Oportun Financial (OPRT) - 2024 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for Oportun Financial Corporation, including the balance sheets, statements of operations, changes in stockholders' equity, and cash flows, along with detailed notes explaining the company's organization, accounting policies, earnings per share, variable interest entities, loan sales, capitalized assets, borrowings, other liabilities, equity, compensation, revenue, income taxes, fair value measurements, leases, commitments, contingencies, and related party transactions for the period ended March 31, 2024 Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (in thousands) | Assets/Liabilities & Equity | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :-------------------------- | :----------------------------- | :------------------------------- | | Assets | | | | Cash and cash equivalents | $69,200 | $91,187 | | Restricted cash | $127,353 | $114,829 | | Loans receivable at fair value | $2,841,525 | $2,962,352 | | Total assets | $3,277,501 | $3,411,888 | | Liabilities | | | | Secured financing | $72,106 | $289,951 | | Asset-backed notes at fair value | $1,701,854 | $1,780,005 | | Asset-backed borrowings at amortized cost | $787,524 | $581,468 | | Total liabilities | $2,895,529 | $3,007,484 | | Stockholders' Equity | | | | Total stockholders' equity | $381,972 | $404,404 | - Total assets decreased by approximately $134 million from December 31, 2023, to March 31, 2024, primarily driven by a decrease in loans receivable at fair value[8] - Total liabilities decreased by approximately $112 million, with a significant reduction in secured financing, partially offset by an increase in asset-backed borrowings at amortized cost[8] Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations (in thousands) | Metric (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Total revenue | $250,482 | $259,512 | | Interest expense | $54,465 | $38,997 | | Net decrease in fair value | $(116,850) | $(215,710) | | Net revenue | $79,167 | $4,805 | | Total operating expenses | $109,642 | $146,338 | | Net loss | $(26,439) | $(102,090) | | Basic EPS | $(0.68) | $(3.00) | - Net loss significantly improved to $(26.4) million in Q1 2024 from $(102.1) million in Q1 2023, primarily due to a smaller net decrease in fair value and reduced operating expenses[11] - Net revenue saw a substantial increase from $4.8 million in Q1 2023 to $79.2 million in Q1 2024, driven by a positive shift in net decrease in fair value[11] Condensed Consolidated Statements of Changes in Stockholders' Equity Condensed Consolidated Statements of Changes in Stockholders' Equity (in thousands) | Stockholders' Equity (in thousands) | Balance - January 1, 2024 | Balance - March 31, 2024 | | :---------------------------------- | :------------------------ | :----------------------- | | Total Stockholders' Equity | $404,404 | $381,972 | | Stock-based compensation expense | | $4,239 | | Net loss | | $(26,439) | - Total stockholders' equity decreased from $404.4 million at January 1, 2024, to $382.0 million at March 31, 2024, primarily due to the net loss incurred during the period[14] Condensed Consolidated Statements of Cash Flow Condensed Consolidated Statements of Cash Flow (in thousands) | Cash Flow Activity (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by operating activities | $85,882 | $76,814 | | Net cash provided by (used in) investing activities | $36,461 | $(39,648) | | Net cash used in financing activities | $(131,806) | $(39,062) | | Net decrease in cash and cash equivalents and restricted cash | $(9,463) | $(1,896) | | Cash and cash equivalents and restricted cash, end of period | $196,553 | $201,921 | - Net cash provided by operating activities increased by $9.1 million YoY, reaching $85.9 million in Q1 2024[19][191] - Investing activities shifted from a net cash outflow of $(39.6) million in Q1 2023 to a net cash inflow of $36.5 million in Q1 2024, driven by lower loan originations[19][192] - Net cash used in financing activities significantly increased to $(131.8) million in Q1 2024 from $(39.1) million in Q1 2023, primarily due to amortization payments on asset-backed notes and repayments of secured and corporate financing[19][193] Notes to the Condensed Consolidated Financial Statements 1. Organization and Description of Business - Oportun Financial Corporation is a mission-driven fintech offering AI-powered borrowing, savings, and budgeting products directly or through partners, including unsecured and secured lending, and savings[20] - The company has been certified as a Community Development Financial Institution (CDFI) by the U.S. Department of the Treasury since 2009[20] - Oportun operates as a single reportable segment, with its CEO and CFO collectively acting as the chief operating decision maker (CODM)[21] 2. Summary of Significant Accounting Policies - The company qualifies as a 'Smaller Reporting Company' and prepares its unaudited consolidated financial statements in accordance with GAAP, reflecting normal, recurring adjustments[22] - No material changes to significant accounting policies from the Annual Report, except for new accounting pronouncements adopted[24] - Evaluated ASU 2023-09 (Income Taxes) and ASU 2023-07 (Segment Reporting), determining they will not have a material impact on consolidated financial statements, though they expand disclosures[26][27] 3. Earnings (Loss) per Share Earnings (Loss) per Share (in thousands, except per share) | Metric (in thousands, except per share) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------------------------- | :-------------------------------- | :-------------------------------- | | Net loss | $(26,439) | $(102,090) | | Basic weighted-average common shares outstanding | 38,900,876 | 33,979,050 | | Basic EPS | $(0.68) | $(3.00) | | Diluted EPS | $(0.68) | $(3.00) | - Basic and diluted EPS improved significantly to $(0.68) in Q1 2024 from $(3.00) in Q1 2023, reflecting a reduced net loss[29] - Anti-dilutive common share equivalents totaled 6,169,972 in Q1 2024, down from 7,215,267 in Q1 2023[29] 4. Variable Interest Entities - Oportun consolidates Variable Interest Entities (VIEs) where it is the primary beneficiary, having the power to direct activities and the obligation to absorb losses or right to receive benefits[31][32] - Consolidated VIE assets primarily consist of restricted cash and loans receivable at fair value, totaling $2.5 billion as of March 31, 2024[34] Consolidated VIE Assets/Liabilities (in thousands) | Consolidated VIE Assets/Liabilities (in thousands) | March 31, 2024 | December 31, 2023 | | :------------------------------------------------- | :------------- | :---------------- | | Restricted cash | $104,118 | $91,466 | | Loans receivable at fair value | $2,393,160 | $2,539,186 | | Total VIE assets | $2,497,278 | $2,630,652 | | Secured financing | $72,702 | $290,949 | | Asset-backed notes at fair value | $1,701,854 | $1,780,005 | | Asset-backed borrowings at amortized cost | $383,856 | $195,057 | | Total VIE liabilities | $2,204,202 | $2,323,248 | 5. Loans Held for Sale and Loans Sold - Originations of loans sold and held for sale increased to $22.2 million in Q1 2024 from $10.0 million in Q1 2023[37] - The company recorded a gain on sale of $1.5 million and servicing revenue of $1.6 million in Q1 2024 from loan sales[37] 6. Capitalized Software and Other Intangibles Capitalized Software, Net (in thousands) | Capitalized Software, Net (in thousands) | March 31, 2024 | December 31, 2023 | | :--------------------------------------- | :------------- | :---------------- | | System development costs | $162,357 | $158,577 | | Acquired developed technology | $48,500 | $48,500 | | Less: Accumulated amortization | $(130,038) | $(119,810) | | Total capitalized software, net | $80,819 | $87,267 | - Capitalized software, net decreased to $80.8 million as of March 31, 2024, from $87.3 million at December 31, 2023[38] - Amortization of system development costs and acquired developed technology was $10.2 million in Q1 2024, slightly up from $10.1 million in Q1 2023[39] Intangible Assets, Net (in thousands) | Intangible Assets, Net (in thousands) | March 31, 2024 | December 31, 2023 | | :------------------------------------ | :------------- | :---------------- | | Member relationships | $34,500 | $34,500 | | Trademarks | $5,626 | $5,626 | | Other | $3,000 | $3,000 | | Less: Accumulated amortization | $(17,575) | $(15,658) | | Total intangible assets, net | $25,551 | $27,468 | - Total intangible assets, net decreased to $25.6 million as of March 31, 2024, from $27.5 million at December 31, 2023[42] 7. Other Assets Other Assets (in thousands) | Other Assets (in thousands) | March 31, 2024 | December 31, 2023 | | :-------------------------- | :------------- | :---------------- | | Total fixed assets, net | $6,017 | $6,991 | | Prepaid expenses | $15,600 | $15,758 | | Deferred tax assets | $52,899 | $48,123 | | Derivative asset | $10,482 | $9,307 | | Total other assets | $114,138 | $107,680 | - Total other assets increased to $114.1 million as of March 31, 2024, from $107.7 million at December 31, 2023, primarily due to an increase in deferred tax assets and derivative assets[44] 8. Borrowings Secured Financing (in thousands) | Secured Financing (in thousands) | March 31, 2024 Balance | December 31, 2023 Balance | | :------------------------------- | :--------------------- | :------------------------ | | Oportun CCW Trust | $63,559 | $68,409 | | Oportun PLW Trust | $8,547 | $221,542 | | Total secured financing | $72,106 | $289,951 | - Total secured financing decreased significantly to $72.1 million as of March 31, 2024, from $289.9 million at December 31, 2023, mainly due to a large reduction in the Oportun PLW Trust balance[46] - The Credit Card Warehouse facility commitment was reduced from $100.0 million to $80.0 million on January 31, 2024, with further adjustments to terms[46] Asset-backed Borrowings at Amortized Cost (in thousands) | Asset-backed Borrowings at Amortized Cost (in thousands) | March 31, 2024 Balance | December 31, 2023 Balance | | :------------------------------------------------------- | :--------------------- | :------------------------ | | Oportun Issuance Trust 2024-1 | $188,608 | $0 | | Oportun CL Trust 2023-A | $195,248 | $195,057 | | Other Asset Backed Borrowings | $403,668 | $386,411 | | Total asset-backed borrowings recorded at amortized cost | $787,524 | $581,468 | - Asset-backed borrowings at amortized cost increased to $787.5 million as of March 31, 2024, from $581.5 million at December 31, 2023, primarily due to the issuance of $199.5 million Series 2024-1 asset-backed notes[48] - The Corporate Financing facility was amended on March 12, 2024, to modify asset coverage ratio covenants, introduce an interest rate step-up, and require certain principal payments[50] - The Acquisition Financing facility was amended on March 8, 2024, to provide a three-month principal payment holiday and extend the term to January 10, 2025[51] 9. Other Liabilities Other Liabilities (in thousands) | Other Liabilities (in thousands) | March 31, 2024 | December 31, 2023 | | :------------------------------- | :------------- | :---------------- | | Accounts payable | $6,531 | $5,288 | | Accrued compensation | $11,850 | $15,359 | | Accrued expenses | $24,861 | $24,791 | | Accrued interest | $7,843 | $8,415 | | Total other liabilities | $65,160 | $68,938 | - Total other liabilities decreased to $65.2 million as of March 31, 2024, from $68.9 million at December 31, 2023, primarily due to a decrease in accrued compensation[53] 10. Stockholders' Equity - As of March 31, 2024, the company had 35,861,277 shares issued and 35,589,254 shares outstanding, with 272,023 shares held in treasury stock[55] - Warrants to purchase 4,193,453 shares of common stock at an exercise price of $0.01 per share were issued in connection with the Corporate Financing facility amendments in 2023[56] 11. Equity Compensation and Other Benefits Stock-based Compensation Expense (in thousands) | Stock-based Compensation Expense (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :---------------------------------------------- | :-------------------------------- | :-------------------------------- | | Technology and facilities | $1,159 | $1,049 | | Sales and marketing | $24 | $33 | | Personnel | $2,799 | $3,796 | | Total stock-based compensation | $3,982 | $4,878 | - Total stock-based compensation expense decreased to $3.98 million in Q1 2024 from $4.88 million in Q1 2023[58] - Unrecognized compensation cost for unvested stock-based option awards was $1.9 million as of March 31, 2024, with a weighted-average vesting period of approximately 1.9 years[58] 12. Revenue Revenue (in thousands) | Revenue (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--------------------- | :-------------------------------- | :-------------------------------- | | Interest income | $230,590 | $237,619 | | Non-interest income | $19,892 | $21,893 | | Total revenue | $250,482 | $259,512 | - Total revenue decreased by 3.5% to $250.5 million in Q1 2024 from $259.5 million in Q1 2023[62][134] - Interest income decreased by 3.0% to $230.6 million, primarily due to a 7.1% decrease in Average Daily Principal Balance, partially offset by an increase in portfolio yield[62][134] - Non-interest income decreased by 9.1% to $19.9 million, mainly due to a $2.6 million decrease in subscription revenue[62][135] 13. Income Taxes Income Tax (in thousands) | Income Tax (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------------ | :-------------------------------- | :-------------------------------- | | Income tax benefit | $(4,036) | $(39,443) | | Effective tax rate | 13.2% | 27.9% | - Income tax benefit decreased by $35.4 million (89.8%) to $4.0 million in Q1 2024, primarily due to a smaller pretax loss[65][154] - The effective tax rate for Q1 2024 was 13.2%, differing from the statutory rate due to research and development tax credits and stock-based compensation[64][65] - The company expects to release $3.6 million of uncertain tax positions within the next twelve months due to the expiration of various statute of limitations[66] 14. Fair Value of Financial Instruments Financial Instruments at Fair Value (in thousands) | Financial Instruments at Fair Value (in thousands) | March 31, 2024 Fair Value | December 31, 2023 Fair Value | | :------------------------------------------------- | :------------------------ | :--------------------------- | | Loans receivable - personal loans | $2,744,380 | $2,853,186 | | Loans receivable - credit cards | $97,145 | $109,166 | | Total Loans Receivable at Fair Value | $2,841,525 | $2,962,352 | | Asset-backed notes | $1,701,854 | $1,780,005 | - The fair value of Loans Receivable at Fair Value decreased to $2.84 billion as of March 31, 2024, from $2.96 billion at December 31, 2023[68] - Key unobservable inputs for personal loans receivable fair value include remaining cumulative charge-offs (11.61% weighted average in Q1 2024) and a discount rate of 9.10%[70] - The aggregate fair value of loans 90 days or more past due was $6.1 million as of March 31, 2024, compared to $5.2 million at December 31, 2023[77] 15. Leases, Commitments and Contingencies Lease Liabilities (in thousands) | Lease Liabilities (in thousands) | March 31, 2024 | December 31, 2023 | | :------------------------------- | :------------- | :---------------- | | Total lease payments | $27,455 | $30,473 | | Total leases | $25,472 | $28,376 | | Weighted average remaining lease term | 2.6 years | 2.7 years | | Weighted average discount rate | 4.70% | 4.72% | - Operating lease expense for Q1 2024 was $3.9 million, down from $4.4 million in Q1 2023[84] - Purchase obligations for information technology and communication services are $29.2 million for the remainder of 2024[85] - The company has a commitment to purchase an additional $20.5 million of program loans from its bank partner, Pathward, N.A., based on originations through March 31, 2024[86] - Unfunded loan and credit card commitments were $31.7 million as of March 31, 2024[87] - The Mexico subsidiary received a notice for alleged underpayment of value-added tax for 2017-2019, with a reasonably possible liability ranging from zero to $3.8 million, which the company disputes[88] 16. Related Party Transactions - Neuberger Berman Specialty Finance is deemed a beneficial owner of greater than ten percent of the company's outstanding stock following warrant issuances in connection with the Corporate Financing facility[91] - Interest expense related to agreements with Neuberger was $11.5 million for Corporate Financing and $6.5 million for secured borrowing in Q1 2024[93] - The company transferred $0.4 million in loans receivable under a forward flow whole loan sale agreement with Neuberger in Q1 2024[92] 17. Subsequent Events - No subsequent events requiring disclosure occurred after March 31, 2024[97] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Oportun's financial condition and results of operations for the three months ended March 31, 2024, compared to the same period in 2023. It covers an overview of the business, key financial and operating metrics, historical credit performance, detailed analysis of revenues and expenses, fair value methodology, non-GAAP financial measures, liquidity and capital resources, and critical accounting policies Forward-Looking Statements - The report contains forward-looking statements regarding future financial performance, loan volume, credit performance, financing, fair value estimates, growth strategies, and regulatory compliance[99][100] - These statements are based on management's current expectations and involve known and unknown risks and uncertainties that could cause actual results to differ materially[101] Overview - Oportun is a mission-driven fintech empowering members with intelligent borrowing, savings, and budgeting capabilities, having extended over $18.2 billion in credit through 7.0 million loans and credit cards[105] - The company offers unsecured and secured personal loans, and automated savings through its Set & Save platform, accessible via the Oportun Mobile App and website[107][108][111] - In Q1 2024, Oportun closed 39 retail locations and reduced workforce, incurring $0.8 million in related expenses, as part of workforce optimization and streamlining operations[117] - The company is exploring strategic options for its credit card portfolio and sunsetting its embedded finance partnership with Sezzle[110][114] Key Financial and Operating Metrics Key Financial and Operating Metrics (in thousands, except percentages) | Metric (in thousands, except percentages) | As of or for the Three Months Ended March 31, 2024 | As of or for the Three Months Ended March 31, 2023 | | :---------------------------------------- | :------------------------------------------------- | :------------------------------------------------- | | Aggregate Originations | $338,216 | $407,961 | | Portfolio Yield | 32.5% | 31.4% | | 30+ Day Delinquency Rate | 5.2% | 5.5% | | Annualized Net Charge-Off Rate | 12.0% | 12.1% | | Managed Principal Balance at End of Period | $3,027,508 | $3,281,913 | | Owned Principal Balance at End of Period | $2,752,389 | $3,004,998 | - Aggregate Originations decreased by 17.1% to $338.2 million in Q1 2024, primarily due to a reduction in average loan size, partially offset by an increase in the number of loans originated[121] - Portfolio Yield increased to 32.5% in Q1 2024 from 31.4% in Q1 2023, mainly due to higher fees on loans originated through bank partnerships[122] - The 30+ Day Delinquency Rate improved to 5.2% in Q1 2024 from 5.5% in Q1 2023, reflecting improved credit quality from tightened credit standards[123] - Annualized Net Charge-Off Rate slightly decreased to 12.0% in Q1 2024 from 12.1% in Q1 2023, attributed to tightened underwriting and focus on existing members[124] Historical Credit Performance - Annualized Net Charge-off Rate ranged between 7% and 10.1% from 2014 to 2022, increasing to 10.1% in 2022 due to rising interest rates, inflation, and cessation of COVID-119 stimulus[125] - Continued elevated charge-offs in Q1 2024 are primarily due to deterioration in the 'back book' (loans originated prior to July 2022 credit tightening) and decreasing originations[125] Net Lifetime Loan Losses by Year of Origination | Year of Origination | Dollar weighted average original term (months) | Net lifetime loan losses as of March 31, 2024 (% of original principal balance) | | :------------------ | :------------------------------------------- | :---------------------------------------------------------------------------- | | 2019 | 30.0 | 10.8% | | 2020 | 32.0 | 8.9%* | | 2021 | 33.3 | 16.4%* | | 2022 | 37.8 | 12.4%* | | 2023 | 39.2 | 0.0%* | - The 2021 vintage shows higher charge-offs (16.4%) due to a higher percentage of loan disbursements to new members[129][130] - Seasonality typically results in lower loan demand in the first quarter due to holiday spending in Q4 and increased member cash flows from tax refunds in Q1[131] Results of Operations Results of Operations (in thousands of dollars) | (in thousands of dollars) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | Period-to-period Change ($) | Period-to-period Change (%) | | :------------------------ | :-------------------------------- | :-------------------------------- | :-------------------------- | :-------------------------- | | Total revenue | $250,482 | $259,512 | $(9,030) | (3.5)% | | Interest expense | $54,465 | $38,997 | $15,468 | 39.7% | | Net decrease in fair value | $(116,850) | $(215,710) | $98,860 | * | | Net revenue | $79,167 | $4,805 | $74,362 | * | | Total operating expenses | $109,642 | $146,338 | $(36,696) | (25.1)% | | Net loss | $(26,439) | $(102,090) | $75,651 | (74.1)% | - Interest expense increased by 39.7% to $54.5 million, driven by higher interest rates and wider credit spreads on new asset-backed securitization issuances[137] - Net decrease in fair value improved by $98.9 million, from $(215.7) million in Q1 2023 to $(116.9) million in Q1 2024, primarily due to a decrease in the discount rate and an increase in average life for loans receivable, partially offset by increased cumulative charge-offs[140] - Total operating expenses decreased by 25.1% to $109.6 million, reflecting reductions across technology and facilities, sales and marketing, personnel, outsourcing, and general administrative costs[144][146][148][150][152] Fair Value Estimate Methodology for Loans Receivable at Fair Value - Fair value accounting for loans receivable and debt recognizes credit losses through income as incurred, with changes reflected in Net Revenue[158] - Fair value is a function of portfolio yield, average life, prepayments (or principal payment rate for credit cards), remaining cumulative charge-offs, and discount rate[159][163] - The discount rate for personal loans and credit cards is determined using the Weighted Average Capital Cost (WACC), calculated via the Capital Asset Pricing Model (CAPM)[162] Non-GAAP Financial Measures - Oportun uses non-GAAP measures like Adjusted EBITDA, Adjusted Net Income (Loss), Adjusted EPS, Adjusted Operating Efficiency, and Adjusted Return on Equity for period-to-period comparisons of core business performance[167] - Definitions for Adjusted EBITDA, Adjusted Net Income, and Adjusted Operating Efficiency were updated in 2024 to better align with management's view of operations[168][170] Non-GAAP Metric (in thousands, except per share/percentages) | Non-GAAP Metric (in thousands, except per share/percentages) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 (Revised) | | :----------------------------------------------------------- | :-------------------------------- | :------------------------------------------ | | Adjusted EBITDA | $1,939 | $(20,237) | | Adjusted Net Income (Loss) | $3,622 | $(57,696) | | Adjusted Earnings (Loss) Per Share | $0.09 | $(1.70) | | Adjusted Return on Equity | 3.7% | (46.6)% | | Adjusted Operating Efficiency | 40.6% | 51.1% | - Adjusted EBITDA improved significantly to $1.9 million in Q1 2024 from $(20.2) million in Q1 2023[173] - Adjusted Net Income (Loss) improved to $3.6 million in Q1 2024 from $(57.7) million in Q1 2023[177] - Adjusted Operating Efficiency improved to 40.6% in Q1 2024 from 51.1% in Q1 2023, indicating better cost management relative to revenue[185] Liquidity and Capital Resources - Oportun funds operations through cash flows, securitizations, secured borrowings, Corporate Financing, and whole loan sales, targeting at least twelve months of expected net cash outflows[186][187] Liquidity Reserves (in thousands) | Liquidity Reserves (in thousands) | Amount available | Amount borrowed/utilized | Remaining available capacity | | :-------------------------------- | :--------------- | :----------------------- | :--------------------------- | | Cash and cash equivalents | $69,200 | N/A | $69,200 | | Restricted cash | $127,353 | N/A | $127,353 | | Secured financing | $680,000 | $72,108 | $607,892 | | Whole loan forward flow agreements | $750,000 | $491,848 | $258,152 | | Total liquidity | $1,626,553 | $563,956 | $1,062,597 | - Total liquidity reserves as of March 31, 2024, were $1.63 billion, with $1.06 billion remaining available capacity[189] - The company issued $199.5 million of Series 2024-1 fixed-rate asset-backed notes on February 13, 2024[199] - Amendments to the Corporate Financing and Acquisition Financing facilities in March 2024 adjusted covenants, interest rates, and payment schedules[203][205] Critical Accounting Policies and Significant Judgments and Estimates - The preparation of financial statements requires management to make estimates and assumptions that affect reported amounts of assets, liabilities, revenue, and expenses[215] - No material changes in critical accounting policies from those disclosed in the 2023 Form 10-K[216] Recently Issued Accounting Pronouncements - Refer to Note 2, Summary of Significant Accounting Policies, for discussion of recent accounting pronouncements and future application of accounting standards[217] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a 'Smaller Reporting Company,' Oportun Financial Corporation is not required to provide quantitative and qualitative disclosures about market risk in this report - The company is exempt from providing quantitative and qualitative disclosures about market risk as a 'Smaller Reporting Company'[219] Item 4. Controls and Procedures This section confirms the effectiveness of Oportun's disclosure controls and procedures as of March 31, 2024, based on an evaluation by management, including the CEO and CFO. It also notes that there were no material changes in internal control over financial reporting during the period - Disclosure controls and procedures were evaluated and deemed effective at a reasonable assurance level as of March 31, 2024[220] - No material changes in internal control over financial reporting occurred during the period covered by this report[222] - The effectiveness of controls is subject to inherent limitations, including human error and circumvention[221] PART II - OTHER INFORMATION Item 1. Legal Proceedings This section states that Oportun is subject to various legal proceedings and claims in the ordinary course of business, but currently is not a party to any proceedings that would individually or collectively have a material adverse effect on its business, financial condition, cash flows, or results of operations - Oportun is involved in ordinary course legal proceedings, including intellectual property infringement and consumer litigation[224] - No current legal proceedings are expected to have a material adverse effect on the company's business, financial condition, cash flows, or results of operations[224] Item 1A. Risk Factors This section outlines significant risks that could adversely affect Oportun's business, financial condition, liquidity, results of operations, and prospects. These risks are categorized into business, financial and operational; funding and liquidity; intellectual property; industry and regulatory; and general risk factors, emphasizing the high degree of risk involved in investing in the company's common stock - Investing in Oportun's common stock involves a high degree of risk, and actual results could differ materially from forward-looking statements[225] - Key risk categories include business, financial and operational; funding and liquidity; intellectual property; industry and regulatory; and general risks[227][229] Business, Financial and Operational Risks - Oportun faces intense competition from various financial institutions and fintech companies, many with greater resources[231][232] - The company's reliance on Pathward, N.A. for a substantial portion of loan originations (71% in Q1 2024) poses a significant risk if the relationship terminates or is limited[237] - Economic conditions, including high inflation and rising interest rates, adversely affect borrowers' ability to make payments, increasing delinquencies and charge-offs[247] - The company's proprietary credit risk models, which use AI and third-party data, may contain errors or be ineffective, leading to higher than forecasted loan losses[256][257] - Oportun's quarterly results are subject to significant fluctuations due to factors like loan volumes, credit performance, operating expenses, and macroeconomic conditions[264] Funding and Liquidity Risks - Oportun has substantial debt and relies on securitization, warehouse facilities, and other debt financing, which may not be available on favorable terms in the future[325][327] - Breaches of early payment triggers or covenants in lending agreements could lead to early amortization, default, or acceleration of funding facilities, impacting liquidity[330][332] - The securitization market is volatile, and Oportun may face challenges accessing it, potentially requiring more costly alternative financing[336][338] - The company may need to raise additional funds through equity or debt, which could result in dilution for stockholders or restrictive covenants[341][342] Intellectual Property Risks - Protecting proprietary technology, including credit risk models and AI algorithms, is difficult and costly, and failure to do so could harm competitiveness[345] - The company may be sued for alleged infringement of third-party intellectual property rights, leading to significant damages or licensing fees[346] - Internally developed software for credit risk models and internal systems may contain undetected errors, bugs, or defects, potentially compromising accuracy and member data[348] - Use of open source software in business processes carries risks, including potential requirements to make proprietary source code publicly available or increased security vulnerabilities[349][350][351] Industry and Regulatory Risks - The financial services industry is highly regulated, and changes in laws or their interpretation could adversely affect Oportun's operations, increase costs, or limit lending activities[352][354] - Litigation, regulatory actions, and compliance issues, including those related to consumer protection and 'true lender' theories, could result in significant fines, penalties, and reputational harm[356][358] - The CFPB has broad authority and increased scrutiny over nonbank financial companies, potentially leading to examinations, new rules (e.g., on 'junk fees' and credit card late fees), and enforcement actions[363][365] - The evolving regulatory environment for privacy, data protection, and cybersecurity, including laws like CCPA and FTC Safeguards Rule, increases compliance costs and risks of investigations or fines[368][369] - Oportun withdrew its registration as an investment adviser on March 29, 2024, previously subject to SEC regulation[371] General Risk Factors - Future issuance of additional common stock under equity incentive plans, acquisitions, or financings could dilute existing stockholders' ownership[379] - The exercise of outstanding warrants (4,193,453 shares as of March 31, 2024) will increase shares eligible for resale and dilute common stockholders[380] - The price of Oportun's common stock may be volatile due to various factors, including financial performance, market conditions, and regulatory developments[381][382] - Changes in tax laws (e.g., Inflation Reduction Act, global minimum tax) and differing interpretations could adversely impact financial position and results of operations[384] - The ability to use net operating loss carryforwards and other tax attributes may be limited by future income or ownership changes, potentially increasing future tax liability[385][386] Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities This section confirms that Oportun had no unregistered sales of equity securities, no use of proceeds from previously registered offerings, and no issuer purchases of equity securities during the reporting period - No unregistered sales of securities occurred in the reporting period[399] - No use of proceeds from previously registered offerings[400] Item 3. Defaults Upon Senior Securities This section states that Oportun had no defaults upon senior securities during the reporting period - No defaults upon senior securities were reported[401] Item 4. Mine Safety Disclosures This section indicates that mine safety disclosures are not applicable to Oportun Financial Corporation - Mine safety disclosures are not applicable to the company[402] Item 5. Other Information This section states that there is no other information to report for the period - No other information is reported in this section[403] GLOSSARY This section provides definitions for key terms and abbreviations used throughout the report, including financial metrics, operational terms, and company-specific financing instruments - The glossary defines key financial and operational metrics such as 30+ Day Delinquency Rate, Adjusted EBITDA, Aggregate Originations, and Annualized Net Charge-Off Rate[405] - It also clarifies terms related to the company's financing, including Acquisition Financing, Corporate Financing, Secured Financing, and various asset-backed notes[405] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including various amendments to financing agreements, certifications, and interactive data files, indicating which are filed herewith or incorporated by reference - Exhibits include amendments to the Seventh, Eighth, Ninth, and Tenth Indentures related to Oportun RF, LLC and Oportun CCW Trust[407] - Amendment No. 3 to the Credit Agreement and the Sixth Amendment to the Loan and Security Agreement for Oportun PLW Trust are also listed[407] - Certifications by the Chief Executive Officer and Chief Financial Officer (Rule 13a-14(a)/15d-14(a) and Section 1350) are included[407] Signature This section contains the signature of Jonathan Coblentz, Chief Financial Officer and Chief Administrative Officer, certifying the report on behalf of Oportun Financial Corporation on May 10, 2024 - The report is signed by Jonathan Coblentz, Chief Financial Officer and Chief Administrative Officer, on May 10, 2024[411]