Oportun Financial (US:OPRT)2022-11-08 02:26Financial Data and Key Metrics Changes - The company reported revenue of $250 million, a 57% increase year-over-year, with adjusted net income of $8.4 million or adjusted EPS of $0.25 [12][25] - The annualized net charge-off rate was 9.8%, consistent with prior guidance, while interest expense increased by 152% year-over-year to $27 million due to higher debt issuance [12][26][33] - Adjusted operating expenses decreased by 3% sequentially, marking a significant improvement in operating efficiency [18][28] Business Line Data and Key Metrics Changes - In Q3, 28% of loans were to new borrowers, down from 44% in Q2 and 51% in Q1, indicating a shift towards more profitable returning borrowers [13][14] - Secured personal loan receivables increased to $116 million from $100 million sequentially, while credit card receivables grew to $131 million from $119 million [22] Market Data and Key Metrics Changes - The company ended Q3 with 1.9 million members, reflecting a 9% annualized growth rate, while product growth outpaced member growth at an annualized rate of 11% [20][21] - The company maintained strong liquidity with total cash of $272 million and undrawn warehouse lines of $382 million available for growth [34][35] Company Strategy and Development Direction - The company is focused on enhancing platform capabilities, growing its member base, and increasing multiproduct relationships, with plans to test a unified app for various financial products [19] - The strategic priority includes maintaining expense discipline and limiting headcount growth while focusing on high-quality loan originations [18][37] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating the current macroeconomic environment, emphasizing the importance of credit performance and expense management for future profitability [41][43] - The company anticipates that losses will start decreasing in Q1 2023, returning to the target range of 7% to 9% by Q3 2023 [40][41] Other Important Information - A non-cash goodwill write-off of $108 million impacted GAAP results, but management clarified it does not reflect the financial performance of the Digit acquisition [30][31] - The company successfully closed a $150 million senior secured term loan, reinforcing its access to capital markets [35] Q&A Session All Questions and Answers Question: What changed that gave confidence for the new EPS guidance? - The confidence stems from a revenue beat driven by slower prepayment rates and strong expense discipline, with adjusted operating expenses reduced by 3% quarter-over-quarter [46] Question: Can you comment on the funding markets and execution impact? - The company successfully closed a $300 million amortizing securitization, reflecting current market conditions, and expects cost of funds to rise into the 4% range [47][48] Question: What is the expectation for charge-offs in the first half of next year? - Management expects Q1 losses to be lower than Q4, with a downward trend anticipated throughout the year [52][53] Question: How are customers dealing with the macro environment? - Customers are feeling the impact of inflation, but the company remains focused on repeat customers who have demonstrated success with loans [58][59] Question: What would it take to turn back on marketing spend? - The company is looking for stability in inflation and unemployment rates before increasing marketing efforts and focusing on new borrower volume [98]