Release Date: November 12, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Oportun Financial Corp (NASDAQ:OPRT) reported lower charge-offs with an annualized net charge-off rate of 11.9%, which was better than the lower end of their guidance range.
• The company achieved higher profitability, generating $31 million of adjusted EBITDA, more than doubling last year's level.
• Operating expenses were reduced by 17% year over year, with expectations to further reduce GAAP operating expenses to $97.5 million or less by the fourth quarter.
• Oportun Financial Corp (NASDAQ:OPRT) successfully closed the sale of its credit card portfolio, which is expected to be accretive to adjusted EBITDA by $2 million this quarter and $11 million for the full year 2025.
• The company executed an agreement for a $235 million four-year senior term loan facility, enhancing operational flexibility and strengthening the balance sheet.

Negative Points

• Total revenue declined by 7% year over year, driven by a 7% decline in the average daily principal balance.
• Interest expense increased by $9 million year over year, reflecting a higher cost of debt in the current rate environment.
• The company recorded a GAAP net loss of $30 million for the quarter, driven by a $35 million non-cash mark on ABS notes.
• Originations were virtually flat year over year, indicating challenges in achieving growth despite efforts to derisk the business.
• The average loan size decreased by 18% year over year, which could impact revenue generation potential.

Q & A Highlights

• Warning! GuruFocus has detected 4 Warning Signs with OPRT.

Q: Jonathan, you mentioned the fair value marks on the ABS should be wrapped up by the end of next year. Do you have a sense of what's left to mark on that based on the current mark versus the fair value? A: Yes, we have a slide for that. If you look at slide 34 in the middle, it shows the cumulative fair value mark to market adjustment for the notes, which is $30.8 million. We are not electing fair value for any new debt, so this existing fair value debt will be mostly paid off by the end of next year, and we expect to take most, if not all, of that mark.

Q: You mentioned a priority of deleveraging the business. What leverage ratios do you look at, and what would be the longer-term target for that? A: Our target leverage ratio is 6 to 1, as indicated on slide 16 of our deck. We can repay $60 million of the principal balance without a prepayment penalty, taking the debt from $235 million to $175 million. We expect to reach our target 6 to 1 leverage ratio over time, given our consistent monthly debt repayments and stronger cash flow generation next year.

Q: Raul, you're leaning back into growth. Can you talk about where the focus for the source of growth will come from, given your various channels? A: We have a multichannel business with physical stores, contact centers, and digital channels. We plan to expand physical locations in states where we currently don't have them, like Georgia, Pennsylvania, and Ohio. Additionally, we see opportunities in our lending as a service partnerships with Dolex, Barri, and Western Union.

Q: Can you provide more insight into the drivers of the significant reduction in customer acquisition cost? Is it due to returning customers or a shift in marketing channel mix? A: It's a combination of reduced sales and marketing expenses, which are down 8% year over year, and the growth in loans, which was 22% for the quarter. This combination drove the customer acquisition cost to a record low of $118. As we return to growth, we plan to invest more in marketing to drive portfolio growth.

Q: Regarding your EPS forecast for 2025, what is primarily driving the range between the lower and upper bounds of that estimate? A: We expect to deliver adjusted EPS of $1 to $1.25 through a return to growth, driving the portfolio higher, and improving revenue. We anticipate losses to continue decreasing and will maintain discipline in operating expenses. These factors will help us achieve the forecasted EPS range.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.