Oportun Financial Corp Q4 FY2024 earnings call

Key points include: Q4 marked return to GAAP profitability with $9 million net income, a $51M year-over-year improvement, and ROE of 10%; adjusted net income was $22M with an adjusted ROE of 25%, and adjusted EBITDA was $41M, a $31M increase from the prior year. Improved credit performance with a net charge-off rate of 11.7%, a 55 bp year-over-year improvement, and 30-plus day delinquencies at 4.8%, 113 bp better than the prior year. Originations reached $522M, a 19% year-over-year growth. Operating expenses were $89M, down 31% year-over-year, the lowest since Q2 2019. Strategic priorities for 2025 include improving credit outcomes, fortifying business economics, and identifying high-quality originations. Expectations for 2025 include GAAP profitability for the full year, adjusted ROE in the teens, 10%-15% originations growth, a 5% decline in operating expenses, and prioritizing secured personal loans.

Total revenue for the fourth quarter was $251 million. Originations were $522 million, a 19% year-over-year increase. Net income was $9 million, representing a $51 million year-over-year improvement. Adjusted net income was $22 million, and adjusted EBITDA was $41 million, a $31 million increase from the prior year. The net charge-off rate was 11.7%, an improvement of 55 basis points year-over-year, and originations returned to growth at 19% year-over-year. Operating expenses were $89 million, down 31% year-over-year.

Full year 2025 guidance: total revenue is projected to be between $945 million and $970 million, the annualized net charge-off rate is expected to be 11.5% plus or minus 50 basis points, adjusted EBITDA is anticipated to be between $135 million and $145 million, adjusted net income is forecasted to be between $53 million and $63 million, and adjusted EPS is expected to be between $1.10 and $1.30. Q1 2025 guidance: total revenue is $225 million to $230 million, annualized net charge-off rate is 12.30% plus or minus 15 basis points, and adjusted EBITDA is $18 million to $22 million. Expectation to return to total quarterly revenue growth prior to year-end and 10%-15% originations growth in 2025.

Potential impact of inflation on credit performance and originations. Changes in cost of capital due to maturity runoff and market conditions. Impact of the competitive landscape on pricing and market share.

Q: Thanks for taking my question. And first of all, I'm not big on congratulations on earnings calls, but Jonathan, I do want to acknowledge that I know you've worked very, very hard to leave the company on such good footing and that's got to be very satisfying and we are going to miss working with you. So thank you very much.

A: That's very kind of you to say, Rick and I will miss working with you as well. So thank you.

Q: With that now I'm going to ask you some tough questions.

A: Shoot, go right ahead and expect nothing less.

Q: Yes, exactly. And I'm sure of all the things you're not going to miss; this part of the Q&A is one of them. Look, when we look at the guidance and again we're still going through the numbers, what essentially happened for 2025 is you move the low end up $0.10, you move the high end up a nickel. The $0.05 of that really comes from a different expectation on share count. Can you tell us what's driving the share count expectation? If you said it, I missed it, I apologize. But also on the low end, what’s the -- what are the other factors that are contributing to tightening that guidance?

A: Sure. So first of all, the share count is just an updated projection. I think you're referring to the fact that we had a $0.50 share count when we gave the preliminary guidance and now it's 48.2. So that's just reflective of our view of future share awards and employee turnover. So nothing, I actually don't view that as all that material a change. In terms of the top-line, look, I think this is a strong number for us, right? We continue to revenue is going to be up organically. We're doing what we said we were going to do in terms of keeping operating expenses flat throughout the year at $97.5 million. And the credit guide is improved, right? 11.5% plus or minus 50 basis points. So those are the main drivers. And then obviously, we've continued to have good success in our financings. We did our first securitization of the year in January at a 6.95% yield. So that's below our 8% unit economics target. Is that helpful? Raul, anything to that?

Q: Afternoon guys and congratulations on achieving all the objectives and clearly the business looks like it's making a good turn. First question, as you lean into growth, you guys have a lot of channels that you can utilize MetaBank, your branches, MoneyGram and some other retail partners. Where do you think that will growth come through all those channels or are you going to rely on one of those more than the other? And I guess, are all of those channels still active and presenting a good opportunity for growth?

A: It's a great question, John. So yes, all the channels are active. They work in combination with each other. Really what we've seen in the past, for example, what we had in our latest investor presentation was that regardless of what channel someone started in, almost three quarters of applicants used our mobile and digital channels in some way, right, even if they started in retail, started in the contact center. So we think each of the channels plays an important role in our originations numbers. So we are bullish about all the channels. We have seen quite a bit of strength in our retail channel and our contact centers. I think our teams there are doing just fantastic work. They've become more productive in 2024 relative to 2023. They drove very healthy originations. So we've got the good fortune of, I think entering 2025 with a lot of confidence in all of our channels, but in particular liking what we're seeing from retail in the contact center.

Q: Jonathan, well done. Thank you very much. Congratulations on your retirement. On the origination side, you guys really came in kind of well above maybe what you guided to and another firm, Upstart, reported similar kind of upside surprises. And I'm just wondering if you'd give us your color on the top of funnel. What happened there? I think maybe consumers saw a fourth rate cut that happened in December that maybe got discovery happening in your digital channels at a higher rate. Maybe lower rates also allowed you to approve more borrowers. Can you just share with us what you saw throughout the quarter? Was it heavier maybe in December with maybe consumers inquiring and pleasantly being surprised they were approved for loans that you granted to them? Give us your thoughts on that.

A: Yes. Hal, this is Raul. Thanks for the question. So our decisions to drive growth are driven first and foremost by just what is our view on credit. So when you look at our presentation and see on Page 9 that the front book is running at about 10.5% annualized losses, back book continues to shrink. Our go-forward view as Jonathan described, right, for the year is that losses are going to improve by 50 basis points, right, seeing those losses on the front book be within our target range of 9% to 11% gave us the confidence to lean into growth. So what we were able to do is we invested a bit more in marketing than we have the last couple of years to try to drive that growth. So top of the funnel from a demand perspective, we felt was already healthy and we poured a bit more on that in terms of driving marketing. Credit box isn't really opening up. We like where credit box is. V12 is helping to drive these improved results. So then it just, it flowed through all the way down to that 19% originations growth. So we go into the year feeling confident in our ability to drive 10% to 15% originations growth for the full year. Recognizing that that's going to help to drive revenue growth again in the back half of the year and positioning us well not just for 2025, but assuming the economy remains constructed, which today we think it is, right, that means a good year for us in 2025 and hopefully some good momentum even going into 2026.

Q: Good morning. Good afternoon, I guess. Can you hear me?

A: Yes, we can.

Q: Yes. Thank you. Thanks for taking my question. My first question is, well, congratulations on your results by the way, and the 19% year-over-year growth in origination as you continue, you say that back into FY2025 is 10% to 15%. What is, can you give us some color on what is driving that growth? Is it some relaxation on your side or is it -- is there a demand? What is driving that demand?

A: Yes, it's a great question. We mentioned that if you remove the one-time benefits in OpEx for Q4, that would give you about a $95 million run rate. We would suggest that, for models that you really target $97.5 million per quarter in OpEx and that difference you can think of as a modest investment in marketing, right? So looking at, at least the $2.5 million incremental expense in marketing and that's really what's going to drive the growth. It's not opening up the credit box. We don't think we need to do that. We don't think that would be wise at this time. It's really about just being able to drive some additional demand through marketing efforts, which we really haven't been doing the last two years.

Q: Great. Good afternoon, everybody. And Jonathan, first off, congratulations on your retirement. I'm going to miss working together, but… Just looking at the OpEx adjusted OpEx ratio here, it looks like it slowly trended down. It's right around that 13% level in the fourth quarter 2024. Do you have a long-term target for that measure?

A: We do. Our long-term target is what we have in our unit economics of 12.5%.

Q: Yes. So the progress, Brendan that we expect to make in that is going to be driven by two factors, really. Number one, right, we want to continue to look for opportunities to lower operating expense, right? I think as we look at future years, that's continuing to figure out how do we become more streamlined, more efficient, how do we renegotiate multi-year contracts, right, that weren't up for negotiation last year. So on the numerator side; we're going to try to do everything we can to keep looking for reductions on OpEx. More importantly, I think on the denominator side, we're going to grow average daily principal balance, right, and that'll help us get from the 13.1% down to the 12.5% will really be both elements.

Q: Hi, good afternoon. Thanks for taking my questions. I have two of them. So I'll just ask both now. So nice guidance for 2025 and it's above consensus estimates. I'm just wondering if you can maybe talk about some of the sensitivities to the macro from that guidance. And we've been seeing kind of a lot of changes, whether politically or otherwise, in the past couple of weeks, including with now inflation running at 3%. So just wondering how sensitive it is as it does seem like a lot of your -- lot of the guidance is sort of driven off of the actions that you're taking. So that's question one. And then question two related to kind of prior comments about the industry kind of showing good growth trends that we've seen from a lot of other consumer finance companies and fintechs. A lot of this growth was alluded to earlier. And I'm just wondering, one of the investor questions that I've been getting is that whereas I guess, if a fintech or somebody else is growing that much, can Oportun or other lenders also be growing at the same amount or is there just kind of finite TAM where if somebody's growing then somebody else must be losing that share or so forth. I just wanted to get your thoughts on that.

A: Sure. No, thank you. I'll take the first question, Vincent and Raul will cover the second one. First of all, in setting guidance, we don't just look at one scenario, we look at multiple scenarios. And so those scenarios factor in sensitivities and both positive and negative. So that's already factored in when we do provide the guidance. As you heard Raul say on the call, right, we're watching the macro environment very carefully, right? And obviously, we did get a slightly uptick inflation number this morning. We still feel very good about our credit that all the trends are very positive. So it's nothing that we're concerned about now. But the key sensitivity would be any impact from inflation that could cause us to have to tighten. And so you in order to make sure that losses didn't go up and that would be an impact to originations. But again, we feel good about the guidance we've presented and it does factor in multiple scenarios. And all the trends right now are very favorable.

Q: Just add a little bit to that, Vincent. One of the reasons we feel good about our ability to underwrite, say even with inflation at 3% is as we've talked about, right, we're using V12 right now of our underwriting engine. V12 was built with the largest data set we've ever used. And maybe most importantly, kind of in response to your question, it was used including data from this inflationary period, right? So what we were able to do was include our learnings in this period where our borrowers and all of us have been dealing with higher inflation. So we think that that gives us an opportunity, even if inflation were to move from where it is today, start to kind of glide back up a little bit, right? We feel that the underwriting that we've got in place today was built with that kind of environment in mind. We would certainly keep making adjustments. You see on Page 8 where we show the vintages and the performance that our ability to make adjustments demonstrates, the ability to keep improving performance where you see Q3 of 2023 is better than the prior quarters, Q4 of 2023 is better than Q3 and Q1 of 2024 is better than Q4 of 2023. So again, that shows the ability to keep making adjustments as needed to react to the environment. Let me pause there and see if you have any follow-up questions on number one before I go to number two.

Q: Yes. So on your second question, in terms of, in some ways, I think it's a question of is it a zero-sum game, right, from a growth perspective, is that part of your question?

A: Yes. So I think for us, one of the things that we've been able to do well throughout our history is to really be able to find a niche that is not well served by others. So we're not a traditional subprime lender. If someone's had a lot of experience with credit and for whatever reason it didn't work out, we declined them early in the process because our models aren't built to underwrite those individuals. We do best with people that have thin files or even no files when they first come to us, right? We can underwrite someone who has no data at the bureaus, no credit score whatsoever. So I think one of the things that we've been able to do is to stay out of that zero-sum game that you're describing and that I understand certainly why it's driving the question. Because we've been taking individuals that have been in the informal economy or individuals that have relied only on very, very expensive credit. So we think of that almost as a different pool than the pool, say, that the traditional fintechs are focused on.