Oportun Financial Q4 2024 Earnings Call Transcript

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February 12, 2025
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Operator

Good afternoon, and welcome to Oportun Financial's Fourth Quarter twenty twenty four Earnings Call. Please note this conference is being recorded. I will now turn the conference over to your host, Dorian Hair, Senior Vice President, Investor Relations. Thank you. You may begin.

Dorian Hare
Dorian Hare
Senior VP of Investor Relations at Oportun Financial

Thanks, and hello, everyone. With me to discuss Oportun's fourth quarter twenty twenty four results are Raul Vasquez, Chief Executive Officer and Jonathan Copeland, Chief Financial Officer and Chief Administrative Officer. I'll remind everyone on the call or webcast that some of the remarks made today will include forward looking statements relating to our business, future results of operations and financial position, including projected adjusted ROE attainment, plans for products and services, business strategy, expense savings measures and plans and objectives of management for future operations. Actual results may differ materially from those contemplated or implied by these forward looking statements, and we caution you not to place undue reliance on these forward looking statements. A more detailed discussion of the risk factors that could cause these results to differ materially are set forth in our earnings press release and in our filings with the Securities and Exchange Commission under the caption Risk Factors, including our upcoming Form 10 K filing for the year ended 12/31/2024.

Dorian Hare
Dorian Hare
Senior VP of Investor Relations at Oportun Financial

Any forward looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events other than that is required by law. Also on today's call, we will present both GAAP and non GAAP financial measures, which we believe can be useful measures for the period to period comparison of our core business and which will provide useful information to investors regarding our financial condition and results of operations. A full list of definitions can be found in our earnings materials available at the Investor Relations section on our website. Non GAAP financial measures are presented in addition to and not as a substitute for financial measures calculated in accordance with GAAP. A reconciliation of these non GAAP to GAAP financial measures is included in our earnings press release, our fourth quarter twenty twenty four financial supplement and the appendix section of the fourth quarter twenty twenty four earnings presentation, all of which are available at the Investor Relations section of our website at investor.opportune.com.

Dorian Hare
Dorian Hare
Senior VP of Investor Relations at Oportun Financial

In addition, this call is being webcast and an archived version will be available after the call along with a copy of our prepared remarks. With that, I will turn the call over to Raul.

Raul Vazquez
Raul Vazquez
CEO at Oportun Financial

Thanks, Dorian, and good afternoon, everyone. Thank you for joining us. We ended the fourth quarter with stronger than anticipated results demonstrating that we've turned the corner in improving our financial performance and are entering 2025 with momentum, discipline and focus. We met or exceeded the guidance expectations that we set for the fourth quarter and every quarter throughout 2024. The four key headlines from Q4 in my view are a return to GAAP profitability, improved credit performance, a return to originations growth and ongoing expense discipline.

Raul Vazquez
Raul Vazquez
CEO at Oportun Financial

First and importantly, Q4 marked our return to GAAP profitability. Our $9,000,000 of net income was a $51,000,000 year over year improvement and drove an ROE of 10%. Adjusted net income of $22,000,000 was a $30,000,000 year over year improvement and we generated an adjusted ROE of 25%. Moreover, we generated $41,000,000 of adjusted EBITDA, a $31,000,000 increase from last year's level and exceeded the top end of our guidance by 37%. We were able to achieve these results through improved credit performance, a return to originations growth and continued expense discipline.

Raul Vazquez
Raul Vazquez
CEO at Oportun Financial

I'd like to reiterate that we expect to be profitable on a GAAP basis for full year 2025. Second, regarding improved credit performance. Our net charge off rate was 11.7%, an improvement of 55 basis points year over year and the lowest level of losses since the third quarter of twenty twenty two. In dollars, the positive trends continued as our net charge offs improved year over year for the fifth consecutive quarter, in this instance by 12%. I'm also pleased with our ongoing progress in reducing thirty plus day delinquencies, which were 4.8% for the quarter and better by 113 basis points year over year.

Raul Vazquez
Raul Vazquez
CEO at Oportun Financial

That's the fourth consecutive quarter of year over year improvement. Third, originations were $522,000,000 during Q4, returning to growth at 19% year over year. Even with a conservative credit box, we increased the number of loans originated by 23%. And lastly, we reported $89,000,000 in operating expenses, down 31% year over year, which was our lowest quarterly figure since the second quarter of twenty nineteen. Without the benefit from one time items, our 4Q twenty twenty four operating expense would have been approximately $95,000,000 still below the $97,500,000 target we set at the beginning of twenty twenty four.

Raul Vazquez
Raul Vazquez
CEO at Oportun Financial

Building on our 2024 progress, we will continue to advance our three key strategic priorities in 2025, which are improving credit outcomes, fortifying business economics and identifying high quality originations. Regarding credit outcomes, we expect to reduce our net charge off rate in 2025 by benefiting from our B12 credit model for a full year and from our back book of loans shrinking to just 1% of our own portfolio by year end. We expect to attain an adjusted ROE in the teens, up from 8% in 2024 by generating 10% to 15% full year originations growth, returning to revenue growth by year end and targeting a 5% full year decline in operating expenses. And we'll continue to identify high quality originations under our current conservative credit standards by reinvesting in marketing and targeting high quality new members, while continuing to support our best existing members. We are also prioritizing the growth of secured personal loans within our own portfolio as they offer superior unit economics compared to unsecured loans.

Raul Vazquez
Raul Vazquez
CEO at Oportun Financial

During 2024, secured personal loan losses ran approximately 500 basis points lower compared to unsecured personal loans, with fourth quarter revenue per loan approximately 75% higher due to larger average loan sizes. Finally, I'd like to provide a preview of 2025 guidance. Jonathan will share with you that we're increasing our full year adjusted EPS expectations by 7% at the midpoint. Our updated adjusted EPS range is $1.1 to $1.3 reflecting a 53% to 81% increase over twenty twenty four's zero point '7 '2 dollars In summary, our results are a testament to our team's execution and we are at the beginning of a new chapter for Oportun. With a strong foundation we worked diligently to build in 2024, we remain more focused than ever to drive growth and shareholder value in 2025.

Raul Vazquez
Raul Vazquez
CEO at Oportun Financial

With that, I will turn

Raul Vazquez
Raul Vazquez
CEO at Oportun Financial

it over to Jonathan for additional details on our financial and credit performance as well as our guidance.

Jonathan Coblentz
CFO & Chief Administrative Officer at Oportun Financial

Thanks, Raul, and good afternoon, everyone. As Raul mentioned, you can see on Slide six that we had a strong fourth quarter in which we met or exceeded the guidance expectations that we set. We're confident that Oportun is poised to carry this momentum into 2025 by further enhancing our profitability, including by being GAAP profitable on a full year basis as we track towards our long term financial objectives. As shown on Slide seven, Oportun delivered total revenue of $251,000,000 in the fourth quarter. We were GAAP profitable at $9,000,000 of net income with diluted EPS of $0.2 and we are profitable on an adjusted basis for the fourth consecutive quarter with adjusted net income of $21,500,000 for adjusted EPS of $0.49 While maintaining credit discipline, originations of $522,000,000 were up 19% year over year.

Jonathan Coblentz
CFO & Chief Administrative Officer at Oportun Financial

Sequentially, originations were up 9%, aligning with the typical seasonal pattern for a ramp throughout the year. Total revenue of $251,000,000 exceeded the top end of our guidance by $1,000,000 and declined by 4% year over year due to the decline in average daily principal balance in our personal loans portfolio as a result of prior credit tightening actions. This impact was partially offset by a 155 basis point increase in portfolio yield to 34.2%. Given the successful completion of the sale of our credit card portfolio in mid November, it's important to keep in mind that while the sale is accretive to the bottom line, our credit card business contributed $4,000,000 of total revenue for 4Q 'twenty four and $34,000,000 for the full year. Our total net decrease in fair value of $84,000,000 was primarily driven by current period charge offs of $80,000,000 which improved 12% year over year.

Jonathan Coblentz
CFO & Chief Administrative Officer at Oportun Financial

Q4 interest expense of $74,000,000 was up $22,000,000 year over year, primarily due to a one time $17,000,000 non cash write off of deferred financing costs related to the repayment of our prior corporate financing facility as part of the November refinancing. This amount was slightly below the $18,000,000 estimate I indicated on our third quarter earnings call. Net revenue was $93,000,000 up 30% year over year as lower net charge offs and lower non cash fair value marks on our asset backed notes more than offset lower total revenue and higher interest expense. Excluding the one time non cash write off of $17,000,000 of deferred financing fees included in interest expense that I mentioned a moment ago, net revenue would have been $110,000,000 up 53% year over year. As a reminder, we elected to stop fair valuing new debt financings in 2023 and we expect the fair value impact to be minimal after this year as prior financings approach maturity.

Jonathan Coblentz
CFO & Chief Administrative Officer at Oportun Financial

Turning now to operating expenses and efficiency, our $89,000,000 in total operating expenses in Q4 reflected a 31% reduction from the prior year period. I note that this figure includes approximately $6,000,000 in one time benefits, including those related to capitalization of previously accrued expenses associated with our debt refinancing, true ups related to estimated costs of exiting the credit card product and other benefits that we wouldn't expect to occur as part of a normalized run rate. Without the benefit of these one time items, our 4Q twenty twenty four operating expense would have been approximately $95,000,000 still below our $97,500,000 target. Accordingly, expect $97,500,000 in quarterly operating expenses during 2025, reflecting our $95,000,000 exit rate, also modest increased investment in marketing to drive originations growth. Adjusted net income was $22,000,000 a $30,000,000 improvement compared to the prior year quarter, while adjusted EPS of $0.49 was an increase of $0.7 versus last year.

Jonathan Coblentz
CFO & Chief Administrative Officer at Oportun Financial

The improvement was principally driven by our sharply reduced cost structure along with higher net revenue. Adjusted EBITDA, which excludes the impact of fair value mark to market adjustments on our loan portfolio and notes, was $41,000,000 in the fourth quarter. This reflected a year over year increase of $31,000,000 or 315% driven by our sharply reduced cost structure along with lower net charge offs. I'm pleased that our adjusted EBITDA margin increased year over year by 12.6 percentage points from 3.8% to 16.3%. Our adjusted EBITDA performance exceeded the high end of our guidance by $11,000,000 primarily on lower than anticipated operating expenses and net charge offs.

Jonathan Coblentz
CFO & Chief Administrative Officer at Oportun Financial

Let me now shift to more details on our strong Q4 credit performance, another testament to the significant progress that we've made. Our front book of loans originated since July 2022 continues to perform quite well, while our back book of pre July 2022 loans continues to roll off. As you can see on Slide eight of our earnings presentation, our more recent credit vintages have outperformed their predecessors, and as a result, the losses on our front book twelve plus months after disbursement are now running up to 500 basis points lower than losses on our back book, whereas previously we had seen a 400 basis point improvement. This improvement is driven by our continued fine tuning of our credit model. Furthermore, you can see our annualized net charge off rate for the quarter by front book versus back book on Slide nine.

Jonathan Coblentz
CFO & Chief Administrative Officer at Oportun Financial

In Q4, the front book had an annualized net charge off rate of 10.5%, which is within the 9% to 11% net charge off range that we are targeting in our unit economics model. Importantly, back book continues to decline and as of the end of twenty twenty four, there's only 5% for our year end loan portfolio, but 18% of gross charge offs. As Raul mentioned, we expect the back book to further diminish to 1% of our portfolio at the end of twenty twenty five. Finally, as you can see on Slide 10, our net charge off rate of 11.7% in 4Q 'twenty four improved 55 basis points compared to last year and was our lowest rate since 3Q 'twenty two. So in summary, we continue to feel very good about the quality of credit we are originating.

Jonathan Coblentz
CFO & Chief Administrative Officer at Oportun Financial

As shown on Slide 13, I'm also confident in the stability of our hardworking members, an outcome driven by our credit underwriting model, which actively seeks to identify people with strong stability in their communities. Prior to approving a loan to a new or existing borrower, we verify employment for all borrowers, who for fourth quarter originations had a median gross income of approximately $50,000 Additionally, our borrowers had an average of five point seven years at their current job, six point four years at their current residence. Moreover, 91% of our approved members have their loan proceeds dispersed to their U. S. Bank accounts rather than opting to receive disbursement in the form of a check.

Jonathan Coblentz
CFO & Chief Administrative Officer at Oportun Financial

Regarding our capital and liquidity, as shown on Slide 14, we deleveraged by reducing our debt to equity ratio from 8.7x to 7.9x quarter over quarter as we were GAAP profitable and utilized part of the $91,000,000 of our operating cash flow to reduce debt outstanding by $49,000,000 As of December 31, total cash was $215,000,000 of which $60,000,000 was unrestricted and $155,000,000 was restricted. Further bolstering our liquidity was $227,000,000 in available funding capacity under our warehouse lines and remaining whole on sale agreement capacity of $45,000,000 Following the fourth quarter in January, we issued four twenty five million dollars in ABS notes, which freed up $438,000,000 in warehouse capacity for future originations. The transaction was a significant success being over seven times oversubscribed and pricing at a 6.95% weighted average yield, 127 basis points lower than our previous August 2024 transaction. Our access to capital markets is well established. Since June of twenty twenty three, Oportun has raised approximately $2,800,000,000 in diversified financings, including whole on sales, securitizations and warehouse agreements from fixed income investors and banks.

Jonathan Coblentz
CFO & Chief Administrative Officer at Oportun Financial

We anticipate we will come to market a few more times this year with ABS deals. Turning now to our guidance as shown on Slide 15, our outlook for the first quarter is total revenue of $225,000,000 to $230,000,000 annualized net charge off rate of 12.3% plus or minus 15 basis points adjusted EBITDA of $18,000,000 to $22,000,000 On a year over year basis, our Q1 guidance reflects a 9% decline in total revenue, largely due to the absence of $12,000,000 of revenue we generated from the credit card portfolio in the prior year quarter. Excluding credit card revenue, our 1Q guidance reflects only a 5% decline on an organic basis and an approximately 7% year over year decline in the average daily portfolio balance. Despite the revenue decline, our 1Q25 adjusted EBITDA guidance at the midpoint of $20,000,000 highlights our continued focus on operating expense management and is an $18,000,000 improvement over 1Q24's '2 million dollars We expect 1Q25's annualized net charge off rate at the midpoint of our guidance to increase by about 30 basis points year over year. However, as you can see on the bottom of Slide 16, we expect 1Q25 dollars net charge offs to decline in the 4% range.

Jonathan Coblentz
CFO & Chief Administrative Officer at Oportun Financial

And if 1Q25's average daily portfolio balance were to remain flat year over year rather than decline by 7%, the 1Q25 annualized net charge off rate will be approximately eight basis points lower at 11.5%. We expect the elevated net charge off rate in 1Q25 to be temporary. As you will see from the full year guidance for net charge offs that I will share with you in a moment, we expect the average annualized net charge off rate for Q2 through Q4 to be 11.2%. Our guidance for the full year is total revenue of $945,000,000 to $970,000,000 annualized net charge off rate of 11.5 plus or minus 50 basis points, adjusted EBITDA of $135,000,000 to $145,000,000 adjusted net income of $53,000,000 to $63,000,000 and adjusted EPS of $1.1 to $1.3 Despite our anticipated 3% decline in average daily total revenue excluding credit card. As Raul mentioned, we anticipate returning to quarterly revenue growth on a reported basis prior to year end and we expect to grow full year 2025 originations in our 10 to 15% target range.

Jonathan Coblentz
CFO & Chief Administrative Officer at Oportun Financial

The midpoint of our full year 2025 annualized net charge off rate guidance of 11.5% reflects a 50 basis point reduction from twenty twenty four's '12 percent level and implies ongoing improvement following Q1. As you can see from the bottom of Slide 16, we expect full year 2025 net charge offs in dollars to decline in the 7% range. Furthermore, were 2025 average daily principal balance to be flat with 2024 rather than to decline by approximately 3% as anticipated, the net charge off rate would be 30 basis points lower at 11.2%, even closer to our 9% to 11% target range. Our full year 2025 adjusted EPS range is a 7% uplift at the midpoint from the preliminary expectations we first provided in October of last year. I'm pleased that with the full year operating expenses expected to decline in the 5% range, our 2025 adjusted EBITDA and adjusted EPS expectations at the midpoints implies strong year over year growth of 3367% respectively.

Jonathan Coblentz
CFO & Chief Administrative Officer at Oportun Financial

Next, I'd like to update you on our progress towards our long term unit economic targets. While our long term targets are GAAP targets, I'll be using adjusted metric actuals for comparison because they remove non recurring items and provide a better sense of our future run rate. It's clear on Slide 17 that we've made significant progress in Q4. Adjusted ROE was 25%, which was a 33 percentage point year over year improvement. The increase was driven principally by cost reductions, a higher loan yield and lower net charge offs.

Jonathan Coblentz
CFO & Chief Administrative Officer at Oportun Financial

Full year twenty twenty four's adjusted ROE was 8%, twenty three % percentage point improvement over full year 2023. Although we're pleased that we reached the 20% to 28% adjusted ROE range in the fourth quarter at 25%, it's our objective to attain this level on an annual basis. Slide 18 shows how we will continue to focus on improving our credit performance, reducing expenses as a percentage of owned principal balance and reducing leverage to drive improvement in shareholder returns. Raul, back over to you. Thanks, Jonathan.

Raul Vazquez
Raul Vazquez
CEO at Oportun Financial

Before I finish, I have an important announcement to share. Jonathan has decided to retire and will be stepping down as Chief Financial Officer and Chief Administrative Officer. On behalf of the entire Oportun team, I want to congratulate him and express my deepest gratitude for his more than fifteen years of dedicated service. Jonathan joined Oportun in 02/2009 when our loan portfolio was $5,000,000 and built a highly professional finance function we benefit from today. These contributions have been instrumental in our growth, including by helping to expand our loan portfolio to $3,000,000,000 and providing key leadership in taking us public in 2019.

Raul Vazquez
Raul Vazquez
CEO at Oportun Financial

Jonathan will continue as our CFO until March 28 to support a smooth transition to Casey Mueller, who will serve as our Interim CFO. We have engaged in executive search firm to conduct a thorough process to identify Jonathan's successor considering both internal and external candidates. Katie has been with Oportun since 2018 joining us from OneMain to help make our finance function public company ready. He currently serves as our Principal Accounting Officer and Global Controller with additional responsibility for FP and A. I am confident in his ability to provide strong leadership ensuring continuity and maintaining the momentum we've discussed today.

Raul Vazquez
Raul Vazquez
CEO at Oportun Financial

On a personal note, Jonathan has been an incredible partner to me over the past thirteen years and I will miss working with him. I know I speak for everyone at Oportunate wishing him all the best

Jonathan Coblentz
CFO & Chief Administrative Officer at Oportun Financial

in his next chapter.

Raul Vazquez
Raul Vazquez
CEO at Oportun Financial

To close, I'd like to emphasize three key points. First, we're pleased with our return to GAAP profitability in the fourth quarter and with our quarterly GAAP ROE of 10% and adjusted ROE of 25%. Second, we have clear line of sight towards substantially improving our profitability from twenty twenty four's levels and we expect

Raul Vazquez
Raul Vazquez
CEO at Oportun Financial

to be GAAP profitable on

Raul Vazquez
Raul Vazquez
CEO at Oportun Financial

a full year basis. Confident in our outlook, we've increased our full year 2025 adjusted EPS expectations to be $1.1 to $1.3 reflecting 53% to 81% year over year growth. And finally, we believe we will generate an adjusted ROE in the teens this year while making progress towards 20% to 28% ROEs on an annual basis. We see a bright future ahead for Oportun by remaining laser focused on improving credit outcomes, fortifying business economics and identifying high quality originations. I want to thank our talented employees for all that we accomplished together in 2024 and for their ongoing dedication to our mission of empowering members to build a better future.

Raul Vazquez
Raul Vazquez
CEO at Oportun Financial

With that, operator, let's open up the line for questions.

Operator

Thank you. Our first question comes from Rick Shane with JPMorgan. Please state your question.

Richard Shane
Richard Shane
Stock Analyst at JP Morgan

Thanks for taking my question. And first of all, I'm not big on congratulations on earnings calls. But Jonathan, I do want to acknowledge that I know you've worked very, very hard to lead the company on such good footing and that's got to be very satisfying and we are going to miss working with you. So thank you very much.

Jonathan Coblentz
CFO & Chief Administrative Officer at Oportun Financial

That's very kind of you to say, Rick, and I will miss working with you as well. So thank you.

Richard Shane
Richard Shane
Stock Analyst at JP Morgan

Thank you. Well, with that now, I'm going to ask you some tough questions.

Jonathan Coblentz
CFO & Chief Administrative Officer at Oportun Financial

Shoot, go right ahead and expect nothing less.

Richard Shane
Richard Shane
Stock Analyst at JP Morgan

Yes, exactly. And I'm sure of all the things you're not going to miss, this part of the Q and A is one of them. Look, when we look at the guidance and again, we're still going through the numbers, What essentially happened for 2025 is you move the low end up $0.1 you move the high end up a nickel. The $0.05 of that really comes from a different expectation on share count. Can you tell us what's driving the share count expectation?

Richard Shane
Richard Shane
Stock Analyst at JP Morgan

If you said it, I missed it, I apologize. But also on the low end, what's the what are the other factors that are contributing to tightening that guidance?

Jonathan Coblentz
CFO & Chief Administrative Officer at Oportun Financial

Sure. So first of all, the share count is just an updated projection. I think you're referring to the fact that we had a $0.5 share count when we gave the preliminary guidance, and now it's 48.2%. So that's just reflective of our view of future share awards and employee turnover. So nothing I actually don't view that as all that material a change.

Jonathan Coblentz
CFO & Chief Administrative Officer at Oportun Financial

In terms of the top line, look, I think this is a strong number for us, right? We continue to revenue is going to be up organically. We're doing what we said we were going to do in terms of keeping originations not originations excuse me, keeping operating expenses flat throughout the year at $97,500,000 And the credit guide is improved, right, 11.5% plus or minus 50 basis points. So those are the main drivers. And then obviously, we've continued to have good success in our financings.

Jonathan Coblentz
CFO & Chief Administrative Officer at Oportun Financial

We did our first securitization of the year in January at a 6.95% yield. So that's below our 8% unit economics target. Is that helpful? Raul, anything to add?

Raul Vazquez
Raul Vazquez
CEO at Oportun Financial

Yes. I think just going back to the EPS range, right. Rick, first of all, we feel really good coming into the year and that's reflected by taking the midpoint up 7% in terms of not necessarily taking them up by the same amount. It's just early in the year, right. And I think even when we look at some of the readings from the economy this morning, it's clear that just we're going to have to watch things closely.

Raul Vazquez
Raul Vazquez
CEO at Oportun Financial

So I don't think there's anything to read into it aside from us recognizing it's early in the year and it makes sense to be a bit conservative.

Richard Shane
Richard Shane
Stock Analyst at JP Morgan

Got it. No, it makes sense. I mean, trust me, we the crosscurrents that we're all trying to figure out in terms of how this impacts the consumer are pretty confusing at the moment. And I know that we sometimes get caught up in the change in direction on a minute by minute basis as well. So thank you guys.

Raul Vazquez
Raul Vazquez
CEO at Oportun Financial

Sure. Thank you, Rick.

Operator

And our next question comes from John Hecht with Jefferies. Please state your question.

John Hecht
John Hecht
Managing Director at Jefferies Financial Group

Afternoon guys and congratulations on achieving all the objectives and clearly the business looks like it's making a good turn. First question, as you lean into growth, you guys have a lot of channels that you can utilize at MetaBank, your branches, MoneyGram and some other retail partners. Where do you think the will growth come through all those channels or are you going to rely on one of those more than the other? And I guess are all of those channels still active and presenting a good opportunity for growth?

Raul Vazquez
Raul Vazquez
CEO at Oportun Financial

It's a great question, John. So yes, all the channels are active. They work in combination with each other. Really what we've seen in the past, for example, what we had in our latest investor presentation was that regardless of what channels someone started in, almost three quarters of applicants used our mobile and digital channels plays an important role in our originations numbers. So we are bullish about all the channels.

Raul Vazquez
Raul Vazquez
CEO at Oportun Financial

We have seen quite a bit of a strength in our retail channel and our contact centers. I think our teams there are doing just fantastic work. They've become more productive in 2024 relative to 2023. They drove very healthy originations. So we've got the good fortune of I think entering 2025 with a lot of confidence in all of our channels, but in particular liking what we're seeing from retail in the contact center.

John Hecht
John Hecht
Managing Director at Jefferies Financial Group

Okay. That's helpful. And then I guess second question, given I have one after this. Given growth and then thinking about the rate environment, which now anticipates maybe one federal fund shift, how do we think about cost of capital over the course of this year given maturity runoff and so forth? And then any targets for leverage over the next several quarters?

Jonathan Coblentz
CFO & Chief Administrative Officer at Oportun Financial

Sure. So John, I think we're going to see two opposing factors driving our cost of funds. On the one hand, as our first securitization of the year that we did in January with a 6.95% yield shows, the pricing we're able to get on new debt issuances in the asset backed market is very strong. On the other hand and so we would hope to come to market a few more times. And though the curve is relatively flat for the benchmarks, and we'll see where that goes, Credit spreads in the asset backed market continue to tighten, so that's favorable.

Jonathan Coblentz
CFO & Chief Administrative Officer at Oportun Financial

On the other hand, while 6.95% is a terrific yield in the current market, we continue to have debt at 2% that is running off, right? Those are the deals we were able to do in 2021 when rates were much lower. So I think over the long term, we'll see a lower cost of funds. But throughout this year, we may see slightly higher cost of funds before it becomes lower just because of the relative timing between financings and the runoff. And then your question about leverage, we haven't given specific guidance.

Jonathan Coblentz
CFO & Chief Administrative Officer at Oportun Financial

We obviously took a nice step forward this past quarter in reducing debt to equity by eight tenths of a turn. We would expect as we continue to have GAAP profitability and we also avail ourselves of the opportunity to prepay our corporate debt, where we're allowed to make up to $60,000,000 of prepayments without penalty, that those two combined factors will allow us to continue to improve our debt to equity ratio.

John Hecht
John Hecht
Managing Director at Jefferies Financial Group

Okay. And final question, Jonathan, for you and I want to reiterate Rick's congratulations and then sorry to see you go. It's been fun working with you, but I wish you all the best of luck and hopefully we keep in touch. But the last question is, is there any considerations for fair value marks this year? Last year, I think you had to get through some of the marks on the liabilities.

John Hecht
John Hecht
Managing Director at Jefferies Financial Group

Is there anything just on the fair value mark this year that's worth mentioning from a temporary

Jonathan Coblentz
CFO & Chief Administrative Officer at Oportun Financial

impact? Sure. So just at a high level, and then we don't give specific guidance about fair value marks. The expectation is built into our bottom line guidance certainly. When we think about the loans, right, ultimately, as you know, that's driven by the discount rate, which is the combination of benchmark rates and credit spreads, our loss expectation and the average life.

Jonathan Coblentz
CFO & Chief Administrative Officer at Oportun Financial

And so if we see credit continue to improve, if we see rates and credit spreads continue to come down, we could get some benefit there. We're not giving specific guidance, but that would all be favorable. Then, of course, on the asset backed notes, though we no longer include their impact in adjusted net income, they do still run through GAAP. And as you'll see on Page 35 of the earnings deck, the remaining discount on the notes is $22,300,000 as of year end. So we would expect those notes to be down to a very low balance by the end of the year and to largely be prepaid by early twenty twenty six just according to their terms.

Jonathan Coblentz
CFO & Chief Administrative Officer at Oportun Financial

So that will be flowing through the P and L on a GAAP basis as a negative over the course of the year.

Raul Vazquez
Raul Vazquez
CEO at Oportun Financial

Great. Appreciate that. Thanks. Thank you, John.

Operator

Thank you. And our next question comes from Hal Ghosch with B. Riley Securities. Please state your question.

Hal Goetsch
Managing Director at B Riley Financial

Jonathan, well done. Thank you very much. Congratulations on your retirement.

Jonathan Coblentz
CFO & Chief Administrative Officer at Oportun Financial

Thank you, Howard.

Hal Goetsch
Managing Director at B Riley Financial

On the origination side, you guys really came in kind of well above what you guided to and another firm upstart reported similar kind of upside surprises. And I'm just wondering if you give us your color on the top of funnel, what happened there? I think maybe consumers saw a fourth rate cut that happened in December that maybe got discovery happening in your digital channels at a higher rate, maybe lower rates also allowed you to approve more borrowers. Can you just share with us what you saw throughout the quarter. Was it heavier maybe in December with maybe consumers inquiring and pleasantly being surprised they are approved for loans that you granted to them?

Hal Goetsch
Managing Director at B Riley Financial

Give us your thoughts on that.

Raul Vazquez
Raul Vazquez
CEO at Oportun Financial

Yes, Hal, this is Raul. Thanks for the question. So our decisions to drive growth are driven first and foremost by just what is our view on credit. So when you look at our presentation and see on Page nine that the front book is running at about 10.5% annualized losses, back book continues to shrink. Our go forward view as Jonathan described, right, for the year is that losses are going to improve by 50 basis points, right.

Raul Vazquez
Raul Vazquez
CEO at Oportun Financial

Seeing those losses on the front book be within our target range of 9% to 11% gave us the confidence to lean into growth. So what we were able to do is we invested a bit more in marketing than we have the last couple of years to try to drive that growth. So top of the funnel from a demand perspective, we felt was already healthy and we poured a bit more on that in terms of driving marketing. Credit box isn't really opening up. We like where Credit boxes, V12 is helping to drive these improved results.

Raul Vazquez
Raul Vazquez
CEO at Oportun Financial

So then it just it flowed through all the way down to that 19% originations growth. So we go into the year feeling confident in our ability to drive 10% to 15% originations growth for the full year, recognizing that that's going to help to drive revenue growth again in the back half of the year and positioning us well not just for 2025, but assuming the economy remains constructive, which today we think it is, right, that means a good year for us in 2025 and and hopefully some good momentum even going into 'twenty six.

Hal Goetsch
Managing Director at B Riley Financial

Yes, terrific. Thanks, Earl. Could you just repeat, make sure I caught the impact of the credit card sale on Q1 and the full year? Just repeat that for me if you can have a second.

Jonathan Coblentz
CFO & Chief Administrative Officer at Oportun Financial

Sure. On the total revenue?

Hal Goetsch
Managing Director at B Riley Financial

Yes, yes, total revenue.

Jonathan Coblentz
CFO & Chief Administrative Officer at Oportun Financial

Yes, yes. So what we said in our prepared remarks was that when you're looking at our total revenue number for this year in 2025, since credit cards got sold in November, you really need to go back and look at ex credit card revenue numbers from 2024. And so for the full year, which really was only through mid November, we had $34,000,000 of total revenue from credit card. And for the fourth quarter, we had $4,000,000 of total revenue

Raul Vazquez
Raul Vazquez
CEO at Oportun Financial

from credit card. The last thing you'll see when we push the script out is for Q1, it's an absence of $12,000,000 in revenue. Yes.

Jonathan Coblentz
CFO & Chief Administrative Officer at Oportun Financial

Those are years. Right. Because that's how much revenue we had in the first quarter of twenty twenty four. Okay.

Hal Goetsch
Managing Director at B Riley Financial

Terrific. That's what I needed. Thank you. Sure.

Operator

Your next question comes from Gauthier Sri with Singular Research. Please state your question.

Gowshihan Sriharan
Analyst at Singular Research

Good morning. Good afternoon, I guess. Can you hear me?

Raul Vazquez
Raul Vazquez
CEO at Oportun Financial

Yes, we can.

Gowshihan Sriharan
Analyst at Singular Research

Yes. Thank you. Thanks Thanks for taking my question. My first question is, well, congratulations on your results, by the way. And the 19% year over year growth in origination, as you continue, you say that back into FY 'twenty five is 10% to 15%.

Gowshihan Sriharan
Analyst at Singular Research

What is can you give us some color on what is driving that growth? Is it some relaxation on your side or is it what is driving that demand?

Raul Vazquez
Raul Vazquez
CEO at Oportun Financial

Yes, it's a great question. We mentioned that if you remove the one time benefits in OpEx for Q4, that would give you about a $95,000,000 run rate. We would suggest that for models that you really target $97,500,000 per quarter in OpEx and that difference you can think of as a modest investment in marketing, right. So looking at at least the $2,500,000 incremental expense in marketing and that's really what's going to drive the growth. It's not opening up the credit box.

Raul Vazquez
Raul Vazquez
CEO at Oportun Financial

We don't think we need to do that. We don't think that would be wise at this time. It's really about just being able to drive some additional demand through marketing efforts, which we really haven't been doing the last two years.

Gowshihan Sriharan
Analyst at Singular Research

Okay. And now your portfolio yield is around 34%. Can you give us some, given the competitive space that it is, how how do you assess the competitive landscape in the personal loan market for FY 2025?

Raul Vazquez
Raul Vazquez
CEO at Oportun Financial

Yes. So, we think right now when we look at the behavior of the competition, everyone seems to be acting rationally, which we think is very helpful for us is we think about 2025 and as we put together the guidance that we've shared, I think as we all know, right, the Fed is pausing rate cuts a bit. They continue to look at things closely and trying to figure out how many cuts they're going to have. And thankfully, I think what we're seeing from competition is no one is bringing down pricing irrationally. I think pricing continues to reflect the higher cost of capital, not just for us, but for our competitors.

Raul Vazquez
Raul Vazquez
CEO at Oportun Financial

So we think that the competitive picture is one that is again rational and constructive and one in which we can drive growth.

Gowshihan Sriharan
Analyst at Singular Research

Awesome. I'll take that offline. Thank you again. Congratulations and good luck, Jonathan.

Jonathan Coblentz
CFO & Chief Administrative Officer at Oportun Financial

Thank you. Thank you very much.

Operator

Your next question comes from Brendan McCarthy with Sidoti. Please state your question.

Brendan McCarthy
Equity Analyst at Sidoti & Company

Great. Good afternoon, everybody. And Jonathan, first off, congratulations on your retirement. I'm going to miss working together. Sure, sure.

Brendan McCarthy
Equity Analyst at Sidoti & Company

And I wanted to start off just as a follow-up on the operating expense question. Just looking at the OpEx adjusted OpEx ratio here, it looks like it's slowly trended down right around that 13% level in the fourth quarter twenty four. Do you have a long term target for that measure?

Jonathan Coblentz
CFO & Chief Administrative Officer at Oportun Financial

We do. Our long term target is what we have in our unit economics of 12.5%.

Raul Vazquez
Raul Vazquez
CEO at Oportun Financial

Yes. So the progress, Brendon, that we expect to make in that is going to be driven by two factors really. Number one, right, we want to continue to look for opportunities to lower operating expense, right. I think as we look at future years, that's continuing to figure out how do we become more streamlined, more efficient, how do we renegotiate multi year contracts, right, that weren't up for negotiation last year? So on the numerator side, we're going to try to do everything we can to keep looking for reductions on OpEx.

Raul Vazquez
Raul Vazquez
CEO at Oportun Financial

More importantly, I think on the denominator side, we're going to grow average daily principal balance, right? And that will help us get from the 13.1% down to the 12.5% will really be both elements.

Brendan McCarthy
Equity Analyst at Sidoti & Company

Great, great. That's helpful. And then, like you said, Raul, probably the $97,500,000 is probably a reasonable run rate quarterly run rate for OpEx kind of going forward?

Raul Vazquez
Raul Vazquez
CEO at Oportun Financial

We think so, in particular, as we shift the growth mode, right? So as we shift the growth, there's going to be that incremental marketing expense. There'll be other parts of the organization that we'll have to make sure are ready to support that level of growth. So we think it is the appropriate level as we shift back to growing the portfolio.

Brendan McCarthy
Equity Analyst at Sidoti & Company

Got it. That's helpful. Wanted to ask a question on portfolio yield. Looks like it had a nice 155 basis point increase year over year in the fourth quarter. What factors really drove that increase?

Brendan McCarthy
Equity Analyst at Sidoti & Company

And maybe can you touch on the underwriting trends that you saw?

Jonathan Coblentz
CFO & Chief Administrative Officer at Oportun Financial

Yes. I mean, the main factors were, obviously, we adjusted pricing, as did many other consumer lenders this year, and higher origination growth, which we certainly had a high growth strong growth in the fourth quarter because that will drive more yield because of the recognition upfront of the origination fees and interest and interest

Raul Vazquez
Raul Vazquez
CEO at Oportun Financial

income. The other dynamic that helps us in terms of yield is as some of the loans that had longer terms are being paid off. If someone were to come back and wants to get a new loan, that gives us an opportunity to reflect the new pricing as opposed to the pricing that they may have received, say, two, three or even four years ago, Brandon.

Brendan McCarthy
Equity Analyst at Sidoti & Company

Great. That's helpful. And then one more question for me just on the back book and utilizing that charge off rate. It looks like it's kind of been maintained right around that mid-twenty percent range. Is that a reasonable expectation going forward?

Brendan McCarthy
Equity Analyst at Sidoti & Company

And just kind of looking at the back book as it rolls off, it'll obviously be favorable for gross charge offs. But I guess, in that kind of mid-twenty percent range?

Jonathan Coblentz
CFO & Chief Administrative Officer at Oportun Financial

We're not providing specific guidance on the back book. It's a very good question. Certainly, when we provide our loss guidance that is inclusive of the portfolio we have today, which includes back book loans and the runoff as well as the new originations we expect to make and how we expect them to perform. So certainly that's in there. We don't have a separate guidance that I can share with you.

Jonathan Coblentz
CFO & Chief Administrative Officer at Oportun Financial

The one thing I will note is, again, since this is a closed pool, the back book that is just running off, right, as you get towards the tail, though it gets smaller and smaller, right, you can have denominator effects that can push up the percentage, right? That's just the math you would expect. But we don't have a specific guidance, but it could go slightly higher for that reason.

Raul Vazquez
Raul Vazquez
CEO at Oportun Financial

Certainly, what we're looking forward to is, as you will see on Page nine of our investor deck, right, we expect that by the end of this year, that will be down to 1%. So its disproportionate impact on losses will start to get smaller and smaller over time. That's right.

Brendan McCarthy
Equity Analyst at Sidoti & Company

Got it. That makes sense. Very helpful. Thanks for all. Thanks, Jonathan.

Brendan McCarthy
Equity Analyst at Sidoti & Company

That's all for me.

Raul Vazquez
Raul Vazquez
CEO at Oportun Financial

Thank you very

Operator

much. Thank you. Our next question comes from Vincent Caintic with BTIG. Please state your question.

Vincent Caintic
MD & Finance Analyst at BTIG

Hi, good afternoon. Thanks for taking my questions. I have two of them, so I'll just ask both now. So nice guidance for 2025 and it's above consensus estimates. I'm just wondering if you can maybe talk about some of the sensitivities to the macro from that guidance.

Vincent Caintic
MD & Finance Analyst at BTIG

And we've been seeing kind of a lot of changes whether politically or otherwise in the past couple of weeks, including with now inflation running at 3%. So just wondering how sensitive it is, since it does seem like a lot of your a lot of the guidance is sort of driven off of the actions that you're taking. So that's question one. And then question two related to kind of prior comments about the industry kind of showing good growth trends that we've seen from a lot of other consumer finance companies and fintechs, a lot of this growth as was alluded to earlier. And I'm just wondering, one of the investor questions that I've been getting is that, whereas, I guess, if a fintech or somebody else is growing that much, can Oportuner or other lenders also be growing at the same amount or is there just kind of finite TAM where if somebody is growing then somebody else must be losing that share or so forth?

Vincent Caintic
MD & Finance Analyst at BTIG

I just wanted to get your thoughts on that. Thank you.

Jonathan Coblentz
CFO & Chief Administrative Officer at Oportun Financial

Sure. No, thank you. I'll take the first question, Vincent, and then Raul will cover the second one. First of all, in setting guidance, we don't just look at one scenario, we look at multiple scenarios. And so those scenarios factor in sensitivities and both positive and negative.

Jonathan Coblentz
CFO & Chief Administrative Officer at Oportun Financial

So that's already factored in when we do provide the guidance. As you heard Raul say on the call, right, we're watching the macro environment very carefully, right? And obviously, we did get a slightly uptick inflation number this morning. We still feel very good about our credit. All the trends are very positive.

Jonathan Coblentz
CFO & Chief Administrative Officer at Oportun Financial

So it's nothing that we're concerned about now. But the key sensitivity would be any impact from inflation that could cause us to have to tighten. And so in order to make sure that didn't go up, then that would be an impact to originations. But again, we feel good about the guidance we've presented and it does factor in multiple scenarios and all the trends right now are very favorable.

Raul Vazquez
Raul Vazquez
CEO at Oportun Financial

Just to

Raul Vazquez
Raul Vazquez
CEO at Oportun Financial

add a little bit

Raul Vazquez
Raul Vazquez
CEO at Oportun Financial

to that, Vincent, one of the reasons we feel good about our ability to underwrite, say even with inflation at 3% is, as we've talked about, right, we're using V12 right now of our underwriting engine. V12 was built with the largest data set we've ever used and maybe most importantly kind of in response to your question, it was used including data from this inflationary period, right. So what we were able to do was include our learnings in this period where our borrowers and all of us have been dealing with higher inflation. So we think that that gives us an opportunity even if inflation were to move from where it is today, start to kind of glide back up a little bit, right, we feel that the underwriting that we've got in place today was built with that kind of environment in mind. We would certainly keep making adjustments.

Raul Vazquez
Raul Vazquez
CEO at Oportun Financial

You see on Page eight, where we show the vintages and the performance that our ability to make adjustments demonstrates the ability to keep improving performance where you see Q3 of twenty twenty three is better than the prior quarters, Q4 of twenty twenty three is better than Q3 and Q1 of twenty twenty four is better than Q4 of twenty twenty three. So again, that shows the ability to keep making adjustments as needed to react to the environment. Let me pause there and see if you have any follow-up questions on number one before I go to number two.

Vincent Caintic
MD & Finance Analyst at BTIG

No, that's great. Thank you.

Raul Vazquez
Raul Vazquez
CEO at Oportun Financial

Sure. So on your second question, in terms of in some ways, I think it's a question of is it a zero sum game, right, from a growth perspective? Is that part of your question?

Vincent Caintic
MD & Finance Analyst at BTIG

Yes, that's exactly. And I think that when I talk to investors and covering consumer finance, it's there's this view that if there's just a lot of growth from especially from the fintechs that it's taking away from brick and mortar or things, so that is a zero sum game to your point rather than one where there's enough growth and customers to serve. So just wanted to get your opinion on that.

Raul Vazquez
Raul Vazquez
CEO at Oportun Financial

Yes. So I think for us, one of the things that we've been able to do well throughout our history is to really be able to find a niche that is not well served by others. So we're not a traditional subprime lender. If someone's had a lot of experience with credit and for whatever reason it didn't work out, we declined them early in the process because our models aren't built to underwrite those individuals. We do best with people that have thin files or even no files when they first come to us, right.

Raul Vazquez
Raul Vazquez
CEO at Oportun Financial

We can underwrite someone who has no data at the bureaus, no credit score whatsoever. So I think one of the things that we've been able to do is to stay out of that zero sum game that you're describing and that I understand certainly why it's driving the question because we've been taking individuals that have been in the informal economy or individuals that have relied only on very, very expensive credit. So we think of that almost as a different pool than the pool say that the traditional fintechs are focused on.

Vincent Caintic
MD & Finance Analyst at BTIG

Okay, great. That's very helpful. Thank you. And my congratulations to Jonathan. Again, I know we've been talking over the past decade and so we'll miss you and nice to leave investors with a nice gift of these results.

Vincent Caintic
MD & Finance Analyst at BTIG

Thank you.

Jonathan Coblentz
CFO & Chief Administrative Officer at Oportun Financial

Thank you, Vincent. Very kind of you.

Operator

Thank you. And there are no further questions at this time. I'll hand the floor back over to management for closing remarks.

Raul Vazquez
Raul Vazquez
CEO at Oportun Financial

Well, thank you again, everyone, for joining us on today's call. We look forward to speaking with you again soon.

Operator

Thank you. This concludes today's call. All parties may disconnect. Have a good day.

Executives
    • Dorian Hare
      Dorian Hare
      Senior VP of Investor Relations
    • Raul Vazquez
      Raul Vazquez
      CEO
Analysts
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Key Takeaways

  • Q4 marked a return to GAAP profitability with net income of $9 M (ROE 10%), adjusted net income of $22 M (ROE 25%) and $41 M of adjusted EBITDA, exceeding guidance by 37%.
  • Credit performance improved as net charge-off rate fell to 11.7% (lowest since Q3’22) and 30-day delinquencies dropped to 4.8%, marking consecutive quarters of year-over-year improvement.
  • Originations rebounded with $522 M in Q4 (+19% YoY) and a 23% increase in loans originated, achieved under a conservative credit box.
  • Operating expenses were reduced by 31% YoY to $89 M—the lowest since Q2’19—with a normalized run-rate of ~$95 M, below the $97.5 M target.
  • 2025 guidance forecasts full-year adjusted EPS of $1.10–$1.30 (53%–81% growth), GAAP profitability, 10–15% originations growth, and adjusted ROE in the teens.
AI Generated. May Contain Errors.
Earnings Conference Call
Oportun Financial Q4 2024
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