (12 | ) | — | |||||||
Other Comprehensive Income (Loss), Before Tax | (65 | ) | 136 | (144 | ) | ||||||
Income tax effect | — | — | — | ||||||||
Other Comprehensive Income (Loss), Net of Tax | (65 | ) | 136 | (144 | ) | ||||||
Comprehensive Loss | $ | (115,223 | ) | $ | (118,605 | ) | $ | (26,112 | ) |
Convertible Preferred Stock | Common Stock | Treasury Stock | |||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Additional Paid-In Capital | Accumulated Other Comprehensive Income | Accumulated Deficit | Total | ||||||||||||||||||||||||||||
Balance as of January 1, 2015 | 153,499,785 | $ | 111,145 | 72,243,500 | $ | 102 | (935,935 | ) | $ | (303 | ) | $ | 86,340 | $ | — | $ | (121,513 | ) | $ | (35,374 | ) | ||||||||||||||||
Cumulative effect of adoption of fair value method for servicing rights | — | — | — | — | — | — | — | — | 574 | 574 | |||||||||||||||||||||||||||
Issuance of convertible preferred stock, Series D, net of issuance costs | 23,888,640 | 164,793 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Exercise of vested stock options | — | — | 3,125,890 | 8 | — | — | 771 | — | — | 779 | |||||||||||||||||||||||||||
Exercise of nonvested stock options | — | — | 76,045 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Repurchase of restricted stock | — | — | (1,493,775 | ) | — | — | — | — | — | — | — | ||||||||||||||||||||||||||
Repurchase of common stock | — | — | — | — | (4,241,300 | ) | (23,114 | ) | — | — | — | (23,114 | ) | ||||||||||||||||||||||||
Restricted stock vested | — | — | — | 17 | — | — | 471 | — | — | 488 | |||||||||||||||||||||||||||
Restricted stock units sold | — | — | 450,000 | — | — | — | 1,630 | — | — | 1,630 | |||||||||||||||||||||||||||
Exercise of warrants | — | — | 207,065 | — | — | — | 125 | — | — | 125 | |||||||||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | — | — | 13,634 | — | — | 13,634 | |||||||||||||||||||||||||||
Change in net unrealized loss on available for sale investments, at fair value | — | — | — | — | — | — | — | (144 | ) | — | (144 | ) | |||||||||||||||||||||||||
Net Loss | — | — | — | — | — | — | — | — | (25,968 | ) | (25,968 | ) | |||||||||||||||||||||||||
Balance as of December 31, 2015 | 177,388,425 | 275,938 | 74,608,725 | 127 | (5,177,235 | ) | (23,417 | ) | 102,971 | (144 | ) | (146,907 | ) | (67,370 | ) | ||||||||||||||||||||||
Exercise of vested stock options | — | — | 466,300 | 6 | — | — | 305 | — | — | 311 | |||||||||||||||||||||||||||
Repurchase of restricted stock | — | — | (673,750 | ) | — | — | — | — | — | — | — | ||||||||||||||||||||||||||
Restricted stock vested | — | — | — | 79 | — | — | 196 | — | — | 275 | |||||||||||||||||||||||||||
Issuance of common stock, for settlement of vested RSUs | — | — | 635,068 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Exercise of warrants | — | — | 48,001 | — | — | — | 11 | — | — | 11 | |||||||||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | — | — | 20,505 | — | — | 20,505 | |||||||||||||||||||||||||||
Change in net unrealized loss on available for sale investments, at fair value | — | — | — | — | — | — | — | 136 | — | 136 | |||||||||||||||||||||||||||
Net Loss | — | — | — | — | — | — | — | — | (118,741 | ) | (118,741 | ) | |||||||||||||||||||||||||
Balance as of December 31, 2016 | 177,388,425 | 275,938 | 75,084,344 | 212 | (5,177,235 | ) | (23,417 | ) | 123,988 | (8 | ) | (265,648 | ) | (164,873 | ) | ||||||||||||||||||||||
Issuance of convertible preferred stock, Series G, net of issuance costs | 37,249,497 | 47,855 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Exercise of vested stock options | — | — | 606,284 | 6 | — | — | 97 | — | — | 103 | |||||||||||||||||||||||||||
Repurchase of restricted stock | — | — | (266,130 | ) | — | — | — | — | — | — | — | ||||||||||||||||||||||||||
Restricted stock vested | — | — | — | 10 | — | — | 31 | — | — | 41 | |||||||||||||||||||||||||||
Exercise of warrants | 3 | — | 43,736 | — | — | — | 5 | — | — | 5 | |||||||||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | — | — | 12,532 | — | — | 12,532 | |||||||||||||||||||||||||||
Change in net unrealized loss on available for sale investments, at fair value | — | — | — | — | — | — | — | (65 | ) | — | (65 | ) | |||||||||||||||||||||||||
Net Loss | — | — | — | — | — | — | — | — | (115,158 | ) | (115,158 | ) | |||||||||||||||||||||||||
Balance as of December 31, 2017 | 214,637,925 | $ | 323,793 | 75,468,234 | $ | 228 | (5,177,235 | ) | $ | (23,417 | ) | $ | 136,653 | $ | (73 | ) | $ | (380,806 | ) | $ | (267,415 | ) |
For the Year Ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
Cash Flows from Operating Activities: | |||||||||||
Net Loss | $ | (115,158 | ) | $ | (118,741 | ) | $ | (25,968 | ) | ||
Adjustments to Reconcile Net Loss to Net Cash Provided by (Used in) Operating Activities: | |||||||||||
Change in Fair Value of Borrower Loans, Loans Held for Sale and Notes | 514 | 372 | (59 | ) | |||||||
Depreciation and Amortization | 12,348 | 13,220 | 7,649 | ||||||||
Gain on Sales of Borrower Loans | (14,138 | ) | (9,634 | ) | (14,561 | ) | |||||
Change in Fair Value of Servicing Rights | 12,074 | 11,053 | 4,860 | ||||||||
Stock-Based Compensation Expense | 12,238 | 19,787 | 13,011 | ||||||||
Restructuring Liability | 1,343 | 6,052 | — | ||||||||
Fair Value of Warrants Vested | 61,605 | — | — | ||||||||
Change in Fair Value of Warrants | 29,140 | 7 | — | ||||||||
Change in Fair Value of Contingent Consideration | — | 199 | 1,001 | ||||||||
Other, Net | 377 | 1,527 | 216 | ||||||||
Impairment Losses on Assets Held for Sale | 6,399 | — | — | ||||||||
Warrants Issued for Contract Termination | — | 21,711 | — | ||||||||
Changes in Operating Assets and Liabilities: | |||||||||||
Purchase of Loans Held for Sale at Fair Value | (2,619,130 | ) | (1,979,952 | ) | (3,517,467 | ) | |||||
Proceeds from Sales and Principal Payments of Loans Held for Sale at Fair Value | 2,619,709 | 1,979,352 | 3,525,759 | ||||||||
Restricted Cash Except for those Related to Investing Activities | 11,870 | (5,459 | ) | (68,896 | ) | ||||||
Accounts Receivable | 74 | 1,677 | 865 | ||||||||
Prepaid and Other Assets | (3,208 | ) | 1,825 | (1,360 | ) | ||||||
Accounts Payable and Accrued Liabilities | (2,268 | ) | 379 | 6,493 | |||||||
Payable to Investors | (10,212 | ) | 6,137 | 72,013 | |||||||
Other Liabilities | (2,496 | ) | (12,179 | ) | 1,888 | ||||||
Net cash provided by (Used in) Operating Activities | 1,081 | (62,667 | ) | 5,444 | |||||||
Cash Flows from Investing Activities: | |||||||||||
Purchase of Borrower Loans Held at Fair Value | (194,887 | ) | (217,582 | ) | (197,436 | ) | |||||
Principal Payments of Borrower Loans Held at Fair Value | 192,054 | 173,710 | 151,893 | ||||||||
Purchases of Property and Equipment | (4,174 | ) | (10,760 | ) | (15,977 | ) | |||||
Maturities of Short Term Investments | 1,280 | 1,279 | 1,274 | ||||||||
Purchases of Short Term Investments | (1,262 | ) | (1,277 | ) | (1,277 | ) | |||||
Purchases of Available for Sale Investments, at Fair Value | (68,297 | ) | (11,725 | ) | (77,538 | ) | |||||
Proceeds from Sale of Available for Sale Securities | 31,232 | 12,445 | 4,022 | ||||||||
Maturities of Available for Sale Securities | 16,600 | 39,593 | — | ||||||||
Acquisition of Businesses, Net of Cash Acquired | — | — | (38,147 | ) | |||||||
Changes in Restricted Cash Related to Investing Activities | (631 | ) | (7,225 | ) | (1,027 | ) | |||||
Net Cash Used in Investing Activities | (28,085 | ) | (21,542 | ) | (174,213 | ) | |||||
Cash Flows from Financing Activities: | |||||||||||
Proceeds from Issuance of Notes Held at Fair Value | 194,391 | 217,767 | 197,228 | ||||||||
Payments of Notes Held at Fair Value | (191,828 | ) | (173,958 | ) | (151,838 | ) | |||||
Repayment of Borrowings | — | — | (5,047 | ) | |||||||
Proceeds from Issuance of Convertible Preferred Stock, Net | 47,855 | — | 164,793 | ||||||||
Proceeds from Exercise of Warrants and Stock Options including Early Exercise, and Issuance of Restricted Stock | 123 | 541 | 5,004 | ||||||||
Repurchase of Common Stock and Restricted Stock | (64 | ) | (80 | ) | (23,246 | ) | |||||
Taxes Paid for Awards Vested Under Equity Incentive Plans | (15 | ) | (219 | ) | (2,387 | ) | |||||
Contingent Consideration Paid | — | (3,800 | ) | — | |||||||
Net Cash Provided by Financing Activities | 50,462 | 40,251 | 184,507 | ||||||||
Net Increase (Decrease) in Cash and Cash Equivalents | 23,458 | (43,958 | ) | 15,738 | |||||||
Cash and Cash Equivalents at Beginning of the Year | 22,337 | 66,295 | 50,557 | ||||||||
Cash and Cash Equivalents at End of the Year | $ | 45,795 | $ | 22,337 | $ | 66,295 | |||||
Cash Paid for Interest | $ | 43,776 | $ | 40,369 | $ | 38,168 | |||||
Non-Cash Investing Activity- Accrual for Property and Equipment, Net | 171 | 382 | 1,483 | ||||||||
Non-Cash Investing Activity- Amount Payable for the Acquisition of Business | $ | — | $ | — | $ | 4,488 |
Furniture and fixtures | 7 years |
Office equipment | 5 years |
Computers and equipment | 3 years |
Leasehold improvements | 5-8 years |
Software and website development costs | 1-5 years |
December 31, | |||||||
2017 | 2016 | ||||||
Property and equipment: | |||||||
Computer equipment | $ | 14,499 | $ | 14,107 | |||
Internal-use software and website development costs | 19,910 | 16,750 | |||||
Office equipment and furniture | 3,010 | 3,010 | |||||
Leasehold improvements | 7,078 | 7,038 | |||||
Assets not yet placed in service | 1,216 | 1,222 | |||||
Property and equipment | 45,713 | 42,127 | |||||
Less accumulated depreciation and amortization | (27,577 | ) | (17,274 | ) | |||
Total property and equipment, net | $ | 18,136 | $ | 24,853 |
Borrower Loans | Notes | Loans Held for Sale | |||||||||||||||||||||
December 31, 2017 | December 31, 2016 | December 31, 2017 | December 31, 2016 | December 31, 2017 | December 31, 2016 | ||||||||||||||||||
Aggregate principal balance outstanding | $ | 296,668 | $ | 319,143 | $ | (300,922 | ) | $ | (323,358 | ) | $ | 59 | $ | 641 | |||||||||
Fair value adjustments | (3,663 | ) | (3,516 | ) | 6,974 | 7,122 | (10 | ) | (17 | ) | |||||||||||||
Fair value | $ | 293,005 | $ | 315,627 | $ | (293,948 | ) | $ | (316,236 | ) | $ | 49 | $ | 624 |
December 31, 2017 | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||
Fixed maturity securities: | |||||||||||||||
Treasury Bills | $ | 34,014 | $ | — | $ | (36 | ) | $ | 33,978 | ||||||
US Treasury securities | 19,207 | — | (38 | ) | 19,169 | ||||||||||
Total Available for Sale Investments | $ | 53,221 | $ | — | $ | (74 | ) | $ | 53,147 |
December 31, 2016 | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||
Fixed maturity securities: | |||||||||||||||
Corporate debt securities | $ | 21,762 | $ | 1 | $ | (10 | ) | $ | 21,753 | ||||||
US Treasury securities | $ | 8,516 | $ | 3 | $ | (3 | ) | $ | 8,516 | ||||||
Agency bonds | 2,499 | 1 | — | 2,500 | |||||||||||
Total Available for Sale Investments | $ | 32,777 | $ | 5 | $ | (13 | ) | $ | 32,769 |
Less than 12 months | 12 months or longer | Total | |||||||||||||||||||||
Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | ||||||||||||||||||
Fixed maturity securities: | |||||||||||||||||||||||
Treasury Bills | $ | 33,978 | $ | (36 | ) | $ | — | $ | — | $ | 33,978 | $ | (36 | ) | |||||||||
US Treasury securities | 19,169 | (38 | ) | — | — | 19,169 | (38 | ) | |||||||||||||||
Total Investments with Unrealized Losses | $ | 53,147 | $ | (74 | ) | $ | — | $ | — | $ | 53,147 | $ | (74 | ) |
Within 1 year | After 1 year through 5 years | After 5 years to 10 years | After 10 years | Total | ||||||||||||||||
Treasury Bills | 33,978 | — | — | — | 33,978 | |||||||||||||||
US Treasury securities | 14,947 | 4,222 | — | — | 19,169 | |||||||||||||||
Total Fair Value | $ | 48,925 | $ | 4,222 | $ | — | $ | — | $ | 53,147 | ||||||||||
Total Amortized Cost | $ | 48,992 | $ | 4,229 | $ | — | $ | — | $ | 53,221 |
December 31, 2017 | Level 1 Inputs | Level 2 Inputs | Level 3 Inputs | Total | |||||||||||
Assets: | |||||||||||||||
Borrower Loans | $ | — | $ | — | $ | 293,005 | $ | 293,005 | |||||||
Loans Held for Sale | — | — | 49 | 49 | |||||||||||
Available for Sale Investments, at Fair Value | — | 53,147 | — | 53,147 | |||||||||||
Servicing Assets | — | — | 14,711 | 14,711 | |||||||||||
Total Assets | — | 53,147 | 307,765 | 360,912 | |||||||||||
Liabilities: | |||||||||||||||
Notes | $ | — | $ | — | $ | 293,948 | $ | 293,948 | |||||||
Servicing Liabilities | — | — | 59 | 59 | |||||||||||
Convertible Preferred Stock Warrant Liability | — | — | 116,366 | 116,366 | |||||||||||
Loan Trailing Fee Liability | — | — | 2,595 | 2,595 | |||||||||||
Total Liabilities | $ | — | $ | — | $ | 412,968 | $ | 412,968 |
December 31, 2016 | Level 1 Inputs | Level 2 Inputs | Level 3 Inputs | Total | |||||||||||
Assets: | |||||||||||||||
Borrower Loans | $ | — | $ | — | $ | 315,627 | $ | 315,627 | |||||||
Loans Held for Sale | — | — | 624 | 624 | |||||||||||
Available for Sale Investments, at Fair Value | — | 32,769 | — | 32,769 | |||||||||||
Servicing Assets | — | — | 12,786 | 12,786 | |||||||||||
Total Assets | — | 32,769 | 329,037 | 361,806 | |||||||||||
Liabilities: | |||||||||||||||
Notes | $ | — | $ | — | $ | 316,236 | $ | 316,236 | |||||||
Servicing Liabilities | $ | — | $ | — | $ | 198 | $ | 198 | |||||||
Convertible Preferred Stock Warrant Liability | $ | — | $ | — | $ | 21,711 | $ | 21,711 | |||||||
Loan Trailing Fee Liability | $ | — | $ | — | $ | 665 | $ | 665 | |||||||
Total Liabilities | $ | — | $ | — | $ | 338,810 | $ | 338,810 |
Range | ||||
Unobservable Input | December 31, 2017 | December 31, 2016 | ||
Discount rate | 4.0% - 14.4% | 4.0% - 15.9% | ||
Default rate | 2.0% - 15.4% | 1.7% - 14.9% |
Range | ||||||
Unobservable Input | December 31, 2017 | December 31, 2016 | ||||
Discount rate | 15% - 25% | 15% - 25% | ||||
Default rate | 1.5% - 16.1% | 1.5% - 15.2% | ||||
Prepayment rate | 13.5% - 30.2% | 13.6% - 26.6% | ||||
Market servicing rate (1) | 0.625 | % | 0.625 | % |
Range | ||||
Unobservable Input | December 31, 2017 | December 31, 2016 | ||
Discount rate | 15% - 25% | 15% - 25% | ||
Default rate | 1.5% - 16.1% | 1.5% - 15.2% | ||
Prepayment rate | 13.5% - 30.2% | 13.6% - 26.6% |
Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | |||||||||||||||
Borrower Loans | Notes | Loans Held for Sale | Total | ||||||||||||
Balance at January 1, 2017 | $ | 315,627 | $ | (316,236 | ) | $ | 624 | $ | 15 | ||||||
Purchase of Borrower Loans/Issuance of Notes | 194,887 | (194,391 | ) | 2,619,130 | $ | 2,619,626 | |||||||||
Principal repayments | (188,199 | ) | 191,828 | (89 | ) | $ | 3,540 | ||||||||
Borrower Loans sold to third parties | (3,855 | ) | — | (2,619,620 | ) | $ | (2,623,475 | ) | |||||||
Other changes | 97 | (180 | ) | (3 | ) | $ | (86 | ) | |||||||
Change in fair value | (25,552 | ) | 25,031 | 7 | $ | (514 | ) | ||||||||
Balance at December 31, 2017 | $ | 293,005 | $ | (293,948 | ) | $ | 49 | $ | (894 | ) |
Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | |||||||||||||||
Borrower Loans | Notes | Loans Held for Sale | Total | ||||||||||||
Balance at January 1, 2016 | $ | 297,273 | $ | (297,405 | ) | $ | 32 | $ | (100 | ) | |||||
Purchase of Borrower Loans/Issuance of Notes | 217,582 | (217,767 | ) | 1,979,952 | 1,979,767 | ||||||||||
Principal repayments | (171,195 | ) | 173,958 | (447 | ) | 2,316 | |||||||||
Borrower Loans sold to third parties | (2,515 | ) | — | (1,978,905 | ) | (1,981,420 | ) | ||||||||
Other changes | 416 | (591 | ) | (1 | ) | (176 | ) | ||||||||
Change in fair value | (25,934 | ) | 25,569 | (7 | ) | (372 | ) | ||||||||
Balance at December 31, 2016 | $ | 315,627 | $ | (316,236 | ) | $ | 624 | $ | 15 |
Servicing Assets | Servicing Liabilities | ||||||
Fair Value at January 1, 2016 | $ | 14,363 | $ | 484 | |||
Additions | 9,833 | 9 | |||||
Less: Changes in fair value | (11,410 | ) | (295 | ) | |||
Fair Value at December 31, 2016 | 12,786 | 198 | |||||
Additions | 14,138 | — | |||||
Less: Changes in fair value | (12,213 | ) | (139 | ) | |||
Fair Value at December 31, 2017 | $ | 14,711 | $ | 59 |
Balance as of January 1, 2016 | $ | — | |
Add Issuances of Preferred Stock Warrant | 21,704 | ||
Change in fair value of the preferred stock warrant liability | $ | 7 | |
Balance at December 31, 2016 | $ | 21,711 | |
Add Issuances of Preferred Stock Warrant | 65,516 | ||
Change in fair value of the preferred stock warrant liability | 29,139 | ||
Balance at December 31, 2017 | $ | 116,366 |
Balance as of January 1, 2016 | $ | — | |
Issuances | 647 | ||
Cash payment of Loan Trailing Fee | (21 | ) | |
Change in fair value | 39 | ||
Balance at December 31, 2016 | $ | 665 | |
Issuances | 2,631 | ||
Cash payment of Loan Trailing Fee | (956 | ) | |
Change in fair value | 255 | ||
Balance at December 31, 2017 | $ | 2,595 |
Borrower Loans / Loans Held for Sale | Notes | |||||||
Fair value at December 31, 2017 | $ | 293,054 | $ | 293,948 | ||||
Discount rate assumption: | 7.15 | % | * | 7.15 | % | * | ||
Resulting fair value from: | ||||||||
100 basis point increase | $ | 290,116 | $ | 290,948 | ||||
200 basis point increase | 287,206 | 288,024 | ||||||
Resulting fair value from: | ||||||||
100 basis point decrease | $ | 296,169 | $ | 297,028 | ||||
200 basis point decrease | 299,319 | 300,192 | ||||||
Default rate assumption: | 13.52 | % | * | 13.52 | % | * | ||
Resulting fair value from: | ||||||||
100 basis point increase | $ | 289,386 | $ | 290,202 | ||||
200 basis point increase | 285,792 | 286,581 | ||||||
Resulting fair value from: | ||||||||
100 basis point decrease | $ | 296,868 | $ | 297,742 | ||||
200 basis point decrease | 300,679 | 301,584 |
Servicing Assets | Servicing Liabilities | ||||||
Fair value at December 31, 2017 | $ | 14,711 | $ | 59 | |||
Market servicing rate assumptions | 0.625 | % | 0.625 | % | |||
Resulting fair value from: | |||||||
Market servicing rate increase to 0.65% | $ | 13,816 | $ | 65 | |||
Market servicing rate decrease to 0.60% | $ | 15,690 | $ | 53 | |||
Weighted average prepayment assumptions | 19.80 | % | 19.80 | % | |||
Resulting fair value from: | |||||||
Applying a 1.1 multiplier to prepayment rate | $ | 14,509 | $ | 59 | |||
Applying a 0.9 multiplier to prepayment rate | $ | 14,882 | $ | 60 | |||
Weighted average default assumptions | 13.00 | % | 13.00 | % | |||
Resulting fair value from: | |||||||
Applying a 1.1 multiplier to default rate | $ | 14,556 | $ | 59 | |||
Applying a 0.9 multiplier to default rate | $ | 14,954 | $ | 59 |
Goodwill - January 1, 2016 | $ | 36,368 | |
2016 acquisitions | $ | — | |
Goodwill - December 31, 2016 | $ | 36,368 | |
2017 acquisitions | — | ||
Goodwill - December 31, 2017 | $ | 36,368 |
December 31, 2017 | |||||||||||||
Gross Carrying Value | Accumulated Amortization | Net Carrying Value | Remaining Useful Life (In Years) | ||||||||||
Developed technology | $ | 3,060 | $ | (3,038 | ) | $ | 22 | 0.3 | |||||
User base and customer relationships | 5,050 | (3,695 | ) | 1,355 | 7.3 | ||||||||
Brand name | 60 | (60 | ) | — | 0.0 | ||||||||
Total intangible assets subject to amortization | $ | 8,170 | $ | (6,793 | ) | $ | 1,377 |
December 31, 2016 | |||||||||||||
Gross Carrying Value | Accumulated Amortization | Net Carrying Value | Remaining Useful Life (In Years) | ||||||||||
Developed technology | $ | 8,310 | $ | (2,393 | ) | $ | 5,917 | 3.8 | |||||
User base and customer relationships | 6,250 | (2,955 | ) | 3,295 | 8.3 | ||||||||
Brand name | 60 | (60 | ) | — | 0.0 | ||||||||
Total intangible assets subject to amortization | $ | 14,620 | $ | (5,408 | ) | $ | 9,212 |
Year Ending December 31, | |||
2018 | 379 | ||
2019 | 279 | ||
2020 | 219 | ||
2021 | 172 | ||
2022 | 136 | ||
Thereafter | 192 | ||
Total | $ | 1,377 |
Year Ending December 31, | |||||||
2017 | 2016 | ||||||
Class action settlement liability | $ | — | $ | 2,996 | |||
Loan trailing fee | 2,595 | 665 | |||||
Deferred revenue | 452 | 226 | |||||
Servicing liabilities | 59 | 198 | |||||
Deferred income tax liability | 225 | 766 | |||||
Deferred rent | 3,904 | 4,469 | |||||
Restructuring liability | 3,355 | 6,052 | |||||
Other | 2,079 | 1,801 | |||||
Total Other Liabilities | $ | 12,669 | $ | 17,173 |
Year ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
Numerator: | |||||||||||
Net loss available to common stockholders for basic and diluted EPS | $ | (115,158 | ) | $ | (118,741 | ) | $ | (25,968 | ) | ||
Denominator: | |||||||||||
Weighted average shares used in computing basic and diluted net loss per share | 69,687,836 | 64,196,537 | 55,547,408 | ||||||||
Basic and diluted net loss per share | $ | (1.65 | ) | $ | (1.85 | ) | $ | (0.47 | ) |
Year ended December 31, | ||||||||
2017 | 2016 | 2015 | ||||||
(shares) | (shares) | (shares) | ||||||
Excluded securities: | ||||||||
Convertible preferred stock issued and outstanding | 214,637,925 | 177,388,425 | 177,388,425 | |||||
Stock options issued and outstanding | 46,722,408 | 44,099,577 | 34,358,106 | |||||
Unvested stock options exercised | 11,565 | 1,126,210 | 9,806,170 | |||||
Restricted Stock Units | — | 351,721 | 190,517 | |||||
Warrants issued and outstanding | 1,166,145 | 988,513 | 588,660 | |||||
Series E-1 Convertible Preferred Stock warrants | 35,544,141 | 1,254,111 | — | |||||
Series F Convertible Preferred Stock warrants | 177,720,704 | — | — | |||||
Total common stock equivalents excluded from diluted net loss per common share computation | 475,802,888 | 225,208,557 | 222,331,878 |
Convertible Preferred Stock | Par Value | Authorized shares | Outstanding and Issued shares | Liquidation Preference | ||||||||||
Series A | $ | 0.01 | 68,558,220 | 68,558,220 | $ | 19,774 | ||||||||
Series A-1 | 0.01 | 24,760,915 | 24,760,915 | 49,522 | ||||||||||
Series B | 0.01 | 35,775,880 | 35,775,880 | 21,581 | ||||||||||
Series C | 0.01 | 24,404,770 | 24,404,770 | 70,075 | ||||||||||
Series D | 0.01 | 23,888,640 | 23,888,640 | 165,000 | ||||||||||
Series E-1 | 0.01 | 35,544,141 | — | — | ||||||||||
Series E-2 | 0.01 | 16,858,078 | — | — | ||||||||||
Series F | 0.01 | 177,720,707 | 3 | — | ||||||||||
Series G | 0.01 | 37,249,497 | 37,249,497 | 50,000 | ||||||||||
444,760,848 | 214,637,925 | $ | 375,952 |
December 31, 2017 | December 31, 2016 | |||
Volatility | 40.0% | 40.0% | ||
Risk-free interest rate | 2.38% | 2.45% | ||
Remaining contractual term (in years) | 9.04 | 9.96 | ||
Dividend yield | 0% | 0% |
December 31, 2017 | ||
Volatility | 40.0% | |
Risk-free interest rate | 2.38% | |
Remaining contractual term (in years) | 9.16 | |
Dividend yield | 0% |
Balance at January 1, 2016 | $ | — | ||
Warrants vested | 21,704 | |||
Change in Fair Value | 7 | |||
Balance at December 31, 2016 | 21,711 | |||
Warrants Vested | 65,516 | |||
Change in Fair Value | 29,139 | |||
Balance at December 31, 2017 | $ | 116,366 |
Options Issued and Outstanding | Weighted- Average Exercise Price | Weighted Average Contractual Term (in years) | ||||||
Balance as of January 1, 2017 | 41,395,719 | $ | 1.48 | |||||
Options granted | 37,964,549 | $ | 0.28 | |||||
Options exercised – vested | (606,284 | ) | $ | 0.16 | ||||
Options forfeited | (20,123,445 | ) | $ | 0.74 | ||||
Option expirations | (2,500 | ) | $ | 0.22 | ||||
Balance as of December 31, 2017 | 58,628,039 | $ | 0.25 | 8.62 | ||||
Options vested and expected to vest as of December 31, 2017 | 50,670,325 | $ | 0.25 | 8.62 | ||||
Options vested and exercisable at December 31, 2017 | 27,189,177 | $ | 0.20 | 7.99 |
Options Outstanding | Options Vested and Exercisable | ||||||||||||||||
Range of Exercise Prices | Number Outstanding | Weighted – Avg. Remaining Life | Weighted – Avg. Exercise Price | Number Vested | Weighted - Avg. Exercise Price | ||||||||||||
$ | 0.02 - 0.20 | 4,768,290 | 6.04 | $ | 0.11 | 4,768,290 | $ | 0.11 | |||||||||
0.21 - 0.50 | 46,316,491 | 8.69 | 0.22 | 22,398,767 | 0.22 | ||||||||||||
0.51 - 1.13 | 7,543,258 | 9.84 | 0.53 | 22,120 | 1.13 | ||||||||||||
$ | 0.02 - 1.13 | 58,628,039 | 8.62 | $ | 0.25 | 27,189,177 | $ | 0.20 |
Year ended December 31, | ||||||||
2017 | 2016 | 2015 | ||||||
Volatility of common stock | 49.24 | % | 50.88 | % | 55.69 | % | ||
Risk-free interest rate | 2.12 | % | 1.29 | % | 1.74 | % | ||
Expected life | 6.0 years | 5.8 years | 6.0 years | |||||
Dividend yield | — | % | — | % | — | % |
Number of Shares | Weighted-Average Grant Date Fair Value | ||||
Unvested at January 1, 2017 | 1,995,159 | 2.16 | |||
Granted | 12,500 | 0.22 | |||
Vested | — | — | |||
Forfeited | (608,479 | ) | 2.18 | ||
Unvested - December 31, 2017 | 1,399,180 | 2.16 |
December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
Origination and Servicing | $ | 996 | $ | 2,004 | $ | 1,231 | |||||
Sales and Marketing | 553 | 2,914 | 2,561 | ||||||||
General and Administrative | 10,689 | 14,824 | 9,219 | ||||||||
Restructuring | — | 45 | — | ||||||||
Total stock based compensation | $ | 12,238 | $ | 19,787 | $ | 13,011 |
Severance Related | Facilities Related | Total | |||||||||
Balance January 1, 2016 | — | — | — | ||||||||
Adjustments to expense | 7,256 | 8,735 | 15,991 | ||||||||
Transfer from deferred rent | — | 764 | 764 | ||||||||
Less: Cash paid | (6,659 | ) | (3,447 | ) | (10,106 | ) | |||||
Balance December 31, 2016 | 597 | 6,052 | 6,649 | ||||||||
Adjustments to expense | (13 | ) | 1,227 | 1,214 | |||||||
Sublease cash receipts | — | 210 | 210 | ||||||||
Less: Cash paid | (584 | ) | (4,245 | ) | (4,829 | ) | |||||
Balance December 31, 2017 | $ | — | $ | 3,244 | $ | 3,244 |
Year Ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
Current: | |||||||||||
Federal | $ | — | $ | — | $ | — | |||||
State | — | — | — | ||||||||
Foreign | — | 124 | (5 | ) | |||||||
Total Current Income Tax (Benefit) | — | 124 | (5 | ) | |||||||
Deferred: | |||||||||||
Federal | (579 | ) | 394 | 320 | |||||||
State | 37 | 28 | 25 | ||||||||
Foreign | 34 | — | — | ||||||||
Total Deferred Income Tax | (508 | ) | 422 | 345 | |||||||
Total Income Tax | $ | (508 | ) | $ | 546 | $ | 340 |
Year Ended December 31, | ||||||||
2017 | 2016 | 2015 | ||||||
Federal tax at statutory rate | 34 | % | 34 | % | 34 | % | ||
State tax at statutory rate (net of federal benefit) | 7 | % | 7 | % | 12 | % | ||
Change to Uncertain Tax Position | — | % | — | % | 10 | % | ||
Permanent Items | — | % | (1 | )% | — | % | ||
Change in U.S. Tax Rate Applied to Deferred Taxes | (31 | )% | — | % | — | % | ||
Incentive Stock Options | (1 | )% | (2 | )% | (9 | )% | ||
Acquisition Related Costs | — | % | — | % | (3 | )% | ||
Preferred Stock Warrants | (21 | )% | — | % | — | % | ||
Change in valuation allowance | 11 | % | (37 | )% | (46 | )% | ||
Credits and Reserves | — | % | — | % | — | % | ||
Other | 1 | % | (1 | )% | 1 | % | ||
— | % | — | % | (1 | )% |
December 31, | |||||||
2017 | 2016 | ||||||
Net operating loss carry forwards | $ | 74,890 | $ | 85,759 | |||
Research & other credits | 725 | 626 | |||||
Settlement liability | — | 1,230 | |||||
Stock compensation | 7,653 | 7,300 | |||||
Accrued liabilities | 3,028 | 4,884 | |||||
Restructuring liability | 974 | 2,424 | |||||
Other | 21 | 62 | |||||
Deferred tax assets | 87,291 | 102,285 | |||||
Fair value of loans | (493 | ) | (1,045 | ) | |||
Net servicing rights | (3,500 | ) | (4,895 | ) | |||
Fixed assets | (73 | ) | (1,226 | ) | |||
Intangible assets | (2,357 | ) | (3,226 | ) | |||
Foreign Earnings | (187 | ) | (270 | ) | |||
Deferred tax liabilities | (6,610 | ) | (10,662 | ) | |||
Net deferred tax assets | 80,681 | 91,623 | |||||
Valuation allowance | (80,906 | ) | (92,389 | ) | |||
Net deferred tax liabilities | $ | (225 | ) | $ | (766 | ) |
December 31, 2017 | December 31, 2016 | ||||||
Balance at January 1, | $ | 913 | $ | 913 | |||
Decrease related to current year tax position | (801 | ) | — | ||||
Balance at December 31, | $ | 112 | $ | 913 |
Loans Acquired (in thousands) | Warrants Vested | |||||
On signing of the Consortium Purchase Agreement | $ | — | 9,830,494 | |||
Loans Purchased by the Consortium during the year ended December 31, 2017 | 1,826,527 | 65,355,508 | ||||
Total as of December 31, 2017 | $ | 1,826,527 | 75,186,002 |
2018 | $ | 4,529 | |
2019 | 5,046 | ||
2020 | 5,534 | ||
2021 | 5,492 | ||
2022 | 5,377 | ||
Thereafter | 5,602 | ||
Total | $ | 31,580 |
Related Party | Aggregate Amount of Notes Purchased | Interest Earned on Notes | ||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Executive officers and management | $ | 29 | $ | 1,065 | $ | 109 | $ | 225 | ||||||||
Directors | 366 | 508 | 40 | 34 | ||||||||||||
Total | $ | 395 | $ | 1,573 | $ | 149 | $ | 259 |
Related Party | Notes balance as of December 31, | |||||||
2017 | 2016 | |||||||
Executive officers and management | $ | 38 | $ | 1,620 | ||||
Directors | 553 | 537 | ||||||
$ | 591 | $ | 2,157 |
December 31, 2017 | December 31, 2016 | ||||||
Assets | |||||||
Cash and Cash Equivalents | $ | 8,223 | $ | 6,929 | |||
Restricted Cash | 140,092 | 147,983 | |||||
Short Term Investments | — | 1,280 | |||||
Loans Held for Sale at Fair Value | 49 | 624 | |||||
Borrower Loans Receivable at Fair Value | 293,005 | 315,627 | |||||
Property and Equipment, Net | 7,953 | 10,095 | |||||
Servicing Assets | 14,598 | 12,461 | |||||
Other Assets | 125 | 186 | |||||
Total Assets | $ | 464,045 | $ | 495,185 | |||
Liabilities and Member's Equity | |||||||
Accounts Payable and Accrued Liabilities | $ | 745 | $ | 2,223 | |||
Payable to Related Party | 2,889 | 1,899 | |||||
Payable to Investors | 132,112 | 141,625 | |||||
Notes at Fair Value | 293,948 | 316,236 | |||||
Other Liabilities | 3,985 | 1,877 | |||||
Total Liabilities | 433,679 | 463,860 | |||||
Member's Equity | |||||||
Member's Equity | 24,904 | 30,704 | |||||
Retained Earnings | 5,462 | 621 | |||||
Total Member's Equity | 30,366 | 31,325 | |||||
Total Liabilities and Member's Equity | $ | 464,045 | $ | 495,185 |
Year ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
Revenues | |||||||||||
Operating Revenues | |||||||||||
Administration Fee Revenue – Related Party | $ | 101,500 | $ | 36,630 | $ | 57,919 | |||||
Servicing Fees, Net | 25,963 | 28,604 | 16,218 | ||||||||
Gain (Loss) on Sale of Borrower Loans | (48,691 | ) | 3,637 | 14,151 | |||||||
Other Revenues | 170 | 478 | 1,500 | ||||||||
Total Operating Revenues | 78,942 | 69,349 | 89,788 | ||||||||
Interest Income on Borrower Loans | 47,208 | 44,649 | 41,380 | ||||||||
Interest Expense on Notes | (43,954 | ) | (41,187 | ) | (38,174 | ) | |||||
Net Interest Income | 3,254 | 3,462 | 3,206 | ||||||||
Change in Fair Value on Borrower Loans, Loans Held for Sale and Notes, Net | (514 | ) | (372 | ) | 59 | ||||||
Total Net Revenues | 81,682 | 72,439 | 93,053 | ||||||||
Expenses | |||||||||||
Administration Fee – Related Party | 70,359 | 62,203 | 62,786 | ||||||||
Servicing | 6,103 | 5,395 | 3,705 | ||||||||
General and Administrative | 379 | 1,321 | 1,227 | ||||||||
Other Expenses, Net | — | 30,704 | — | ||||||||
Total Expenses | 76,841 | 99,623 | 67,718 | ||||||||
Total Net Income (Loss) | $ | 4,841 | $ | (27,184 | ) | $ | 25,335 |
Member’s Equity | Retained Earnings (Accumulated Deficit) | Total | |||||||||
Balance as of January 1, 2015 | $ | 29,619 | $ | 16,672 | $ | 46,291 | |||||
Distributions to Parent | (29,370 | ) | (6,130 | ) | (35,500 | ) | |||||
Transfer of Servicing Rights to Parent | (249 | ) | — | (249 | ) | ||||||
Adjustment to Servicing Rights on Transition to Fair Value | — | 428 | 428 | ||||||||
Net Income | — | 25,335 | 25,335 | ||||||||
Balance as of December 31, 2015 | $ | — | $ | 36,305 | $ | 36,305 | |||||
Distributions to Parent | — | (8,500 | ) | (8,500 | ) | ||||||
Contributions by Parent | 30,704 | — | 30,704 | ||||||||
Net Income (Loss) | — | (27,184 | ) | (27,184 | ) | ||||||
Balance as of December 31, 2016 | $ | 30,704 | $ | 621 | $ | 31,325 | |||||
Distributions to Parent | (5,800 | ) | — | (5,800 | ) | ||||||
Net Income | — | 4,841 | 4,841 | ||||||||
Balance as of December 31, 2017 | $ | 24,904 | $ | 5,462 | $ | 30,366 |
For the Twelve Months Ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
Cash flows from operating activities: | |||||||||||
Net Income (Loss) | $ | 4,841 | $ | (27,184 | ) | $ | 25,335 | ||||
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: | |||||||||||
Change in Fair Value of Borrower Loans, Loans Held for Sale and Notes | 514 | 372 | (59 | ) | |||||||
Other Non-Cash Changes in Borrower Loans, Loans Held for Sale and Notes | 86 | 176 | (57 | ) | |||||||
Gain on Sale of Borrower Loans | (14,138 | ) | (9,634 | ) | (14,561 | ) | |||||
Change in Fair Value of Servicing Rights | 11,862 | 10,620 | 4,176 | ||||||||
Depreciation and Amortization | 5,853 | 4,083 | 3,161 | ||||||||
Loss on Contract Termination | — | 30,704 | — | ||||||||
Other, Net | — | (128 | ) | — | |||||||
Changes in Operating Assets and Liabilities: | |||||||||||
Purchase of Loans Held for Sale at Fair Value | (2,619,130 | ) | (1,979,952 | ) | (3,517,467 | ) | |||||
Proceeds from Sales and Principal Payments of Loans Held for Sale at Fair Value | 2,619,709 | 1,979,352 | 3,525,759 | ||||||||
Restricted Cash Except for those Related to Investing Activities | 11,223 | (5,268 | ) | (68,776 | ) | ||||||
Other Assets | 61 | (64 | ) | (118 | ) | ||||||
Accounts Payable and Accrued Liabilities | (1,478 | ) | 101 | 1,510 | |||||||
Payable to Investors | (9,513 | ) | 5,964 | 71,852 | |||||||
Net Related Party Receivable/Payable | 2,371 | (1,260 | ) | 2,880 | |||||||
Other Liabilities | 2,247 | 954 | 539 | ||||||||
Net Cash Provided by Operating Activities | 14,508 | 8,836 | 34,174 | ||||||||
Cash Flows From Investing Activities: | |||||||||||
Purchase of Borrower Loans Held at Fair Value | (194,887 | ) | (217,582 | ) | (197,436 | ) | |||||
Principal Payment of Borrower Loans Held at Fair Value | 192,054 | 173,710 | 151,893 | ||||||||
Purchase of Short Term Investments | — | (1,280 | ) | (1,277 | ) | ||||||
Maturities of Short Term Investments | 1,280 | 1,277 | 1,274 | ||||||||
Purchases of Property and Equipment | (5,092 | ) | (5,589 | ) | (9,211 | ) | |||||
Changes in Restricted Cash Related to Investing Activities | (3,332 | ) | (2,778 | ) | 1,942 | ||||||
Net Cash Used in Investing Activities | (9,977 | ) | (52,242 | ) | (52,815 | ) | |||||
Cash Flows from Financing Activities: | |||||||||||
Proceeds from Issuance of Notes Held at Fair Value | 194,391 | 217,767 | 197,228 | ||||||||
Payments of Notes Held at Fair Value | (191,828 | ) | (173,958 | ) | (151,838 | ) | |||||
Cash Distributions to Parent | (5,800 | ) | (8,500 | ) | (35,500 | ) | |||||
Loan Advances to Parent | — | — | (10,000 | ) | |||||||
Loan Repayments from Parent | — | — | 10,000 | ||||||||
Net Cash (Used in) Provided by Financing Activities | (3,237 | ) | 35,309 | 9,890 | |||||||
Net Increase (Decrease) in Cash and Cash Equivalents | 1,294 | (8,097 | ) | (8,751 | ) | ||||||
Cash and Cash Equivalents at Beginning of the Year | 6,929 | 15,026 | 23,777 | ||||||||
Cash and Cash Equivalents at End of the Year | $ | 8,223 | $ | 6,929 | $ | 15,026 | |||||
Supplemental Disclosure of Cash Flow Information: | |||||||||||
Cash Paid for Interest | $ | 43,776 | $ | 40,597 | $ | 38,168 | |||||
Non-Cash Operating Activity - Servicing Rights Fair Value Adjustment | — | — | 428 | ||||||||
Non-Cash Investing Activity- Accrual for Property and Equipment, Net | 225 | 1,606 | 1,436 | ||||||||
Non-Cash Financing Activity, Distribution to Parent | $ | — | $ | — | $ | 249 | |||||
Non-Cash Financing Activity, Contribution by Parent | $ | — | $ | 30,704 | $ | — |
December 31, | |||||||
2017 | 2016 | ||||||
Property and equipment: | |||||||
Internal-use software and web site development costs | $ | 19,911 | $ | 16,749 | |||
Property and equipment | 19,911 | 16,749 | |||||
Less accumulated depreciation and amortization | (11,958 | ) | (6,654 | ) | |||
Total property and equipment, net | $ | 7,953 | $ | 10,095 |
Borrower Loans | Notes | Loans Held for Sale | |||||||||||||||||||||
December 31, 2017 | December 31, 2016 | December 31, 2017 | December 31, 2016 | December 31, 2017 | December 31, 2016 | ||||||||||||||||||
Aggregate principal balance outstanding | $ | 296,668 | $ | 319,143 | $ | (300,922 | ) | $ | (323,358 | ) | $ | 59 | $ | 641 | |||||||||
Fair value adjustments | (3,663 | ) | (3,516 | ) | 6,974 | 7,122 | (10 | ) | (17 | ) | |||||||||||||
Fair value | $ | 293,005 | $ | 315,627 | $ | (293,948 | ) | $ | (316,236 | ) | $ | 49 | $ | 624 |
December 31, 2017 | Level 1 Inputs | Level 2 Inputs | Level 3 Inputs | Fair Value | |||||||||||
Assets | |||||||||||||||
Borrower Loans | $ | — | $ | — | $ | 293,005 | $ | 293,005 | |||||||
Servicing Assets | — | — | 14,598 | $ | 14,598 | ||||||||||
Loans Held for Sale | — | — | 49 | 49 | |||||||||||
Total Assets | — | — | 307,652 | 307,652 | |||||||||||
Liabilities | |||||||||||||||
Notes | $ | — | $ | — | $ | 293,948 | $ | 293,948 | |||||||
Servicing Liabilities | — | — | 59 | 59 | |||||||||||
Loan Trailing Fee Liability | — | — | 2,595 | 2,595 | |||||||||||
Total Liabilities | $ | — | $ | — | $ | 296,602 | $ | 296,602 |
December 31, 2016 | Level 1 Inputs | Level 2 Inputs | Level 3 Inputs | Fair Value | |||||||||||
Assets | |||||||||||||||
Borrower Loans | $ | — | $ | — | $ | 315,627 | $ | 315,627 | |||||||
Servicing Assets | — | — | 12,461 | 12,461 | |||||||||||
Loans Held for Sale | — | — | 624 | 624 | |||||||||||
Total Assets | — | — | 328,712 | 328,712 | |||||||||||
Liabilities | |||||||||||||||
Notes | $ | — | $ | — | $ | 316,236 | $ | 316,236 | |||||||
Servicing Liabilities | — | — | 198 | 198 | |||||||||||
Loan Trailing Fee Liability | — | — | 665 | 665 | |||||||||||
Total Liabilities | — | — | 317,099 | 317,099 |
Range | ||||
Unobservable Input | December 31, 2017 | December 31, 2016 | ||
Discount rate | 4.0% - 14.4% | 4.0% - 15.9% | ||
Default rate | 2.0% - 15.4% | 1.7% - 14.9% |
Range | ||||||
Unobservable Input | December 31, 2017 | December 31, 2016 | ||||
Discount rate | 15% - 25% | 15% - 25% | ||||
Default rate | 1.5% - 16.1% | 1.5% - 15.2% | ||||
Prepayment rate | 13.5% - 30.2% | 13.6% - 26.6% | ||||
Market servicing rate (1) | 0.625 | % | 0.625 | % |
Range | ||||
Unobservable Input | December 31, 2017 | December 31, 2016 | ||
Discount rate | 15% - 25% | 15% - 25% | ||
Default rate | 1.5% - 16.1% | 1.5% - 15.2% | ||
Prepayment rate | 13.5% - 30.2% | 13.6% - 26.6% |
Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | ||||||||||||||||
Borrower Loans | Notes | Loans Held for Sale | Total | |||||||||||||
Balance at January 1, 2017 | $ | 315,627 | $ | (316,236 | ) | $ | 624 | $ | 15 | |||||||
Purchase of Borrower Loans/Issuance of Notes | 194,887 | (194,391 | ) | 2,619,130 | 2,619,626 | |||||||||||
Principal repayments | (188,199 | ) | 191,828 | (89 | ) | 3,540 | ||||||||||
Borrower loans sold to third parties | (3,855 | ) | — | (2,619,620 | ) | (2,623,475 | ) | |||||||||
Other changes | 97 | (180 | ) | (3 | ) | (86 | ) | |||||||||
Change in fair value | (25,552 | ) | 25,031 | 7 | (514 | ) | ||||||||||
Balance at December 31, 2017 | $ | 293,005 | $ | (293,948 | ) | $ | 49 | $ | (894 | ) |
Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | ||||||||||||||||
Borrower Loans | Notes | Loans Held for Sale | Total | |||||||||||||
Balance at January 1, 2016 | $ | 297,273 | $ | (297,405 | ) | $ | 32 | $ | (100 | ) | ||||||
Purchase of Borrower Loans/Issuance of Notes | 217,582 | (217,767 | ) | 1,979,952 | 1,979,767 | |||||||||||
Principal repayments | (171,195 | ) | 173,958 | (447 | ) | 2,316 | ||||||||||
Borrower loans sold to third parties | (2,515 | ) | — | (1,978,905 | ) | (1,981,420 | ) | |||||||||
Other changes | 416 | (591 | ) | (1 | ) | (176 | ) | |||||||||
Change in fair value | (25,934 | ) | 25,569 | (7 | ) | (372 | ) | |||||||||
Balance at December 31, 2016 | $ | 315,627 | $ | (316,236 | ) | $ | 624 | $ | 15 |
Servicing Assets | Servicing Liabilities | ||||||
Fair Value at January 1, 2016 | $ | 13,605 | $ | 484 | |||
Additions | 9,833 | 9 | |||||
Less: Changes in fair value | (10,977 | ) | (295 | ) | |||
Balance at December 31, 2016 | $ | 12,461 | $ | 198 | |||
Additions | 14,138 | — | |||||
Less: Changes in fair value | (12,001 | ) | (139 | ) | |||
Fair Value at December 31, 2017 | $ | 14,598 | $ | 59 |
Balance at January 1, 2016 | $ | — | |
Issuances | 647 | ||
Cash payment of Loan Trailing Fee | (21 | ) | |
Change in fair value | 39 | ||
Balance at December 31, 2016 | $ | 665 | |
Issuances | 2,631 | ||
Cash payment of Loan Trailing Fee | (956 | ) | |
Change in fair value | 255 | ||
Balance at December 31, 2017 | $ | 2,595 |
Borrower Loans / Loans Held for Sale | Notes | |||||||
Fair value at December 31, 2017 | $ | 293,054 | $ | 293,948 | ||||
Discount rate assumption: | 7.15 | % | * | 7.15 | % | * | ||
Resulting fair value from: | ||||||||
100 basis point increase | $ | 290,116 | $ | 290,948 | ||||
200 basis point increase | 287,206 | 288,024 | ||||||
Resulting fair value from: | ||||||||
100 basis point decrease | $ | 296,169 | $ | 297,028 | ||||
200 basis point decrease | 299,319 | 300,192 | ||||||
Default rate assumption: | 13.52 | % | * | 13.52 | % | * | ||
Resulting fair value from: | ||||||||
100 basis point increase | $ | 289,386 | $ | 290,202 | ||||
200 basis point increase | 285,792 | 286,581 | ||||||
Resulting fair value from: | ||||||||
100 basis point decrease | $ | 296,868 | $ | 297,742 | ||||
200 basis point decrease | 300,679 | 301,584 |
Servicing Assets | Servicing Liabilities | ||||||
Fair value at December 31, 2017 | $ | 14,598 | $ | 59 | |||
Weighted average market servicing rate assumptions | 0.625 | % | 0.625 | % | |||
Resulting fair value from: | |||||||
Servicing rate increase to 0.65% | 13,670 | 65 | |||||
Servicing rate decrease to 0.60% | 15,525 | 53 | |||||
Weighted average prepayment assumptions | 19.80 | % | 19.80 | % | |||
Resulting fair value from: | |||||||
Applying a 1.1 multiplier to prepayment rate | 14,414 | 59 | |||||
Applying a 0.9 multiplier to prepayment rate | 14,784 | 60 | |||||
Weighted average default assumptions | 13.00 | % | 13.00 | % | |||
Resulting fair value from: | |||||||
Applying a 1.1 multiplier to default rate | 14,403 | 59 | |||||
Applying a 0.9 multiplier to default rate | 14,796 | 59 |
Aggregate Amount of | Interest Earned on | |||||||||||||||
Related Party | Notes Purchased | Notes | ||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Executive officers and management | $ | 29 | $ | 1,065 | $ | 109 | $ | 225 | ||||||||
Directors | — | — | — | — | ||||||||||||
Total | $ | 29 | $ | 1,065 | $ | 109 | $ | 225 |
Related Party | Notes balance as of December 31, | |||||||
2017 | 2016 | |||||||
Executive officers and management | $ | 38 | $ | 1,620 | ||||
Directors | — | — | ||||||
Total | $ | 38 | $ | 1,620 |
Exhibit Number | Description | |
Asset Transfer Agreement, dated January 22, 2013, between Prosper Marketplace, Inc. and Prosper Funding LLC (incorporated by reference to Exhibit 2.1 of PMI and PFL’s Current Report on Form 8-K, filed on January 28, 2013) | ||
Agreement and Plan of Merger dated as of January 23, 2015 by and among Prosper Marketplace, Inc., American HealthCare Lending, LLC (“AHL”), Prosper Healthcare Lending, LLC and Shaun Sorensen, solely in his capacity as agent for AHL’s members and option holders (incorporated by reference to Exhibit 2.1 of PMI’s Current Report on Form 8-K, filed on January 27, 2015) | ||
Agreement and Plan of Merger, dated as of September 23, 2015, by and among Prosper Marketplace, Inc., BillGuard, Inc., Beach Merger Sub, Inc. and Shareholder Representative Services LLC, solely in its capacity as the Stockholders’ Representative (incorporated by reference to Exhibit 2.1 of PMI’s Current Report on Form 8-K, filed on October 15, 2015) | ||
Fifth Amended and Restated Limited Liability Company Agreement of Prosper Funding LLC, dated October 21, 2013 (incorporated by reference to Exhibit 3.1 of Post-Effective Amendment No. 3 to the Registration Statement on Form S-1 (File No. 333-179941), filed on October 23, 2013 by PFL and PMI) | ||
Amended and Restated Certificate of Incorporation of PMI (incorporated by reference to Exhibit 3.2 of PMI and PFL’s Quarterly Report on Form 10-Q, filed on November 13, 2017) | ||
PFL Certificate of Formation (incorporated by reference to Exhibit 3.2 of the Registration Statement on Form S-1/A, filed April 23, 2012 by PFL) | ||
Bylaws of PMI, dated March 22, 2005 (incorporated by reference to Exhibit 3.2 of PMI’s Registration Statement on Form S-1 (File No. 333-147019), filed October 30, 2007) | ||
Form of PFL Borrower Payment Dependent Note (included as Exhibit A in Exhibit 4.5) | ||
Form of PMI Borrower Payment Dependent Note (included as Exhibit A in Exhibit 4.4) |
Exhibit Number | Description | |
Supplemental Indenture, dated January 22, 2013, between Prosper Marketplace, Inc., Prosper Funding LLC and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 4.1 of PMI and PFL’s Current Report on Form 8-K, filed on January 28, 2013) | ||
Indenture, dated June 15, 2009, between Prosper Marketplace, Inc. and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 4.2 of Pre-Effective Amendment No. 5 to PMI’s Registration Statement on Form S-1 (File No. 333-147019), filed on June 26, 2009) | ||
Amended and Restated Indenture, dated January 22, 2013, between Prosper Funding LLC and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 4.2 of PMI and PFL’s Current Report on Form 8-K filed on January 28, 2013) | ||
Form of PFL Borrower Registration Agreement (2) | ||
Form of PFL Investor Registration Agreement (incorporated by reference to Exhibit 10.2 of PMI and PFL’s Annual Report on Form 10-K, filed on March 20, 2017) | ||
Form of PMI Borrower Registration Agreement (incorporated by reference to Exhibit 10.1 of Pre-Effective Amendment No. 1 to PMI’s Registration Statement on Form S-1 (File No. 333-182599), filed on November 19, 2012) | ||
Asset Sale Agreement, dated July 1, 2016, between PFL and WebBank (incorporated by reference to Exhibit 10.1 of PMI and PFL’s Current Report on Form 8-K/A, filed on March 7, 2017) (1) | ||
Marketing Agreement, dated July 1, 2016, between PMI and WebBank (incorporated by reference to Exhibit 10.2 of PMI and PFL’s Current Report on Form 8-K/A, filed on March 7, 2017) (1) | ||
Amendment No. 1 to Administration Agreement between Prosper Funding LLC and Prosper Marketplace, Inc. (incorporated by reference to Exhibit 10.1 of PMI and PFL’s Current Report on Form 10-Q filed on May 14, 2014) | ||
Amendment No. 2 to Administration Agreement between Prosper Funding LLC and Prosper Marketplace, Inc. (incorporated by reference to Exhibit 10.7 of PMI and PFL’s Annual Report on Form 10-K filed on April 6, 2015) | ||
Amendment No. 3 to Administration Agreement between PFL and PMI, dated as of November 8, 2016 and made effective as of July 1, 2016 (incorporated by reference to Exhibit 10.8 of PMI and PFL's Annual Report on Form 10-K, filed on March 20, 2017) | ||
Services and Indemnity Agreement, dated March 1, 2012, between Global Securitization Services, LLC, Kevin Burns, Bernard Angelo, Prosper Marketplace, Inc. and Prosper Funding LLC (incorporated by reference to Exhibit 10.8 of Pre-Effective Amendment No. 3 to PFL and PMI’s Registration Statement on Form S-1 (File Nos. 333-179941 and 333-179941-01), filed on November 21, 2012) | ||
Second Amended and Restated Loan Sale Agreement, dated January 25, 2013, between WebBank, Prosper Marketplace, Inc. and Prosper Funding LLC (incorporated by reference to Exhibit 10.5 of PMI and PFL’s Current Report on Form 8-K, filed on January 28, 2013) (1) | ||
Second Amended and Restated Loan Account Program Agreement, dated January 25, 2013, between WebBank and Prosper Marketplace, Inc. (incorporated by reference to Exhibit 10.6 of PMI and PFL’s Current Report on Form 8-K, filed on January 28, 2013) (1) | ||
Stand By Loan Purchase Agreement, dated January 25, 2013, between WebBank and Prosper Marketplace, Inc. (incorporated by reference to Exhibit 10.7 of PMI and PFL’s Current Report on Form 8-K, filed on January 28, 2013) (1) | ||
Amended and Restated Loan Sale Agreement, dated September 14, 2010, between WebBank and Prosper Marketplace, Inc. (incorporated by reference to Exhibit 10.4 of PMI’s Quarterly Report on Form 10-Q, filed on November 12, 2010) (1) | ||
Amended and Restated Loan Account Program Agreement, dated September 14, 2010, between WebBank and Prosper Marketplace, Inc. (incorporated by reference to Exhibit 10.3 of PMI’s Quarterly Report on Form 10-Q, filed on November 12, 2010) (1) | ||
Indemnification Agreement, dated January 15, 2013, between Prosper Marketplace, Inc. and Patrick Grady (incorporated by reference to Exhibit 10.20 of PMI and PFL’s Annual Report on Form 10-K, filed on March 31, 2014) (3) | ||
Exhibit Number | Description | |
Form of Indemnification Agreement for PMI’s directors (other than Patrick Grady), officers and key employees (3) | ||
Form of PMI interim Borrower Registration Agreement (incorporated by reference to Exhibit 10.12 to Post-Effective Amendment No. 1 to PMI's Registration Statement on Form S-1 (File No. 333-182599) filed on January 7, 2013) | ||
Form of PMI interim Lender Registration Agreement (incorporated by reference to Exhibit 10.13 to Post-Effective Amendment No. 1 to PMI's Registration Statement on Form S-1 (File No. 333-182599) filed on January 7, 2013) | ||
Back-Up Servicing Agreement (Note Channel), dated as of February 24, 2017, among PFL, PMI, and First Associates Loan Servicing, LLC (incorporated by reference to Exhibit 10.10 of PMI and PFL’s Quarterly Report on Form 10-Q, filed on May 15, 2017) (1) | ||
Amended and Restated Services and Indemnity Agreement, dated May 30, 2013, between Prosper Funding LLC, Prosper Marketplace, Inc., Global Securititization Services, LLC, Bernard J. Angelo and David V. DeAngelis (incorporated by reference to Exhibit 10.1 of PMI and PFL’s Current Report on Form 8-K, filed on June 5, 2013) (3) | ||
Second Amendment to Second Amended and Restated Loan Sale Agreement, dated October 27, 2015, between PMI, PFL and WebBank (incorporated by reference to Exhibit 10.2 of PMI and PFL’s Quarterly Report on Form 10-Q filed on November 9, 2015) | ||
Amended and Restated Prosper Marketplace, Inc. 2005 Stock Plan (incorporated by reference to Exhibit 4.2 of PMI’s Registration Statement on Form S-8 filed on May 29, 2014) (3) | ||
Prosper Marketplace, Inc. 2015 Equity Incentive Plan (incorporated by reference to Exhibit 4.1 of PMI’s Registration Statement on Form S-8 filed on May 12, 2015) (3) | ||
Amendment No. 1 to Prosper Marketplace, Inc. 2015 Equity Incentive Plan (incorporated by reference to Exhibit 4.1 of PMI’s Registration Statement on Form S-8 filed on April 13, 2016) (3) | ||
Amendment No. 2 to Prosper Marketplace, Inc. 2015 Equity Incentive Plan (incorporated by reference to Exhibit 4.1 of PMI’s Registration Statement on Form S-8 filed on August 15, 2016) (3) | ||
Form of Stock Option Agreement under the Prosper Marketplace, Inc. 2015 Equity Incentive Plan (incorporated by reference to Exhibit 10.29 of PMI and PFL’s Annual Report on Form 10-K, filed on March 18, 2016) (3) | ||
Form of Restricted Stock Unit Grant Notice and Restricted Stock Unit Award Agreement under the Prosper Marketplace, Inc. 2015 Equity Incentive Plan (incorporated by reference to Exhibit 10.30 of PMI and PFL’s Annual Report on Form 10-K, filed on March 18, 2016) (3) | ||
Asset Sale Agreement, dated July 1, 2016, between WebBank and Prosper Funding LLC (incorporated by reference to Exhibit 10.1 of PMI and PFL’s Current Report on Form 8-K/A, filed on March 7, 2017) (1) | ||
Marketing Agreement, dated July 1, 2016, between WebBank and Prosper Marketplace, Inc. (incorporated by reference to Exhibit 10.2 of PMI and PFL’s Current Report on Form 8-K/A, filed on March 7, 2017) (1) | ||
Stand By Purchase Agreement, dated July 1, 2016, between WebBank and Prosper Marketplace, Inc. (incorporated by reference to Exhibit 10.3 of PMI and PFL’s Current Report on Form 8-K, filed on July 8, 2016) (1) | ||
Warrant Agreement, dated as of February 27, 2017, among PMI, PF WarrantCo Holdings, LP, and, for certain limited purposes, New Residential Investment Corp (incorporated by reference to Exhibit 10.9 of PMI and PFL’s Quarterly Report on Form 10-Q, filed on May 15, 2017) (1) | ||
Amendment No. 4 to Administration Agreement between PFL and PMI, dated as of January 25, 2018 (2) | ||
Subsidiaries of Prosper Marketplace, Inc. (2) | ||
Subsidiaries of Prosper Funding LLC (2) | ||
Consent of Independent Registered Accounting Firm (2) | ||
Certification of Chief Executive Officer of PMI Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (2) | ||
Exhibit Number | Description | |
Certification of Principal Financial Officer of PMI pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (2) | ||
Certification of Chief Executive Officer of PFL Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
Certification of Treasurer of PFL Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (2) | ||
Certification of Principal Executive Officer and Principal Financial Officer of PMI pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (2) | ||
Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, with respect to PFL’s Annual Report on Form 10-K for the year ended December 31, 2017. (2) | ||
(1) | Certain portions of this exhibit have been omitted and filed separately with the Commission pursuant to a request for confidential treatment under Rule 406 of the Securities Act. |
(2) | Filed herewith. |
(3) | Management contract or compensatory plan or arrangement. |
PROSPER MARKETPLACE, INC. | ||
By: | /s/ David Kimball | |
David Kimball | ||
Chief Executive Officer (Principal Executive Officer) Director |
Name | Title | Date | ||
/s/ David Kimball | Chief Executive Officer (Principal Executive Officer); Director | March 23, 2018 | ||
David Kimball | ||||
/s/ Usama Ashraf | Chief Financial Officer (Principal Financial and Accounting Officer) | March 23, 2018 | ||
Usama Ashraf | ||||
/s/ Claire A. Huang | Director | March 23, 2018 | ||
Claire A. Huang | ||||
/s/ Rajeev V. Date | Director | March 23, 2018 | ||
Rajeev V. Date | ||||
/s/ Patrick W. Grady | Director | March 23, 2018 | ||
Patrick W. Grady | ||||
/s/ David R. Golob | Director | March 23, 2018 | ||
David R. Golob | ||||
/s/ Nigel W. Morris | Director | March 23, 2018 | ||
Nigel W. Morris | ||||
/s/ Mason D. Haupt | Director | March 23, 2018 | ||
Mason D. Haupt | ||||
PROSPER FUNDING LLC | ||
By: | /s/ David Kimball | |
David Kimball | ||
Chief Executive Officer (Principal Executive Officer); Director |
Name | Title | |||
/s/ David Kimball | Chief Executive Officer (Principal Executive Officer); Director | March 23, 2018 | ||
David Kimball | ||||
/s/ Usama Ashraf | Chief Financial Officer, Treasurer (Principal Financing and Accounting Officer); Director | March 23, 2018 | ||
Usama Ashraf | ||||
/s/ Bernard J. Angelo | Director | March 23, 2018 | ||
Bernard J. Angelo | ||||
/s/ David V. DeAngelis | Director | March 23, 2018 | ||
David V. DeAngelis |
Address: | 221 Main Street, 3rd Floor |
Address: | 221 Main Street, 3rd Floor |
Address: | 221 Main Street, 3rd Floor |
Address: | 221 Main Street, 3rd Floor |
Address: | 221 Main Street, 3rd Floor |
Address: | 221 Main Street, 3rd Floor |
Entity Name | State of Organization | ||
Prosper Funding LLC | Delaware | ||
Prosper Healthcare Lending LLC | Delaware | ||
BillGuard, Inc. | Delaware |
Entity Name | State of Organization | ||
Prosper Asset Holdings LLC | Delaware | ||
Prosper Depositor LLC | Delaware |
1. | I have reviewed this Annual Report on Form 10-K of Prosper Marketplace, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: March 23, 2018 | /s/ David Kimball | |
David Kimball | ||
Chief Executive Officer of Prosper Marketplace, Inc. | ||
(Principal Executive Officer) |
1. | I have reviewed this Annual Report on Form 10-K of Prosper Marketplace, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: March 23, 2018 | /s/ Usama Ashraf | |
Usama Ashraf | ||
Chief Financial Officer of Prosper Marketplace, Inc. | ||
(Principal Financial Officer and Principal Accounting Officer) |
1. | I have reviewed this Annual Report on Form 10-K of Prosper Funding LLC; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: March 23, 2018 | /s/ David Kimball | |
David Kimball | ||
Chief Executive Officer of Prosper Funding LLC | ||
(Principal Executive Officer) |
1. | I have reviewed this Annual Report on Form 10-K of Prosper Funding LLC; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: March 23, 2018 | /s/ Usama Ashraf | |
Usama Ashraf | ||
Chief Financial Officer of Prosper Funding LLC | ||
(Principal Financial Officer and Principal Accounting Officer) |
1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of PMI. |
Date: March 23, 2018 | /s/ David Kimball | |
David Kimball | ||
Chief Executive Officer of Prosper Marketplace, Inc. | ||
(Principal Executive Officer) | ||
/s/ Usama Ashraf | ||
Usama Ashraf | ||
Chief Financial Officer of Prosper Marketplace, Inc. | ||
(Principal Financial Officer and Principal Accounting Officer) |
1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Prosper Funding. |
Date: March 23, 2018 | /s/ David Kimball | |
David Kimball | ||
Chief Executive Officer of Prosper Funding LLC | ||
(Principal Executive Officer) | ||
/s/ Usama Ashraf | ||
Usama Ashraf | ||
Chief Financial Officer of Prosper Marketplace, Inc. | ||
(Principal Financial Officer and Principal Accounting Officer) |
Consolidated Statements of Operations - USD ($) |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Operating Revenues | |||
Transaction Fees, Net | $ 130,174,000 | $ 95,130,000 | $ 161,708,000 |
Servicing Fees, Net | 27,206,000 | 28,903,000 | 17,238,000 |
Gain on Sale of Borrower Loans | 11,431,000 | 3,637,000 | 14,151,000 |
Fair Value of Warrants Vested on Sale of Borrower Loans | (60,122,000) | 0 | 0 |
Other Revenues | 4,806,000 | 5,245,000 | 7,687,000 |
Total Operating Revenues | 113,495,000 | 132,915,000 | 200,784,000 |
Interest Income | |||
Interest Income on Borrower Loans | 47,208,000 | 44,649,000 | 41,606,000 |
Interest Expense on Notes | (43,954,000) | (41,187,000) | (38,174,000) |
Net Interest Income | 3,254,000 | 3,462,000 | 3,432,000 |
Change in Fair Value of Borrower Loans, Loans Held for Sale and Notes, Net | (514,000) | (372,000) | 59,000 |
Total Net Revenues | 116,235,000 | 136,005,000 | 204,275,000 |
Expenses | |||
Origination and Servicing | 34,881,000 | 33,944,000 | 31,139,000 |
Sales and Marketing | 83,462,000 | 70,146,000 | 112,284,000 |
General and Administrative | 75,686,000 | 102,735,000 | 86,480,000 |
Restructuring Charges, Net | 1,340,000 | 17,027,000 | 0 |
Change in Fair Value of Convertible Stock Warrants | 29,140,000 | 7,000 | 0 |
Other Expenses, Net | 7,392,000 | 30,341,000 | 0 |
Total Expenses | 231,901,000 | 254,200,000 | 229,903,000 |
Net Loss Before Taxes | (115,666,000) | (118,195,000) | (25,628,000) |
Income Tax Expense | (508,000) | 546,000 | 340,000 |
Net Loss | $ (115,158,000) | $ (118,741,000) | $ (25,968,000) |
Net Loss Per Share – Basic and Diluted (in dollars per share) | $ (1.65) | $ (1.85) | $ (0.47) |
Weighted-Average Shares - Basic and Diluted (in shares) | 69,687,836 | 64,196,537 | 55,547,408 |
Prosper Funding LLC | |||
Operating Revenues | |||
Administration Fee Revenue – Related Party | $ 101,500,000 | $ 36,630,000 | $ 57,919,000 |
Servicing Fees, Net | 25,963,000 | 28,604,000 | 16,218,000 |
Gain on Sale of Borrower Loans | (48,691,000) | 3,637,000 | 14,151,000 |
Other Revenues | 170,000 | 478,000 | 1,500,000 |
Total Operating Revenues | 78,942,000 | 69,349,000 | 89,788,000 |
Interest Income | |||
Interest Income on Borrower Loans | 47,208,000 | 44,649,000 | 41,380,000 |
Interest Expense on Notes | (43,954,000) | (41,187,000) | (38,174,000) |
Net Interest Income | 3,254,000 | 3,462,000 | 3,206,000 |
Change in Fair Value of Borrower Loans, Loans Held for Sale and Notes, Net | (514,000) | (372,000) | 59,000 |
Total Net Revenues | 81,682,000 | 72,439,000 | 93,053,000 |
Expenses | |||
Administration Fee – Related Party | 70,359,000 | 62,203,000 | 62,786,000 |
Servicing | 6,103,000 | 5,395,000 | 3,705,000 |
General and Administrative | 379,000 | 1,321,000 | 1,227,000 |
Other Expenses, Net | 0 | 30,704,000 | 0 |
Total Expenses | 76,841,000 | 99,623,000 | 67,718,000 |
Income Tax Expense | 0 | 0 | 0 |
Net Loss | $ 4,841,000 | $ (27,184,000) | $ 25,335,000 |
Consolidated Statements of Other Comprehensive Loss - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Statement of Comprehensive Income [Abstract] | |||
Net Loss | $ (115,158) | $ (118,741) | $ (25,968) |
Other Comprehensive Income (Loss), Before Tax | |||
Change in Net Unrealized Gain (Loss) on Available for Sale Investments, at Fair Value | (74) | 148 | (144) |
Realized (Gain) Loss on Sale of Available for Sale Investments, at Fair Value | 9 | (12) | 0 |
Other Comprehensive Income (Loss), Before Tax | (65) | 136 | (144) |
Income tax effect | 0 | 0 | 0 |
Other Comprehensive Income (Loss), Net of Tax | (65) | 136 | (144) |
Comprehensive Loss | $ (115,223) | $ (118,605) | $ (26,112) |
Organization and Business |
12 Months Ended |
---|---|
Dec. 31, 2017 | |
Entity Information [Line Items] | |
Organization and Business | Organization and Business Prosper Marketplace, Inc. (“PMI”) was incorporated in the state of Delaware on March 22, 2005. Except as the context requires otherwise, as used in these Notes to Consolidated Financial Statements of Prosper Marketplace, Inc., “Prosper,” “we,” “us,” and “our” refer to PMI and its wholly-owned subsidiaries, on a consolidated basis. PMI developed a peer-to-peer online credit marketplace (the “marketplace”), and, in February 2013, transferred ownership of the marketplace to Prosper Funding LLC (“PFL”), its wholly-owned subsidiary. All of the borrower payment dependent notes (“Notes”) issued and sold through the marketplace today are issued and sold by PFL. PFL also operates the marketplace and facilitates the origination of unsecured, consumer loans by WebBank (“Borrower Loans”), an FDIC-insured, Utah-chartered industrial bank, through the marketplace. Pursuant to a Loan Account Program Agreement between PMI and WebBank, PMI manages the operation of the marketplace, as agent of WebBank, in connection with the submission of loan applications by potential borrowers, the origination of related loans by WebBank and the funding of such Borrower Loans by WebBank. On February 1, 2013, PFL entered into an Administration Agreement with PMI in its capacity as licensee, corporate administrator, loan marketplace administrator and loan and note servicer, pursuant to which PMI provides certain back office support, loan platform administration and loan servicing to PFL. The marketplace is designed to allow investors to invest in Borrower Loans in an open, transparent marketplace, with the aim of allowing both investors and borrowers to benefit financially as well as socially. Prosper believes marketplace lending represents a model of consumer lending, where individuals and institutions can earn the interest spread of a traditional consumer lender but must also assume the credit risk of a traditional consumer lender. A borrower who wishes to obtain a Borrower Loan through the marketplace must post a loan listing on the marketplace. Listings are allocated to one of two investor funding channels: (i) the “Note Channel,” which allows investors to commit to purchase Notes from PFL, the payments of which are dependent on PFL’s receipt of payments made on the corresponding Borrower Loan; and (ii) the “Whole Loan Channel,” which allows investors to commit to purchase 100% of a Borrower Loan directly from Prosper. As of December 31, 2017, the marketplace is open to investors in 30 states and the District of Columbia. Additionally, as of December 31, 2017, the marketplace is open to borrowers in 46 states and the District of Columbia. Currently our marketplace does not operate internationally. |
Prosper Funding LLC | |
Entity Information [Line Items] | |
Organization and Business | Organization and Business Prosper Funding LLC (“PFL”) was formed in the state of Delaware in February 2012 as a limited liability company with the sole equity member being Prosper Marketplace, Inc. (“PMI”). Except as the context otherwise requires, as used in these Notes to Consolidated Financial Statements of Prosper Funding LLC, “Prosper Funding,” “we,” “us,” and “our” refers to PFL and its wholly owned subsidiary, Prosper Asset Holdings LLC (“PAH”), a Delaware limited liability company, on a consolidated basis. PFL was formed by PMI to hold Borrower Loans and issue Notes through the marketplace. Although Prosper Funding is consolidated with PMI for accounting and tax purposes, Prosper Funding has been organized and is operated in a manner that is intended to minimize the likelihood that it would be substantively consolidated with PMI in a bankruptcy proceeding. Prosper Funding’s intention is to minimize the likelihood that its assets would be subject to claims by PMI’s creditors if PMI were to file for bankruptcy, as well as to minimize the likelihood that Prosper Funding will become subject to bankruptcy proceedings directly. Prosper Funding seeks to achieve this by placing certain restrictions on its activities and implementing certain formal procedures designed to expressly reinforce its status as a distinct entity from PMI. Since February 1, 2013, all Notes issued and sold through the marketplace are issued, sold and serviced by PFL. Pursuant to a Loan Account Program Agreement between PMI and WebBank, PMI manages the operation of the marketplace, as agent of WebBank, in connection with the submission of Borrower Loan applications by potential borrowers, the origination of related Borrower Loans by WebBank and the funding of such Borrower Loans by WebBank. Pursuant to an Administration Agreement between PFL and PMI, PMI manages all other aspects of the marketplace on behalf of PFL. As a result Prosper Funding earns significant revenues and incurs significant expenses with a related party, its direct parent company, PMI. A borrower who wishes to obtain a loan through the marketplace must post a loan listing, or listing, on the marketplace. PFL allocates listings to one of two investor funding channels: (i) the “Note Channel,” which allows investors to commit to purchase Notes from PFL, the payments of which are dependent PFL’s receipt of payments made on the corresponding Borrower Loan; and (ii) the “Whole Loan Channel,” which allows investors to commit to purchase 100% of a Borrower Loan directly from PFL. All loans requested and obtained through the marketplace are unsecured obligations of individual borrowers with a fixed interest rate and loan terms set at three or five years as of December 31, 2017. All loans made through the marketplace are funded by WebBank, an FDIC-insured, Utah chartered industrial bank. After funding a loan, WebBank sells the loan to PFL, without recourse to WebBank, in exchange for the principal amount of the loan. WebBank does not have any obligation to purchasers of the Notes. Prosper Funding’s marketplace is designed to allow investors to invest in Borrower Loans in an open transparent marketplace, with the aim of allowing both investors and borrowers to benefit financially as well as socially. Prosper Funding believes marketplace lending represents a new model of consumer lending, where individuals and institutions can earn the interest spread of a traditional consumer lender but must also assume the credit risk of a traditional consumer lender. As of December 31, 2017, Prosper Funding’s marketplace was open to investors in 30 states and the District of Columbia. Additionally, as of December 31, 2017, Prosper Funding’s marketplace was open to borrowers in 46 states and the District of Columbia. Currently, the marketplace does not operate internationally. |
Summary of Significant Accounting Policies |
12 Months Ended | ||||||||||||||
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Dec. 31, 2017 | |||||||||||||||
Entity Information [Line Items] | |||||||||||||||
Summary of Significant Accounting Policies | Summary of Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements include the accounts of PMI and its wholly owned subsidiaries including PFL, PHL and BillGuard. All intercompany balances and transactions between PMI and its subsidiaries have been eliminated in consolidation. PMI and PFL’s financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Use of Estimates The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and the related disclosures, including contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. These estimates, judgments and assumptions include but are not limited to the following: valuation of Loans Held for Sale, Borrower Loans and associated Notes, valuation of servicing rights, valuation allowance on deferred tax assets, stock-based compensation expense, intangible assets, goodwill, contingent consideration, restructuring liability, convertible preferred stock warrant liability and contingent liabilities. Actual results could differ from those estimates. Certain Risks In the normal course of its business, Prosper encounters significant credit risk. Financial instruments that potentially subject Prosper to significant credit risk consist primarily of cash, cash equivalents, available for sale investments, Borrower Loans held and restricted cash. Prosper places cash and restricted cash with high-quality financial institutions and is exposed to credit risk in the event of default by these institutions to the extent the amount recorded on the balance sheet exceeds federally insured amounts. Prosper invests cash equivalents in highly liquid marketable securities with original maturities of three months or less at the time of purchase, consisting primarily of money market funds, commercial paper, US treasury securities and US agency securities. To the extent that payments on Borrower Loans (including Borrower Loans that have been sold) are not made, interest income and/or servicing income will be reduced. A series of Notes corresponding to a particular Borrower Loan is wholly dependent on the repayment of such Borrower Loan. As a result, Prosper does not bear the credit risk on such Borrower Loan. Reclassifications Due to the early adoption of ASU 2016-09 on January 1, 2016, reclassifications were made to the financing section of the consolidated statements of cash flows to reflect employee taxes paid to a tax authority to satisfy the employer's statutory income tax withholding obligation in relation to the exercise of stock awards. Prior period amounts have been reclassified to conform to the current presentation. During the year ended December 31, 2017, Prosper changed the presentation of its expenses in the consolidated statements of operations. A new line called “Change in the Fair Value of Convertible Stock Warrants” was created with the amounts included in this line previously classified as “Other Expenses, Net”. Prior period amounts have been reclassified to conform to the current presentation. Consolidation of Variable Interest Entities The determination of whether to consolidate a variable interest entity (“VIE”) in which we have a variable interest requires a significant amount of analysis and judgment around whether we are the primary beneficiary of a VIE via a controlling financial interest in the VIE. A controlling financial interest in a VIE exists if we have both the power to direct the VIE’s activities that most significantly affect the VIE’s economic performance and a potentially significant economic interest in the VIE. The determination of whether an entity is a VIE considers factors, such as (i) whether the entity’s equity investment at risk is insufficient to allow the entity to finance its activities without additional subordinated financial support or (ii) when a holder’s equity investment at risk lacks any of the following characteristics of a controlling financial interest: the direct or indirect ability through voting rights or similar rights to make decisions about a legal entity’s activities that have a significant effect on the entity’s success, the obligation to absorb the expected losses of the entity or the right to receive the expected residual returns of the legal entity. As a result of the nature of the retained servicing rights on the sale of Borrower Loans, we are a variable interest holder in certain special purposes entities that purchase these Borrower Loans. For all of these entities we either do not have the power to direct the activities that most significantly affect the VIE’s economic performance or we do not have a potentially significant economic interest in the VIE. In no case are we the primary beneficiary, therefore, we do not consolidate these entities. Management regularly reviews and reconsiders its previous conclusions regarding the status of an entity as a VIE and whether we are required to consolidate such VIE in the consolidated financial statements. Transfers of Financial Assets Prosper accounts for transfers of entire financial assets or a participating interest in an entire financial asset as sales when it has surrendered control over the transferred assets. Control is generally considered to have been surrendered when the transferred assets have been legally isolated from Prosper, the transferee has the right to pledge or exchange the assets without any significant constraints, and Prosper has not entered into a repurchase agreement, does not hold significant call options and has not written significant put options on the transferred assets. Prosper sells loans or participating interests in loans via whole loan sale transactions and the fractional note channel. In certain instances of whole loan sales transactions Prosper will sell whole loans to unconsolidated VIEs that then securitize the whole loans purchased. Prosper recognizes a gain or loss on the sale of financial assets by comparing the net sales proceeds (including fair value of any servicing asset or liability and recourse obligation recognized) to the carrying amount of the assets sold. Transfers of financial assets that do not qualify for sale accounting are reported as secured borrowings. Accordingly, the related assets remain on Prosper’s Consolidated Balance Sheets and continue to be reported and accounted for as if the transfer had not occurred. Cash proceeds from these transfers are reported as liabilities, with related interest expense recognized over the life of the related assets. Cash and Cash Equivalents Cash includes various unrestricted deposits with investment grade rated financial institutions. Cash equivalents consist of highly liquid marketable securities with original maturities of three months or less at the time of purchase and consist primarily of money market funds, commercial paper, US treasury securities and US agency securities. Cash equivalents are recorded at cost, which approximates fair value. Restricted Cash Restricted cash consists primarily of cash deposits and short term certificate of deposit accounts held as collateral as required for long term leases, loan funding and servicing activities, and cash that investors or Prosper has on our marketplace that has not yet been invested in Borrower Loans or disbursed to the investor. Short Term Investments Short Term Investments which are included in Prepaid and Other Assets consist of certificates of deposit with a term greater than three months but less than a year that are held as collateral as required for loan funding and servicing activities. Available for Sale Investments Available for sale securities consist of commercial paper with terms longer than three months, US treasury securities, US agency securities and corporate debt securities. Available for sale investments are recorded at fair value with unrealized gains and losses reported, net of taxes, in accumulated other comprehensive income (loss) included in stockholders' equity unless management determines that an investment is other-than-temporarily impaired. Management evaluates whether impairment of available for sale debt securities are other than temporary impairment (“OTTI”) on a quarterly basis. Debt securities with unrealized losses are considered OTTI if Prosper intends to sell the investment or if it is more likely than not that it will be required to sell such investment before any anticipated recovery. If management determines that an investment is OTTI under these circumstances, the impairment recognized in earnings is measured as the entire difference between the amortized cost and then-current fair value. An investment is also OTTI if management does not expect to recover all of the amortized cost of the investment. In this circumstance, the impairment recognized in earnings represents estimated credit losses, and is measured by the difference between the present value of expected cash flows and the amortized cost of the investment. Management utilizes cash flow models to estimate the expected future cash flow from the securities to estimate the credit loss. Expected cash flows are discounted using the investment's effective interest rate. The evaluation of whether Prosper expects to recover the amortized cost of an investment is inherently judgmental. The evaluation includes the assessment of several bond performance indicators, including the current price and magnitude of the unrealized loss and whether Prosper has received all scheduled principal and interest payments. There were no impairment charges recognized during the years ended December 31, 2017 and December 31, 2016. Fair Value Measurement Prosper measures the fair value of assets and liabilities in accordance with its fair value hierarchy which prioritizes information used to measure fair value and the effect of fair value measurements on earnings and provides for enhanced disclosures determined by the level within the hierarchy of information used in the valuation. We apply this framework whenever other standards require (or permit) assets or liabilities to be measured at fair value. We define fair value in terms of the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The price used to measure the fair value is not adjusted for transaction costs. The fair value measurement also assumes that the transaction to sell an asset occurs in the principal market for the asset or, in the absence of a principal market, the most advantageous market for the asset. The principal market is the market in which Prosper would sell or transfer the asset with the greatest volume and level of activity for the asset. In determining the principal market for an asset or liability, it is assumed that Prosper has access to the market as of the measurement date. If no market for the asset exists or if Prosper does not have access to the principal market, Prosper uses a hypothetical market. Assets and liabilities carried at fair value on the balance sheets are classified among three levels based on the observability of the inputs used to determine fair value: Level 1 — The valuation is based on quoted prices in active markets for identical instruments. Level 2 — The valuation is based on observable inputs such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation methodologies for which all significant assumptions are observable in the market. Level 3 — The valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the instrument. Level 3 valuations are typically performed using pricing models, discounted cash flow methodologies, or similar methodologies, which incorporate management’s own estimates of assumptions that market participants would use in pricing the instrument or valuations that require significant management judgment or estimation. Fair values of assets or liabilities are determined based on the fair value hierarchy, which requires an entity to maximize the use of quoted prices and observable inputs and to minimize the use of unobservable inputs when measuring fair value. Various valuation methodologies are utilized, depending on the nature of the financial instrument, including the use of market prices for identical or similar instruments, or discounted cash flow models. When possible, active and observable market data for identical or similar financial instruments are utilized. Alternatively, fair value is determined using assumptions that management believes a market participant would use in pricing the asset or liability. Financial instruments consist principally of Cash and Cash Equivalents, Restricted Cash, Available for Sale Investments, Borrower Loans, Loans Held for Sale, Accounts Receivable, Accounts Payable and Accrued Liabilities, Payable to Investors, Convertible Preferred Stock Warrant Liability and Notes. Servicing Assets and Liabilities are also subject to fair value measurement within the financial statements of Prosper. The estimated fair values of Cash and Cash Equivalents, Restricted Cash, Accounts Receivable, Accounts Payable and Accrued Liabilities, and Payable to Investors approximate their carrying values because of their short term nature. As observable market prices are not available for the Borrower Loans, Loans Held for Sale and Notes, or for similar assets and liabilities, Prosper believes the Borrower Loans, Loans Held for Sale and Notes should be considered level 3 financial instruments. In a hypothetical transaction as of the measurement date, Prosper believes that differences in the principal marketplace in which the Borrower Loans are originated and the principal marketplace in which Prosper might offer those loans may result in differences between the originated amount of the loans and their fair value as of the transaction date. For Borrower Loans and Loans Held for Sale, the fair value is estimated using discounted cash flow methodologies based upon valuation assumptions including prepayment speeds, default rates and discount rates based on the perceived credit risk within each credit grade. The obligation to pay principal and interest on any series of Notes is equal to the loan payments, if any, that are received on the corresponding Borrower Loan, net of our servicing fee which is generally 1.0% of the outstanding balance. The fair value election for Notes and Borrower Loans allows both the assets and the related liabilities to receive similar accounting treatment for expected losses which is consistent with the subsequent cash flows to investors that are dependent upon borrower payments. As such, the fair value of a series of Notes is approximately equal to the fair value of the corresponding Borrower Loan, adjusted for the 1.0% servicing fee and the timing of loan purchase, note issuance and borrower payments subsequently disbursed to such Note holders. As a result, the valuation of the Notes uses the same methodology and assumptions as the Borrower Loans, except that the Notes incorporate the 1.0% servicing fee and any differences in timing in payments. Any unrealized gains or losses on the Borrower Loans and Notes for which the fair value option has been elected is recorded as a separate line item in the statement of operations. The effective interest rate associated with a group of Notes is less than the interest rate earned on the corresponding Borrower Loan due to the 1.0% servicing fee. See Note 4 for a roll-forward and further discussion of the significant assumptions used to value Borrower Loans and Notes. Restructuring Charges Restructuring charges consist of severance costs and contract termination related costs and impairment charges associated with the severance actions. A liability for severance costs is typically recognized when the plan of termination has been communicated to the affected employees and is measured at its fair value at the communication date. Contract termination costs consist primarily of costs that will continue to be incurred under operating leases for their remaining terms without economic benefit to the Company. A liability for contract termination costs is recognized at the date the Company ceases using the rights conveyed by the lease contract and is measured at its fair value, which is determined based on the remaining contractual lease rentals reduced by estimated sublease rentals. Borrower Loans and Notes Through the Note Channel, Prosper purchases Borrower Loans from WebBank then issues Notes, and holds the Borrower Loans until maturity. The obligation to repay a series of Notes originated through the Note Channel is dependent upon the repayment of the associated Borrower Loan. Borrower Loans and Notes originated through the Note Channel are carried on Prosper’s consolidated balance sheets as assets and liabilities, respectively. We choose to measure certain financial instruments and certain other items at fair value on an instrument-by-instrument basis with unrealized gains and losses on items for which the fair value option has been elected reported in earnings. Management believes that the fair value option is more meaningful for the readers of the financial statements and it allows both the Borrower Loans and Notes to be valued using the same methodology. The fair value election, with respect to an item, may not be revoked once an election is made. Prosper estimates the fair value of such Borrower Loans and Notes using discounted cash flow methodologies adjusted for the expected prepayment, loss, recovery and default rates. The Borrower Loans are not derecognized when a corresponding Note is issued as Prosper maintains the ability to sell the Borrower Loans without the approval of the holders of the corresponding Notes. Loan Servicing Assets and Liabilities Prosper records servicing assets and liabilities at their estimated fair values for servicing rights retained when Prosper sells Borrower Loans to unrelated third-party buyers. The change in fair value of servicing assets and liabilities is recognized in “Servicing Fees” revenue. The gain or loss on a loan sale is recorded in “Gain on Sale” while the fair value of the servicing rights, which is based on the degree to which the contractual loan servicing fee is above or below an estimated market servicing rate is recorded in servicing assets or liabilities. Servicing assets and liabilities are recorded in “Servicing Assets” and “Other Liabilities,” respectively, on the consolidated balance sheets. Prosper uses a discounted cash flow model to estimate the fair value of the loan servicing assets or liabilities which considers the contractual projected servicing fee revenue that Prosper earns on the Borrower Loans, estimated market servicing rates to service such loans, prepayment rates, default rates and the current principal balances of the Borrower Loans. Loans Held for Sale Loans Held for Sale are comprised of Borrower Loans held for short durations and are recorded at fair value. The fair value is estimated using discounted cash flow methodologies based upon a set of valuation assumptions similar to those of other Borrower Loans. We measure Loans Held for Sale at fair value on an instrument-by-instrument basis with unrealized gains and losses on items for which the fair value option has been elected reported in earnings. Management believes that the fair value option is more meaningful for the readers of the financial statements and it allows for the Loans Held for Sale to be measured at fair value similar to Borrower Loans and Notes. The fair value election, with respect to an item, may not be revoked once an election is made. Property and Equipment Property and equipment consists of computer equipment, office furniture and equipment, leasehold improvements, software purchased or developed for internal use and web site development costs. Property and equipment are stated at cost, less accumulated depreciation and amortization, and are computed using the straight-line method based upon estimated useful lives of the assets. Estimated useful lives of the assets are as follows:
The costs to develop software for the website and other internal uses are capitalized when management has authorized and committed project funding, preliminary development efforts are successfully completed, and it is probable that the project will be completed and the software will be used as intended. Capitalized software and website development costs primarily include software licenses acquired, fees paid to outside consultants, and salaries and payroll related costs for employees directly involved in the development efforts. Costs incurred prior to meeting these criteria, together with costs incurred for training and maintenance, are expensed. Costs incurred for upgrades and enhancements that are considered to be probable to result in additional functionality are capitalized. Capitalized costs are included in property and equipment and amortized to expense using the straight-line method over their expected lives. Software and website development assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of software and website development assets to be held and used is measured by a comparison of the carrying amount of the asset group to the future net undiscounted cash flows expected to be generated by the asset group. If such software and website development assets are considered to be impaired, the impairment to be recognized is the excess of the carrying amount over the fair value of the software and website development asset group. Goodwill and Intangibles Goodwill associated with business combinations is computed by recognizing the portion of the purchase price that is not tied to individually identifiable and separately recognizable assets. Goodwill is not amortized but is tested for impairment annually or whenever indications of impairment exist. Our annual impairment testing date is October 1. Impairment exists whenever the carrying value of goodwill exceeds its implied fair value. Adverse changes in impairment indicators such as loss of key personnel, increased regulatory oversight, or unplanned changes in our operations could result in impairment. We did not recognize any goodwill impairments during the years ended December 31, 2017 and 2016. Costs of internally developing any intangibles is expensed as incurred. Intangible assets identified through the acquisitions of American Healthcare Lending and BillGuard include customer relationships, technology and a brand name. The customer relationship intangible assets are amortized on an accelerated basis over three to ten year periods. The technology and brand name intangible assets are amortized on a straight line basis over three to five years and one year, respectively. Payable to Investors Payable to investors primarily represents our obligation to investors related to cash held in an account for the benefit of investors and payments-in-process received from borrowers. Convertible Redeemable Preferred Stock Warrant Liabilities Freestanding warrants to acquire shares that may be redeemable are accounted for in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 480, Distinguishing Liabilities from Equity "ASC" 480"). Under ASC 480, vested freestanding warrants to purchase the Company’s convertible redeemable preferred stock are classified as a liability on the consolidated balance sheets and carried at fair value because the warrants may conditionally obligate the Company to transfer assets at some point in the future. The Company initially measured the warrants at fair value on issuance. The warrants are subject to remeasurement to fair value at each balance sheet date, and any change in their fair value is recognized as a component of change in fair value of convertible stock warrants, in the consolidated statements of operations. The Company will continue to adjust the liability for changes in fair value until the earlier of the exercise or expiration of the warrants, the completion of a deemed liquidation event, or the conversion of convertible redeemable preferred stock into common stock. Loan Trailing Fee On July 1, 2016, Prosper signed a series of agreements with WebBank which, among other things, includes an additional program fee (the "Loan Trailing Fee") paid to WebBank in connection with the performance of each loan sold to Prosper. These agreements are effective as of August 1, 2016. The Loan Trailing Fee is dependent on the amount and timing of principal and interest payments made by borrowers of the underlying loans, irrespective of whether the loans are sold by Prosper, and gives WebBank an ongoing financial interest in the performance of the loans it originates. This fee is paid by Prosper to WebBank over the term of the respective loans and is a function of the principal and interest payments made by borrowers of such loans. In the event that principal and interest payments are not made with respect to any loan, Prosper is not required to make the related Loan Trailing Fee payment. The obligation to pay the Loan Trailing Fee for any loan sold to Prosper is recorded at fair value at the time of the origination of such loan within Other Liabilities and recorded as a reduction of Transaction Fees, net. Any changes in the fair value of this liability are recorded in Change in Fair Value of Borrower Loans, Loans Held for Sale and Notes, Net on the consolidated statements of operations. The fair value of the Loan Trailing Fee represents the present value of the expected monthly Loan Trailing Fee payments, which takes into consideration certain assumptions related to expected prepayment rates and defaults rates. Revenue Recognition Revenue primarily results from fees and net interest income earned. Fees include transaction fees for our services performed on behalf of WebBank to originate a loan and servicing fees paid by investors. We also have other smaller sources of revenue reported as other revenue, this includes referral fees, securitization fees and subscription fees. Transaction Fees Prosper earns a transaction fee upon the successful origination of all Borrower Loans facilitated through Prosper’s marketplace. Prosper receives payments from WebBank as compensation for the activities Prosper performs on behalf of WebBank. The transaction fee Prosper earns is determined by the term and credit grade of the Borrower Loan that is facilitated on Prosper’s marketplace, and ranges from 1.00% to 5.00% of the original principal amount of such Borrower Loan that WebBank originates. Prosper records the transaction fee net of any fees paid to WebBank because Prosper does not receive an identifiable benefit from WebBank other than the Borrower Loan that has been recognized at fair value. Servicing Fees Investors who purchase Borrower Loans from Prosper typically pay Prosper a servicing fee which is currently set at 1.075% per annum of the outstanding principal balance of the Borrower Loan prior to applying the current payment. Historically the servicing fee was set at 1.0% per annum and was increased to 1.075% per annum in August 2016 for loans originated after July 2016. The servicing fee compensates Prosper for the costs incurred in servicing the Borrower Loan, including managing payments from borrowers, payments to investors and maintaining investors’ account portfolios. Prosper records servicing fees from Investors as a component of operating revenue when received. Gain on Sale of Borrower Loans Prosper recognizes gains or losses on the sale of Borrower Loans when it is retained for the servicing of Borrower Loans by WebBank. Additionally, Prosper recognizes gains or losses on the sale of Borrower Loans when it sells Borrower Loans to third parties. Gains or losses on sales of Borrower Loans that are recognized at the time of sale are determined by the difference between the net sales proceeds, fair value of any servicing rights retained and the carrying value of the Borrower Loans sold. Fair Value of Warrants Vested on the Sale of Borrower Loans Fair Value of Warrants Vested on the Sale of Borrower Loans relates to warrants to purchase Series F Convertible Preferred Stock issued to the Consortium that vest when the Consortium purchases whole loans under the Consortium Purchase Agreement that was signed in February 2017. On vesting of the Series F warrants, Prosper records a liability as "Convertible Preferred Stock Warrant Liability" on the Consolidated Balance Sheet at fair value and a corresponding amount as "Fair Value of Warrants Vested on Sale of Borrower Loans" on the Consolidated Statement of Operations. ASC 505-50 “Share Based Payments to Non-Employees" addresses the accounting by both the grantor and the grantee for share-based payments made in exchange for goods and services. The counterparty to whom we issued the warrants is a customer of the Company to whom we sell loans. Following the guidance in ASC 505-50, Prosper records the vesting of the warrants as contra-revenue on the Consolidated Statement of Operations. Interest Income on Borrower Loans, and Interest Expense on Notes Prosper recognizes interest income on Borrower Loans originated through the Note Channel and interest expense on the corresponding Notes using the accrual method based on the stated interest rate to the extent Prosper believes it to be collectable. Advertising Costs Advertising costs are expensed when incurred and are included in sales and marketing expense in the accompanying Consolidated Statements of Operations. Prosper incurred advertising costs of $66.9 million, $48.1 million and $60.1 million for the years ended December 31, 2017, 2016 and 2015, respectively. Stock-Based Compensation We determine the fair value of our stock options issued to employees on the date of grant using the Black-Scholes option pricing model, which is impacted by the fair value of our common stock, as well as changes in assumptions that include, but are not limited to, the expected common stock price volatility over the term of the option awards, the expected term of the awards, risk-free interest rates and the expected dividend yield. We recognize compensation expense for our stock based awards on a straight-line basis over the period during which an employee is required to provide services in exchange for the award (the vesting period of the award). Stock-based compensation expense is recognized only for those awards expected to vest. We estimate future forfeitures at the date of grant and revise the estimates, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Stock-based awards issued to non-employees are marked-to-market up until the point that the awards measurement period has been achieved. Compensation expense for stock options issued to nonemployees is calculated using the Black-Scholes option pricing model and is recorded over the vesting period of the award. Foreign Currency Transactions The functional currency of our international subsidiary is the U.S. dollar. For this subsidiary, foreign currency denominated monetary assets and liabilities are remeasured into U.S. dollars at current exchange rates and foreign currency denominated nonmonetary assets and liabilities are remeasured into U.S. dollars at historical exchange rates. Gains or losses from foreign currency remeasurement and settlements are included in general and administrative expense in the Consolidated Statements of Operations. Income Taxes The asset and liability method is used to account for income taxes. Under this method, deferred income tax assets and liabilities are based on the differences between the financial statement carrying values and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Prosper’s policy is to include interest and penalties related to gross unrecognized tax benefits within its provision for income taxes. U.S. Federal, Israel, California, and other state income tax returns are filed. Prosper is currently not undergoing any income tax examinations. Due to the net operating loss, generally all tax years remain open. We recognize benefits from uncertain tax positions only if we believe that it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement. Other (Income) Expense, net Other (income) expense, net includes interest income from available for sale securities, accretion on available for sale securities, changes in fair value of contingent liabilities, realized gains and losses on the sale of available for sale securities, changes in fair value of convertible preferred stock warrant liabilities and contract termination costs that are expected to be non-recurring and not part of restructuring activities. Comprehensive Income Marketable debt securities are generally considered available-for-sale and are carried at fair value, based on quoted market prices or other readily available market information. Gains and losses are recognized when realized using the specific identification method and included in Other Income in the Consolidated Statements of Operations. Unrealized gains and losses, net of taxes, are included in Accumulated Other Comprehensive Income, which is reflected as a separate component of stockholders’ deficit in our Consolidated Balance Sheet. If we have determined that an other-than-temporary decline in fair value has occurred, the amount of the decline that is related to an identified loss is recognized in income. Prosper monitors its investment portfolio for potential impairment on a quarterly basis. Recent Accounting Pronouncements Accounting Standards Update No. 2014-09, 2016-08, 2016-10, 2016-12 and 2016-20, collectively implemented as FASB Accounting Standards Codification Topic 606 ("ASC 606") Revenue from Contracts with Customers, provides guidance for revenue recognition. The new guidance sets forth a new five-step revenue recognition model which replaces the prior revenue recognition guidance in its entirety and is intended to eliminate numerous industry-specific pieces of revenue recognition guidance that have historically existed in U.S. GAAP. The underlying principle of the new standard is that a business or other organization will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects what it expects in exchange for the goods or services. The standard also requires more detailed disclosures and provides additional guidance for transactions that were not addressed completely in the prior accounting guidance. Prosper plans to adopt ASC 606 on a modified retrospective basis in the first quarter of fiscal 2018. Our implementation efforts to date related to this standard have included identifying revenue streams that are within the scope of this guidance, the evaluation of associated contracts and accounting policies, the evaluation of processes and systems of internal control, and the assessment of disclosure requirements of the standard. Our scoping analysis indicates that transaction fees and referral fees are included in the scope of the new guidance, while servicing fees and gain or loss on the sale of borrower loans remain within the scope of ASC topic 860, Transfers and Servicing. We have determined that ASC 606 will have little, if any, impact on the timing and amount of revenue recognition as compared to the current standard and that there will be no material impact upon adoption. As part of our implementation process to date, we are evaluating new qualitative and quantitative disclosures, including disaggregation of revenues and descriptions of performance obligations. Prosper will make such disclosures in the first quarter of 2018. In January 2016, the FASB issued ASU 2016-1, "Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities", which addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. This guidance will be effective for us in the first quarter of our fiscal year 2019, and early adoption is not permitted. Prosper is currently evaluating the impact that this guidance will have on its consolidated financial statements. In February 2016, the FASB issued ASU 2016-2, "Leases (Topic 842)", which requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases, along with additional qualitative and quantitative disclosures. This guidance will be effective for us in the first quarter of our fiscal year 2019, and early adoption is permitted. Prosper is currently evaluating the impact that this guidance will have on its consolidated financial statements, however we do expect that this guidance will have a material impact on Prosper's consolidated financial statements. As of December 31, 2017, Prosper has a total of $31.6 million in non-cancelable operating lease commitments, net of minimum sublease rentals. In March 2016, the FASB issued ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting (Topic 718)". This guidance makes several modifications to Topic 718 related to the accounting for forfeitures, employer tax withholding on share-based compensation and the financial statement presentation of excess tax benefits or deficiencies. ASU 2016-09 also clarifies the statement of cash flows presentation for certain components of share-based awards. This guidance was effective for us in the first quarter of our fiscal year 2017, and early adoption was permitted. Prosper decided to early adopt this guidance effective January 1, 2016, the adoption of this standard did not have a material impact on Prosper’s consolidated financial statements. In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” The standard provides guidance for eight targeted changes with respect to how cash receipts and cash payments are classified in the statements of cash flows, with the objective of reducing diversity in practice. This guidance will be effective for Prosper in the first quarter of our fiscal year 2018, and early adoption is permitted. Prosper is currently evaluating the impacts the adoption of this accounting standard will have on Prosper's statement of cash flows, however we do not expect a material impact. In October 2016, the FASB issued ASU No. 2016-16, "Income Taxes (Topic 740): Intra-Entity Transfers Other than Inventory (ASU 2016-16)", which requires companies to recognize the income-tax consequences of an intra-entity transfer of an asset other than inventory. This guidance will be effective for us in the first quarter of 2018, with the option to adopt it in the first quarter of 2017. Prosper will adopt this guidance on January 1, 2018, and we believe the adoption of this standard will not have a material impact on Prosper’s financial statements. In November 2016, the FASB issued ASU 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash (ASU 2016-18)", which requires companies to include amounts generally described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This guidance will be effective for us in the first quarter of 2018 and early adoption is permitted. Prosper will adopt this standard on January 1, 2018. As at December 31, 2017, we had restricted cash of $152.7 million. Currently, changes in these balances are presented as operating and investing cash activities in the consolidated statements of cash flows. Under the new guidance, changes in these amounts will be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the condensed consolidated statements of cash flows. In January 2017, the FASB issued ASU No. 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment". The standard eliminates Step 2 from the goodwill impairment test, which requires a hypothetical purchase price allocation. Prosper will continue to have the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The standard is effective for interim and annual periods beginning after December 15, 2019 and early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The standard should be applied on a prospective basis. Prosper is currently evaluating the impact of this accounting standard update on its consolidated financial statements. |
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Prosper Funding LLC | |||||||||||||||
Entity Information [Line Items] | |||||||||||||||
Summary of Significant Accounting Policies | Significant Accounting Policies Basis of Presentation Prosper Funding’s consolidated financial statements include the accounts of PFL and its wholly-owned subsidiary PAH. All intercompany balances and transactions between PFL and PAH have been eliminated in consolidation. Prosper Funding’s financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Use of Estimates The preparation of Prosper Funding’s consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and the related disclosures at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. These estimates, judgments and assumptions include but are not limited to the following: valuation of Loans Held for Sale, Borrower Loans and associated Notes, valuation of servicing rights, repurchase and indemnification obligation, and contingent liabilities. Prosper Funding bases its estimates on historical experience from all Borrower Loans, and on various other assumptions that it believes to be reasonable under the circumstances. Actual results could differ materially from those estimates. Certain Risks In the normal course of its business, Prosper Funding encounters significant credit risk. Financial instruments that potentially subject Prosper Funding to significant credit risk consist primarily of cash, cash equivalents, borrower loans held and restricted cash. Prosper Funding places cash and restricted cash with high-quality financial institutions and is exposed to credit risk in the event of default by these institutions to the extent the amount recorded on the balance sheet exceeds federally insured amounts. Prosper Funding invests cash equivalents in highly liquid marketable securities with original maturities of three months or less at the time of purchase, including money market funds, commercial paper, US treasury securities and US agency securities. As a lending marketplace, Prosper Funding believes its customers are highly susceptible to uncertainties and negative trends, real or perceived, in the markets driven by, among other factors, general economic conditions in the United States and abroad. These external economic conditions and resulting trends or uncertainties could adversely impact its customers’ ability or desire to participate on its marketplace as borrowers or investors, and consequently could negatively affect its business and results of operations. To the extent that Borrower Loan (including Borrower Loans that have been sold) payments are not made, servicing income will be reduced. A group of Notes corresponding to a particular Borrower Loan is wholly dependent on the repayment of such Borrower Loan. As a result, Prosper Funding does not bear the credit risk on such Borrower Loan. Consolidation of Variable Interest Entities The determination of whether to consolidate a variable interest entity (“VIE”) in which we have a variable interest requires a significant amount of analysis and judgment whether we are the primary beneficiary of a VIE via a controlling financial interest in the VIE. A controlling financial interest in a VIE exists if we have both the power to direct the VIE’s activities that most significantly affect the VIE’s economic performance and a potentially significant economic interest in the VIE. The determination of whether an entity is a VIE considers factors, such as (i) whether the entity’s equity investment at risk is insufficient to allow the entity to finance its activities without additional subordinated financial support or (ii) when a holder’s equity investment at risk lacks any of the following characteristics of a controlling financial interest: the direct or indirect ability through voting rights or similar rights to make decisions about a legal entity’s activities that have a significant effect on the entity’s success, the obligation to absorb the expected losses of the entity or the right to receive the expected residual returns of the legal entity. As a result of the nature of the retained servicing rights on the sale of Borrower Loans, we are a variable interest holder in certain special purposes entities that purchase these Borrower Loans. For all of these entities we either do not have the power to direct the activities that most significantly affect the VIE’s economic performance or we do not have a potentially significant economic interest in the VIE. In no case are we the primary beneficiary, therefore, we do not consolidate these entities. Management regularly reviews and reconsiders its previous conclusions regarding the status of an entity as a VIE and whether we are required to consolidate such VIE in the consolidated financial statements. Transfers of Financial Assets Prosper accounts for transfers of entire financial assets or a participating interest in an entire financial asset as sales when it has surrendered control over the transferred assets. Control is generally considered to have been surrendered when the transferred assets have been legally isolated from Prosper, the transferee has the right to pledge or exchange the assets without any significant constraints, and Prosper has not entered into a repurchase agreement, does not hold significant call options and has not written significant put options on the transferred assets. Prosper sells loans or participating interests in loans via whole loan sale transactions and the fractional note channel. In certain instances of whole loan sales transactions Prosper will sell whole loans to unconsolidated VIEs that then securitize the whole loans purchased. Prosper recognizes a gain or loss on the sale of financial assets by comparing the net sales proceeds (including fair value of any servicing asset or liability and recourse obligation recognized) to the carrying amount of the assets sold. Transfers of financial assets that do not qualify for sale accounting are reported as secured borrowings. Accordingly, the related assets remain on Prosper’s Consolidated Balance Sheets and continue to be reported and accounted for as if the transfer had not occurred. Cash proceeds from these transfers are reported as liabilities, with related interest expense recognized over the life of the related assets. Cash and Cash Equivalents Cash includes various unrestricted deposits with highly rated financial institutions. Cash equivalents consist of highly liquid marketable securities with original maturities of three months or less at the time of purchase and consist primarily of money market funds, commercial paper, US treasury securities and US agency securities. Cash equivalents are recorded at cost, which approximates fair value. Restricted Cash Restricted cash consists primarily of cash deposits and short term certificates of deposit held as collateral as required for loan funding and servicing activities, and cash that investors or Prosper Funding has on the platform that has not yet been invested in Borrower Loans or disbursed to the investor. Short Term Investments Short term investments consists of certificates of deposit with a term greater than three months but less than a year that are held as collateral as required for loan funding and servicing activities. Fair Value Measurement Prosper Funding measures the fair value of assets and liabilities in accordance with its fair value hierarchy which prioritizes information used to measure fair value and the effect of fair value measurements on earnings and provides for enhanced disclosures determined by the level within the hierarchy of information used in the valuation. We apply this framework whenever other standards require (or permit) assets or liabilities to be measured at fair value. We define fair value in terms of the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The price used to measure the fair value is not adjusted for transaction costs. Under ASC Topic 820, the fair value measurement also assumes that the transaction to sell an asset occurs in the principal market for the asset or, in the absence of a principal market, the most advantageous market for the asset. The principal market is the market in which Prosper Funding would sell or transfer the asset with the greatest volume and level of activity for the asset. In determining the principal market for an asset or liability under ASC Topic 820, it is assumed that Prosper Funding has access to the market as of the measurement date. If no market for the asset exists or if Prosper Funding does not have access to the principal market, Prosper Funding uses a hypothetical market. Under ASC Topic 820, assets and liabilities carried at fair value on the balance sheets are classified among three levels based on the observability of the inputs used to determine fair value: Level 1 — The valuation is based on quoted prices in active markets for identical instruments. Level 2 — The valuation is based on observable inputs such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation methodologies for which all significant assumptions are observable in the market. Level 3 — The valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the instrument. Level 3 valuations are typically performed using pricing models, discounted cash flow models, or similar methodologies, which incorporate management’s own estimates of assumptions that market participants would use in pricing the instrument or valuations that require significant management judgment or estimation. Fair values of assets or liabilities are determined based on the fair value hierarchy established in ASC Topic 820, which requires an entity to maximize the use of quoted prices and observable inputs and to minimize the use of unobservable inputs when measuring fair value. Various valuation methodologies are utilized, depending on the nature of the financial instrument, including the use of market prices for identical or similar instruments, or discounted cash flow models. When possible, active and observable market data for identical or similar financial instruments are utilized. Alternatively, fair value is determined using assumptions that management believes a market participant would use in pricing the asset or liability. Financial instruments consist principally of cash and cash equivalents, restricted cash, Borrower Loans, accounts payable and accrued liabilities, and Notes. Servicing assets and liabilities are also subject to fair value measurement within the financial statements of PFL. The estimated fair values of cash and cash equivalents, restricted cash, accounts payable and accrued liabilities approximate their carrying values because of their short term nature. As observable market prices are not available for the Borrower Loans, Loans Held for Sale and Notes, Prosper Funding believes the Borrower Loans, Loans Held for Sale and Notes should be considered level 3 financial instruments under ASC Topic 820. In a hypothetical transaction as of the measurement date, Prosper Funding believes that differences in the principal marketplace in which the Borrower Loans are originated and the principal marketplace in which Prosper Funding might offer those loans may result in differences between the originated amount of the loans and their fair value as of the transaction date. For Borrower Loans and Loans Held for Sale, the fair value is estimated using discounted cash flow methodologies based upon valuation assumptions including prepayment speeds, default rates and discount rates based on the perceived credit risk within each credit grade. The obligation to pay principal and interest on any Note is equal to the loan payments, if any, that are received on the corresponding Borrower Loan, net of our servicing fee which is generally 1.0% of the outstanding balance. The fair value election for Notes and Borrower Loans allows both the assets and the related liabilities to receive similar accounting treatment for expected losses which is consistent with the subsequent cash flows to lenders that are dependent upon borrower payments. As such, the fair value of a group of Notes is approximately equal to the fair value of the corresponding Borrower Loan, adjusted for the 1.0% servicing fee and the timing of borrower payments subsequently disbursed to such Note holders. As a result, the valuation of the Notes uses the same methodology and assumptions as the Borrower Loans, except that the Notes incorporate the 1.0% servicing fee and any differences in timing of payments. Any unrealized gains or losses on the Borrower Loans and Notes for which the fair value option has been elected is recorded as a separate line item in the statement of operations. The effective interest rate associated with a group of Notes is less than the interest rate earned on the corresponding Borrower Loan due to the 1.0% servicing fee. See Note 4 for a roll-forward and further discussion of the significant assumptions used to value Borrower Loans and Notes. Borrower Loans and Notes Through the Note Channel, Prosper Funding purchases Borrower Loans from WebBank then issues Notes and holds the Borrower Loans until maturity. The obligation to repay a series of Notes issued through the Note Channel is dependent upon the repayment of the associated Borrower Loan. Borrower Loans originated and Notes issued through the Note Channel are carried on Prosper Funding’s consolidated balance sheets as assets and liabilities, respectively. Prosper Funding has adopted the provisions of ASC Topic 825, Financial Instruments (“ASC Topic 825”). ASC Topic 825 permits companies to choose to measure certain financial instruments and certain other items at fair value on an instrument-by-instrument basis with unrealized gains and losses on items for which the fair value option has been elected reported in earnings. Management believes that the fair value option is more meaningful for the readers of the financial statements and it allows both the Borrower Loans and Notes to be valued using the same methodology. The fair value election, with respect to an item, may not be revoked once an election is made. Prosper Funding estimates the fair value of such Borrower Loans and Notes using discounted cash flow methodologies adjusted for the expected payment, loss, recovery and default rates. The Borrower Loans are not derecognized when a corresponding Note is issued as Prosper Funding maintains the ability to sell the Borrower Loans without the approval of the holders in the corresponding Notes. Loan Servicing Assets and Liabilities Prosper Funding records servicing assets and liabilities at their estimated fair values for servicing rights retained when Prosper Funding sells Borrower Loans to unrelated third-party buyers. The change in fair value of servicing assets and liabilities is recognized in “Servicing Fees” revenue. The gain or loss on a loan sale is recorded in “Gain (Loss) on Sale of Borrower Loans” while the fair value of the servicing rights, which is based on the degree to which the contractual loan servicing fee is above or below an estimated market loan servicing rate is recorded in servicing assets or liabilities. Servicing assets and liabilities are recorded in “Servicing Assets” and “Other Liabilities,” respectively, on the consolidated balance sheets. Prosper Funding uses a discounted cash flow model to estimate the fair value of the loan servicing assets or liabilities which considers the contractual projected servicing fee revenue that Prosper Funding earns on the Borrower Loans, estimated market servicing fees to service such loans, prepayment rates, default rates and the current principal balances of the Borrower Loans. Loans Held for Sale Loans Held for Sale are comprised of Borrower Loans held for short durations and are recorded at fair value. The fair value is estimated using discounted cash flow methodologies based upon a set of valuation assumptions similar to those of other Borrower Loans. We measure Loans Held for Sale at fair value on an instrument-by-instrument basis with unrealized gains and losses on items for which the fair value option has been elected reported in earnings. Management believes that the fair value option is more meaningful for the readers of the financial statements and it allows for the Loans Held for Sale to be measured at fair value similar to Borrower Loans and Notes. The fair value election, with respect to an item, may not be revoked once an election is made. Software and Website Development Software and website development represents the software and website that PMI has transferred to Prosper Funding. Prosper Funding does not develop any of its own software or website. Software and website are included in property and equipment and amortized to expense using the straight-line method over their expected lives which is generally one to five years. Prosper Funding evaluates its software assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of software and website development assets to be held and used is measured by a comparison of the carrying amount of the asset to the future net undiscounted cash flows expected to be generated by the asset. If such software and website development assets are considered to be impaired, the impairment to be recognized is the excess of the carrying amount over the fair value of the software and website development asset group. Payable to Investors Payable to Investors primarily represents our obligation to investors related to cash held in an account for the benefit of investors and payments-in-process received from borrowers. Loan Trailing Fee On July 1, 2016, Prosper Funding signed a series of agreements with WebBank which, among other things, includes an additional program fee (the "Loan Trailing Fee") paid to WebBank in connection with the performance of each loan sold to Prosper Funding. These agreements are effective as of August 1, 2016. The Loan Trailing Fee is dependent on the amount and timing of principal and interest payments made by borrowers of the underlying loans, irrespective of whether the loans are sold by Prosper Funding, and gives WebBank an ongoing financial interest in the performance of the loans it originates. This fee is paid by Prosper Funding to WebBank over the term of the respective loans and is a function of the principal and interest payments made by borrowers of such loans. In the event that principal and interest payments are not made with respect to any loan, Prosper Funding is not required to make the related Loan Trailing Fee payment. The obligation to pay the Loan Trailing Fee for any loan sold to Prosper Funding is recorded at fair value at the time of the origination of such loan within Other Liabilities and recorded as a reduction of Transaction Fees, net. Any changes in the fair value of this liability are recorded in Change in Fair Value of Borrower Loans, Loans Held for Sale and Notes, Net on the statements of operations. The fair value of the Loan Trailing Fee represents the present value of the expected monthly Loan Trailing Fee payments, which takes into consideration certain assumptions related to expected prepayment rates and defaults rates. Revenue Recognition Revenue primarily results from fees, net interest earned and gains on the sale of borrower loans. Fees consist of related party administrative fees and servicing fees paid by investors. We also have other smaller sources of revenue reported as other revenue, which includes fees charged in relation to securitizations by outside investors. Administration Agreement License Fees Prosper Funding primarily generates revenues through license fees it earns through an Administration Agreement with PMI. The Administration Agreement contains a license granted by Prosper Funding to PMI that entitles PMI to use the platform for and in relation to: (i) PMI’s performance of its duties and obligations under the Administration Agreement relating to corporate administration, loan platform services, loan and note servicing and marketing, and (ii) PMI’s performance of its duties and obligations to WebBank in relation to loan origination and funding. The license fees are based on the number of listings that are posted to the platform. Service Fees Investors who purchase Borrower Loans through the Whole Loan Channel typically pay Prosper Funding a servicing fee which is currently set at 1.075% per annum of the outstanding principal balance of the Borrower Loan prior to applying the current payment. The servicing fee compensates Prosper Funding for the costs incurred in servicing the related loan, including managing payments from borrowers, payments to investors and maintaining investors’ account portfolios. Prosper Funding records servicing fees paid by Borrower Loan investors as a component of operating revenue when received. Gain (Loss) on Sale of Borrower Loans Prosper Funding recognizes gains or losses on the sale of Borrower Loans when it is retained for the servicing of Borrower Loans by WebBank. Additionally, Prosper Funding recognizes gains or losses on the sale of Borrower Loans when it sells Borrower Loans to third parties. Gains or losses on sales of Borrower Loans that are recognized at the time of sale are determined by the difference between the net sales proceeds, fair value of any servicing rights retained and the carrying value of the Borrower Loans sold. Interest Income on Borrower Loans and Interest Expense on Notes Prosper Funding recognizes interest income on Borrower Loans originated through the Note Channel and interest expense on the corresponding Notes using the accrual method based on the stated interest rate to the extent Prosper Funding believes it to be collectable. Administration Fee Expense - Related Party Pursuant to an Administration Agreement between Prosper Funding and PMI, PMI manages the marketplace on behalf of Prosper Funding. Accordingly, each month, Prosper Funding is required to pay PMI an administration fee that is based on PMI’s (a) finance and legal personnel costs, (b) number of Borrower Loans originated through the marketplace, (c) servicing fees collected by or on behalf of Prosper Funding, and (d) nonsufficient funds fees collected by or on behalf of Prosper Funding. In addition, under a second Administration Agreement between PMI and PAH, a wholly owned subsidiary of Prosper Funding, PAH is required to pay PMI an annual fee, for PMI being the administrator of PAH’s operations. Other Expense Other expense, net includes contract termination costs that are expected to be non-recurring and not part of restructuring activities. Comprehensive Income There is no comprehensive income (loss) other than the net income (loss) disclosed in the consolidated statements of operations. Recent Accounting Pronouncements Accounting Standards Update No. 2014-09, 2016-08, 2016-10, 2016-12 and 2016-20, collectively implemented as FASB Accounting Standards Codification Topic 606 ("ASC 606") Revenue from Contracts with Customers, provides guidance for revenue recognition. The new guidance sets forth a new five-step revenue recognition model which replaces the prior revenue recognition guidance in its entirety and is intended to eliminate numerous industry-specific pieces of revenue recognition guidance that have historically existed in U.S. GAAP. The underlying principle of the new standard is that a business or other organization will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects what it expects in exchange for the goods or services. The standard also requires more detailed disclosures and provides additional guidance for transactions that were not addressed completely in the prior accounting guidance. Prosper Funding plans to adopt ASC 606 on a modified retrospective basis in the first quarter of fiscal 2018. Our implementation efforts to date related to this standard have included identifying revenue streams that are within the scope of this guidance, the evaluation of associated contracts and accounting policies, the evaluation of processes and systems of internal control, and the assessment of disclosure requirements of the standard. Our scoping analysis indicates that administration fees are included in the scope of the new guidance, while servicing fees and gain or loss on the sale of borrower loans remain within the scope of ASC topic 860, Transfers and Servicing. We believe that ASC 606 will have little, if any, impact on the timing and amount of revenue recognition as compared to the current standard and that there will be no material impact upon adoption. In January 2016, the FASB issued ASU 2016-1, "Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities", which addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. This guidance will be effective for us in the first quarter of our fiscal year 2019, and early adoption is not permitted. Prosper Funding is currently evaluating the impact that this guidance will have on our consolidated financial statements. In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” The standard provides guidance for eight targeted changes with respect to how cash receipts and cash payments are classified in the statements of cash flows, with the objective of reducing diversity in practice. This guidance will be effective for Prosper in the first quarter of our fiscal year 2018, and early adoption is permitted. Prosper Funding is currently evaluating the impacts the adoption of this accounting standard will have on Prosper Funding's cash flows, however we do not expect a material impact. In November 2016, the FASB issued ASU 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash (ASU 2016-18)", which requires companies to include amounts generally described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This guidance will be effective for us in the first quarter of 2018 and early adoption is permitted. Prosper Funding will adopt this standard on January 1, 2018, and we believe the impact will change the presentation of restricted cash within the Statement of Cash Flows. |
Property and Equipment, Net |
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Property and Equipment, Net | Property and Equipment, Net Property and equipment consist of the following (in thousands):
Depreciation and amortization expense for property and equipment for 2017, 2016 and 2015 was $10,963 thousand, $9,381 thousand and $6,080 thousand, respectively. Prosper capitalized internal-use software and website development costs in the amount of $3,687 thousand, $6,251 thousand and $7,348 thousand for the years ended December 31, 2017, 2016 and 2015, respectively. Prosper recorded gains on disposals of $11 thousand, impairment charges of $1,083 thousand and $0 for the years ended December 31, 2017, 2016 and 2015 respectively, as a result of our decision to discontinue several software and website development projects and to cease the use of certain leased properties and related leasehold improvements, computer equipment and furniture at these locations. |
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Property and Equipment, Net | Property and Equipment Property and equipment consist of the following (in thousands):
Depreciation and amortization expense for 2017, 2016, and 2015 was $5,853 thousand, $4,083 thousand and $3,161 thousand respectively. Internal-use software and web site development additions of $3.7 million, $5.8 million and $10.5 million were purchased from PMI in the years ended December 31, 2017, 2016, and 2015 respectively. |
Borrower Loans, Loans Held for Sale, and Notes Held at Fair Value |
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Borrower Loans, Loans Held for Sale, and Notes Held at Fair Value | Borrower Loans, Loans Held for Sale, and Notes Held at Fair Value The fair value of the Borrower Loans originated and Notes issued through the Note Channel is estimated using discounted cash flow methodologies based upon a set of valuation assumptions. The primary assumptions used to value such Borrower Loans and Notes include default rates derived from historical performance, market conditions and discount rates applied to each credit grade based on the perceived credit risk of each credit grade. The obligation to pay principal and interest on any series of Notes is equal to the payments, if any, received on the corresponding Borrower Loan, net of the servicing fee. As such, the fair value of the Notes is approximately equal to the fair value of the Borrower Loans originated through the Note Channel, adjusted for the servicing fee and the timing of borrower payments subsequently disbursed to the Note holders. The effective interest rate associated with a series of Notes will be less than the interest rate earned on the corresponding Borrower Loan due to the servicing fee. At December 31, 2017 and 2016, Borrower Loans, Notes and Loans Held for Sale (in thousands) were:
At December 31, 2017, outstanding Borrower Loans had original maturities between 36 and 60 months, had monthly payments with fixed interest rates ranging from 5.31% to 32.32% and had various maturity dates through December 2022. At December 31, 2016, Loans Held for Sale and Borrower Loans had original terms between 36 months and 60 months, had monthly payments with fixed interest rates ranging from 5.32% to 33.04% and had various maturity dates through December 2021. Approximately $1.7 million and $2.4 million represents the loss that is attributable to changes in the instrument specific credit risks related to Borrower Loans that were recorded in the change in fair value during the years ended December 31, 2017 and December 31, 2016, respectively. As of December 31, 2017 the Borrower Loans that were 90 days or more delinquent, had an aggregate principal amount of $3.5 million and a fair value of $1.3 million. As of December 31, 2016 the Borrower Loans that were 90 days or more delinquent, had an aggregate principal amount of $3.2 million and a fair value of $1.0 million. We place loans on non-accrual status when they are over 120 days past due. As of December 31, 2017 and 2016, Borrower Loans in non-accrual status had a fair value of $0.3 million and $0.5 million, respectively. |
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Borrower Loans, Loans Held for Sale, and Notes Held at Fair Value | Borrower Loans, Loans Held For Sale and Notes Held at Fair Value The fair value of the Borrower Loans originated and Notes issued through the Note Channel is estimated using discounted cash flow methodologies based upon a set of valuation assumptions. The primary assumptions used to value such Borrower Loans and Notes include default rates derived from historical performance, market conditions and discount rates applied to each credit grade based on the perceived credit risk. The obligation to pay principal and interest on any series of Notes is equal to the payments, if any, received on the corresponding Borrower Loan, net of the servicing fee. As such, the fair value of the Notes is approximately equal to the fair value of the Borrower Loans originated through the Note Channel, adjusted for the servicing fee and the timing of borrower payments subsequently disbursed to the Note holders. The effective interest rate associated with a series of Notes will be less than the interest rate earned on the corresponding Borrower Loan due to the servicing fee. At December 31, 2017 and 2016, Borrower Loans, Notes and Loans Held for Sale (in thousands) were:
At December 31, 2017, outstanding Borrower Loans had original maturities between 36 and 60 months, had monthly payments with fixed interest rates ranging from 5.31% to 32.32% and had various maturity dates through December 2022. At December 31, 2016, Borrower Loans and Loans Held for Sale had original terms between 36 months and 60 months, had monthly payments with fixed interest rates ranging from 5.32% to 33.04% and had various maturity dates through 2021. Within the change in fair value of Borrower Loans, Prosper Funding recorded a loss of approximately $1.7 million that is attributable to changes in the credit risks related to Borrower Loans during the year ending December 31, 2017. As of December 31, 2017 the Borrower Loans that were 90 days or more delinquent, had an aggregate principal amount of $3.5 million and a fair value of $1.3 million. As December 31, 2016 the Borrower Loans that were 90 days or more delinquent, had an aggregate principal amount of $3.2 million and a fair value of $1.0 million. As of December 31, 2017 and 2016, Borrower Loans in non-accrual status had a fair value of $0.3 million and $0.5 million, respectively. |
Loan Servicing Assets and Liabilities |
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Entity Information [Line Items] | |
Loan Servicing Assets and Liabilities | Loan Servicing Assets and Liabilities Prosper accounts for servicing assets and liabilities at their estimated fair values with changes in fair values recorded in servicing fees. The initial asset or liability is recognized when Prosper sells Borrower Loans to unrelated third-party buyers through the Whole Loan Channel and the servicing rights are retained. The servicing assets and liabilities are measured at fair value throughout the servicing period. The total gains and losses recognized on the sale of such Borrower Loans for the year ended December 31, 2017 were a gain of $11.4 million and a loss of $60.1 million from the Fair Value of Warrants Vested on the Sale of Borrower Loans to the Consortium. Prosper initially records servicing assets and liabilities at their estimated fair values when Prosper sells Borrower Loans in their entirety to unrelated third-party buyers. The total gains recognized on the sale of such Borrower Loans were $3.6 million and $14.2 million for the years ended December 31, 2016 and 2015 respectively. At December 31, 2017, Borrower Loans that were sold to unrelated third parties, but for which we retained servicing rights had a total outstanding principal balance of $3.7 billion, original terms of either 36 or 60 months and had monthly payments with fixed interest rates ranging from 5.31% to 35.52% and maturity dates through December 2022. At December 31, 2016, Borrower Loans that were sold but for which we retained servicing rights had a total outstanding principal balance of $3.5 billion, original terms between 36 and 60 months and had monthly payments with fixed interest rates ranging from 5.32% to 35.52% and maturity dates through December 2021. $39.0 million, $38.9 million and $22.1 million of contractually specified servicing fees, late charges and ancillary fees are included on our Statement of Operations in Servicing Fees, Net for the years ended December 31, 2017, 2016 and 2015, respectively. Fair value Valuation method – Prosper uses a discounted cash flow valuation methodology generally consisting of developing an estimate of future cash flows that are expected to occur over the life of a financial instrument and then discounting those cash flows at a rate of return that results in the fair value amount. Significant unobservable inputs presented in the table within Note 7 below are those that Prosper considers significant to the estimated fair values of the servicing assets and liabilities. The following is a description of the significant unobservable inputs provided in the table. Market servicing rate – Prosper estimates adequate market servicing rates that would fairly compensate a substitute servicer should one be required, which includes the profit that would be demanded in the marketplace. This rate is stated as a fixed percentage of outstanding principal balance on a per annum basis. Prosper estimated these market servicing rates based on observable market rates for other loan types in the industry and bids from subservicing providers, adjusted for the unique loan attributes that are present in the specific loans that Prosper sells and services and information from a backup service provider. Discount rate – The discount rate is a rate of return used to discount future expected cash flows to arrive at a present value, which represents the fair value of the loan servicing rights. We used a range of discount rates for the servicing assets and liabilities based on comparable observed valuations of similar assets and publicly available disclosures related to servicing valuations, with comparability adjustments made to account for differences with Prosper’s servicing assets. Default Rate – The default rate presented in Note 7 is an annualized, average estimate considering all Borrower Loan categories (i.e. Prosper ratings and duration), and represents an aggregate of conditional default rate curves for each credit grade or Borrower Loan category. Each point on a particular Borrower Loan category’s curve represents the percentage of principal expected to default per period based on the term and age of the underlying Borrower Loans. The assumption regarding defaults directly reduces servicing revenues because the amount of servicing revenues received is based on the amount collected each period. Prepayment Rate – The prepayment rate presented in Note 7 is an annualized, average estimate considering all Borrower Loan categories (i.e. Prosper ratings and duration), and represents an aggregate of conditional prepayment rate curves for each credit grade or Borrower Loan category. Each point on a particular Borrower Loan category’s curve represents the percentage of principal expected to prepay per period based on the term and age of the underlying Borrower Loans. Prepayments reduce servicing revenues as they shorten the period over which we expect to collect fees on the Borrower Loans, which is used to project future servicing revenues. |
Prosper Funding LLC | |
Entity Information [Line Items] | |
Loan Servicing Assets and Liabilities | Loan Servicing Assets and Liabilities Prosper Funding initially records servicing assets and liabilities at their estimated fair values when Prosper Funding sells whole loans to unrelated third-party buyers. The total losses recognized on the sale of the whole loans were $48.7 million for the year ended December 31, 2017, and the total gains recognized were $3.6 million and $14.2 million for the years ended December 31, 2016 and 2015 respectively. At December 31, 2017, loans that were sold but for which we retained servicing rights had a total outstanding principal balance of $3.7 billion, original terms of either 36 or 60 months and had monthly payments with fixed interest rates ranging from 5.31% to 35.52% and maturity dates through December 2021. At December 31, 2016, loans that were sold but for which we retained servicing rights had a total outstanding principal balance of $3.4 billion, original terms between 36 and 60 months and had monthly payments with fixed interest rates ranging from 5.32% to 35.52% and Maturity dates through December 2020. $38.5 million, $38.2 million and $20.4 million of contractually specified servicing fees, late charges and ancillary fees are included on our Statement of Operations in Servicing Fees, Net for the years ended December 31, 2017, 2016, and 2015 respectively. Fair value Valuation method – Discounted cash flow valuation methodology generally consists of developing an estimate of future cash flows that are expected to occur over the life of a financial instrument and then discounting those cash flows at a rate of return that results in the fair value amount. Significant unobservable inputs presented in the table presented below within Note 6 are those that Prosper Funding considers significant to the estimated fair values of the servicing assets and liabilities. The following is a description of the significant unobservable inputs provided in the table. Market servicing rate – Prosper Funding estimates adequate market servicing rates that would fairly compensate a substitute servicer should one be required, which includes the profit that would be demanded in the marketplace. This rate is stated as a fixed percentage of outstanding principal balance on a per annum basis. Prosper Funding estimated these market servicing rates based on observable market rates for other loan types in the industry and bids from subservicing providers, adjusted for the unique loan attributes that are present in the specific loans that Prosper Funding sells and services and information from a backup service provider. Discount rate – The discount rate is a rate of return used to discount future expected cash flows to arrive at a present value, which represents the fair value of the loan servicing rights. We used a range of discount rates for the servicing assets and liabilities based on comparable observed valuations of similar assets and publicly available disclosures related to servicing valuations, with comparability adjustments made to account for differences with Prosper Funding’s servicing assets. Default Rate – The default rate presented in Note 6 is an annualized, average estimate considering all loan categories (i.e. Prosper ratings and duration), and represents an aggregate of conditional default rate curves for each credit grade or loan category. Each point on a particular loan category’s curve represents the percentage of principal expected to default per period based on the term and age of the underlying loans. The assumption regarding defaults directly reduces servicing revenues because the amount of servicing revenues received is based on the amount collected each period. Prepayment Rate – The prepayment rate presented in Note 6 is an annualized, average estimate considering all Borrower Loan categories (i.e. Prosper ratings and duration), and represents an aggregate of conditional prepayment rate curves for each credit grade or Borrower Loan category. Each point on a particular Borrower Loan category’s curve represents the percentage of principal expected to prepay per period based on the term and age of the underlying Borrower Loans. Prepayments reduce servicing revenues as they shorten the period over which we expect to collect fees on the Borrower Loans, which is used to project future servicing revenues. |
Available for Sale Investments, at Fair Value |
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Investments, Debt and Equity Securities [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Available for Sale Investments, at Fair Value | Available for Sale Investments, at Fair Value Available for sale investments are recorded at fair value and unrealized gains and losses are reported, net of taxes, in Accumulated Other Comprehensive Loss included in Stockholders' Deficit unless management determines that an investment is OTTI. The amortized cost, gross unrealized gains and losses, and fair value of available for sale investments as of December 31, 2017 and December 31, 2016, are as follows (in thousands):
A summary of available for sale investments with unrealized losses as of December 31, 2017, aggregated by category and period of continuous unrealized loss, is as follows (in thousands):
The maturities of available for sale investments at December 31, 2017, are as follows (in thousands):
Prosper sold investments in available for sale securities in the amount of $31.2 million during the year ended December 31, 2017 which resulted in a loss of $9 thousand. |
Fair Value of Assets and Liabilities |
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Fair Value of Assets and Liabilities | Fair Value of Assets and Liabilities For a description of the fair value hierarchy and Prosper’s fair value methodologies, see Note 2 - Summary of Significant Accounting Policies. Prosper did not transfer any assets or liabilities in or out of level 3 during the year ended December 31, 2017. Financial Instruments Recorded at Fair Value The fair value of the Borrower Loans, Loans Held for Sale and Notes are estimated using discounted cash flow methodologies based upon a set of valuation assumptions. The primary cash flow assumptions used to value such Borrower Loans, Loans Held for Sale and Notes include default rates derived from historical performance and discount rates applied to each credit grade based on the perceived credit risk of each credit grade. Investments held at fair value consist of available for sale investments. The available for sale investments consist of corporate debt securities, U.S. treasury securities, treasury bills and agency bonds. When available, Prosper uses quoted prices in active markets to measure the fair value of available for sale securities. When utilizing market data and bid-ask spreads, Prosper uses the price within the bid-ask spread that best represents fair value. When quoted prices do not exist, Prosper uses prices obtained from independent third-party pricing services to measure the fair value of investment assets. Prosper generally obtains prices from at least two independent pricing sources for assets recorded at fair value. Prosper's primary independent pricing service provides prices based on observable trades and discounted cash flows that incorporate observable information, such as yields for similar types of securities (a benchmark interest rate plus observable spreads) and weighted-average maturity for the same or similar securities. Prosper compares the prices obtained from its primary independent pricing service to the prices obtained from the additional independent pricing services to determine if the price obtained from the primary independent pricing service is reasonable. Prosper does not adjust the prices received from independent third-party pricing services unless such prices are inconsistent with the definition of fair value and result in a material difference in the recorded amounts. The Convertible Preferred Stock Warrant Liability is valued using a Black Scholes-Option pricing model. Refer to Note 13 for further details. The following tables present the fair value hierarchy for assets and liabilities measured at fair value (in thousands):
As Prosper’s Borrower Loans, Loans Held for Sale, Notes, Servicing Assets, Servicing Liabilities and Loan Trailing Fee Liability do not trade in an active market with readily observable prices, Prosper uses significant unobservable inputs to measure the fair value of these assets and liabilities. Financial instruments are categorized in the level 3 valuation hierarchy based on the significance of unobservable factors in the overall fair value measurement. These fair value estimates may also include observable, actively quoted components derived from external sources. As a result, the realized and unrealized gains and losses for assets and liabilities within the level 3 category may include changes in fair value that were attributable to both observable and unobservable inputs. Significant Unobservable Inputs The following tables present quantitative information about the significant unobservable inputs used for Prosper’s level 3 fair value measurements at December 31, 2017: Borrower Loans, Loans Held for Sale and Notes:
Servicing Assets and Liabilities:
(1) Excludes collection fees that would be passed on to a hypothetical third-party servicer. As of December 31, 2017 and 2016, the market rate for collection fees and non-sufficient fund fees was assumed to be 7 basis points and 7 basis points for a weighted-average total market servicing rate of 69.5 basis points and 69.5 basis points respectively. Loan Trailing Fee Liability:
At December 31, 2017 and 2016, the discounted cash flow methodology used to estimate the Note fair values used the same projected cash flows as the related Borrower Loans. As demonstrated in the following table, the fair value adjustments for Borrower Loans were largely offset by the fair value adjustments of the Notes due to the borrower payment dependent design of the Notes and because the principal balances of the Borrower Loans approximated the principal balances of the Notes. The following tables present additional information about level 3 Borrower Loans, Loans Held for Sale and Notes measured at fair value on a recurring basis (in thousands):
The following table presents additional information about the level 3 servicing assets and liabilities measured at fair value on a recurring basis (in thousands):
The following table presents additional information about level 3 Preferred Stock Warrant Liability measured at fair value on a recurring basis (in thousands):
The following table presents additional information about level 3 Loan Trailing Fee Liability measured at fair value on a recurring basis (in thousands):
Significant Recurring Level 3 Fair Value Asset and Liability Input Sensitivity Key economic assumptions and the sensitivity of the current fair value to immediate changes in those assumptions at December 31, 2017 for Borrower Loans, Loans Held for Sale and Notes originated through the Note Channel are presented in the following table (in thousands, except percentages):
* Represents weighted average assumptions considering all credit grades. The following table presents the estimated impact on Prosper’s estimated fair value of servicing assets and liabilities, calculated using different market servicing rates and different default rates as of December 31, 2017 (in thousands, except percentages).
These sensitivities are hypothetical and should be evaluated with care. The effect on fair value of a variation in assumptions generally cannot be determined because the relationship of the change in assumptions to the fair value may not be linear. Additionally, the impact of a variation in a particular assumption on the fair value is calculated while holding other assumptions constant. In reality, changes in one factor may lead to changes in other factors, which could impact the above hypothetical effects. |
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Prosper Funding LLC | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Entity Information [Line Items] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value of Assets and Liabilities | Fair Value of Assets and Liabilities For a description of the fair value hierarchy and Prosper Funding’s fair value methodologies, see Note 2 - Summary of Significant Accounting Policies. Prosper Funding did not transfer any assets or liabilities in or out of level 3 during the year ended December 31, 2017. Financial Instruments Recorded at Fair Value The fair value of the Borrower Loans, Loans Held for Sale and Notes are estimated using discounted cash flow methodologies based upon a set of valuation assumptions. The primary cash flow assumptions used to value such Borrower Loans, Loans Held for Sale and Notes include default rates derived from historical performance and discount rates applied to each credit grade based on the perceived credit risk. Investments held at fair value consists of available for sale investments. The available for sale investments consist of corporate and government bonds. When available, Prosper Funding uses quoted prices in active markets to measure the fair value of securities available for sale. When utilizing market data and bid-ask spreads, Prosper Funding uses the price within the bid-ask spread that best represents fair value. When quoted prices do not exist, Prosper Funding uses prices obtained from independent third-party pricing services to measure the fair value of investment assets. Prosper Funding generally obtains prices from at least two independent pricing sources for assets recorded at fair value. Prosper Funding's primary independent pricing service provides prices based on observable trades and discounted cash flows that incorporate observable information, such as yields for similar types of securities (a benchmark interest rate plus observable spreads) and weighted-average maturity for the same or similar securities. Prosper Funding compares the prices obtained from its primary independent pricing service to the prices obtained from the additional independent pricing services to determine if the price obtained from the primary independent pricing service is reasonable. Prosper Funding does not adjust the prices received from independent third-party pricing services unless such prices are inconsistent with the definition of fair value and result in a material difference in the recorded amounts. The following tables present the fair value hierarchy for assets and liabilities measured at fair value (in thousands):
As Prosper Funding’s Borrower Loans, Loans Held for Sale, Notes, Servicing Assets, Servicing Liabilities and Loan Trailing Fee Liability do not trade in an active market with readily observable prices, Prosper Funding uses significant unobservable inputs to measure the fair value of these assets and liabilities. Financial instruments are categorized in the level 3 valuation hierarchy based on the significance of unobservable factors in the overall fair value measurement. These fair value estimates may also include observable, actively quoted components derived from external sources. As a result, the realized and unrealized gains and losses for assets and liabilities within the level 3 category may include changes in fair value that were attributable to both observable and unobservable inputs. Significant Unobservable Inputs The following tables present quantitative information about the significant unobservable inputs used for Prosper Funding’s level 3 fair value measurements at December 31, 2017: Borrower Loans, Loans Held for Sale and Notes:
Servicing Assets and Liabilities:
(1) Excludes collection fees that would be passed on to a hypothetical third-party servicer. As of December 31, 2017 and 2016, the market rate for collection fees and non-sufficient funds fees was assumed to be 7 basis points and 7 basis points for a weighted-average total market servicing rate of 69.5 basis points and 69.5 basis points respectively. Loan Trailing Fee Liability:
At December 31, 2017 and 2016, the discounted cash flow methodology used to estimate the Note fair values used the same projected cash flows as the related Borrower Loans. As demonstrated in the following table, the fair value adjustments for Borrower Loans were largely offset by the fair value adjustments of the Notes due to the borrower payment dependent design of the Notes and because the principal balances of the Borrower Loans approximated the principal balances of the Notes. The following tables present additional information about level 3 Borrower Loans, Loans Held for Sale and Notes measured at fair value on a recurring basis (in thousands):
The following table presents additional information about level 3 servicing assets and liabilities measured at fair value on a recurring basis (in thousands):
The following table presents additional information about level 3 Loan Trailing Fee Liability measured at fair value on a recurring basis (in thousands):
Significant Recurring Level 3 Fair Value Asset and Liability Input Sensitivity Key economic assumptions and the sensitivity of the current fair value to immediate changes in those assumptions at December 31, 2017 for Borrower Loans, Loans Held for Sale and Notes originated through the Note Channel are presented in the following table (in thousands, except percentages):
* Represents weighted average assumptions considering all credit grades. The following table presents the estimated impact on Prosper Funding’s estimated fair value of servicing assets and liabilities, calculated using different market servicing rates, prepayment rates and different default rates as of December 31, 2017 (in thousands, except percentages).
These sensitivities are hypothetical and should be evaluated with care. The effect on fair value of a variation in assumptions generally cannot be determined because the relationship of the change in assumptions to the fair value may not be linear. Additionally, the impact of a variation in a particular assumption on the fair value is calculated while holding other assumptions constant. In reality, changes in one factor may lead to changes in other factors, which could impact the above hypothetical effects. |
Goodwill and Other Intangible Assets, Net |
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Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill and Other Intangible Assets, Net | Goodwill and Other Intangible Assets, Net Goodwill The following table presents the goodwill activity for the periods presented (in thousands):
We did not record any goodwill impairment expense for the years ended December 31, 2017, 2016 and 2015. Other Intangible Assets, Net The following table presents the detail of other intangible assets for the periods presented (dollars in thousands):
We did not record any intangible additions for the year ended December 31, 2017 or 2016. The user base and customer relationship intangible assets are being amortized on an accelerated basis over a three to ten year period. The technology and brand name intangible assets are being amortized on a straight line basis over three to five years and one year, respectively. During the year ended December 31, 2017, certain intangible assets were made available for sale and as a result they were written down to fair value. This resulted in a $6.4 million impairment loss, which is recorded in Other Expenses on the Consolidated Statement of Operations. Amortization expense for the years ended December 31, 2017, 2016 and 2015 was $1.4 million, $3.8 million and $1.6 million, respectively. Estimated amortization of purchased intangible assets for future periods is as follows (in thousands):
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Other Liabilities |
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Other Liabilities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Liabilities | Other Liabilities Other Liabilities includes the following (in thousands):
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Net Loss Per Share |
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Loss Per Share | Net Loss Per Share Prosper computes net loss per share in accordance with ASC Topic 260, Earnings Per Share (“ASC Topic 260”). Under ASC Topic 260, basic net loss per share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding for the period and excludes the effects of any potentially dilutive securities. We compute Earnings per Share (“EPS”) using the two-class method. The two-class method allocates earnings that otherwise would have been available to common shareholders to holders of participating securities. We consider all series of our convertible preferred stock to be participating securities due to their rights to participate in dividends with common stock. As such, earnings allocated to these participating securities, which include participation rights in undistributed earnings, are subtracted from net income to determine total undistributed earnings to be allocated to common stockholders. All participating securities are excluded from basic weighted-average common shares outstanding. Prior to any conversion to common shares, each series of PMI’s convertible preferred stock was entitled to participate on an if converted basis in distributions of earnings, when and if declared by the board of directors, that were made to common stockholders and as a result these shares were considered participating securities. During the year ended December 31, 2017, 2016 and 2015, certain shares issued as a result of the early exercise of stock options, which are subject to a repurchase right by PMI, were entitled to receive non-forfeitable dividends during the vesting period and as a result were considered participating securities. The weighted average shares used in calculating basic and diluted net loss per share excludes certain shares that are disclosed as outstanding shares in the Consolidated Balance Sheets and Consolidated Statements of Convertible Preferred Stock and Stockholders’ Deficit because such shares are restricted as they were associated with options that were early exercised and continue to remain unvested. Basic and diluted net loss per share was calculated as follows (net loss in thousands):
Due to losses attributable to PMI’s common shareholders for each of the periods below, the following potentially dilutive shares are excluded from the diluted net loss per share calculation because they were anti-dilutive under the treasury stock or if converted method:
The number of shares issued and outstanding reflect a 5-for-1 forward stock split effected by PMI on February 16, 2016. |
Convertible Preferred Stock, Warrant Liability and Stockholders’ Deficit |
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Stockholders' Equity Note [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Convertible Preferred Stock, Warrant Liability and Stockholders’ Deficit | Convertible Preferred Stock, Warrant Liability and Stockholders’ Deficit Convertible Preferred Stock Under PMI’s amended and restated certificate of incorporation, preferred stock is issuable in series, and the Board of Directors is authorized to determine the rights, preferences, and terms of each series. In January 2013, PMI issued and sold 69,340,760 shares of New Series A (“New Series A”) convertible preferred stock in a private placement at a purchase price of $0.29 per share for $19.8 million, net of issuance costs. In connection with that sale, PMI issued 25,585,910 shares at par value $0.01 per share of Series A-1 (“Series A-1”) convertible preferred stock to the holders of shares of PMI’s convertible preferred stock that was outstanding immediately prior to the sale (“Old Preferred Shares”) in consideration for such stockholders participating in the sale. In connection with the New Series A sale, Old Preferred Shares were converted into shares of common stock at a ratio of 1:1 if the holder of the Old Preferred Shares participated in the New Series A sale or at a 10:1 ratio if the holder of the Old Preferred Shares did not so participate. In addition, each such participating holder received a share of New Series A-1 convertible preferred stock for every dollar of liquidation preference associated with an Old Preferred Share held by such holder. Each share of Series A-1 preferred stock has a liquidation preference of $2.00 and converts into common stock at a ratio of 1,000,000:1. The New Series A and Series A-1 convertible preferred stock were sold in reliance on the exemption from the registration requirements of the Securities Act set forth in Section 4(2) of the Securities Act and Regulation D promulgated thereunder regarding sales by an issuer not involving a public offering. In September 2013, PMI issued and sold 41,443,670 shares of New Series B (“New Series B”) convertible preferred stock in a private placement at a purchase price of $0.60 per share for approximately $24.9 million, net of issuance costs. The New Series B convertible preferred stock was sold in reliance on the exemption from the registration requirements of the Securities Act set forth in Section 4(2) of the Securities Act and Regulation D promulgated thereunder regarding sales by an issuer not involving a public offering. In May 2014, PMI issued and sold 24,404,770 shares of New Series C (“New Series C”) convertible preferred stock in a private placement at a purchase price of $2.87 per share for approximately $69.9 million, net of issuance costs. The Series C convertible preferred stock was sold in reliance on the exemption from the registration requirements of the Securities Act set forth in Section 4(2) of the Securities Act and Regulation D promulgated thereunder regarding sales by an issuer not involving a public offering. The purpose of the New Series C private placement was to raise funds for general corporate needs and for the tender offer discussed below. On June 18, 2014, PMI issued a Tender Offer Statement to purchase up to 6,963,785 shares, in the aggregate, of its New Series A convertible preferred Stock and New Series B convertible preferred Stock, at a price equal to $2.87 per share. Upon closure of the tender offer on July 16, 2014, 782,540 shares of New Series A convertible preferred Stock and 5,667,790 shares of New Series B convertible preferred Stock were purchased for an aggregate price of $18.5 million. In April 2015, PMI issued and sold 23,888,640 shares of New Series D (“New Series D”) convertible preferred stock in a private placement at a purchase price of $6.91 per share for proceeds of approximately $164.8 million, net of issuance costs. The New Series D convertible preferred stock was sold in reliance on the exemption from the registration requirements of the Securities Act set forth in Section 4(2) of the Securities Act and Regulation D promulgated thereunder regarding sales by an issuer not involving a public offering. The purpose of the New Series D private placement was to raise funds for general corporate needs and for the share repurchase discussed below. In December 2016, PMI authorized 40,000,000 shares of New Series E ("New Series E") convertible preferred stock. These shares are reserved for the convertible preferred stock warrants that were also issued in December 2016. On December 16, 2016, PMI issued a warrant to purchase 20,267,135 shares of Series E-1 convertible preferred stock of PMI ("Series E-1") at an exercise price of $0.01 per share (the “First Series E-1 Warrant”) to Pinecone Investments LLC (“Pinecone”), an affiliate of Colchis Capital Management, L.P. (“Colchis”). On February 27, 2017, PMI issued to Pinecone a second warrant (the “Second Series E-1 Warrant,” and together with the First Series E-1 Warrant, the “Series E-1 Warrants”) to purchase 15,277,006 shares of Series E-1 at an exercise price of $0.01 per share. The Series E-1 Warrants are immediately exercisable, in whole or in part, by paying in cash the full purchase price payable in respect of the number of shares purchased. The Series E-1 Warrants were issued pursuant to the Warrant Agreement, dated December 16, 2016, between PMI and Colchis, as previously described in PMI’s Current Report on Form 8-K as filed with the Commission on December 22, 2016. In connection with a loan purchase agreement (“Consortium Purchase Agreement”) with affiliates of the Consortium ("Warrant Holders'") a warrant agreement was signed (the "Warrant Agreement"). Pursuant to the Warrant Agreement, PMI issued to the Consortium, three warrants (together, the “Series F Warrant”) to purchase up to in aggregate 177,720,706 shares of PMI’s Series F Preferred Stock at an exercise price of $0.01 per share (the “Warrant Shares”). Refer to Note 15 for more details. On September 20, 2017, Prosper issued and sold 37,249,497 shares of Series G convertible preferred stock ("Series G") in a private placement at a purchase price of $1.34 per share for proceeds of approximately $47.9 million, net of issuance costs. The Series G convertible preferred stock was sold in reliance on the exemption from the registration requirements of the Securities Act set forth in Section 4(a)(2) of the Securities Act regarding sales by an issuer not involving a public offering. The purpose of the new Series G private placement was to raise funds for general corporate purposes. The number of authorized, issued and outstanding shares, their par value and liquidation preference for each series of convertible preferred stock as of December 31, 2017 are disclosed in the table below (dollar amounts in thousands, except per share information):
The number of shares issued and outstanding reflect a 5-for-1 forward stock split effected by PMI on February 16, 2016. Dividends Dividends on shares of the Series A, Series B, Series C, Series D, Series E-1, Series E-2, Series F, and Series G convertible preferred stock are payable only when, as, and if declared by the Board of Directors. No dividends will be paid with respect to the common stock until any declared dividends on the Series A, Series B, Series C, Series D, Series E-1, Series E-2 Series F and Series G convertible preferred stock have been paid or set aside for payment to the Series A, Series B, Series C, Series D, Series E-1, Series E-2, Series F and Series G convertible preferred stockholders. After payment of any such dividends, any additional dividends or distributions will be distributed among all holders of common stock and preferred stock in proportion to the number of shares of common stock that would be held by each such holder if all shares of preferred stock were converted to common stock at the then effective conversion rate. The Series A-1 convertible preferred shares have no dividend rights. To date, no dividends have been declared on any of the PMI’s preferred stock or common stock. Conversion Under the terms of PMI’s amended and restated certificate of incorporation, the holders of preferred stock have the right to convert such preferred stock into common stock at any time. In addition, all preferred stock automatically converts into common stock (i) immediately prior to the closing of an Initial Public Offering (“IPO”) that values Prosper at least at $2 billion and that results in aggregate proceeds to Prosper of at least $100 million or (ii) upon a written request from the holders of at least 60% of the voting power of the outstanding preferred stock (on an as-converted basis) including at least 14% of the voting power of the outstanding Series A-1 convertible preferred stock ; (ii) the Series D shall not be converted without at least 60% of the voting power of the outstanding Series D; (iii) the Series E-1 and Series E-2 shall not be converted without at least 60% of the voting power of the outstanding Series E-1 and Series E-2, voting together as a single class; (iv) the Series F shall not be converted without at least 60% of the voting power of the outstanding Series F, and (v) the shares of Series G Preferred Stock will not be automatically converted unless the holders of at least 60% of the outstanding shares of Series G Preferred Stock approve such conversion. In addition, if a holder of the Series A convertible preferred stock has converted any of the Series A convertible preferred stock, then all of such holder’s shares of Series A-1 convertible preferred stock also will be converted upon a liquidation event. In lieu of any fractional shares of common stock to which a holder would otherwise be entitled, PMI shall pay such holder cash in an amount equal to the fair market value of such fractional shares, as determined by its Board of Directors. At present, the Series A, Series B, Series C, Series D, Series E-1, Series E-2 and the Series F convertible preferred stock converts into PMI common stock at a 1:1 ratio while the Series A-1 convertible preferred stock converts into common stock at a 1,000,000:1 ratio. The conversion price of the Series G convertible preferred stock shall be reduced to a number equal to the Series G Preferred Stock original issuance price divided by the quotient obtained by dividing the Series G "true up" amount by the total number of Series G Preferred Stock issued as of the Series G closing date. The Series G "true up" amount means the aggregate number of shares of Series G Preferred Stock that would have been issued to the purchasers of the Series G Preferred Stock on the Series G closing date, if warrants to purchase shares of Series E-2 Preferred Stock or Series F Preferred Stock that were exercisable or exercised as of the "true up" time (end of vesting period) were exercisable or exercised as of the Series G Preferred Stock closing date. Liquidation Rights PMI’s convertible preferred stock has been classified as temporary equity on the Consolidated Balance Sheets. The preferred stock is not redeemable; however, in the event of a voluntary or involuntary liquidation, dissolution, change in control or winding up of PMI, holders of the convertible preferred stock may have the right to receive their liquidation preference under the terms of PMI’s certificate of incorporation. Each holder of Series E-1, Series E-2 and Series F convertible preferred stock is entitled to receive prior and in preference to any distribution of proceeds from a liquidation event to the holders of Series A, Series B, Series C, Series D, Series G and Series A-1 preferred stock or common stock, an amount per share for (i) each share of Series E-1 convertible preferred stock equal to the sum of the liquidation preference specified for such share and all declared but unpaid dividends, if any, on such share, (ii) each share of Series E-2 convertible preferred stock equal to the sum of two-thirds the liquidation preference specified for such share and all declared but unpaid dividends, if any, on such share, and (iii) each share of Series F convertible preferred stock equal to the sum of two-thirds of the liquidation preference specified for such share and all declared but unpaid dividends, if any, on such share. After the payment or setting aside for payment to the holders of Series E-1, Series E-2, and Series F convertible preferred stock, each holder of Series A, Series B, Series C and Series D, Series E-2, Series F and Series G convertible preferred stock is entitled to receive, on a pari passu basis, prior to and in preference to any distribution of proceeds from a liquidation event to the holders of Series A-1 preferred stock or common stock, (i) an amount per share for each share of Series E-2 and Series F convertible preferred stock equal to the sum of one-third of the liquidation preference specified for such share and all declared but unpaid dividends, if any, on such share, and (ii) an amount per share for each share of Series A, Series B, Series C, Series D and Series G convertible preferred stock equal to the sum of the liquidation preference specified for such share and all declared but unpaid dividends, if any, on such share. After the payment or setting aside for payment to the holders of Series A, Series B, Series C, Series D, Series E-1, Series E-2, Series F and Series G convertible preferred stock, the holders of Series A-1 convertible preferred stock are entitled to receive, prior and in preference to any distribution of proceeds to the holders of common stock an amount per share for each such share of Series A-1 convertible preferred stock equal to the sum of the liquidation preference specified for such share and all declared but unpaid dividends, if any, on such share. After the payment or setting aside for payment to the holders of Series A, Series B, Series C, Series D, Series E-1, Series E-2, Series F, Series G and Series A-1 preferred stock, the entire remaining proceeds legally available for distribution will be distributed pro rata to the holders of Series A preferred stock and common stock in proportion to the number of shares of common stock held by them assuming the Series A preferred stock has been converted into shares of common stock at the then effective conversion rate, provided that the maximum aggregate amount per share of Series A convertible preferred stock which the holders of Series A convertible preferred stock shall be entitled to receive is three times the original issue price for the Series A convertible preferred stock. At present, the liquidation preferences are equal to $0.29 per share for the Series A convertible preferred stock, $2.00 per share for the Series A-1 convertible preferred stock, $0.60 per share for the Series B convertible preferred stock, $2.87 per share for the Series C convertible preferred stock, $6.91 per share for the Series D convertible preferred stock, $0.84 per share for the Series E-1 convertible preferred stock, $0.84 per share for the Series E-2 convertible preferred stock, $0.84 per share for the Series F convertible preferred stock and $1.34 per share for the Series G convertible preferred stock. Voting Each holder of shares of convertible preferred stock is entitled to the number of votes equal to the number of shares of common stock into which such shares of convertible preferred stock could be converted and has voting rights and powers equal to the voting rights and powers of the common stock. The holders of convertible preferred stock and the holders of common stock vote together as a single class (except with respect to certain matters that require separate votes or as required by law), and are entitled to notice of any stockholders’ meeting in accordance with the bylaws of PMI. Convertible Preferred Stock Warrant Liability Series E-1 Warrants In connection with the Settlement and Release Agreement dated November 17, 2016 among PMI, PFL and Colchis, on December 16, 2016, PMI issued the First Series E-1 Warrant. The Second Series E-1 Warrant for an additional 15,277,006 shares of Series E-1 convertible preferred stock was granted on the signing of the Consortium Purchase Agreement on February 27, 2017. The warrants expire ten years from the date of issuance. For the year ended December 31, 2017, Prosper recognized $17.8 million of expense from the re-measurement of the fair value of the warrants. The expense is recorded through change in fair value of convertible stock warrants in the consolidated statement of operations. To determine the fair value of the Series E-1 Convertible Preferred Stock Warrants, the Company first determined the value of a share of a Series E-1 convertible preferred stock. To determine the fair value of the convertible preferred stock, the Company first derived the business enterprise value (“BEV”) of the Company using a variety of valuation methods, including recent transactions in the Company's stock, discounted cash flow models and market based methods, as deemed appropriate under the circumstances applicable at the valuation date. Once the Company determined an estimated BEV, the option pricing method ("OPM") was used to allocate the BEV to the various classes of the Company’s equity, including the Company’s preferred stock. The per share value for the Series E-1 convertible preferred stock was utilized as an input to the Black-Scholes option pricing model to determine the fair value of the Series E-1 Convertible Stock Warrants. The Company determined the fair value of the outstanding Series E-1 Convertible Preferred Stock Warrants utilizing the following assumptions as of the following dates:
The above assumptions were determined as follows: Volatility: The volatility is derived from historical volatilities of several unrelated publicly listed peer companies over a period approximately equal to the term of the warrant because the Company has limited information on the volatility of the preferred stock since there is currently no trading history. When making the selections of industry peer companies to be used in the volatility calculation, the Company considered the size, operational, and economic similarities to the Company’s principal business operations. Risk-Free Interest Rate: The risk-free interest rate is based on the U.S. Treasury yield in effect as of December 31, 2017, and for zero coupon U.S. Treasury notes with maturities approximately equal to the term of the warrant. Remaining Contractual Term: The remaining contractual term represents the time from the date of the valuation to the expiration of the warrant. Dividend Yield: The expected dividend assumption is based on the Company’s current expectations about the Company’s anticipated dividend policy. Series F Warrants In connection with the Consortium Purchase Agreement (as described in Note 15), PMI issued warrants to purchase up to 177,720,706 of PMI's Series F convertible preferred stock at $0.01 per share. For the year ended December 31, 2017, Prosper recognized $11.3 million of expense from the re-measurement of the fair value of the warrants. The expense is recorded through other expenses in the condensed consolidated statement of operations. To determine the fair value of the Series F Convertible Preferred Stock Warrants, the Company first determined the value of a share of a Series F convertible preferred stock. To determine the fair value of the Series F Convertible Preferred Stock Warrants, the Company first derived the BEV of the Company using a combination of methods, as deemed appropriate under the circumstances applicable at the valuation date, including recent transactions of the Company's stock, discounted cash flow models and market based methods. Once the Company determined an estimated BEV, the OPM was used to allocate the BEV to the various classes of the Company’s equity, including the Company’s preferred stock. The per share value for the Series F convertible preferred stock warrants was utilized as an input to the the Black-Scholes option pricing model to determine the fair value of the Series F Convertible Preferred Stock Warrant. The Company determined the fair value of the outstanding Series F Convertible Preferred Stock warrants utilizing the following assumptions as of December 31, 2017:
The above assumptions were determined as follows: Volatility: The volatility is derived from historical volatilities of several unrelated publicly listed peer companies over a period approximately equal to the term of the warrant because the Company has limited information on the volatility of the preferred stock since there is currently no trading history. When making the selections of industry peer companies to be used in the volatility calculation, the Company considered the size, operational, and economic similarities to the Company’s principal business operations. Risk-Free Interest Rate: The risk-free interest rate is based on the U.S. Treasury yield in effect as of the period end date and for zero coupon U.S. Treasury notes with maturities approximately equal to the term of the warrant. Remaining Contractual Term: The remaining contractual term represents the time from the date of the valuation to the expiration of the warrant. Dividend Yield: The expected dividend assumption is based on the Company’s current expectations about the Company’s anticipated dividend policy. The combined activity of the Convertible Preferred Stock Warrant Liability is as follows (in thousands):
Common Stock PMI, through its amended and restated certificate of incorporation, is the sole issuer of common stock and related options, RSUs and warrants. On February 16, 2016, PMI amended and restated its Certificate of Incorporation to, among other things, effect a 5-for-1 forward stock split. On September 20, 2017, PMI further amended its Amended and Restated Certificate of Incorporation to increase the number of shares of common stock authorized for issuance. The total number of shares of stock which PMI has the authority to issue is 1,069,760,848, consisting of 625,000,000 shares of common stock, $0.01 par value per share, and 444,760,848 shares of preferred stock, $0.01 par value per share. As of December 31, 2017, 71,226,934 shares of common stock were issued and 70,290,999 shares of common stock were outstanding. As of December 31, 2016, 70,843,044 shares of common stock were issued and 69,907,109 shares of common stock were outstanding. Each holder of common stock is entitled to one vote for each share of common stock held. During 2015, PMI repurchased 4,225,490 shares of common stock from certain employees at a price equal to $6.91 per share for an aggregate purchase price of $29.2 million. As the purchase price exceeded the fair value of common stock at the time of repurchase, Prosper recognized compensation costs of $6.2 million of which $0.33 million is recorded in Origination and Servicing, $0.07 million in Sales and Marketing and $5.7 million in General and Administrative on the Consolidated Statements of Operations. As part of the transactions, PMI repurchased 3,607,095 shares for a total of $24.9 million from Prosper’s executive officers. Common Stock Issued upon Exercise of Stock Options During the year ended December 31, 2017 and December 31, 2016, PMI issued 606,284 and 466,300 shares of common stock, respectively, upon the exercise of options for cash proceeds of $0.1 million and $0.3 million, respectively. Certain options are eligible for exercise prior to vesting. These unvested options may be exercised for restricted shares of common stock that have the same vesting schedule as the options. Prosper records a liability for the exercise price paid upon the exercise of unvested options, which is reclassified to common stock and additional paid-in capital as the shares vest. Should the holder’s employment be terminated, the unvested restricted shares are subject to repurchase by PMI at an amount equal to the exercise price paid for such shares. At December 31, 2017 and 2016, there were 11,565 and 1,126,210 shares respectively of restricted stock outstanding that remain unvested and subject to PMI’s right of repurchase. Common Stock Issued upon Exercise of Warrants For the year ended December 31, 2017 and December 31, 2016, PMI issued 30,615 and 56,480 shares of common stock upon the exercise of warrants, for $0.34 per share and $0.38 per share respectively. |
Stock-based Compensation |
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Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based Compensation | Stock-based Compensation PMI grants equity awards primarily through its Amended and Restated 2005 Stock Option Plan (the “2005 Plan”), which was approved as amended and restated by its stockholders on December 1, 2010; and its 2015 Equity Incentive Plan, which was approved by its stockholders on April 7, 2015 and subsequently amended by an Amendment No. 1 and Amendment No. 2, which were approved by PMI's stockholders on February 15, 2016 and May 31, 2016, respectively (as amended, the "2015 Plan"). In March 2015, the 2005 Plan expired, except that any awards granted under the 2005 Plan prior to its expiration remain in effect pursuant to their terms. As of December 31, 2017, under the 2015 Plan, options to purchase up to 62,489,358 shares of PMI's common stock are reserved and may be granted to employees, directors, and consultants by PMI’s Board of Directors and stockholders to promote the success of Prosper’s business. Options generally vest 25% one year from the vesting commencement date and 1/48th per month thereafter or vest 50% two years from the vesting commencement date and 1/48 per month thereafter or vest 1/36th per month from the vesting commencement date. In no event are options exercisable more than ten years after the date of grant. The number of options, restricted stock units and amounts per share reflects a 5-for-1 forward stock split effected by PMI on February 16, 2016. Stock Option Reprice On May 3, 2016, the Compensation Committee of the Board of Directors of PMI approved a stock option repricing program, (the “2016 Reprice”) authorizing PMI’s officers to reprice certain outstanding stock options held by employees and directors that had exercise prices above the current fair market value of PMI’s common stock. The repricing was effected on May 16, 2016 for eligible directors and employees located in the United States and on May 19, 2016 for eligible employees located in Israel. On March 17, 2017, the Compensation Committee of the Board of Directors of PMI approved a stock option repricing program (the “2017 Reprice” and together with the 2016 Reprice, the "Repricings"), authorizing PMI’s officers to reprice certain outstanding stock options held by employees and directors that had exercise prices above the current fair market value of PMI’s common stock. The 2017 Reprice was effected on March 17, 2017 for eligible directors and employees. Prosper believes that the Repricings will encourage the continued service of valued employees and directors, and motivate them to perform at high levels, both of which are critical to Prosper’s continued success. Prosper incurred additional stock based compensation charges as a result of the Repricings. The financial statement impact of the above Repricings was $1.9 million and $2.2 million in the years ended December 31, 2017 and December 31, 2016, respectively, as well as $1.3 million (net of forfeitures) that will be recognized over the remaining weighted average vesting period of 1.5 years. Early Exercised Stock Options The balance of stock options that were early exercised under the 2005 Plan as of December 31, 2017 is not material. Stock Option Activity Stock option activity under the 2005 Plan and 2015 Plan is summarized as follows for the years below:
For the year ended December 31, 2017, we granted stock options to purchase 37,964,549 shares of common stock at a weighted average grant date fair value of $0.28 per share. Other Information Regarding Stock Options Additional information regarding common stock options outstanding as of December 31, 2017 is as follows:
The fair value of options granted to employees is estimated on the grant date using the Black-Scholes option valuation model. This valuation model for stock-based compensation expense requires Prosper to make assumptions and judgments about the variables used in the calculation, including the fair value of PMI’s common stock, the expected term (the period of time that the options granted are expected to be outstanding), the volatility of PMI’s common stock, a risk-free interest rate, and expected dividends. Given the absence of a publicly traded market, Prosper considered numerous objective and subjective factors to determine the fair value of PMI’s common stock at each grant date. These factors included, but were not limited to: (i) contemporaneous valuations of common stock performed by unrelated third-party specialists; (ii) the prices for PMI’s preferred stock sold to outside investors; (iii) the rights, preferences and privileges of PMI’s preferred stock relative to PMI’s common stock; (iv) the lack of marketability of PMI’s common stock; (v) developments in the business; (vi) secondary transactions of PMI’s common and preferred shares and (vii) the likelihood of achieving a liquidity event, such as an initial public offering or a merger or acquisition of Prosper, given prevailing market conditions. As PMI’s stock is not publicly traded volatility for stock options is based on an average of the historical volatilities of the common stock of several entities with characteristics similar to those of Prosper. The expected term assumptions were determined based on the vesting terms, exercise terms and contractual lives of the options using the simplified method. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option. Prosper uses an expected dividend yield of zero as it does not anticipate paying any dividends in the foreseeable future. Prosper also estimates forfeitures of unvested stock options. Expected forfeitures are based on Prosper’s historical experience. To the extent actual forfeitures differ from the estimates, the difference will be recorded as a cumulative adjustment in the period estimates are revised. No compensation cost is recorded for stock options that do not vest. The fair value of PMI’s stock option awards for the year ended December 31, 2017, 2016 and 2015 was estimated at the date of grant using the Black-Scholes model with the following average assumptions:
PMI did not grant any performance-based options in 2015, 2016, or 2017. Restricted Stock Unit Activity During the years ended December 31, 2015, 2016 and 2017, PMI began granting restricted stock units (“RSUs”) to certain employees that are subject to three-year vesting terms or four-year vesting terms and the occurrence of a liquidity event. The aggregate fair value of the RSUs granted was $3 thousand. The following table summarizes the activities for PMI’s RSUs during 2017:
The following table presents the amount of stock-based compensation related to stock-based awards granted to employees recognized in Prosper’s consolidated statements of operations during the periods presented (in thousands):
During the year ended December 31, 2017, 2016 and 2015, Prosper capitalized $294 thousand, $718 thousand and $623 thousand, respectively, of stock-based compensation as internal use software and website development costs. As of December 31, 2017, the unamortized stock-based compensation expense related to Prosper employees’ unvested stock-based awards was approximately $13.8 million, which will be recognized over the remaining weighted-average vesting period of approximately 1.8 years. |
Restructuring |
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Restructuring | Restructuring On May 3, 2016, Prosper adopted a strategic restructuring of its business. This restructuring was intended to streamline our operations and support future growth efforts. Under this restructuring, Prosper closed its Salt Lake City, Utah location. As a result of this restructuring, Prosper terminated 167 employees across all locations. In December 2016, Prosper shut down its Tel Aviv location, resulting in the termination of 31 employees. In addition to the employment costs associated with the restructuring, Prosper also subleased, or may sublease in the future, space in our existing office space that is no longer needed due to the reduction in headcount. Other than accretion and changes in sublease loss estimates, Prosper does not expect any additional restructuring charges related to this restructuring. The following table summarizes the activities related to Prosper's restructuring plan (in thousands):
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Income Taxes |
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Income Taxes | Income Taxes On December 22, 2017, tax reform legislation (“the Act”) received its final required approval. The Act includes a broad range of tax reform proposals affecting businesses, including corporate tax rates, business deductions, and international tax provisions. Many of these provisions significantly differ from current US tax law, resulting in financial reporting implications. Some of the changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, immediate expensing of certain depreciable assets acquired and placed in service after September 27, 2017, and uncertainties around the tax accounting for debt instrument income under IRC Section 451. Subsequent to the enactment of the Act, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 ("SAB 118"), which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740, Income Taxes ("ASC 740"). In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act. Since the Tax Act was passed late in the fourth quarter of 2017, and ongoing Treasury guidance and accounting interpretation are expected over the next 12 months, we consider the accounting of the current period net operating loss carryforwards, net servicing rights and immediate expensing of certain depreciable assets acquired and placed in service after September 27, 2017 to be the most significant provisional items. Upon further guidance from Treasury and the IRS around certain computations within deferred taxes, we will update our ongoing analysis of final year-end data and tax positions. We expect to complete our analysis within the measurement period in accordance with SAB 118. The components of income tax are as follows (in thousands):
The income tax expense (benefit) differed from the amount computed by applying the U.S. federal income tax rate of 34% to pretax loss as a result of the following:
Temporary items that give rise to significant portions of deferred tax assets and liabilities at December 31, 2017 and 2016 are as follows (in thousands):
Prosper has determined that its net deferred tax asset did not satisfy the recognition criteria set forth in ASC Topic 740 and, accordingly, established a full valuation allowance against the net deferred tax asset. The valuation allowance as of December 31, 2017, decreased by $11.5 million to $80.9 million from $92.4 million in the prior fiscal year. Under ASC 740, Accounting for Income Taxes (“ASC Topic 740”), a valuation allowance must be established when it is more likely than not that all or a portion of a deferred tax asset will not be realized. The amount of valuation allowance would be based upon management’s best estimate of Prosper’s ability to realize the net deferred tax assets. A valuation allowance can subsequently be reduced when management believes that the assets are realizable on a more-likely-than-not basis. The Internal Revenue Code imposes substantial restrictions on the utilization of net operating losses and tax credits in the event of an “ownership change” of a corporation. Accordingly, Prosper’s ability to utilize net operating losses and credit carryforwards may be limited in the future as the result of such an “ownership change.” Prosper files Federal and various state income tax returns. Prosper has net operating loss carryforwards for both federal and state income tax purposes of approximately $282.2 million and $305.4 million respectively as of December 31, 2017, available to reduce future income subject to income taxes. The federal net operating loss carryforwards will begin to expire in 2025. The state net operating loss carryforwards began expiring in 2017. Prosper has federal and California research and development tax credits of approximately $428 thousand and $450 thousand, respectively. The federal research credits will begin to expire in 2034 and the California research credits have no expiration date. Prosper also has California enterprise zone credits of $1.1 million that will begin to expire in 2024. The following table summarizes Prosper’s activity related to its unrecognized tax benefits (in thousands):
None of the unrecognized tax benefits would affect Prosper’s effective tax rate if these amounts are recognized due to the full valuation allowance. Prosper’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. As of December 31, 2017, Prosper has not incurred any interest or penalties. All tax returns will remain open for examination by the federal and most state taxing authorities for 3 years and 4 years, respectively, from the date of utilization of any net operating loss carryforwards or research and development credits. |
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Prosper Funding LLC | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Income Taxes | Income Taxes Prosper Funding incurred no income tax provision for the year ended December 31, 2017, 2016 and 2015. Prosper Funding is a US disregarded entity and the loss is included in the return of its parent, PMI. Since PMI is in a loss position, not currently subject to income taxes, and has fully reserved its deferred tax asset, the net effective tax rate for Prosper Funding is 0%. |
Consortium Purchase Agreement |
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Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Consortium Purchase Agreement | Consortium Purchase Agreement On February 27, 2017, Prosper entered into a series of agreements with a consortium of investors (the "Consortium"), pursuant to which the Consortium has agreed to purchase borrower loans in an aggregate principal amount of up to $5.0 billion (including certain loans purchased by one of the investors prior to the date of the Consortium Agreement). PFL will be obligated to offer for purchase minimum monthly volumes of eligible loans to the Consortium, for the Consortium to elect to purchase. In connection with the Consortium Purchase Agreement, PMI issued to the Consortium, three warrant certificates to purchase up to an aggregate 177,720,706 shares of PMI’s Series F Preferred Stock at an exercise price of $0.01 per share. The Consortium’s right to exercise the Series F Warrant is subject to monthly vesting during the term of the Consortium Purchase Agreement based upon the volume of loans the Consortium elects to purchase (if any) in each month, subject to certain cure rights such as offering additional loans for sale in subsequent periods. Pursuant to these cure rights, if the Consortium fails to respond to offers for allocation, purchase or funding, the Consortium can take advantage of a designated period of time to cure such failure. There have been no such failures by the Consortium to date. Under the terms of the Warrant Agreement, the Warrant Shares may also vest in full upon a change of control of PMI, insolvency of PMI or PFL, certain breaches of contract by PMI or PFL that are not cured within a defined cure period and upon the occurrence of certain other events set forth in the Warrant Agreement. On vesting of the Series F warrants, Prosper records a liability as "Convertible Preferred Stock Warrant Liability" on the Consolidated Balance Sheet at fair value and a corresponding amount as "Fair Value of Warrants Vested on Sale of Borrower Loans" on the Consolidated Statement of Operations. Subsequent changes in the fair value of the vested warrants are recorded in "Other Expenses" on the Consolidated Statement of Operations. Additionally, in connection with the execution of the Consortium Purchase Agreement, certain previously issued rebates were settled by an issuance of vested Series F Convertible Preferred Stock Warrants. The difference in fair value of these warrants over the cash settlement price is recorded in "Change in Fair Value of Convertible Preferred Stock Warrants" on the Consolidated Statement of Operations. The following represents the loans purchased and warrants vested under the Consortium Purchase Agreement:
In addition to the $1.8 billion above, the warrants vested on signing of the Consortium Purchase Agreement were issued to settle certain rebates on $0.3 billion of whole loan purchases by members of the Consortium prior to the signing of the Consortium Purchase Agreement. This $0.3 billion also reduces the up to $5.0 billion aggregate amount under the Consortium Purchase Agreement. Commitments and Contingencies In the normal course of its operations, Prosper becomes involved in various legal actions. Prosper maintains provisions it considers to be adequate for such actions. Prosper does not believe it is probable that the ultimate liability, if any, arising out of any such matters will have a material effect on Prosper's financial condition, results of operations or cash flows. Future Minimum Lease Payments Prosper has entered into various non-cancelable operating leases for certain offices with contractual lease periods expiring between 2022 and 2027. Prosper recognized total rental expenses under operating leases of $4.7 million, $6.9 million and $4.1 million during the years ended December 31, 2017, 2016 and 2015, respectively. We have subleases related to certain of our operating leases. Income from existing subleases are offset against future minimum rental payments. Sublease income under all operating subleases for the years ended December 31, 2017, 2016 and 2015 is $0.4 million, $0, and $0 respectively. The table below presents future minimum rental payments, net of minimum sublease rentals of $7.1 million, for the remaining terms of the operating leases (in thousands):
The payments in the above table include amounts that have been accrued for as part of the restructuring liability in Note 13 Restructuring. Restructuring accrual balances related to operating facility leases were $3.2 million at December 31, 2017. Operating Commitments Prosper has entered into an agreement with WebBank, under which all Borrower Loans originated through the marketplace are made by WebBank under its bank charter. Pursuant to the agreement, the marketing fee that Prosper receives in connection with the origination of each loan is partially reduced by an amount (the “Designated Amount”) calculated as a percentage of the principal amount of such loan based on the aggregate principal amount of loans originated for the applicable month. To the extent the aggregate Designated Amount for all loans originated during any month is less than $143,500, Prosper is required to pay WebBank an amount equal to such deficiency. Accordingly, the minimum fee for the year ended December 31, 2018 is $1.7 million. The minimum fee is $0.9 million in 2019. Additionally, under the agreement with WebBank, Prosper is required to maintain a minimum net liquidity of $15 million at all times during the term of the agreement. Net liquidity is defined as the sum of Cash and Cash Equivalents and Available for Sale Investments. Violation of this covenant can result in termination of the contract with WebBank. At December 31, 2017 the Company was in compliance with the covenant. Loan Purchase Commitments Prosper has entered into an agreement with WebBank to purchase $29.3 million of Borrower Loans that WebBank originated during the last two business days of the year ended December 31, 2017 and the first business day of the quarter ending March 31, 2018. Prosper will purchase these Borrower Loans within the first three business days of the quarter ending March 31, 2018. Repurchase and Indemnification Contingency Under the terms of the loan purchase agreements between Prosper and investors that participate in the Whole Loan Channel, Prosper may, in certain circumstances, become obligated to repurchase a Borrower Loan from an investor. Generally, these circumstances include the occurrence of verifiable identity theft, the failure to properly follow loan listing or bidding protocols, or a violation of the applicable federal, state, or local lending laws. The fair value of the indemnification and repurchase obligation is estimated based on historical experience and the initial fair value is insignificant. Prosper recognizes a liability for the repurchase and indemnification obligation when the Borrower Loans are issued. Indemnified or repurchased Borrower Loans associated with violations of federal, state, or local lending laws or verifiable identity theft are written off at the time of repurchase or at the time an indemnification payment is made. The maximum potential amount of future payments associated under this obligation is the outstanding balances of the Borrower Loans sold through the Whole Loan channels, which at December 31, 2017 is $3.7 billion. Prosper had accrued $0.8 million and $0.6 million as of December 31, 2017 and 2016 respectively in regard to this obligation. Securities Law Compliance In 2017, Prosper made the final annual installment of $3 million regarding a settlement to a class action lawsuit that was agreed to in 2013. |
Commitments and Contingencies |
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Commitments and Contingencies | Consortium Purchase Agreement On February 27, 2017, Prosper entered into a series of agreements with a consortium of investors (the "Consortium"), pursuant to which the Consortium has agreed to purchase borrower loans in an aggregate principal amount of up to $5.0 billion (including certain loans purchased by one of the investors prior to the date of the Consortium Agreement). PFL will be obligated to offer for purchase minimum monthly volumes of eligible loans to the Consortium, for the Consortium to elect to purchase. In connection with the Consortium Purchase Agreement, PMI issued to the Consortium, three warrant certificates to purchase up to an aggregate 177,720,706 shares of PMI’s Series F Preferred Stock at an exercise price of $0.01 per share. The Consortium’s right to exercise the Series F Warrant is subject to monthly vesting during the term of the Consortium Purchase Agreement based upon the volume of loans the Consortium elects to purchase (if any) in each month, subject to certain cure rights such as offering additional loans for sale in subsequent periods. Pursuant to these cure rights, if the Consortium fails to respond to offers for allocation, purchase or funding, the Consortium can take advantage of a designated period of time to cure such failure. There have been no such failures by the Consortium to date. Under the terms of the Warrant Agreement, the Warrant Shares may also vest in full upon a change of control of PMI, insolvency of PMI or PFL, certain breaches of contract by PMI or PFL that are not cured within a defined cure period and upon the occurrence of certain other events set forth in the Warrant Agreement. On vesting of the Series F warrants, Prosper records a liability as "Convertible Preferred Stock Warrant Liability" on the Consolidated Balance Sheet at fair value and a corresponding amount as "Fair Value of Warrants Vested on Sale of Borrower Loans" on the Consolidated Statement of Operations. Subsequent changes in the fair value of the vested warrants are recorded in "Other Expenses" on the Consolidated Statement of Operations. Additionally, in connection with the execution of the Consortium Purchase Agreement, certain previously issued rebates were settled by an issuance of vested Series F Convertible Preferred Stock Warrants. The difference in fair value of these warrants over the cash settlement price is recorded in "Change in Fair Value of Convertible Preferred Stock Warrants" on the Consolidated Statement of Operations. The following represents the loans purchased and warrants vested under the Consortium Purchase Agreement:
In addition to the $1.8 billion above, the warrants vested on signing of the Consortium Purchase Agreement were issued to settle certain rebates on $0.3 billion of whole loan purchases by members of the Consortium prior to the signing of the Consortium Purchase Agreement. This $0.3 billion also reduces the up to $5.0 billion aggregate amount under the Consortium Purchase Agreement. Commitments and Contingencies In the normal course of its operations, Prosper becomes involved in various legal actions. Prosper maintains provisions it considers to be adequate for such actions. Prosper does not believe it is probable that the ultimate liability, if any, arising out of any such matters will have a material effect on Prosper's financial condition, results of operations or cash flows. Future Minimum Lease Payments Prosper has entered into various non-cancelable operating leases for certain offices with contractual lease periods expiring between 2022 and 2027. Prosper recognized total rental expenses under operating leases of $4.7 million, $6.9 million and $4.1 million during the years ended December 31, 2017, 2016 and 2015, respectively. We have subleases related to certain of our operating leases. Income from existing subleases are offset against future minimum rental payments. Sublease income under all operating subleases for the years ended December 31, 2017, 2016 and 2015 is $0.4 million, $0, and $0 respectively. The table below presents future minimum rental payments, net of minimum sublease rentals of $7.1 million, for the remaining terms of the operating leases (in thousands):
The payments in the above table include amounts that have been accrued for as part of the restructuring liability in Note 13 Restructuring. Restructuring accrual balances related to operating facility leases were $3.2 million at December 31, 2017. Operating Commitments Prosper has entered into an agreement with WebBank, under which all Borrower Loans originated through the marketplace are made by WebBank under its bank charter. Pursuant to the agreement, the marketing fee that Prosper receives in connection with the origination of each loan is partially reduced by an amount (the “Designated Amount”) calculated as a percentage of the principal amount of such loan based on the aggregate principal amount of loans originated for the applicable month. To the extent the aggregate Designated Amount for all loans originated during any month is less than $143,500, Prosper is required to pay WebBank an amount equal to such deficiency. Accordingly, the minimum fee for the year ended December 31, 2018 is $1.7 million. The minimum fee is $0.9 million in 2019. Additionally, under the agreement with WebBank, Prosper is required to maintain a minimum net liquidity of $15 million at all times during the term of the agreement. Net liquidity is defined as the sum of Cash and Cash Equivalents and Available for Sale Investments. Violation of this covenant can result in termination of the contract with WebBank. At December 31, 2017 the Company was in compliance with the covenant. Loan Purchase Commitments Prosper has entered into an agreement with WebBank to purchase $29.3 million of Borrower Loans that WebBank originated during the last two business days of the year ended December 31, 2017 and the first business day of the quarter ending March 31, 2018. Prosper will purchase these Borrower Loans within the first three business days of the quarter ending March 31, 2018. Repurchase and Indemnification Contingency Under the terms of the loan purchase agreements between Prosper and investors that participate in the Whole Loan Channel, Prosper may, in certain circumstances, become obligated to repurchase a Borrower Loan from an investor. Generally, these circumstances include the occurrence of verifiable identity theft, the failure to properly follow loan listing or bidding protocols, or a violation of the applicable federal, state, or local lending laws. The fair value of the indemnification and repurchase obligation is estimated based on historical experience and the initial fair value is insignificant. Prosper recognizes a liability for the repurchase and indemnification obligation when the Borrower Loans are issued. Indemnified or repurchased Borrower Loans associated with violations of federal, state, or local lending laws or verifiable identity theft are written off at the time of repurchase or at the time an indemnification payment is made. The maximum potential amount of future payments associated under this obligation is the outstanding balances of the Borrower Loans sold through the Whole Loan channels, which at December 31, 2017 is $3.7 billion. Prosper had accrued $0.8 million and $0.6 million as of December 31, 2017 and 2016 respectively in regard to this obligation. Securities Law Compliance In 2017, Prosper made the final annual installment of $3 million regarding a settlement to a class action lawsuit that was agreed to in 2013. |
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Commitments and Contingencies | Commitments and Contingencies In the normal course of its operations, Prosper Funding becomes involved in various legal actions. Prosper Funding maintains provisions it considers to be adequate for such actions. Prosper Funding does not believe it is probable that the ultimate liability, if any, arising out of any such matters will have a material effect on Prosper Funding's financial condition, results of operations or cash flows. Operating Commitments Prosper has entered into an agreement with WebBank, under which all Borrower Loans originated through the marketplace are made by WebBank under its bank charter. Pursuant to the agreement, the marketing fee that Prosper receives in connection with the origination of each loan is partially reduced by an amount (the “Designated Amount”) calculated as a percentage of the principal amount of such loan based on the aggregate principal amount of loans originated for the applicable month. To the extent the aggregate Designated Amount for all loans originated during any month is less than $143,500, Prosper is required to pay WebBank an amount equal to such deficiency. Accordingly, the minimum fee for the year ended December 31, 2018 is $1.7 million. The minimum fee is $0.9 million in 2019. Additionally, under the agreement with WebBank, Prosper is required to maintain a minimum net liquidity of $15 million at all times during the term of the agreement. Net liquidity is defined as the sum of Cash, Cash Equivalents and Available for Sale Investments. Violation of this covenant can result in termination of the contract with WebBank. At December 31, 2017 the Company was in compliance with the covenant. Loan Purchase Commitments Prosper Funding has entered into an agreement with WebBank to purchase $29.3 million of Borrower Loans that WebBank originated during the during the last two business days of the year ended December 31, 2017 and the first business day of the quarter ending March 31, 2018. Prosper will purchase these Borrower Loans within the first three business days of the quarter ended March 31, 2018. Repurchase and Indemnification Contingency Under the terms of the loan purchase agreements between Prosper Funding and investors that participate in the Whole Loan Channel, Prosper Funding may, in certain circumstances, become obligated to repurchase a Borrower Loan from an investor. Generally, these circumstances include the occurrence of verifiable identity theft, the failure to properly follow loan listing or bidding protocols, or a violation of the applicable federal, state, or local lending laws. The fair value of the indemnification and repurchase obligation is estimated based on historical experience and the initial fair value is insignificant. Prosper Funding recognizes a liability for the repurchase and indemnification obligation when the Borrower Loans are issued. Indemnified or repurchased Borrower Loans associated with violations of federal, state, or local lending laws or verifiable identity theft are written off at the time of repurchase or at the time an indemnification payment is made. The maximum potential amount of future payments associated under this obligation is the outstanding balances of the Borrower Loans sold through the Whole Loan Channel, which at December 31, 2017 is $3.7 billion. Prosper Funding had accrued $0.8 million and $0.6 million as of December 31, 2017 and 2016 respectively in regard to this obligation. |
Related Parties |
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Related Parties | Related Parties Since Prosper’s inception, it has engaged in various transactions with its directors, executive officers and holders of more than 10% of its voting securities, and immediate family members and other affiliates of its directors, executive officers and 10% stockholders. Prosper believes that all of the transactions described below were made on terms no less favorable to Prosper than could have been obtained from unaffiliated third parties. Prosper’s executive officers, directors who are not executive officers and certain affiliates participate on Prosper’s marketplace by purchasing Notes. The aggregate amount of the Notes purchased and the income earned by parties deemed to be affiliates and related parties of Prosper as of December 31, 2017 and 2016 are summarized below (in thousands):
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Prosper Funding LLC | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Entity Information [Line Items] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Related Parties | Related Parties Since inception, Prosper Funding has engaged in various transactions with its directors and executive officers, sole member, and immediate family members and other affiliates of its directors, executive officers and sole member. Prosper Funding believes that all of the transactions described below were made on terms no less favorable to Prosper Funding than could have been obtained from unaffiliated third parties. Prosper Funding’s executive officers, directors who are not executive officers and certain affiliates participate on Prosper Funding’s lending platform by placing bids and purchasing Notes. The aggregate amount of the Notes purchased and the income earned by parties deemed to be affiliates and related parties of Prosper Funding as of December 31, 2017 and 2016 are summarized below (in thousands):
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Postretirement Benefit Plans |
12 Months Ended |
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Dec. 31, 2017 | |
Retirement Benefits [Abstract] | |
Postretirement Benefit Plans | Postretirement Benefit Plans Prosper has a 401(k) plan that covers all employees meeting certain eligibility requirements. The 401(k) plan is designed to provide tax-deferred retirement benefits in accordance with the provisions of Section 401(k) of the Internal Revenue Code. Eligible employees may defer up to 90% of eligible compensation up to the annual maximum as determined by the Internal Revenue Service. Prosper’s contributions to the plan are discretionary. During the years ended December 31, 2017, 2016 and 2015, Prosper has contributed $2.2 million, $2.6 million and $1.9 million, respectively to the 401(k) plan, respectively. |
Significant Concentrations |
12 Months Ended |
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Dec. 31, 2017 | |
Entity Information [Line Items] | |
Significant Concentrations | Significant Concentrations Prosper is dependent on third party funding sources such as banks, assets managers and investment funds to provide the funds to allow WebBank to originate Borrower Loans that the third party funding sources will later purchase. Of all Borrower Loans originated in the year ended December 31, 2017, the largest party purchased a total of 70% of those loans. This compares to 20%, 16% and 9% for the three largest parties for the year ended December 31, 2016. Further, a significant portion of our business is dependent on funding through the Whole Loan Channel, for which 93% and 90% of Borrower Loans were originated through the Whole Loan Channel in the years ended December 31, 2017 and 2016, respectively. Prosper receives all of its transaction fee revenue from WebBank. Prosper earns a transaction fee from WebBank for our services in facilitating originations of Borrower Loans issued by WebBank. The rate of the transaction fee for each individual Borrower Loan is based on the term and credit grade of the Borrower Loan. No individual borrower or investor accounted for 10% or more of consolidated net revenue for any of the periods presented. |
Prosper Funding LLC | |
Entity Information [Line Items] | |
Significant Concentrations | Significant Concentrations Prosper Funding is dependent on third party funding sources such as banks, asset managers and investment funds to provide the funding to allow WebBank to originate loans that the third party funding sources will later purchase. Of all Borrower Loans originated in the year ended December 31, 2017, the largest party purchased a total of 70% of those loans. This compares to 20%, 16% and 9% for the year ended December 31, 2016. Further, a significant portion of our business is dependent on funding through the Whole Loan Channel. 93% and 90% of Borrower Loans were originated through the Whole Loan Channel in the years ending December 31, 2017 and 2016, respectively. |
Segments |
12 Months Ended |
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Dec. 31, 2017 | |
Segment Reporting [Abstract] | |
Segments | Segments Our chief operating decision maker reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. As such, we have a single reporting and operating segment. |
Summary of Significant Accounting Policies (Policies) |
12 Months Ended | ||||||||||||||
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Entity Information [Line Items] | |||||||||||||||
Basis of Presentation | Basis of Presentation The accompanying consolidated financial statements include the accounts of PMI and its wholly owned subsidiaries including PFL, PHL and BillGuard. All intercompany balances and transactions between PMI and its subsidiaries have been eliminated in consolidation. PMI and PFL’s financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). |
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Use of Estimates | Use of Estimates The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and the related disclosures, including contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. These estimates, judgments and assumptions include but are not limited to the following: valuation of Loans Held for Sale, Borrower Loans and associated Notes, valuation of servicing rights, valuation allowance on deferred tax assets, stock-based compensation expense, intangible assets, goodwill, contingent consideration, restructuring liability, convertible preferred stock warrant liability and contingent liabilities. Actual results could differ from those estimates. |
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Certain Risks | Certain Risks In the normal course of its business, Prosper encounters significant credit risk. Financial instruments that potentially subject Prosper to significant credit risk consist primarily of cash, cash equivalents, available for sale investments, Borrower Loans held and restricted cash. Prosper places cash and restricted cash with high-quality financial institutions and is exposed to credit risk in the event of default by these institutions to the extent the amount recorded on the balance sheet exceeds federally insured amounts. Prosper invests cash equivalents in highly liquid marketable securities with original maturities of three months or less at the time of purchase, consisting primarily of money market funds, commercial paper, US treasury securities and US agency securities. To the extent that payments on Borrower Loans (including Borrower Loans that have been sold) are not made, interest income and/or servicing income will be reduced. A series of Notes corresponding to a particular Borrower Loan is wholly dependent on the repayment of such Borrower Loan. As a result, Prosper does not bear the credit risk on such Borrower Loan. |
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Reclassifications | Reclassifications Due to the early adoption of ASU 2016-09 on January 1, 2016, reclassifications were made to the financing section of the consolidated statements of cash flows to reflect employee taxes paid to a tax authority to satisfy the employer's statutory income tax withholding obligation in relation to the exercise of stock awards. Prior period amounts have been reclassified to conform to the current presentation. During the year ended December 31, 2017, Prosper changed the presentation of its expenses in the consolidated statements of operations. A new line called “Change in the Fair Value of Convertible Stock Warrants” was created with the amounts included in this line previously classified as “Other Expenses, Net”. Prior period amounts have been reclassified to conform to the current presentation. |
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Consolidation of Variable Interest Entities | Consolidation of Variable Interest Entities The determination of whether to consolidate a variable interest entity (“VIE”) in which we have a variable interest requires a significant amount of analysis and judgment around whether we are the primary beneficiary of a VIE via a controlling financial interest in the VIE. A controlling financial interest in a VIE exists if we have both the power to direct the VIE’s activities that most significantly affect the VIE’s economic performance and a potentially significant economic interest in the VIE. The determination of whether an entity is a VIE considers factors, such as (i) whether the entity’s equity investment at risk is insufficient to allow the entity to finance its activities without additional subordinated financial support or (ii) when a holder’s equity investment at risk lacks any of the following characteristics of a controlling financial interest: the direct or indirect ability through voting rights or similar rights to make decisions about a legal entity’s activities that have a significant effect on the entity’s success, the obligation to absorb the expected losses of the entity or the right to receive the expected residual returns of the legal entity. As a result of the nature of the retained servicing rights on the sale of Borrower Loans, we are a variable interest holder in certain special purposes entities that purchase these Borrower Loans. For all of these entities we either do not have the power to direct the activities that most significantly affect the VIE’s economic performance or we do not have a potentially significant economic interest in the VIE. In no case are we the primary beneficiary, therefore, we do not consolidate these entities. Management regularly reviews and reconsiders its previous conclusions regarding the status of an entity as a VIE and whether we are required to consolidate such VIE in the consolidated financial statements. |
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Transfers of Financial Assets | Transfers of Financial Assets Prosper accounts for transfers of entire financial assets or a participating interest in an entire financial asset as sales when it has surrendered control over the transferred assets. Control is generally considered to have been surrendered when the transferred assets have been legally isolated from Prosper, the transferee has the right to pledge or exchange the assets without any significant constraints, and Prosper has not entered into a repurchase agreement, does not hold significant call options and has not written significant put options on the transferred assets. Prosper sells loans or participating interests in loans via whole loan sale transactions and the fractional note channel. In certain instances of whole loan sales transactions Prosper will sell whole loans to unconsolidated VIEs that then securitize the whole loans purchased. Prosper recognizes a gain or loss on the sale of financial assets by comparing the net sales proceeds (including fair value of any servicing asset or liability and recourse obligation recognized) to the carrying amount of the assets sold. Transfers of financial assets that do not qualify for sale accounting are reported as secured borrowings. Accordingly, the related assets remain on Prosper’s Consolidated Balance Sheets and continue to be reported and accounted for as if the transfer had not occurred. Cash proceeds from these transfers are reported as liabilities, with related interest expense recognized over the life of the related assets. |
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Cash and Cash Equivalents | Cash and Cash Equivalents Cash includes various unrestricted deposits with investment grade rated financial institutions. Cash equivalents consist of highly liquid marketable securities with original maturities of three months or less at the time of purchase and consist primarily of money market funds, commercial paper, US treasury securities and US agency securities. Cash equivalents are recorded at cost, which approximates fair value. |
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Restricted Cash | Restricted Cash Restricted cash consists primarily of cash deposits and short term certificate of deposit accounts held as collateral as required for long term leases, loan funding and servicing activities, and cash that investors or Prosper has on our marketplace that has not yet been invested in Borrower Loans or disbursed to the investor. |
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Short Term Investments | Short Term Investments Short Term Investments which are included in Prepaid and Other Assets consist of certificates of deposit with a term greater than three months but less than a year that are held as collateral as required for loan funding and servicing activities. |
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Available for Sale Investments | Available for Sale Investments Available for sale securities consist of commercial paper with terms longer than three months, US treasury securities, US agency securities and corporate debt securities. Available for sale investments are recorded at fair value with unrealized gains and losses reported, net of taxes, in accumulated other comprehensive income (loss) included in stockholders' equity unless management determines that an investment is other-than-temporarily impaired. Management evaluates whether impairment of available for sale debt securities are other than temporary impairment (“OTTI”) on a quarterly basis. Debt securities with unrealized losses are considered OTTI if Prosper intends to sell the investment or if it is more likely than not that it will be required to sell such investment before any anticipated recovery. If management determines that an investment is OTTI under these circumstances, the impairment recognized in earnings is measured as the entire difference between the amortized cost and then-current fair value. An investment is also OTTI if management does not expect to recover all of the amortized cost of the investment. In this circumstance, the impairment recognized in earnings represents estimated credit losses, and is measured by the difference between the present value of expected cash flows and the amortized cost of the investment. Management utilizes cash flow models to estimate the expected future cash flow from the securities to estimate the credit loss. Expected cash flows are discounted using the investment's effective interest rate. The evaluation of whether Prosper expects to recover the amortized cost of an investment is inherently judgmental. The evaluation includes the assessment of several bond performance indicators, including the current price and magnitude of the unrealized loss and whether Prosper has received all scheduled principal and interest payments |
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Fair Value Measurement | Fair Value Measurement Prosper measures the fair value of assets and liabilities in accordance with its fair value hierarchy which prioritizes information used to measure fair value and the effect of fair value measurements on earnings and provides for enhanced disclosures determined by the level within the hierarchy of information used in the valuation. We apply this framework whenever other standards require (or permit) assets or liabilities to be measured at fair value. We define fair value in terms of the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The price used to measure the fair value is not adjusted for transaction costs. The fair value measurement also assumes that the transaction to sell an asset occurs in the principal market for the asset or, in the absence of a principal market, the most advantageous market for the asset. The principal market is the market in which Prosper would sell or transfer the asset with the greatest volume and level of activity for the asset. In determining the principal market for an asset or liability, it is assumed that Prosper has access to the market as of the measurement date. If no market for the asset exists or if Prosper does not have access to the principal market, Prosper uses a hypothetical market. Assets and liabilities carried at fair value on the balance sheets are classified among three levels based on the observability of the inputs used to determine fair value: Level 1 — The valuation is based on quoted prices in active markets for identical instruments. Level 2 — The valuation is based on observable inputs such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation methodologies for which all significant assumptions are observable in the market. Level 3 — The valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the instrument. Level 3 valuations are typically performed using pricing models, discounted cash flow methodologies, or similar methodologies, which incorporate management’s own estimates of assumptions that market participants would use in pricing the instrument or valuations that require significant management judgment or estimation. Fair values of assets or liabilities are determined based on the fair value hierarchy, which requires an entity to maximize the use of quoted prices and observable inputs and to minimize the use of unobservable inputs when measuring fair value. Various valuation methodologies are utilized, depending on the nature of the financial instrument, including the use of market prices for identical or similar instruments, or discounted cash flow models. When possible, active and observable market data for identical or similar financial instruments are utilized. Alternatively, fair value is determined using assumptions that management believes a market participant would use in pricing the asset or liability. Financial instruments consist principally of Cash and Cash Equivalents, Restricted Cash, Available for Sale Investments, Borrower Loans, Loans Held for Sale, Accounts Receivable, Accounts Payable and Accrued Liabilities, Payable to Investors, Convertible Preferred Stock Warrant Liability and Notes. Servicing Assets and Liabilities are also subject to fair value measurement within the financial statements of Prosper. The estimated fair values of Cash and Cash Equivalents, Restricted Cash, Accounts Receivable, Accounts Payable and Accrued Liabilities, and Payable to Investors approximate their carrying values because of their short term nature. As observable market prices are not available for the Borrower Loans, Loans Held for Sale and Notes, or for similar assets and liabilities, Prosper believes the Borrower Loans, Loans Held for Sale and Notes should be considered level 3 financial instruments. In a hypothetical transaction as of the measurement date, Prosper believes that differences in the principal marketplace in which the Borrower Loans are originated and the principal marketplace in which Prosper might offer those loans may result in differences between the originated amount of the loans and their fair value as of the transaction date. For Borrower Loans and Loans Held for Sale, the fair value is estimated using discounted cash flow methodologies based upon valuation assumptions including prepayment speeds, default rates and discount rates based on the perceived credit risk within each credit grade. The obligation to pay principal and interest on any series of Notes is equal to the loan payments, if any, that are received on the corresponding Borrower Loan, net of our servicing fee which is generally 1.0% of the outstanding balance. The fair value election for Notes and Borrower Loans allows both the assets and the related liabilities to receive similar accounting treatment for expected losses which is consistent with the subsequent cash flows to investors that are dependent upon borrower payments. As such, the fair value of a series of Notes is approximately equal to the fair value of the corresponding Borrower Loan, adjusted for the 1.0% servicing fee and the timing of loan purchase, note issuance and borrower payments subsequently disbursed to such Note holders. As a result, the valuation of the Notes uses the same methodology and assumptions as the Borrower Loans, except that the Notes incorporate the 1.0% servicing fee and any differences in timing in payments. Any unrealized gains or losses on the Borrower Loans and Notes for which the fair value option has been elected is recorded as a separate line item in the statement of operations. The effective interest rate associated with a group of Notes is less than the interest rate earned on the corresponding Borrower Loan due to the 1.0% servicing fee. See Note 4 for a roll-forward and further discussion of the significant assumptions used to value Borrower Loans and Notes. |
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Restructuring Charges | Restructuring Charges Restructuring charges consist of severance costs and contract termination related costs and impairment charges associated with the severance actions. A liability for severance costs is typically recognized when the plan of termination has been communicated to the affected employees and is measured at its fair value at the communication date. Contract termination costs consist primarily of costs that will continue to be incurred under operating leases for their remaining terms without economic benefit to the Company. A liability for contract termination costs is recognized at the date the Company ceases using the rights conveyed by the lease contract and is measured at its fair value, which is determined based on the remaining contractual lease rentals reduced by estimated sublease rentals. |
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Borrower Loans and Notes | Borrower Loans and Notes Through the Note Channel, Prosper purchases Borrower Loans from WebBank then issues Notes, and holds the Borrower Loans until maturity. The obligation to repay a series of Notes originated through the Note Channel is dependent upon the repayment of the associated Borrower Loan. Borrower Loans and Notes originated through the Note Channel are carried on Prosper’s consolidated balance sheets as assets and liabilities, respectively. We choose to measure certain financial instruments and certain other items at fair value on an instrument-by-instrument basis with unrealized gains and losses on items for which the fair value option has been elected reported in earnings. Management believes that the fair value option is more meaningful for the readers of the financial statements and it allows both the Borrower Loans and Notes to be valued using the same methodology. The fair value election, with respect to an item, may not be revoked once an election is made. Prosper estimates the fair value of such Borrower Loans and Notes using discounted cash flow methodologies adjusted for the expected prepayment, loss, recovery and default rates. The Borrower Loans are not derecognized when a corresponding Note is issued as Prosper maintains the ability to sell the Borrower Loans without the approval of the holders of the corresponding Notes. |
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Loan Servicing Assets and Liabilities | Loan Servicing Assets and Liabilities Prosper records servicing assets and liabilities at their estimated fair values for servicing rights retained when Prosper sells Borrower Loans to unrelated third-party buyers. The change in fair value of servicing assets and liabilities is recognized in “Servicing Fees” revenue. The gain or loss on a loan sale is recorded in “Gain on Sale” while the fair value of the servicing rights, which is based on the degree to which the contractual loan servicing fee is above or below an estimated market servicing rate is recorded in servicing assets or liabilities. Servicing assets and liabilities are recorded in “Servicing Assets” and “Other Liabilities,” respectively, on the consolidated balance sheets. Prosper uses a discounted cash flow model to estimate the fair value of the loan servicing assets or liabilities which considers the contractual projected servicing fee revenue that Prosper earns on the Borrower Loans, estimated market servicing rates to service such loans, prepayment rates, default rates and the current principal balances of the Borrower Loans. |
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Loans Held for Sale | Loans Held for Sale Loans Held for Sale are comprised of Borrower Loans held for short durations and are recorded at fair value. The fair value is estimated using discounted cash flow methodologies based upon a set of valuation assumptions similar to those of other Borrower Loans. We measure Loans Held for Sale at fair value on an instrument-by-instrument basis with unrealized gains and losses on items for which the fair value option has been elected reported in earnings. Management believes that the fair value option is more meaningful for the readers of the financial statements and it allows for the Loans Held for Sale to be measured at fair value similar to Borrower Loans and Notes. The fair value election, with respect to an item, may not be revoked once an election is made. |
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Property and Equipment | Property and Equipment Property and equipment consists of computer equipment, office furniture and equipment, leasehold improvements, software purchased or developed for internal use and web site development costs. Property and equipment are stated at cost, less accumulated depreciation and amortization, and are computed using the straight-line method based upon estimated useful lives of the assets. Estimated useful lives of the assets are as follows:
The costs to develop software for the website and other internal uses are capitalized when management has authorized and committed project funding, preliminary development efforts are successfully completed, and it is probable that the project will be completed and the software will be used as intended. Capitalized software and website development costs primarily include software licenses acquired, fees paid to outside consultants, and salaries and payroll related costs for employees directly involved in the development efforts. Costs incurred prior to meeting these criteria, together with costs incurred for training and maintenance, are expensed. Costs incurred for upgrades and enhancements that are considered to be probable to result in additional functionality are capitalized. Capitalized costs are included in property and equipment and amortized to expense using the straight-line method over their expected lives. Software and website development assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of software and website development assets to be held and used is measured by a comparison of the carrying amount of the asset group to the future net undiscounted cash flows expected to be generated by the asset group. If such software and website development assets are considered to be impaired, the impairment to be recognized is the excess of the carrying amount over the fair value of the software and website development asset group. |
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Goodwill and Intangibles | Goodwill and Intangibles Goodwill associated with business combinations is computed by recognizing the portion of the purchase price that is not tied to individually identifiable and separately recognizable assets. Goodwill is not amortized but is tested for impairment annually or whenever indications of impairment exist. Our annual impairment testing date is October 1. Impairment exists whenever the carrying value of goodwill exceeds its implied fair value. Adverse changes in impairment indicators such as loss of key personnel, increased regulatory oversight, or unplanned changes in our operations could result in impairment. We did not recognize any goodwill impairments during the years ended December 31, 2017 and 2016. Costs of internally developing any intangibles is expensed as incurred. Intangible assets identified through the acquisitions of American Healthcare Lending and BillGuard include customer relationships, technology and a brand name. |
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Payable to Investors | Payable to Investors Payable to investors primarily represents our obligation to investors related to cash held in an account for the benefit of investors and payments-in-process received from borrowers. |
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Convertible Redeemable Preferred Stock Warrant Liabilities | Convertible Redeemable Preferred Stock Warrant Liabilities Freestanding warrants to acquire shares that may be redeemable are accounted for in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 480, Distinguishing Liabilities from Equity "ASC" 480"). Under ASC 480, vested freestanding warrants to purchase the Company’s convertible redeemable preferred stock are classified as a liability on the consolidated balance sheets and carried at fair value because the warrants may conditionally obligate the Company to transfer assets at some point in the future. The Company initially measured the warrants at fair value on issuance. The warrants are subject to remeasurement to fair value at each balance sheet date, and any change in their fair value is recognized as a component of change in fair value of convertible stock warrants, in the consolidated statements of operations. The Company will continue to adjust the liability for changes in fair value until the earlier of the exercise or expiration of the warrants, the completion of a deemed liquidation event, or the conversion of convertible redeemable preferred stock into common stock. |
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Loan Trailing Fee | Loan Trailing Fee On July 1, 2016, Prosper signed a series of agreements with WebBank which, among other things, includes an additional program fee (the "Loan Trailing Fee") paid to WebBank in connection with the performance of each loan sold to Prosper. These agreements are effective as of August 1, 2016. The Loan Trailing Fee is dependent on the amount and timing of principal and interest payments made by borrowers of the underlying loans, irrespective of whether the loans are sold by Prosper, and gives WebBank an ongoing financial interest in the performance of the loans it originates. This fee is paid by Prosper to WebBank over the term of the respective loans and is a function of the principal and interest payments made by borrowers of such loans. In the event that principal and interest payments are not made with respect to any loan, Prosper is not required to make the related Loan Trailing Fee payment. The obligation to pay the Loan Trailing Fee for any loan sold to Prosper is recorded at fair value at the time of the origination of such loan within Other Liabilities and recorded as a reduction of Transaction Fees, net. Any changes in the fair value of this liability are recorded in Change in Fair Value of Borrower Loans, Loans Held for Sale and Notes, Net on the consolidated statements of operations. The fair value of the Loan Trailing Fee represents the present value of the expected monthly Loan Trailing Fee payments, which takes into consideration certain assumptions related to expected prepayment rates and defaults rates. |
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Revenue Recognition | Revenue Recognition Revenue primarily results from fees and net interest income earned. Fees include transaction fees for our services performed on behalf of WebBank to originate a loan and servicing fees paid by investors. We also have other smaller sources of revenue reported as other revenue, this includes referral fees, securitization fees and subscription fees. Transaction Fees Prosper earns a transaction fee upon the successful origination of all Borrower Loans facilitated through Prosper’s marketplace. Prosper receives payments from WebBank as compensation for the activities Prosper performs on behalf of WebBank. The transaction fee Prosper earns is determined by the term and credit grade of the Borrower Loan that is facilitated on Prosper’s marketplace, and ranges from 1.00% to 5.00% of the original principal amount of such Borrower Loan that WebBank originates. Prosper records the transaction fee net of any fees paid to WebBank because Prosper does not receive an identifiable benefit from WebBank other than the Borrower Loan that has been recognized at fair value. Servicing Fees Investors who purchase Borrower Loans from Prosper typically pay Prosper a servicing fee which is currently set at 1.075% per annum of the outstanding principal balance of the Borrower Loan prior to applying the current payment. Historically the servicing fee was set at 1.0% per annum and was increased to 1.075% per annum in August 2016 for loans originated after July 2016. The servicing fee compensates Prosper for the costs incurred in servicing the Borrower Loan, including managing payments from borrowers, payments to investors and maintaining investors’ account portfolios. Prosper records servicing fees from Investors as a component of operating revenue when received. Gain on Sale of Borrower Loans Prosper recognizes gains or losses on the sale of Borrower Loans when it is retained for the servicing of Borrower Loans by WebBank. Additionally, Prosper recognizes gains or losses on the sale of Borrower Loans when it sells Borrower Loans to third parties. Gains or losses on sales of Borrower Loans that are recognized at the time of sale are determined by the difference between the net sales proceeds, fair value of any servicing rights retained and the carrying value of the Borrower Loans sold. Fair Value of Warrants Vested on the Sale of Borrower Loans Fair Value of Warrants Vested on the Sale of Borrower Loans relates to warrants to purchase Series F Convertible Preferred Stock issued to the Consortium that vest when the Consortium purchases whole loans under the Consortium Purchase Agreement that was signed in February 2017. On vesting of the Series F warrants, Prosper records a liability as "Convertible Preferred Stock Warrant Liability" on the Consolidated Balance Sheet at fair value and a corresponding amount as "Fair Value of Warrants Vested on Sale of Borrower Loans" on the Consolidated Statement of Operations. ASC 505-50 “Share Based Payments to Non-Employees" addresses the accounting by both the grantor and the grantee for share-based payments made in exchange for goods and services. The counterparty to whom we issued the warrants is a customer of the Company to whom we sell loans. Following the guidance in ASC 505-50, Prosper records the vesting of the warrants as contra-revenue on the Consolidated Statement of Operations. Interest Income on Borrower Loans, and Interest Expense on Notes Prosper recognizes interest income on Borrower Loans originated through the Note Channel and interest expense on the corresponding Notes using the accrual method based on the stated interest rate to the extent Prosper believes it to be collectable. |
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Advertising Costs | Advertising Costs Advertising costs are expensed when incurred and are included in sales and marketing expense in the accompanying Consolidated Statements of Operations. |
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Stock-Based Compensation | Stock-Based Compensation We determine the fair value of our stock options issued to employees on the date of grant using the Black-Scholes option pricing model, which is impacted by the fair value of our common stock, as well as changes in assumptions that include, but are not limited to, the expected common stock price volatility over the term of the option awards, the expected term of the awards, risk-free interest rates and the expected dividend yield. We recognize compensation expense for our stock based awards on a straight-line basis over the period during which an employee is required to provide services in exchange for the award (the vesting period of the award). Stock-based compensation expense is recognized only for those awards expected to vest. We estimate future forfeitures at the date of grant and revise the estimates, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Stock-based awards issued to non-employees are marked-to-market up until the point that the awards measurement period has been achieved. Compensation expense for stock options issued to nonemployees is calculated using the Black-Scholes option pricing model and is recorded over the vesting period of the award. |
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Foreign Currency Transactions | Foreign Currency Transactions The functional currency of our international subsidiary is the U.S. dollar. For this subsidiary, foreign currency denominated monetary assets and liabilities are remeasured into U.S. dollars at current exchange rates and foreign currency denominated nonmonetary assets and liabilities are remeasured into U.S. dollars at historical exchange rates. Gains or losses from foreign currency remeasurement and settlements are included in general and administrative expense in the Consolidated Statements of Operations. |
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Income Taxes | Income Taxes The asset and liability method is used to account for income taxes. Under this method, deferred income tax assets and liabilities are based on the differences between the financial statement carrying values and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Prosper’s policy is to include interest and penalties related to gross unrecognized tax benefits within its provision for income taxes. U.S. Federal, Israel, California, and other state income tax returns are filed. Prosper is currently not undergoing any income tax examinations. Due to the net operating loss, generally all tax years remain open. We recognize benefits from uncertain tax positions only if we believe that it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement. |
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Other (Income) Expense, net | Other (Income) Expense, net Other (income) expense, net includes interest income from available for sale securities, accretion on available for sale securities, changes in fair value of contingent liabilities, realized gains and losses on the sale of available for sale securities, changes in fair value of convertible preferred stock warrant liabilities and contract termination costs that are expected to be non-recurring and not part of restructuring activities. |
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Comprehensive Income | Comprehensive Income Marketable debt securities are generally considered available-for-sale and are carried at fair value, based on quoted market prices or other readily available market information. Gains and losses are recognized when realized using the specific identification method and included in Other Income in the Consolidated Statements of Operations. Unrealized gains and losses, net of taxes, are included in Accumulated Other Comprehensive Income, which is reflected as a separate component of stockholders’ deficit in our Consolidated Balance Sheet. If we have determined that an other-than-temporary decline in fair value has occurred, the amount of the decline that is related to an identified loss is recognized in income. Prosper monitors its investment portfolio for potential impairment on a quarterly basis. |
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Recent Accounting Pronouncements | Recent Accounting Pronouncements Accounting Standards Update No. 2014-09, 2016-08, 2016-10, 2016-12 and 2016-20, collectively implemented as FASB Accounting Standards Codification Topic 606 ("ASC 606") Revenue from Contracts with Customers, provides guidance for revenue recognition. The new guidance sets forth a new five-step revenue recognition model which replaces the prior revenue recognition guidance in its entirety and is intended to eliminate numerous industry-specific pieces of revenue recognition guidance that have historically existed in U.S. GAAP. The underlying principle of the new standard is that a business or other organization will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects what it expects in exchange for the goods or services. The standard also requires more detailed disclosures and provides additional guidance for transactions that were not addressed completely in the prior accounting guidance. Prosper plans to adopt ASC 606 on a modified retrospective basis in the first quarter of fiscal 2018. Our implementation efforts to date related to this standard have included identifying revenue streams that are within the scope of this guidance, the evaluation of associated contracts and accounting policies, the evaluation of processes and systems of internal control, and the assessment of disclosure requirements of the standard. Our scoping analysis indicates that transaction fees and referral fees are included in the scope of the new guidance, while servicing fees and gain or loss on the sale of borrower loans remain within the scope of ASC topic 860, Transfers and Servicing. We have determined that ASC 606 will have little, if any, impact on the timing and amount of revenue recognition as compared to the current standard and that there will be no material impact upon adoption. As part of our implementation process to date, we are evaluating new qualitative and quantitative disclosures, including disaggregation of revenues and descriptions of performance obligations. Prosper will make such disclosures in the first quarter of 2018. In January 2016, the FASB issued ASU 2016-1, "Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities", which addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. This guidance will be effective for us in the first quarter of our fiscal year 2019, and early adoption is not permitted. Prosper is currently evaluating the impact that this guidance will have on its consolidated financial statements. In February 2016, the FASB issued ASU 2016-2, "Leases (Topic 842)", which requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases, along with additional qualitative and quantitative disclosures. This guidance will be effective for us in the first quarter of our fiscal year 2019, and early adoption is permitted. Prosper is currently evaluating the impact that this guidance will have on its consolidated financial statements, however we do expect that this guidance will have a material impact on Prosper's consolidated financial statements. As of December 31, 2017, Prosper has a total of $31.6 million in non-cancelable operating lease commitments, net of minimum sublease rentals. In March 2016, the FASB issued ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting (Topic 718)". This guidance makes several modifications to Topic 718 related to the accounting for forfeitures, employer tax withholding on share-based compensation and the financial statement presentation of excess tax benefits or deficiencies. ASU 2016-09 also clarifies the statement of cash flows presentation for certain components of share-based awards. This guidance was effective for us in the first quarter of our fiscal year 2017, and early adoption was permitted. Prosper decided to early adopt this guidance effective January 1, 2016, the adoption of this standard did not have a material impact on Prosper’s consolidated financial statements. In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” The standard provides guidance for eight targeted changes with respect to how cash receipts and cash payments are classified in the statements of cash flows, with the objective of reducing diversity in practice. This guidance will be effective for Prosper in the first quarter of our fiscal year 2018, and early adoption is permitted. Prosper is currently evaluating the impacts the adoption of this accounting standard will have on Prosper's statement of cash flows, however we do not expect a material impact. In October 2016, the FASB issued ASU No. 2016-16, "Income Taxes (Topic 740): Intra-Entity Transfers Other than Inventory (ASU 2016-16)", which requires companies to recognize the income-tax consequences of an intra-entity transfer of an asset other than inventory. This guidance will be effective for us in the first quarter of 2018, with the option to adopt it in the first quarter of 2017. Prosper will adopt this guidance on January 1, 2018, and we believe the adoption of this standard will not have a material impact on Prosper’s financial statements. In November 2016, the FASB issued ASU 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash (ASU 2016-18)", which requires companies to include amounts generally described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This guidance will be effective for us in the first quarter of 2018 and early adoption is permitted. Prosper will adopt this standard on January 1, 2018. As at December 31, 2017, we had restricted cash of $152.7 million. Currently, changes in these balances are presented as operating and investing cash activities in the consolidated statements of cash flows. Under the new guidance, changes in these amounts will be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the condensed consolidated statements of cash flows. In January 2017, the FASB issued ASU No. 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment". The standard eliminates Step 2 from the goodwill impairment test, which requires a hypothetical purchase price allocation. Prosper will continue to have the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The standard is effective for interim and annual periods beginning after December 15, 2019 and early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The standard should be applied on a prospective basis. Prosper is currently evaluating the impact of this accounting standard update on its consolidated financial statements. |
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Prosper Funding LLC | |||||||||||||||
Entity Information [Line Items] | |||||||||||||||
Basis of Presentation | Basis of Presentation Prosper Funding’s consolidated financial statements include the accounts of PFL and its wholly-owned subsidiary PAH. All intercompany balances and transactions between PFL and PAH have been eliminated in consolidation. Prosper Funding’s financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). |
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Use of Estimates | Use of Estimates The preparation of Prosper Funding’s consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and the related disclosures at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. These estimates, judgments and assumptions include but are not limited to the following: valuation of Loans Held for Sale, Borrower Loans and associated Notes, valuation of servicing rights, repurchase and indemnification obligation, and contingent liabilities. Prosper Funding bases its estimates on historical experience from all Borrower Loans, and on various other assumptions that it believes to be reasonable under the circumstances. Actual results could differ materially from those estimates. |
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Certain Risks | Certain Risks In the normal course of its business, Prosper Funding encounters significant credit risk. Financial instruments that potentially subject Prosper Funding to significant credit risk consist primarily of cash, cash equivalents, borrower loans held and restricted cash. Prosper Funding places cash and restricted cash with high-quality financial institutions and is exposed to credit risk in the event of default by these institutions to the extent the amount recorded on the balance sheet exceeds federally insured amounts. Prosper Funding invests cash equivalents in highly liquid marketable securities with original maturities of three months or less at the time of purchase, including money market funds, commercial paper, US treasury securities and US agency securities. As a lending marketplace, Prosper Funding believes its customers are highly susceptible to uncertainties and negative trends, real or perceived, in the markets driven by, among other factors, general economic conditions in the United States and abroad. These external economic conditions and resulting trends or uncertainties could adversely impact its customers’ ability or desire to participate on its marketplace as borrowers or investors, and consequently could negatively affect its business and results of operations. To the extent that Borrower Loan (including Borrower Loans that have been sold) payments are not made, servicing income will be reduced. A group of Notes corresponding to a particular Borrower Loan is wholly dependent on the repayment of such Borrower Loan. As a result, Prosper Funding does not bear the credit risk on such Borrower Loan. |
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Consolidation of Variable Interest Entities | Consolidation of Variable Interest Entities The determination of whether to consolidate a variable interest entity (“VIE”) in which we have a variable interest requires a significant amount of analysis and judgment whether we are the primary beneficiary of a VIE via a controlling financial interest in the VIE. A controlling financial interest in a VIE exists if we have both the power to direct the VIE’s activities that most significantly affect the VIE’s economic performance and a potentially significant economic interest in the VIE. The determination of whether an entity is a VIE considers factors, such as (i) whether the entity’s equity investment at risk is insufficient to allow the entity to finance its activities without additional subordinated financial support or (ii) when a holder’s equity investment at risk lacks any of the following characteristics of a controlling financial interest: the direct or indirect ability through voting rights or similar rights to make decisions about a legal entity’s activities that have a significant effect on the entity’s success, the obligation to absorb the expected losses of the entity or the right to receive the expected residual returns of the legal entity. As a result of the nature of the retained servicing rights on the sale of Borrower Loans, we are a variable interest holder in certain special purposes entities that purchase these Borrower Loans. For all of these entities we either do not have the power to direct the activities that most significantly affect the VIE’s economic performance or we do not have a potentially significant economic interest in the VIE. In no case are we the primary beneficiary, therefore, we do not consolidate these entities. Management regularly reviews and reconsiders its previous conclusions regarding the status of an entity as a VIE and whether we are required to consolidate such VIE in the consolidated financial statements. |
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Transfers of Financial Assets | Transfers of Financial Assets Prosper accounts for transfers of entire financial assets or a participating interest in an entire financial asset as sales when it has surrendered control over the transferred assets. Control is generally considered to have been surrendered when the transferred assets have been legally isolated from Prosper, the transferee has the right to pledge or exchange the assets without any significant constraints, and Prosper has not entered into a repurchase agreement, does not hold significant call options and has not written significant put options on the transferred assets. Prosper sells loans or participating interests in loans via whole loan sale transactions and the fractional note channel. In certain instances of whole loan sales transactions Prosper will sell whole loans to unconsolidated VIEs that then securitize the whole loans purchased. Prosper recognizes a gain or loss on the sale of financial assets by comparing the net sales proceeds (including fair value of any servicing asset or liability and recourse obligation recognized) to the carrying amount of the assets sold. Transfers of financial assets that do not qualify for sale accounting are reported as secured borrowings. Accordingly, the related assets remain on Prosper’s Consolidated Balance Sheets and continue to be reported and accounted for as if the transfer had not occurred. Cash proceeds from these transfers are reported as liabilities, with related interest expense recognized over the life of the related assets. |
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Cash and Cash Equivalents | Cash and Cash Equivalents Cash includes various unrestricted deposits with highly rated financial institutions. Cash equivalents consist of highly liquid marketable securities with original maturities of three months or less at the time of purchase and consist primarily of money market funds, commercial paper, US treasury securities and US agency securities. Cash equivalents are recorded at cost, which approximates fair value. |
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Restricted Cash | Restricted Cash Restricted cash consists primarily of cash deposits and short term certificates of deposit held as collateral as required for loan funding and servicing activities, and cash that investors or Prosper Funding has on the platform that has not yet been invested in Borrower Loans or disbursed to the investor. |
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Short Term Investments | Short Term Investments Short term investments consists of certificates of deposit with a term greater than three months but less than a year that are held as collateral as required for loan funding and servicing activities. |
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Fair Value Measurement | Fair Value Measurement Prosper Funding measures the fair value of assets and liabilities in accordance with its fair value hierarchy which prioritizes information used to measure fair value and the effect of fair value measurements on earnings and provides for enhanced disclosures determined by the level within the hierarchy of information used in the valuation. We apply this framework whenever other standards require (or permit) assets or liabilities to be measured at fair value. We define fair value in terms of the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The price used to measure the fair value is not adjusted for transaction costs. Under ASC Topic 820, the fair value measurement also assumes that the transaction to sell an asset occurs in the principal market for the asset or, in the absence of a principal market, the most advantageous market for the asset. The principal market is the market in which Prosper Funding would sell or transfer the asset with the greatest volume and level of activity for the asset. In determining the principal market for an asset or liability under ASC Topic 820, it is assumed that Prosper Funding has access to the market as of the measurement date. If no market for the asset exists or if Prosper Funding does not have access to the principal market, Prosper Funding uses a hypothetical market. Under ASC Topic 820, assets and liabilities carried at fair value on the balance sheets are classified among three levels based on the observability of the inputs used to determine fair value: Level 1 — The valuation is based on quoted prices in active markets for identical instruments. Level 2 — The valuation is based on observable inputs such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation methodologies for which all significant assumptions are observable in the market. Level 3 — The valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the instrument. Level 3 valuations are typically performed using pricing models, discounted cash flow models, or similar methodologies, which incorporate management’s own estimates of assumptions that market participants would use in pricing the instrument or valuations that require significant management judgment or estimation. Fair values of assets or liabilities are determined based on the fair value hierarchy established in ASC Topic 820, which requires an entity to maximize the use of quoted prices and observable inputs and to minimize the use of unobservable inputs when measuring fair value. Various valuation methodologies are utilized, depending on the nature of the financial instrument, including the use of market prices for identical or similar instruments, or discounted cash flow models. When possible, active and observable market data for identical or similar financial instruments are utilized. Alternatively, fair value is determined using assumptions that management believes a market participant would use in pricing the asset or liability. Financial instruments consist principally of cash and cash equivalents, restricted cash, Borrower Loans, accounts payable and accrued liabilities, and Notes. Servicing assets and liabilities are also subject to fair value measurement within the financial statements of PFL. The estimated fair values of cash and cash equivalents, restricted cash, accounts payable and accrued liabilities approximate their carrying values because of their short term nature. As observable market prices are not available for the Borrower Loans, Loans Held for Sale and Notes, Prosper Funding believes the Borrower Loans, Loans Held for Sale and Notes should be considered level 3 financial instruments under ASC Topic 820. In a hypothetical transaction as of the measurement date, Prosper Funding believes that differences in the principal marketplace in which the Borrower Loans are originated and the principal marketplace in which Prosper Funding might offer those loans may result in differences between the originated amount of the loans and their fair value as of the transaction date. For Borrower Loans and Loans Held for Sale, the fair value is estimated using discounted cash flow methodologies based upon valuation assumptions including prepayment speeds, default rates and discount rates based on the perceived credit risk within each credit grade. The obligation to pay principal and interest on any Note is equal to the loan payments, if any, that are received on the corresponding Borrower Loan, net of our servicing fee which is generally 1.0% of the outstanding balance. The fair value election for Notes and Borrower Loans allows both the assets and the related liabilities to receive similar accounting treatment for expected losses which is consistent with the subsequent cash flows to lenders that are dependent upon borrower payments. As such, the fair value of a group of Notes is approximately equal to the fair value of the corresponding Borrower Loan, adjusted for the 1.0% servicing fee and the timing of borrower payments subsequently disbursed to such Note holders. As a result, the valuation of the Notes uses the same methodology and assumptions as the Borrower Loans, except that the Notes incorporate the 1.0% servicing fee and any differences in timing of payments. Any unrealized gains or losses on the Borrower Loans and Notes for which the fair value option has been elected is recorded as a separate line item in the statement of operations. The effective interest rate associated with a group of Notes is less than the interest rate earned on the corresponding Borrower Loan due to the 1.0% servicing fee. See Note 4 for a roll-forward and further discussion of the significant assumptions used to value Borrower Loans and Notes. |
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Borrower Loans and Notes | Borrower Loans and Notes Through the Note Channel, Prosper Funding purchases Borrower Loans from WebBank then issues Notes and holds the Borrower Loans until maturity. The obligation to repay a series of Notes issued through the Note Channel is dependent upon the repayment of the associated Borrower Loan. Borrower Loans originated and Notes issued through the Note Channel are carried on Prosper Funding’s consolidated balance sheets as assets and liabilities, respectively. Prosper Funding has adopted the provisions of ASC Topic 825, Financial Instruments (“ASC Topic 825”). ASC Topic 825 permits companies to choose to measure certain financial instruments and certain other items at fair value on an instrument-by-instrument basis with unrealized gains and losses on items for which the fair value option has been elected reported in earnings. Management believes that the fair value option is more meaningful for the readers of the financial statements and it allows both the Borrower Loans and Notes to be valued using the same methodology. The fair value election, with respect to an item, may not be revoked once an election is made. Prosper Funding estimates the fair value of such Borrower Loans and Notes using discounted cash flow methodologies adjusted for the expected payment, loss, recovery and default rates. The Borrower Loans are not derecognized when a corresponding Note is issued as Prosper Funding maintains the ability to sell the Borrower Loans without the approval of the holders in the corresponding Notes. |
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Loan Servicing Assets and Liabilities | Loan Servicing Assets and Liabilities Prosper Funding records servicing assets and liabilities at their estimated fair values for servicing rights retained when Prosper Funding sells Borrower Loans to unrelated third-party buyers. The change in fair value of servicing assets and liabilities is recognized in “Servicing Fees” revenue. The gain or loss on a loan sale is recorded in “Gain (Loss) on Sale of Borrower Loans” while the fair value of the servicing rights, which is based on the degree to which the contractual loan servicing fee is above or below an estimated market loan servicing rate is recorded in servicing assets or liabilities. Servicing assets and liabilities are recorded in “Servicing Assets” and “Other Liabilities,” respectively, on the consolidated balance sheets. Prosper Funding uses a discounted cash flow model to estimate the fair value of the loan servicing assets or liabilities which considers the contractual projected servicing fee revenue that Prosper Funding earns on the Borrower Loans, estimated market servicing fees to service such loans, prepayment rates, default rates and the current principal balances of the Borrower Loans. |
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Loans Held for Sale | Loans Held for Sale Loans Held for Sale are comprised of Borrower Loans held for short durations and are recorded at fair value. The fair value is estimated using discounted cash flow methodologies based upon a set of valuation assumptions similar to those of other Borrower Loans. We measure Loans Held for Sale at fair value on an instrument-by-instrument basis with unrealized gains and losses on items for which the fair value option has been elected reported in earnings. Management believes that the fair value option is more meaningful for the readers of the financial statements and it allows for the Loans Held for Sale to be measured at fair value similar to Borrower Loans and Notes. The fair value election, with respect to an item, may not be revoked once an election is made. |
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Software and Website Development | Software and Website Development Software and website development represents the software and website that PMI has transferred to Prosper Funding. Prosper Funding does not develop any of its own software or website. Software and website are included in property and equipment and amortized to expense using the straight-line method over their expected lives which is generally one to five years. Prosper Funding evaluates its software assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of software and website development assets to be held and used is measured by a comparison of the carrying amount of the asset to the future net undiscounted cash flows expected to be generated by the asset. If such software and website development assets are considered to be impaired, the impairment to be recognized is the excess of the carrying amount over the fair value of the software and website development asset group. |
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Payable to Investors | Payable to Investors Payable to Investors primarily represents our obligation to investors related to cash held in an account for the benefit of investors and payments-in-process received from borrowers. |
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Loan Trailing Fee | Loan Trailing Fee On July 1, 2016, Prosper Funding signed a series of agreements with WebBank which, among other things, includes an additional program fee (the "Loan Trailing Fee") paid to WebBank in connection with the performance of each loan sold to Prosper Funding. These agreements are effective as of August 1, 2016. The Loan Trailing Fee is dependent on the amount and timing of principal and interest payments made by borrowers of the underlying loans, irrespective of whether the loans are sold by Prosper Funding, and gives WebBank an ongoing financial interest in the performance of the loans it originates. This fee is paid by Prosper Funding to WebBank over the term of the respective loans and is a function of the principal and interest payments made by borrowers of such loans. In the event that principal and interest payments are not made with respect to any loan, Prosper Funding is not required to make the related Loan Trailing Fee payment. The obligation to pay the Loan Trailing Fee for any loan sold to Prosper Funding is recorded at fair value at the time of the origination of such loan within Other Liabilities and recorded as a reduction of Transaction Fees, net. Any changes in the fair value of this liability are recorded in Change in Fair Value of Borrower Loans, Loans Held for Sale and Notes, Net on the statements of operations. The fair value of the Loan Trailing Fee represents the present value of the expected monthly Loan Trailing Fee payments, which takes into consideration certain assumptions related to expected prepayment rates and defaults rates. |
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Revenue Recognition | Revenue Recognition Revenue primarily results from fees, net interest earned and gains on the sale of borrower loans. Fees consist of related party administrative fees and servicing fees paid by investors. We also have other smaller sources of revenue reported as other revenue, which includes fees charged in relation to securitizations by outside investors. Administration Agreement License Fees Prosper Funding primarily generates revenues through license fees it earns through an Administration Agreement with PMI. The Administration Agreement contains a license granted by Prosper Funding to PMI that entitles PMI to use the platform for and in relation to: (i) PMI’s performance of its duties and obligations under the Administration Agreement relating to corporate administration, loan platform services, loan and note servicing and marketing, and (ii) PMI’s performance of its duties and obligations to WebBank in relation to loan origination and funding. The license fees are based on the number of listings that are posted to the platform. Service Fees Investors who purchase Borrower Loans through the Whole Loan Channel typically pay Prosper Funding a servicing fee which is currently set at 1.075% per annum of the outstanding principal balance of the Borrower Loan prior to applying the current payment. The servicing fee compensates Prosper Funding for the costs incurred in servicing the related loan, including managing payments from borrowers, payments to investors and maintaining investors’ account portfolios. Prosper Funding records servicing fees paid by Borrower Loan investors as a component of operating revenue when received. Gain (Loss) on Sale of Borrower Loans Prosper Funding recognizes gains or losses on the sale of Borrower Loans when it is retained for the servicing of Borrower Loans by WebBank. Additionally, Prosper Funding recognizes gains or losses on the sale of Borrower Loans when it sells Borrower Loans to third parties. Gains or losses on sales of Borrower Loans that are recognized at the time of sale are determined by the difference between the net sales proceeds, fair value of any servicing rights retained and the carrying value of the Borrower Loans sold. Interest Income on Borrower Loans and Interest Expense on Notes Prosper Funding recognizes interest income on Borrower Loans originated through the Note Channel and interest expense on the corresponding Notes using the accrual method based on the stated interest rate to the extent Prosper Funding believes it to be collectable. |
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Administration Fee Expense - Related Party | Administration Fee Expense - Related Party Pursuant to an Administration Agreement between Prosper Funding and PMI, PMI manages the marketplace on behalf of Prosper Funding. Accordingly, each month, Prosper Funding is required to pay PMI an administration fee that is based on PMI’s (a) finance and legal personnel costs, (b) number of Borrower Loans originated through the marketplace, (c) servicing fees collected by or on behalf of Prosper Funding, and (d) nonsufficient funds fees collected by or on behalf of Prosper Funding. In addition, under a second Administration Agreement between PMI and PAH, a wholly owned subsidiary of Prosper Funding, PAH is required to pay PMI an annual fee, for PMI being the administrator of PAH’s operations. |
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Other (Income) Expense, net | Other Expense Other expense, net includes contract termination costs that are expected to be non-recurring and not part of restructuring activities. |
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Comprehensive Income | Comprehensive Income There is no comprehensive income (loss) other than the net income (loss) disclosed in the consolidated statements of operations. |
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Recent Accounting Pronouncements | Recent Accounting Pronouncements Accounting Standards Update No. 2014-09, 2016-08, 2016-10, 2016-12 and 2016-20, collectively implemented as FASB Accounting Standards Codification Topic 606 ("ASC 606") Revenue from Contracts with Customers, provides guidance for revenue recognition. The new guidance sets forth a new five-step revenue recognition model which replaces the prior revenue recognition guidance in its entirety and is intended to eliminate numerous industry-specific pieces of revenue recognition guidance that have historically existed in U.S. GAAP. The underlying principle of the new standard is that a business or other organization will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects what it expects in exchange for the goods or services. The standard also requires more detailed disclosures and provides additional guidance for transactions that were not addressed completely in the prior accounting guidance. Prosper Funding plans to adopt ASC 606 on a modified retrospective basis in the first quarter of fiscal 2018. Our implementation efforts to date related to this standard have included identifying revenue streams that are within the scope of this guidance, the evaluation of associated contracts and accounting policies, the evaluation of processes and systems of internal control, and the assessment of disclosure requirements of the standard. Our scoping analysis indicates that administration fees are included in the scope of the new guidance, while servicing fees and gain or loss on the sale of borrower loans remain within the scope of ASC topic 860, Transfers and Servicing. We believe that ASC 606 will have little, if any, impact on the timing and amount of revenue recognition as compared to the current standard and that there will be no material impact upon adoption. In January 2016, the FASB issued ASU 2016-1, "Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities", which addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. This guidance will be effective for us in the first quarter of our fiscal year 2019, and early adoption is not permitted. Prosper Funding is currently evaluating the impact that this guidance will have on our consolidated financial statements. In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” The standard provides guidance for eight targeted changes with respect to how cash receipts and cash payments are classified in the statements of cash flows, with the objective of reducing diversity in practice. This guidance will be effective for Prosper in the first quarter of our fiscal year 2018, and early adoption is permitted. Prosper Funding is currently evaluating the impacts the adoption of this accounting standard will have on Prosper Funding's cash flows, however we do not expect a material impact. In November 2016, the FASB issued ASU 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash (ASU 2016-18)", which requires companies to include amounts generally described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This guidance will be effective for us in the first quarter of 2018 and early adoption is permitted. Prosper Funding will adopt this standard on January 1, 2018, and we believe the impact will change the presentation of restricted cash within the Statement of Cash Flows. |
Summary of Significant Accounting Policies (Tables) |
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Estimated Useful Lives of Assets | Estimated useful lives of the assets are as follows:
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Property and Equipment, Net | Property and equipment consist of the following (in thousands):
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Property and Equipment, Net | Property and equipment consist of the following (in thousands):
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Borrower Loans, Loans Held for Sale, and Notes Held at Fair Value (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Entity Information [Line Items] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Borrower Loans, Notes and Loans Held for Sale | At December 31, 2017 and 2016, Borrower Loans, Notes and Loans Held for Sale (in thousands) were:
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Prosper Funding LLC | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Entity Information [Line Items] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Borrower Loans, Notes and Loans Held for Sale | At December 31, 2017 and 2016, Borrower Loans, Notes and Loans Held for Sale (in thousands) were:
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Available for Sale Investments, at Fair Value (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investments, Debt and Equity Securities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Amortized Cost, Gross Unrealized Gains and Losses and Fair Value of Securities Available for Sale | The amortized cost, gross unrealized gains and losses, and fair value of available for sale investments as of December 31, 2017 and December 31, 2016, are as follows (in thousands):
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Summary of Securities Available for Sale of Continuous Unrealized Loss | A summary of available for sale investments with unrealized losses as of December 31, 2017, aggregated by category and period of continuous unrealized loss, is as follows (in thousands):
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Schedule of Maturities of Securities Available for Sale | The maturities of available for sale investments at December 31, 2017, are as follows (in thousands):
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Fair Value of Assets and Liabilities (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Entity Information [Line Items] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Hierarchy for Assets and Liabilities Measured at Fair Value | The following tables present the fair value hierarchy for assets and liabilities measured at fair value (in thousands):
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Quantitative Information About Significant Unobservable Inputs | Borrower Loans, Loans Held for Sale and Notes:
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Significant Unobservable Inputs Fair Value | Servicing Assets and Liabilities:
(1) Excludes collection fees that would be passed on to a hypothetical third-party servicer. As of December 31, 2017 and 2016, the market rate for collection fees and non-sufficient fund fees was assumed to be 7 basis points and 7 basis points for a weighted-average total market servicing rate of 69.5 basis points and 69.5 basis points respectively. |
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Assets and Liabilities Measured at Fair Value on a Recurring Basis | The following tables present additional information about level 3 Borrower Loans, Loans Held for Sale and Notes measured at fair value on a recurring basis (in thousands):
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Schedule of Servicing Assets and Liabilities Measured at Fair Value | The following table presents additional information about the level 3 servicing assets and liabilities measured at fair value on a recurring basis (in thousands):
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Level 3 Liabilities Measured on Recurring Basis | The following table presents additional information about level 3 Preferred Stock Warrant Liability measured at fair value on a recurring basis (in thousands):
The following table presents additional information about level 3 Loan Trailing Fee Liability measured at fair value on a recurring basis (in thousands):
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Fair Value Assumptions for Loans Held for Sale, Borrower Loans and Notes | Key economic assumptions and the sensitivity of the current fair value to immediate changes in those assumptions at December 31, 2017 for Borrower Loans, Loans Held for Sale and Notes originated through the Note Channel are presented in the following table (in thousands, except percentages):
* Represents weighted average assumptions considering all credit grades. |
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Schedule of Prosper's and Prosper Funding's Estimated Fair Value of Servicing Assets and Liabilities | The following table presents the estimated impact on Prosper’s estimated fair value of servicing assets and liabilities, calculated using different market servicing rates and different default rates as of December 31, 2017 (in thousands, except percentages).
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Prosper Funding LLC | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Entity Information [Line Items] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Hierarchy for Assets and Liabilities Measured at Fair Value | The following tables present the fair value hierarchy for assets and liabilities measured at fair value (in thousands):
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Quantitative Information About Significant Unobservable Inputs | The following tables present quantitative information about the significant unobservable inputs used for Prosper Funding’s level 3 fair value measurements at December 31, 2017: Borrower Loans, Loans Held for Sale and Notes:
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Significant Unobservable Inputs Fair Value | Servicing Assets and Liabilities:
(1) Excludes collection fees that would be passed on to a hypothetical third-party servicer. As of December 31, 2017 and 2016, the market rate for collection fees and non-sufficient funds fees was assumed to be 7 basis points and 7 basis points for a weighted-average total market servicing rate of 69.5 basis points and 69.5 basis points respectively. |
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Assets and Liabilities Measured at Fair Value on a Recurring Basis | The following tables present additional information about level 3 Borrower Loans, Loans Held for Sale and Notes measured at fair value on a recurring basis (in thousands):
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Schedule of Servicing Assets and Liabilities Measured at Fair Value | The following table presents additional information about level 3 servicing assets and liabilities measured at fair value on a recurring basis (in thousands):
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Level 3 Liabilities Measured on Recurring Basis | The following table presents additional information about level 3 Loan Trailing Fee Liability measured at fair value on a recurring basis (in thousands):
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Fair Value Assumptions for Loans Held for Sale, Borrower Loans and Notes | Key economic assumptions and the sensitivity of the current fair value to immediate changes in those assumptions at December 31, 2017 for Borrower Loans, Loans Held for Sale and Notes originated through the Note Channel are presented in the following table (in thousands, except percentages):
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Schedule of Prosper's and Prosper Funding's Estimated Fair Value of Servicing Assets and Liabilities | The following table presents the estimated impact on Prosper Funding’s estimated fair value of servicing assets and liabilities, calculated using different market servicing rates, prepayment rates and different default rates as of December 31, 2017 (in thousands, except percentages).
|
Goodwill and Other Intangible Assets, Net (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Goodwill | The following table presents the goodwill activity for the periods presented (in thousands):
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||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Other Intangible Assets for the Periods Presented | The following table presents the detail of other intangible assets for the periods presented (dollars in thousands):
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||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Estimated Amortization of Purchased Intangible Assets | Estimated amortization of purchased intangible assets for future periods is as follows (in thousands):
|
Other Liabilities (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Liabilities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Other Liabilities | Other Liabilities includes the following (in thousands):
|
Net Loss Per Share (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basic and Diluted Net Loss Per Share | Basic and diluted net loss per share was calculated as follows (net loss in thousands):
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||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dilutive Shares Excluded from the Diluted Net Loss Per Share Calculation | Due to losses attributable to PMI’s common shareholders for each of the periods below, the following potentially dilutive shares are excluded from the diluted net loss per share calculation because they were anti-dilutive under the treasury stock or if converted method:
|
Convertible Preferred Stock, Warrant Liability and Stockholders’ Deficit (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stockholders' Equity Note [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Shares Authorized, Issued, Outstanding, Par Value and Liquidation Preference of Convertible Preferred Stock | The number of authorized, issued and outstanding shares, their par value and liquidation preference for each series of convertible preferred stock as of December 31, 2017 are disclosed in the table below (dollar amounts in thousands, except per share information):
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Schedule of Assumptions Used | The Company determined the fair value of the outstanding Series E-1 Convertible Preferred Stock Warrants utilizing the following assumptions as of the following dates:
The Company determined the fair value of the outstanding Series F Convertible Preferred Stock warrants utilizing the following assumptions as of December 31, 2017:
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Schedule of Stockholders' Equity Note, Warrants or Rights | The combined activity of the Convertible Preferred Stock Warrant Liability is as follows (in thousands):
|
Stock-based Compensation (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summarized Option Activity under Option Plan | Stock option activity under the 2005 Plan and 2015 Plan is summarized as follows for the years below:
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Additional Information Regarding Common Stock Options Outstanding | Additional information regarding common stock options outstanding as of December 31, 2017 is as follows:
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Fair Value of Stock Option Awards | The fair value of PMI’s stock option awards for the year ended December 31, 2017, 2016 and 2015 was estimated at the date of grant using the Black-Scholes model with the following average assumptions:
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Summarized Activities for RSU's | The following table summarizes the activities for PMI’s RSUs during 2017:
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Stock Based Compensation Included in Consolidated Statements of Operations | The following table presents the amount of stock-based compensation related to stock-based awards granted to employees recognized in Prosper’s consolidated statements of operations during the periods presented (in thousands):
|
Restructuring (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restructuring and Related Activities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Restructuring Reserve by Type of Cost | The following table summarizes the activities related to Prosper's restructuring plan (in thousands):
|
Income Taxes (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Components of Income Tax | The components of income tax are as follows (in thousands):
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Effective Income Tax Reconciliation | The income tax expense (benefit) differed from the amount computed by applying the U.S. federal income tax rate of 34% to pretax loss as a result of the following:
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Deferred Tax Assets and Liabilities | Temporary items that give rise to significant portions of deferred tax assets and liabilities at December 31, 2017 and 2016 are as follows (in thousands):
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Unrecognized Tax Benefits | The following table summarizes Prosper’s activity related to its unrecognized tax benefits (in thousands):
|
Consortium Purchase Agreement (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||
Consortium Purchase Agreement | The following represents the loans purchased and warrants vested under the Consortium Purchase Agreement:
|
Commitments and Contingencies (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2017 | |||||||||||||||||||||||||||||||||||||
Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||
Future Minimum Lease Payments | The table below presents future minimum rental payments, net of minimum sublease rentals of $7.1 million, for the remaining terms of the operating leases (in thousands):
|
Related Parties (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Entity Information [Line Items] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Aggregate Amount of Notes Purchased and the Income Earned | The aggregate amount of the Notes purchased and the income earned by parties deemed to be affiliates and related parties of Prosper as of December 31, 2017 and 2016 are summarized below (in thousands):
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Prosper Funding LLC | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Entity Information [Line Items] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Aggregate Amount of Notes Purchased and the Income Earned | The aggregate amount of the Notes purchased and the income earned by parties deemed to be affiliates and related parties of Prosper Funding as of December 31, 2017 and 2016 are summarized below (in thousands):
|
Property and Equipment, Net - Additional Information (Details) - USD ($) |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Property, Plant and Equipment [Line Items] | |||
Depreciation and Amortization | $ 12,348,000 | $ 13,220,000 | $ 7,649,000 |
Prosper Funding LLC | |||
Property, Plant and Equipment [Line Items] | |||
Depreciation and Amortization | 5,853,000 | 4,083,000 | 3,161,000 |
Property and Equipment | |||
Property, Plant and Equipment [Line Items] | |||
Depreciation and Amortization | 10,963,000 | 9,381,000 | 6,080,000 |
Software and website development costs | |||
Property, Plant and Equipment [Line Items] | |||
Capitalized internal-use software and website development costs | 3,687,000 | 6,251,000 | 7,348,000 |
Gain on disposal and impairment charges | (11,000) | 1,083,000 | 0 |
Software and website development costs | Prosper Funding LLC | |||
Property, Plant and Equipment [Line Items] | |||
Capitalized internal-use software and website development costs | $ 3,700,000 | $ 5,800,000 | $ 10,500,000 |
Available for Sale Investments, at Fair Value - Continuous Unrealized Losses (Details) - Fixed Maturities $ in Thousands |
12 Months Ended |
---|---|
Dec. 31, 2017
USD ($)
| |
Schedule Of Available For Sale Securities [Line Items] | |
Fair value, less than 12 months | $ 53,147 |
Unrealized losses, less than 12 months | (74) |
Fair value, 12 months or longer | 0 |
Unrealized losses, 12 months or longer | 0 |
Fair Value | 53,147 |
Unrealized Losses | (74) |
Treasury Bills | |
Schedule Of Available For Sale Securities [Line Items] | |
Fair value, less than 12 months | 33,978 |
Unrealized losses, less than 12 months | (36) |
Fair value, 12 months or longer | 0 |
Unrealized losses, 12 months or longer | 0 |
Fair Value | 33,978 |
Unrealized Losses | (36) |
US Treasury securities | |
Schedule Of Available For Sale Securities [Line Items] | |
Fair value, less than 12 months | 19,169 |
Unrealized losses, less than 12 months | (38) |
Fair value, 12 months or longer | 0 |
Unrealized losses, 12 months or longer | 0 |
Fair Value | 19,169 |
Unrealized Losses | $ (38) |
Available for Sale Investments, at Fair Value - Additional Information (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Segment Reporting [Abstract] | |||
Proceeds from sale of available for sale securities | $ 31,232 | $ 12,445 | $ 4,022 |
Loss on available-for-sale securities | $ 9 |
Fair Value of Assets and Liabilities - Borrower Loans, Loans Held For Sale and Notes (Details) |
12 Months Ended | |
---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
|
Minimum | ||
Fair Value Inputs Assets Quantitative Information [Line Items] | ||
Discount rate | 4.00% | 4.00% |
Default rate | 2.00% | 1.70% |
Minimum | Prosper Funding LLC | ||
Fair Value Inputs Assets Quantitative Information [Line Items] | ||
Discount rate | 4.00% | 4.30% |
Default rate | 14.40% | 14.50% |
Maximum | ||
Fair Value Inputs Assets Quantitative Information [Line Items] | ||
Discount rate | 14.40% | 15.90% |
Default rate | 15.40% | 14.90% |
Maximum | Prosper Funding LLC | ||
Fair Value Inputs Assets Quantitative Information [Line Items] | ||
Discount rate | 2.00% | 1.40% |
Default rate | 15.40% | 14.40% |
Fair Value of Assets and Liabilities - Schedule of Servicing Assets and Liabilities (Details) - USD ($) $ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
|
Servicing Assets | ||
Servicing Assets | ||
Fair value at beginning of period | $ 12,786 | $ 14,363 |
Additions | 14,138 | 9,833 |
Less: Changes in fair value | (12,213) | (11,410) |
Fair Value at end of period | 14,711 | 12,786 |
Servicing Assets | Prosper Funding LLC | ||
Servicing Assets | ||
Fair value at beginning of period | 12,461 | 13,605 |
Additions | 14,138 | 9,833 |
Less: Changes in fair value | (12,001) | (10,977) |
Fair Value at end of period | 14,598 | 12,461 |
Servicing Liabilities | ||
Servicing Liabilities | ||
Fair value at beginning of the period | 198 | 484 |
Additions | 0 | 9 |
Less: Changes in fair value | (139) | (295) |
Fair value at end of the period | 59 | 198 |
Servicing Liabilities | Prosper Funding LLC | ||
Servicing Liabilities | ||
Fair value at beginning of the period | 198 | 484 |
Additions | 0 | 9 |
Less: Changes in fair value | (139) | (295) |
Fair value at end of the period | $ 59 | $ 198 |
Goodwill and Other Intangible Assets, Net - Additional Information (Details) - USD ($) |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Goodwill And Other Intangible Assets [Line Items] | |||
Goodwill impairment expense | $ 0 | $ 0 | $ 0 |
Intangible additions | 0 | 0 | |
Impairment loss | 6,399,000 | 0 | 0 |
Amortization of intangible assets | $ 1,400,000 | $ 3,800,000 | $ 1,600,000 |
Customer relationships | Minimum | |||
Goodwill And Other Intangible Assets [Line Items] | |||
Intangible assets amortized period | 3 years | ||
Customer relationships | Maximum | |||
Goodwill And Other Intangible Assets [Line Items] | |||
Intangible assets amortized period | 10 years | ||
Developed technology | Minimum | |||
Goodwill And Other Intangible Assets [Line Items] | |||
Intangible assets amortized period | 3 years | ||
Developed technology | Maximum | |||
Goodwill And Other Intangible Assets [Line Items] | |||
Intangible assets amortized period | 5 years | ||
Brand name | |||
Goodwill And Other Intangible Assets [Line Items] | |||
Intangible assets amortized period | 1 year |
Goodwill and Other Intangible Assets, Net - Goodwill (Details) - USD ($) $ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
|
Goodwill [Roll Forward] | ||
Goodwill | $ 36,368 | $ 36,368 |
Acquisitions | 0 | 0 |
Goodwill | $ 36,368 | $ 36,368 |
Goodwill and Other Intangible Assets, Net - Estimated Amortization (Details) - USD ($) $ in Thousands |
Dec. 31, 2017 |
Dec. 31, 2016 |
---|---|---|
Finite-Lived Intangible Assets, Amortization Expense, Maturity Schedule [Abstract] | ||
2018 | $ 379 | |
2019 | 279 | |
2020 | 219 | |
2021 | 172 | |
2022 | 136 | |
Thereafter | 192 | |
Net Carrying Value | $ 1,377 | $ 9,212 |
Other Liabilities (Details) - USD ($) $ in Thousands |
Dec. 31, 2017 |
Dec. 31, 2016 |
---|---|---|
Other Liabilities [Abstract] | ||
Class action settlement liability | $ 0 | $ 2,996 |
Loan trailing fee | 2,595 | 665 |
Deferred revenue | 452 | 226 |
Servicing liabilities | 59 | 198 |
Deferred income tax liability | 225 | 766 |
Deferred rent | 3,904 | 4,469 |
Restructuring liability | 3,355 | 6,052 |
Other | 2,079 | 1,801 |
Total Other Liabilities | $ 12,669 | $ 17,173 |
Net Loss Per Share - Basic and Diluted Net Loss Per Share (Details) - USD ($) $ / shares in Units, $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Numerator: | |||
Net loss available to common stockholders for basic and diluted EPS | $ (115,158) | $ (118,741) | $ (25,968) |
Denominator: | |||
Weighted average shares used in computing basic and diluted net loss per share (in shares) | 69,687,836 | 64,196,537 | 55,547,408 |
Basic and diluted net loss per share (in dollars per share) | $ (1.65) | $ (1.85) | $ (0.47) |
Convertible Preferred Stock, Warrant Liability and Stockholders’ Deficit - Valuation Techniques (Details) |
12 Months Ended | |
---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
|
Series E-1 Convertible Preferred Stock | Mandatorily Redeemable Preferred Stock | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Volatility | 40.00% | 40.00% |
Risk-free interest rate | 2.38% | 2.45% |
Remaining contractual term (in years) | 9 years 15 days | 9 years 11 months 16 days |
Dividend yield | 0.00% | 0.00% |
Series F Convertible Preferred Stock warrants | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Volatility | 40.00% | |
Risk-free interest rate | 2.38% | |
Remaining contractual term (in years) | 9 years 1 month 28 days | |
Dividend yield | 0.00% |
Convertible Preferred Stock, Warrant Liability and Stockholders’ Deficit - Preferred Stock Activity (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Warrants or Rights [Roll Forward] | |||
Change in Fair Value | $ 29,140 | $ 7 | $ 0 |
Convertible Preferred Stock Warrant | |||
Warrants or Rights [Roll Forward] | |||
Beginning balance | 21,711 | 0 | |
Warrants vested | 65,516 | 21,704 | |
Change in Fair Value | 29,139 | 7 | |
Ending balance | $ 116,366 | $ 21,711 | $ 0 |
Stock-based Compensation - Fair Value of Stock Option Awards (Details) |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Fair value of stock option awards [Abstract] | |||
Volatility of common stock | 49.24% | 50.88% | 55.69% |
Risk-free interest rate | 2.12% | 1.29% | 1.74% |
Expected life | 6 years | 5 years 9 months 18 days | 6 years |
Dividend yield | 0.00% | 0.00% | 0.00% |
Stock-based Compensation - Summarized Activities for RSU's (Details) - Restricted Stock Unit (RSUs) |
12 Months Ended |
---|---|
Dec. 31, 2017
$ / shares
shares
| |
Number of Shares | |
Restricted stock unit ,Unvested ,Beginning Balance (in shares) | shares | 1,995,159 |
Granted (in shares) | shares | 12,500 |
Vested (in shares) | shares | 0 |
Forfeited (in shares) | shares | (608,479) |
Restricted stock unit ,Unvested ,Ending Balance (in shares) | shares | 1,399,180 |
Weighted-Average Grant Date Fair Value | |
Unvested beginning balance (in dollars per share) | $ / shares | $ 2.16 |
Granted (in dollars per share) | $ / shares | 0.22 |
Vested (in dollars per share) | $ / shares | 0.00 |
Forfeited (in dollars per share) | $ / shares | 2.18 |
Unvested ending balance (in dollars per share) | $ / shares | $ 2.16 |
Stock-based Compensation - Allocated Expense (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Share Based Compensation Arrangement By Share Based Payment Award [Line Items] | |||
Stock based compensation | $ 12,238 | $ 19,787 | $ 13,011 |
Origination and Servicing | |||
Share Based Compensation Arrangement By Share Based Payment Award [Line Items] | |||
Stock based compensation | 996 | 2,004 | 1,231 |
Sales and Marketing | |||
Share Based Compensation Arrangement By Share Based Payment Award [Line Items] | |||
Stock based compensation | 553 | 2,914 | 2,561 |
General and Administrative | |||
Share Based Compensation Arrangement By Share Based Payment Award [Line Items] | |||
Stock based compensation | 10,689 | 14,824 | 9,219 |
Restructuring | |||
Share Based Compensation Arrangement By Share Based Payment Award [Line Items] | |||
Stock based compensation | $ 0 | $ 45 | $ 0 |
Restructuring - Additional Information (Details) - employee |
1 Months Ended | |
---|---|---|
May 03, 2016 |
Dec. 31, 2016 |
|
Restructuring Cost and Reserve [Line Items] | ||
Number of employees terminated | 167 | |
Israel | ||
Restructuring Cost and Reserve [Line Items] | ||
Number of employees terminated | 31 |
Restructuring - Restructuring Reserve (Details) - USD ($) $ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
|
Restructuring Reserve [Roll Forward] | ||
Beginning balance | $ 6,649 | $ 0 |
Adjustments to expense | 1,214 | 15,991 |
Transfer from deferred rent | 764 | |
Sublease cash receipts | 210 | |
Less: Cash paid | (4,829) | (10,106) |
Ending balance | 3,244 | 6,649 |
Severance Related | ||
Restructuring Reserve [Roll Forward] | ||
Beginning balance | 597 | 0 |
Adjustments to expense | (13) | 7,256 |
Transfer from deferred rent | 0 | |
Sublease cash receipts | 0 | |
Less: Cash paid | (584) | (6,659) |
Ending balance | 0 | 597 |
Facilities Related | ||
Restructuring Reserve [Roll Forward] | ||
Beginning balance | 6,052 | 0 |
Adjustments to expense | 1,227 | 8,735 |
Transfer from deferred rent | 764 | |
Sublease cash receipts | 210 | |
Less: Cash paid | (4,245) | (3,447) |
Ending balance | $ 3,244 | $ 6,052 |
Income Taxes - Components of Income Tax (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Current: | |||
Federal | $ 0 | $ 0 | $ 0 |
State | 0 | 0 | 0 |
Foreign | 0 | 124 | (5) |
Total Current Income Tax (Benefit) | 0 | 124 | (5) |
Deferred: | |||
Federal | (579) | 394 | 320 |
State | 37 | 28 | 25 |
Foreign | 34 | 0 | 0 |
Total Deferred Income Tax | (508) | 422 | 345 |
Total Income Tax | $ (508) | $ 546 | $ 340 |
Income Taxes - Effective Income Tax Reconciliation (Details) |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Effective income tax rate reconciliation [Abstract] | |||
Federal tax at statutory rate | 34.00% | 34.00% | 34.00% |
State tax at statutory rate (net of federal benefit) | 7.00% | 7.00% | 12.00% |
Change to Uncertain Tax Position | 0.00% | 0.00% | 10.00% |
Permanent Items | 0.00% | (1.00%) | 0.00% |
Change in U.S. Tax Rate Applied to Deferred Taxes | (31.00%) | 0.00% | 0.00% |
Incentive Stock Options | (1.00%) | (2.00%) | (9.00%) |
Acquisition Related Costs | 0.00% | 0.00% | (3.00%) |
Preferred Stock Warrants | (21.00%) | 0.00% | 0.00% |
Change in valuation allowance | 11.00% | (37.00%) | (46.00%) |
Credits and Reserves | 0.00% | 0.00% | 0.00% |
Other | 1.00% | (1.00%) | 1.00% |
Total | 0.00% | 0.00% | (1.00%) |
Income Taxes - Deferred Tax Assets and Liabilities (Details) - USD ($) $ in Thousands |
Dec. 31, 2017 |
Dec. 31, 2016 |
---|---|---|
Deferred tax assets and liabilities [Abstract] | ||
Net operating loss carry forwards | $ 74,890 | $ 85,759 |
Research & other credits | 725 | 626 |
Settlement liability | 0 | 1,230 |
Stock compensation | 7,653 | 7,300 |
Accrued liabilities | 3,028 | 4,884 |
Restructuring liability | 974 | 2,424 |
Other | 21 | 62 |
Deferred tax assets | 87,291 | 102,285 |
Fair value of loans | (493) | (1,045) |
Net servicing rights | (3,500) | (4,895) |
Fixed assets | (73) | (1,226) |
Intangible assets | (2,357) | (3,226) |
Foreign Earnings | (187) | (270) |
Deferred tax liabilities | (6,610) | (10,662) |
Net deferred tax assets | 80,681 | 91,623 |
Valuation allowance | (80,906) | (92,389) |
Net deferred tax liabilities | $ (225) | $ (766) |
Income Taxes - Unrecognized Tax Benefits (Details) - USD ($) $ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
|
Unrecognized tax benefits [Roll Forward] | ||
Balance at January 1, | $ 913 | $ 913 |
Decrease related to current year tax position | (801) | 0 |
Balance at December 31, | $ 112 | $ 913 |
Consortium Purchase Agreement - Narrative (Details) - Consortium Purchase Agreement - USD ($) $ / shares in Units, $ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2017 |
Feb. 27, 2017 |
|
Other Commitments [Line Items] | ||
Principal amount (up to) | $ 5,000,000 | |
Loans acquired | $ 1,826,527 | $ 0 |
Value of warrants issued to settle rebates on loan purchases | $ 300,000 | |
Series F Warrant | ||
Other Commitments [Line Items] | ||
Number of warrants | 3 | |
Maximum warrant for purchase shares (in shares) | 177,720,706 | |
Exercise of common stock warrants (in dollars per share) | $ 0.01 |
Consortium Purchase Agreement - Consortium Agreement Table (Details) - Consortium Purchase Agreement - USD ($) $ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2017 |
Feb. 27, 2017 |
|
Class of Warrant or Right [Line Items] | ||
Loans Acquired | $ 1,826,527 | $ 0 |
Loans Purchased by the Consortium | $ 1,826,527 | |
Series F Warrant | ||
Class of Warrant or Right [Line Items] | ||
Warrants Vested (in shares) | 75,186,002 | 9,830,494 |
Warrants vested during the year (in shares) | 65,355,508 |
Commitments and Contingencies - Future Minimum Lease Payments (Details) $ in Thousands |
Dec. 31, 2017
USD ($)
|
---|---|
Operating Leases, Future Minimum Payments Due, Fiscal Year Maturity [Abstract] | |
2018 | $ 4,529 |
2019 | 5,046 |
2020 | 5,534 |
2021 | 5,492 |
2022 | 5,377 |
Thereafter | 5,602 |
Total | $ 31,580 |
Related Parties - Additional Information (Details) |
12 Months Ended |
---|---|
Dec. 31, 2017 | |
Related Party Transactions [Abstract] | |
Minimum percentage of voting securities considered for related parties (more than) | 10.00% |
Minimum percentage of stock holders considered for related parties | 10.00% |
Postretirement Benefit Plans (Details) - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Retirement Benefits [Abstract] | |||
Deferred compensation arrangement with eligible employees, percentage (up to) | 90.00% | ||
Employer contribution during the period | $ 2.2 | $ 2.6 | $ 1.9 |
Significant Concentrations (Details) |
12 Months Ended | |
---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
|
Significant Concentrations [Line Items] | ||
Percentage of fund from whole loan channel | 93.00% | 90.00% |
Prosper Funding LLC | ||
Significant Concentrations [Line Items] | ||
Percentage of fund from whole loan channel | 93.00% | 90.00% |
Party 1 | ||
Significant Concentrations [Line Items] | ||
Percentage of loans purchased | 70.00% | 20.00% |
Party 1 | Prosper Funding LLC | ||
Significant Concentrations [Line Items] | ||
Percentage of loans purchased | 70.00% | 20.00% |
Party 2 | ||
Significant Concentrations [Line Items] | ||
Percentage of loans purchased | 16.00% | |
Party 2 | Prosper Funding LLC | ||
Significant Concentrations [Line Items] | ||
Percentage of loans purchased | 16.00% | |
Party 3 | ||
Significant Concentrations [Line Items] | ||
Percentage of loans purchased | 9.00% | |
Party 3 | Prosper Funding LLC | ||
Significant Concentrations [Line Items] | ||
Percentage of loans purchased | 9.00% |
Segments (Details) |
12 Months Ended |
---|---|
Dec. 31, 2017
segment
| |
Segment Reporting [Abstract] | |
Number of reporting segments | 1 |
Number of operating segments | 1 |
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