Oportun Financial Q4 Earnings Call Highlights

Key Points

• Oportun delivered sustained profitability in 2023 with $25 million of GAAP net income (including $3.4M in Q4), its fifth consecutive quarter of GAAP profit, and full-year adjusted EPS up 89% to $1.36.
• Credit trends drove a mixed quarter—originations fell 5% amid tightening, Q4 annualized net charge-offs were 12.3%, and management expects a Q1 2024 peak net charge-off rate of 12.65% ±15 bps with moderation beginning in Q2.
• Management tightened costs and funding: Q4 OpEx was a company low of $84M (full-year OpEx down 12%), Oportun raised $1.9B in ABS at sub-6% yields and reduced high‑cost corporate debt by $70M, and CEO Raul Vazquez will step down by April 3 (advising through July 3).

Oportun Financial NASDAQ: OPRT reported fourth-quarter 2023 results that management said met or exceeded all guidance metrics, as the company highlighted sustained GAAP profitability, solid credit performance, continued expense discipline, and a reduced cost of capital.

Fourth-quarter and full-year results

Chief Executive Officer Raul Vazquez said the company generated $25 million of GAAP net income in 2023, including $3.4 million in the fourth quarter. Vazquez said full-year GAAP net income improved by $104 million and adjusted EPS grew 89%, driven by origination growth, improved credit performance, balance sheet optimization, and expense management.

Interim Chief Financial Officer Paul Appleton said the company delivered its fifth consecutive quarter of GAAP profitability in Q4, with diluted EPS of $0.07. On a non-GAAP basis, Appleton reported adjusted net income of $13 million and adjusted EPS of $0.27. Fourth-quarter adjusted EBITDA was $42 million, which he said exceeded the top end of the company’s guidance range.

Appleton also said full-year 2023 adjusted EPS was $1.36, toward the high end of the company’s prior expectation, and that GAAP profitability was consistent with its full-year commitment.

Originations, revenue, and portfolio marks

In the fourth quarter, originations were $495 million, down 5% year over year, which Appleton attributed primarily to credit tightening actions. Total revenue was $248 million, down 1% year over year, which Appleton said reflected the absence of $3.8 million of credit card revenue in the prior-year quarter following the sale of the company’s credit card portfolio in November.

Appleton said the quarter included a $99 million net decrease in fair value, driven primarily by $86 million in net charge-offs. He also cited $17 million of derivative-related impacts tied to the acquisition of an Oportun service loan portfolio and the wind down of a related risk-sharing agreement; the majority of that impact, he said, was non-cash. Appleton said the company expects a profitability benefit from acquiring the portfolio due to lower funding costs from owning the loans compared with the prior arrangement with Pathward, and he expects derivative-related fair value impacts to be muted in the first quarter and then no longer affect fair value in future quarters.

Credit performance and underwriting actions

Management emphasized credit performance and underwriting adjustments made during 2023. Vazquez said the company shifted originations toward returning members after seeing a higher-than-expected mix of new members in the first half of the year. He said 74% of second-half originations came from returning members, up from 64% in the first half.

Appleton reported a fourth-quarter annualized net charge-off rate of 12.3%, which he said was at the low end of the company’s guidance range. The 30+ delinquency rate was 4.9%, up modestly year over year, and Appleton said the higher-loss pre-July 2022 “back books” shrank to less than 1% of the company’s own portfolio at year-end.

Looking ahead, Appleton said the company expects 1Q 2024 to represent the peak quarterly net charge-off rate for the year, with moderation beginning in the second quarter. He guided to first-quarter annualized net charge-offs of 12.65% ±15 basis points, while projecting first-quarter delinquencies of 4.4% to 4.5%. In response to analyst questions, Vazquez said the company’s confidence in improving loss rates is primarily driven by what it is seeing in delinquencies so far this year, including both early delinquencies and 30+ delinquencies.

Expense discipline and unit economics

Vazquez highlighted operating expenses of $84 million in Q4, below the company’s prior expectation, and described it as the company’s lowest quarterly spend as a public company. For full-year 2023, he said GAAP operating expenses totaled $362 million, down $49 million, or 12%, from 2022.

Appleton said the company’s adjusted OpEx ratio reached a record low of 11.6%, marking the first time Oportun outperformed its 12.5% unit economics target. He added the GAAP OpEx ratio improved to 12% from 13.1% in the prior-year quarter.

In the Q&A, Vazquez attributed the year-over-year expense reductions to multiple areas, including lower technology and facilities expense, personnel reductions, and lower G&A, while noting that sales and marketing spend increased during the year as the company invested in direct mail and a customer referral program.

Funding, liquidity, and 2024 outlook

Management pointed to balance sheet actions intended to reduce funding costs. Vazquez said fourth-quarter interest expense, excluding $5.5 million of debt extinguishment costs, was $52 million, down from the prior quarter. Appleton reported fourth-quarter interest expense of $58 million and said that, after adjusting for repayment-related charges, interest expense declined 8% year over year.

Appleton said the company reduced its higher-cost corporate debt facility—carrying a 15% interest rate—by $70 million since it was put in place in November 2022, including $37.5 million in the fourth quarter. He also said Oportun increased total committed warehouse capacity to $1.14 billion and completed a $485 million ABS transaction earlier in the month at a 5.32% weighted average yield. Over the last nine months, he said the company raised $1.9 billion in the ABS market at sub-6% yields.

For guidance, Appleton provided the following:

• 1Q 2024: total revenue of $225 million to $230 million, annualized net charge-off rate of 12.65% ±15 bps, and adjusted EBITDA of $25 million to $30 million.
• Full-year 2024: total revenue of $935 million to $955 million, annualized net charge-off rate of 11.9% ±50 bps, adjusted EBITDA of $150 million to $165 million, and adjusted EPS of $1.50 to $1.65.

Vazquez said the company’s 2024 outlook assumes a cautious macro environment for low- to moderate-income consumers, and he cited factors including inflation above Federal Reserve targets, declining wage growth, uneven job creation, and policy uncertainty. In response to a question about macro indicators that could lead to loosening credit, he said the company would be looking for stronger job growth, continued GDP growth, a strong finish to tax season, and the expected trajectory of losses.

Management also discussed initiatives to support longer-term returns. Vazquez said the company is exploring a return to risk-based pricing above 36% APR for select higher-risk segments on shorter-term loans in partnership with potential new bank sponsors and warehouse providers, while also testing modestly lower APRs for certain higher-quality returning members. He said the company assumes only modest incremental profitability in the second half of 2024 as it rolls out the initiative.

Separately, Vazquez said he will step down as CEO and from the board by April 3 or earlier if a successor is appointed, and will serve as an advisor through July 3 to support the transition.

About Oportun Financial NASDAQ: OPRT

Oportun Financial Corporation NASDAQ: OPRT is a financial technology company that provides consumer lending products aimed at serving the underbanked and credit-invisible population in the United States. Headquartered in Redwood City, California, Oportun operates a digital platform that enables borrowers to access credit through unsecured personal installment loans, secured credit-builder loans and a proprietary mobile wallet. The company leverages machine learning and alternative data sources to assess creditworthiness, extending financial services to customers with limited or no traditional credit history.

The company's core offerings include fixed-term installment loans designed to help individuals cover unexpected expenses, consolidate debt or build credit.

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