Oportun Financial (OPRT) - 2020 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company generated $143 million in total revenue for Q2 2020, with adjusted EBITDA of $4.8 million, despite the pandemic's impact [7][29] - Total revenue was $142.7 million, slightly up from the prior year, primarily due to a 5% year-over-year increase in interest income [29] - Net revenue decreased by 62% year-over-year to $36.9 million, impacted by changes in fair value of the loan portfolio and asset-backed notes [30][39] Business Line Data and Key Metrics Changes - Aggregate originations for Q2 were $157.6 million, down 67% year-over-year, but showed month-over-month improvement with a 46% increase by the end of June [28] - July originations grew 24% month-over-month, narrowing the year-over-year decline to 54% [12][28] - The company reported a decline in deferral percentage to 3.9% by July 31, down from 5% at June 30, indicating improved credit performance [11][41] Market Data and Key Metrics Changes - The company maintained a robust liquidity position with over 12 months of liquidity runway without accessing the securitization market [14][46] - As of June 30, total cash was $198 million, which decreased to $165.8 million by July 31 due to the call of a securitization [46][47] Company Strategy and Development Direction - The company plans to return to growth while maintaining a thoughtful approach to underwriting, focusing on good credit outcomes, serving customers, and maintaining capital and liquidity [8][15] - A strategic partnership with DolEx Dollar Express was announced to broaden reach in critical markets, with an initial rollout expected in Q4 [16][68] - The company implemented a 36% APR cap on newly originated loans, aiming to enhance customer service and expand marketing channels [21][22] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about the economic recovery and the company's proactive measures to navigate the challenging environment [26][50] - The company anticipates that future performance will continue to be impacted by the pandemic, with no specific guidance provided for 2020 or 2021 [50] Other Important Information - Operating expenses for Q2 were $93 million, up 12% year-over-year, but down 6% sequentially from Q1 [37] - The annualized net charge-off rate was 10.6% for Q2, increasing to 11.9% in July, with expectations of elevated charge-offs continuing in 2020 [44][45] Q&A Session Summary Question: Timing of the DolEx partnership and product rollout - Management expects regulatory approvals to be finalized in the next few weeks, with a rollout starting in Q4 [56][58] Question: Fair value marks during the quarter - The fair value mark on bonds was 98.7% as of June 30, down from 101.6% in Q2 2019, indicating potential for improvement as market conditions normalize [59] Question: Charge-off rate trajectory - Management noted that while charge-offs increased, the underlying credit quality of new originations has improved, leading to confidence in future performance [64][65] Question: Regulatory approvals for DolEx partnership - Loans will be issued in the company's name, with DolEx acting as an agent, requiring compliance with state regulations [82] Question: Mix of fixed and variable expenses - The company has been optimizing marketing expenses, shifting to digital channels, and reducing fixed costs where possible [80]