Organization, Basis of Presentation and New Accounting Standards (Policies)

6 Months Ended

Jun. 30, 2018

Organization, Consolidation and Presentation of Financial Statements [Abstract]

GreenSky, Inc. (or the "Company," "we" or "our") was formed as a Delaware corporation on July 12, 2017. The Company was formed for the purpose of completing an IPO of its Class A common stock and certain Reorganization Transactions, as further described below, in order to carry on the business of GreenSky Holdings, LLC (“GS Holdings”) and its consolidated subsidiaries. GS Holdings, a holding company with no operating assets or operations, was organized in August 2017. On August 24, 2017, GS Holdings acquired a controlling interest in GreenSky LLC ("GSLLC"), a Georgia limited liability company, which is an operating entity. Common membership interests of GS Holdings, are referred to as "Holdco Units."

Immediately prior to our IPO, (i) the operating agreement of GS Holdings (the "GS Holdings Agreement") was amended and restated to, among other things, modify its capital structure by replacing the different classes of membership interests and profits interests with Holdco Units; (ii) we issued to each of the Continuing LLC Members (as defined below) a number of shares of GreenSky, Inc. Class B common stock equal to the number of Holdco Units held by it (other than the Holdco Units that were exchanged in connection with the IPO), for consideration in the amount of $0.001 per share of Class B common stock; (iii) certain Holdco Units were contributed to GreenSky, Inc. in exchange for shares of our Class A common stock; (iv) equity holders of the Former Corporate Investors (as defined below) contributed their equity in the Former Corporate Investors to GreenSky, Inc. in exchange for shares of our Class A common stock and the right to certain payments under the Tax Receivable Agreement (“TRA”), and Former Corporate Investors merged with and into subsidiaries of GreenSky, Inc.; (v) outstanding options to acquire Class A units of GS Holdings were equitably adjusted so that they are exercisable for shares of Class A common stock; and (vi) outstanding warrants to acquire Class A units of GS Holdings were equitably adjusted pursuant to their terms so that they are exercisable for Holdco Units (and an equal number of shares of Class B common stock). We refer to these transactions collectively as the “Reorganization Transactions”. The Reorganization Transactions are more fully described in our final IPO prospectus dated May 23, 2018 filed with the United States Securities and Exchange Commission on May 25, 2018 (the "Final IPO Prospectus").

Following the Reorganization Transactions, the Original GS Equity Owners (other than the Former Corporate Investors) and certain Original Profits Interests Holders, which we collectively refer to as the "Continuing LLC Members," continue to own Holdco Units. Original GS Equity Owners refers to the owners of units of GS Holdings prior to the Reorganization Transactions. Former Corporate Investors refers to certain of the Original GS Equity Owners that merged with and into one or more subsidiaries of GreenSky, Inc. in connection with the Reorganization Transactions, which was accounted for as a common control transaction and had no material impact on the net assets of the Company. Original Profits Interests Holders refers to the owners of profits interests in GS Holdings prior to the Reorganization Transactions.

On May 24, 2018, the Company's Class A common stock commenced trading on the NASDAQ Stock Market in connection with its IPO of 43,700,000 shares of its Class A common stock at a public offering price of $23.00 per share, receiving approximately $954.8 million in net proceeds, after deducting underwriting discounts and commissions (but not including other offering costs), which were used to purchase 2,426,198 shares of Class A common stock and 41,273,802 newly-issued GS Holdings common units at a price per unit equal to the price per share of Class A common stock sold in the IPO, less underwriting discounts and commissions. The newly-issued GS Holdings common units were sold by Continuing LLC Members, which we also refer to as "Exchanging Members." Pursuant to an "Exchange Agreement," the Exchanging Members can exchange their Holdco Units (with automatic cancellation of an equal number of shares of Class B common stock) for shares of our Class A common stock on a one-for-one basis, subject to customary adjustments, or for cash (based on the market price of the shares of Class A common stock), at our option (such determination to be made by the disinterested members of our board of directors).

The IPO and Reorganization Transactions resulted in the Company becoming the sole managing member of GS Holdings. As the sole managing member of GS Holdings, we operate and control all of GS Holdings’ operations and, through GS Holdings and its subsidiaries, conduct GS Holdings’ business. As of June 30, 2018, the Company had an economic interest in GS Holdings of 31.3%. The Company consolidates the financial results of GS Holdings and reports a noncontrolling interest in its unaudited consolidated financial statements representing the GS Holdings interests held by Continuing LLC Members.

Basis of Presentation

Our independent registered public accounting firm has not audited our accompanying interim financial statements. We derived the Unaudited Consolidated Balance Sheet at June 30, 2018, from the audited Consolidated Financial Statements included in our Final IPO Prospectus. In the opinion of our management, the Unaudited Consolidated Financial Statements reflect all adjustments, which are of a normal recurring nature, necessary for a fair presentation of our statements of operations for the three and six months ended June 30, 2018 and June 30, 2017, our balance sheets at June 30, 2018 and December 31, 2017, and our cash flows for the six months ended June 30, 2018 and June 30, 2017.

We have condensed or omitted certain notes and other information from the interim financial statements presented in this Quarterly Report on Form 10-Q. Therefore, these interim statements should be read in conjunction with our Final IPO Prospectus. The results for the three and six months ended June 30, 2018, are not necessarily indicative of results that may be expected for the full year.

Use of Estimates

The preparation of financial statements in conformity with United States generally accepted accounting principles ("GAAP"), requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Such estimates and assumptions include, but are not limited to, those that relate to fair value measurements, share based compensation and income taxes. In developing estimates and assumptions, management uses all available information; however, actual results could materially differ from those estimates and assumptions.

Recently Adopted or Issued Accounting Standards and Accounting Standards Issued but Not Yet Adopted

Recently Adopted or Issued Accounting Standards

Revenue from contracts with customers

In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU 2014-09 to clarify the principles for recognizing revenue and to develop a common revenue standard, which is codified in ASC Topic 606, Revenue from Contracts with Customers. Under this new standard, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The FASB also issued several updates to ASU 2014-09. We elected to early adopt this standard and to apply its provisions as of January 1, 2017 to all open contracts existing as of that date using the modified retrospective approach. We determined that the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of retained earnings was immaterial. Further, our adoption of the new standard did not have a material impact on any balance sheet or income statement line items in the period of adoption and, as such, we did not record any adjustments to the consolidated financial statements related to our adoption of this standard.

Disaggregated revenue

Revenue disaggregated by type of service was as follows for the periods presented:



	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017

Merchant fees	$	75,576	$	59,709	$	134,941	$	105,768
Interchange fees	14,621		11,743		26,196		20,605
Transaction fees	90,197		71,452		161,137		126,373
Servicing fees	15,458		10,887		29,789		21,174
Other⁽¹⁾	49		81		104		210
Servicing and other	15,507		10,968		29,893		21,384
Total revenue	$	105,704	$	82,420	$	191,030	$	147,757


⁽¹⁾	Other revenue includes several miscellaneous revenue items that are individually immaterial. Other revenue is presented separately herein in order to clearly present merchant, interchange and servicing fees, which are more integral to our primary operations and better enable financial statement users to calculate metrics such as servicing and merchant fee yields.

We have no remaining performance obligations as of June 30, 2018. No assets were recognized from the costs to obtain or fulfill a contract with a customer as of June 30, 2018 or December 31, 2017.

Recognition and measurement of financial assets and financial liabilities

In January 2016, the FASB issued ASU 2016-01 to address certain aspects of recognition, measurement, presentation and disclosure of financial instruments. We adopted the standard for the reporting period beginning January 1, 2018. As a result of adopting the standard, we eliminated the disclosure requirement of the methods and significant assumptions used to estimate the fair value for financial instruments measured at amortized cost on the balance sheet, which applies to our fair value of term loan disclosure in Note 3. The remaining provisions of the standard were either not applicable to us or already satisfied in our disclosures. Therefore, our adoption of this standard did not have any impact on our unaudited consolidated financial statements.

Improvements to employee share-based payment accounting

In March 2016, the FASB issued ASU 2016-09 to simplify certain aspects of the accounting for share-based payment transactions. Under the new standard, all excess tax benefits and tax deficiencies should be recognized as income tax benefit or expense, respectively, in the income statement when stock awards vest or are settled. In addition, the standard eliminates the requirement to reclassify cash flows related to excess tax benefits from operating activities to financing activities on the statements of cash flows, increases the threshold for withholding an employee’s vested shares for tax-withholding purposes without triggering liability accounting and clarifies that cash payments made by an employer to tax authorities on an employee’s behalf when directly withholding shares for tax-withholding purposes should be presented as a financing activity on the statement of cash flows. The standard also provides an accounting policy election to account for forfeitures as they occur rather than to estimate the number of awards that are expected to vest. We adopted the standard for the reporting period beginning January 1, 2017. The provisions related to excess tax benefits or deficiencies from share-based award activity became applicable for us following the IPO and Reorganization Transactions. We also elected to retain our existing accounting policy election to estimate award forfeitures.

Scope of modification accounting

In May 2017, the FASB issued ASU 2017-09 to provide clarity and reduce both diversity in practice and the cost and complexity to an entity when applying the guidance in ASC 718, Compensation—Stock Compensation, to a change in the terms or conditions of a share-based payment award. The standard provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. We adopted the standard for the reporting period beginning January 1, 2018, and will apply its provisions prospectively to any award modified on or after the adoption date. Our adoption of this standard did not have any impact on our unaudited consolidated financial statements.

Accounting standards issued but not yet adopted

Leases

In February 2016, the FASB issued ASU 2016-02, which requires lessees to recognize leases with terms greater than twelve months on the balance sheet as right-of-use assets and corresponding liabilities. Lessees will continue to classify leases as either operating leases, using a straight-line expense pattern, or financing leases, using a front-loaded expense pattern. The standard also requires enhanced quantitative and qualitative disclosures related to the lease arrangements. The standard is effective for us on January 1, 2019, with early adoption permitted, using a modified retrospective approach.

We are evaluating the potential impact of adopting this standard by reviewing our existing lease contracts, all of which are operating leases wherein the Company is the lessee. For predominantly all of the future minimum lease payments of $17.7 million as of June 30, 2018, required under our existing operating leases (as disclosed in Note 12) and for other similar leases we may enter into prior to adopting this standard, we expect to gross up our Unaudited Consolidated Balance Sheets at their present values to recognize the right-of-use assets and lease liabilities. The quantitative impact of adopting this standard remains under evaluation; however, we do not expect material changes to the recognition of rent expense, which is included within property, office and technology expenses and related party expenses in our Unaudited Consolidated Statements of Operations.

In July 2018, the FASB issued ASU 2018-10, which clarifies certain aspects of the guidance issued in ASU 2016-02. Upon adoption of this standard, we, as the lessee, will be required to reassess lease classification upon modification based on the facts and circumstances, and the modified terms and conditions, if applicable, as of the date of reassessment. The remaining provisions of the standard are either not applicable to us or already satisfied in our disclosures. The standard is effective for us on January 1, 2019, with early adoption permitted, using a modified retrospective approach. We are currently evaluating the potential impact of adopting this standard; however, we do not expect material changes to the classification of leases or to the recognition of rent expense.

Measurement of credit losses on financial instruments

In June 2016, the FASB issued ASU 2016-13, which is intended to better align the timing of recognition of credit losses on financial instruments with management’s expectations. The standard requires a financial asset (or group of financial assets) measured at amortized cost to be presented at the net amount expected to be collected. Management must determine expected credit losses for all financial assets held at the reporting date based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts, the latter of which broadens current guidance. The standard requires enhanced disclosures to help investors and other financial statement users to better understand the significant estimates and judgments used in estimating credit losses. The standard is effective for us on January 1, 2020, with early adoption permitted, but not before January 1, 2019, and for the majority of its provisions should be applied using a modified retrospective approach. We are currently evaluating the potential impact of adopting this standard.

Improvements to nonemployee share-based payment accounting

In June 2018, the FASB issued ASU 2018-07 to simplify certain aspects of the accounting for nonemployee share-based payment transactions. Under the new standard, all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor's own operations by issuing share-based payment awards are in the scope of ASC 718. Consistent with the accounting requirement for employee share-based payment awards, nonemployee share-based payment awards within the scope of ASC 718 are measured at grant-date fair value of the equity instruments, and the requirement to reassess classification of nonemployee share-based payment awards upon vesting is eliminated. The standard is effective for us on January 1, 2019, including interim periods within that fiscal year, with early adoption permitted, using a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption to remeasure equity-classified awards for which a measurement date has not been established and liability-classified awards that have not been settled by the date of adoption. We are currently evaluating the potential impact of adopting this standard; however, we do not expect adoption to have a material impact as the Company has a limited number of nonemployee share-based payment transactions outstanding and does not anticipate material nonemployee share-based payment transactions in the future.