Oportun Financial (OPRT) - 2025 Q1 - Quarterly Report

PART I Financial Statements (Unaudited) Oportun reported Q1 2025 net income of $9.8 million, a turnaround from a $26.4 million loss in Q1 2024, with stable assets and increased operating cash flow Condensed Consolidated Balance Sheets Total assets remained stable at $3.226 billion as of March 31, 2025, with liabilities decreasing to $2.86 billion and stockholders' equity rising to $366.1 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $78,542 | $59,968 | | Loans receivable at fair value | $2,770,486 | $2,778,523 | | Total assets | $3,226,305 | $3,227,103 | | Liabilities | | | | Secured financing | $445,495 | $535,469 | | Asset-backed notes at fair value | $863,859 | $1,080,690 | | Asset-backed borrowings at amortized cost | $1,281,274 | $984,333 | | Total liabilities | $2,860,206 | $2,873,294 | | Total stockholders' equity | $366,099 | $353,809 | Condensed Consolidated Statements of Operations Q1 2025 net income reached $9.8 million, a turnaround from a $26.4 million loss in Q1 2024, due to reduced fair value adjustments and lower operating expenses Statement of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Total revenue | $235,904 | $250,482 | | Interest expense | $57,403 | $54,465 | | Net decrease in fair value | $(72,672) | $(116,850) | | Net revenue | $105,829 | $79,167 | | Total operating expenses | $92,670 | $109,642 | | Net income (loss) | $9,767 | $(26,439) | | Diluted EPS | $0.21 | $(0.68) | Condensed Consolidated Statements of Cash Flow Net cash from operating activities increased to $101.0 million in Q1 2025, with a shift to cash used in investing activities and a significant decrease in financing cash usage Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $100,977 | $85,882 | | Net cash provided by (used in) investing activities | $(55,520) | $36,461 | | Net cash used in financing activities | $(29,109) | $(131,806) | | Net increase (decrease) in cash | $16,348 | $(9,463) | | Cash, cash equivalents and restricted cash, end of period | $230,973 | $196,553 | Notes to the Condensed Consolidated Financial Statements Notes detail accounting policies, the significant role of VIEs in funding, fair value measurements for financial instruments, and potential tax liabilities - The company is a mission-driven financial services company and has been certified as a Community Development Financial Institution (CDFI) since 2009[21] - The company transfers loans to wholly owned special-purpose subsidiaries (VIEs) to collateralize asset-backed financing. As the primary beneficiary, Oportun consolidates these VIEs. As of March 31, 2025, consolidated VIEs held $2.32 billion in loans receivable and had $2.16 billion in related liabilities[30][32] - In January 2025, the company issued $425.1 million of series 2025-A asset-backed notes with a weighted average yield of 6.95%[51] - The company has a potential liability ranging from zero to $3.8 million related to a value-added tax dispute in Mexico for tax years 2017-2019, but has not recorded an accrual as the loss is not considered probable[93] Management's Discussion and Analysis of Financial Condition and Results of Operations Q1 2025 profitability was driven by improved credit performance, 38.8% growth in originations, increased net revenue, and a 15.5% reduction in operating expenses Overview Oportun, a certified CDFI, offers personal loans and savings products, leveraging a proprietary credit model and diversified capital markets funding - Oportun offers unsecured personal loans ($300 to $10,000) and secured personal loans ($2,525 to $18,500), with all loans capped at a 36% APR[117][118] - The company leverages its technology through a 'Lending as a Service' model, with partners like DolFinTech and a new collaboration with Western Union[121] - The company has a diversified capital markets funding program, having participated in 24 sponsored or co-sponsored bond offerings since 2015[122] Key Financial and Operating Metrics Q1 2025 Aggregate Originations grew 38.8% to $469.4 million, with the 30+ Day Delinquency Rate improving to 4.7% and Net Charge-Off Rate stable at 12.2% Key Financial and Operating Metrics | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Aggregate Originations | $469,396 thousand | $338,216 thousand | | Portfolio Yield | 33.0% | 32.5% | | 30+ Day Delinquency Rate | 4.7% | 5.2% | | Annualized Net Charge-Off Rate | 12.2% | 12.0% | - The increase in Aggregate Originations was driven by additional marketing efforts, leading to a rise in the number of loans originated to 142,843 from 115,912 in the prior year period[129] Results of Operations Q1 2025 total revenue decreased to $235.9 million, but net revenue increased to $105.8 million, and operating expenses fell 15.5%, resulting in $13.2 million income before taxes - Total revenue decreased by $14.6 million (5.8%) YoY, primarily due to a 5.1% decrease in Average Daily Principal Balance, partially offset by a 49 basis point increase in portfolio yield[143] - Interest expense increased by $2.9 million (5.4%) YoY, driven by a 65 basis point increase in the Cost of Debt, reflecting higher interest rates on recent debt issuances[146] - The 'Net decrease in fair value' improved to $(72.7) million from $(116.9) million YoY. The Q1 2025 figure includes a $4.9 million positive mark-to-market adjustment on financial instruments, compared to a $3.0 million positive adjustment in Q1 2024, which also included a $(33.5) million mark on other loans sold[149][150][151] - Total operating expenses decreased by $17.0 million (15.5%) YoY, with significant reductions in Technology and facilities (-$10.7 million), Personnel (-$3.6 million), and General, administrative and other (-$4.4 million)[142] Non-GAAP Financial Measures Q1 2025 non-GAAP measures show strong improvement, with Adjusted EBITDA at $33.5 million, Adjusted Net Income at $18.6 million, and Adjusted EPS at $0.40 Reconciliation of Net Income (Loss) to Adjusted EBITDA (in thousands) | Line Item | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net income (loss) | $9,767 | $(26,439) | | Adjustments | $23,766 | $28,378 | | Adjusted EBITDA | $33,533 | $1,939 | Reconciliation of Net Income (Loss) to Adjusted Net Income (Loss) (in thousands) | Line Item | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net income (loss) | $9,767 | $(26,439) | | Adjustments | $15,770 | $31,400 | | Adjusted income (loss) before taxes | $25,537 | $4,961 | | Normalized income tax expense | $6,895 | $1,339 | | Adjusted Net Income | $18,642 | $3,622 | Adjusted EPS | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Adjusted Net Income | $18,642 thousand | $3,622 thousand | | Diluted adjusted weighted-average shares | 47,037,799 | 39,336,639 | | Adjusted EPS | $0.40 | $0.09 | Liquidity and Capital Resources Oportun maintains $1.05 billion in total liquidity capacity, with $580.3 million available as of March 31, 2025, ensuring sufficient funds for the next 12 months Total Liquidity Reserves as of March 31, 2025 (in thousands) | Source | Total capacity | Amount borrowed/utilized | Remaining available capacity | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $78,542 | N/A | $78,542 | | Restricted cash | $152,431 | N/A | $152,431 | | Secured financing | $766,130 | $448,937 | $317,193 | | Whole loan forward flow agreements | $50,000 | $17,915 | $32,085 | | Total liquidity | $1,047,103 | $466,852 | $580,251 | - The company targets liquidity levels to support at least twelve months of expected net cash outflows without accessing its Corporate Financing facility or equity markets[195] - In October 2024, the company entered into a new $235 million senior secured term loan (Credit Agreement), maturing in November 2028, which was used to repay its previous credit agreement[216] Quantitative and Qualitative Disclosures About Market Risk The company is classified as a "Smaller Reporting Company" and is therefore not required to provide the information for this item - As a "Smaller Reporting Company" as defined by Item 10 of Regulations S-K, the Company is not required to provide this information[229] Controls and Procedures Management concluded disclosure controls were effective as of March 31, 2025, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation as of the end of the reporting period, the Chief Executive Officer concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level[230] - There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[232] PART II - OTHER INFORMATION Legal Proceedings The company is not currently a party to any legal proceedings expected to have a material adverse effect on its business or financial condition - The Company is not presently a party to any legal proceedings that, if determined adversely, would individually or taken together have a material adverse effect on its business, financial condition, cash flows or results of operations[94][234] Risk Factors The company faces significant risks including competition, reliance on its bank partner, macroeconomic sensitivity, fair value accounting volatility, and regulatory challenges - The company relies on its bank partner, Pathward, N.A., to originate a substantial portion of its loans (97% of personal loans in Q1 2025). The partnership agreement expires in August 2025, and a termination or failure to renew could materially and adversely affect the business[246][247] - The company uses estimates in determining the fair value of its loans and asset-backed notes. Incorrect estimates could lead to write-downs of assets or write-ups of liabilities, adversely affecting results. As of March 31, 2025, Loans Receivable at Fair Value represented 86% of total assets[251][252] - The business is exposed to geographic concentration risk, with 39.0% of its Owned Principal Balance from California, 26.4% from Texas, and 10.4% from Florida as of March 31, 2025[308][309] - The financial services industry is highly regulated. Changes in regulations, particularly from the CFPB, or legal challenges to the 'true lender' status in bank partnerships could adversely affect the business[365][370][385] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of its equity securities during the reporting period - We had no unregistered sales of our securities in the reporting period not previously reported[411] Defaults Upon Senior Securities There were no defaults upon senior securities during the reporting period - None[413] Mine Safety Disclosures This item is not applicable to the company - Not applicable[414] Other Information During the first quarter of 2025, none of the company's directors or officers adopted, modified, or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement - During the three months ended March 31, 2025, none of our directors or officers adopted, modified or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement"[415]