Oportun Financial Corporation

Greetings and welcome to the Opportune Financial Corporation 2020 earnings conference call. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Niels Erdmann, Vice President, Investor Relations. Please go ahead, sir.

Thanks, and good afternoon, everyone. Joining me today to discuss Opportune's fourth quarter and full year 2020 results are Raul Vasquez, Chief Executive Officer, and Jonathan Koblentz, Chief Financial Officer and Chief Administrative Officer. I'll remind everyone on the call or webcast that some of the remarks made today will include forward-looking statements related to our business, future results of operations and financial position, planned products and services, business strategy, and plans and objectives of management for our future operations. Actual results may differ materially from those contemplated or implied by these forward-looking statements, particularly given the uncertainties caused by the COVID-19 pandemic. And we caution you not to place undue reliance on these forward-looking statements. A more detailed discussion of the risk factors that could cause these results to differ materially are set forth in our earnings press release and in our filings with the Securities and Exchange Commission under the caption, Risk Factors. including our most recent quarterly report on Form 10Q and our annual report on Form 10K for the year end of December 31, 2020, that will be filed with the Securities and Exchange Commission. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events. Also on today's call, we will present both GAAP and non-GAAP financial measures, which we believe can be useful measures for period-to-period comparisons of our core business. and which will provide useful information to investors regarding our financial condition and results of operation. Unless stated otherwise, all of the metrics shared on this call will be on a fair value pro forma basis. A full list of definitions and reconciliations can be found in our earnings materials. Non-GAAP financial measures are presented in addition to and not as a substitute for financial measures calculated in accordance with GAAP. A reconciliation of non-GAAP to GAAP measures is included in our earnings press release, our fourth quarter 2020 financial supplement, and the appendix section of the fourth quarter 2020 earnings presentation, all of which are available on the Investor Relations website at investor.opportune.com. In addition, this call is being webcast, and an archived version will be available after the call on the Investor Relations portion of our website. With that, I will now turn the call over to Raul.

Good afternoon, everyone, and thank you for joining us. We concluded 2020 well-situated to grow our business and expand our mission. And I'd like to start by highlighting five things that became clear about our company as a result of successfully navigating the challenges of the pandemic. First, our business is resilient and showing additional signs of recovery. In the fourth quarter, we grew aggregate originations 48% sequentially, generated $141 million of total revenue, and $17.5 million of adjusted net income, or 60 cents of adjusted EPS. We also grew our managed principal balance to $1.9 billion, up sequentially from $1.8 billion. In summary, our fourth quarter results were strong and give us confidence that we exited the year on a trajectory for continued growth. Second, we saw the benefits of our AI-driven platform reflected in our positive credit outcomes. I don't think I've highlighted this enough before. but the foundation of our decisioning engine is a powerful set of tools that we developed using artificial intelligence, which we've been employing for over 12 years. Specifically, our credit and fraud models were developed by applying machine learning to 8.4 billion data points of proprietary data, and we consider our ability to underwrite and control fraud for no or thin file applicants a significant competitive advantage. For the fourth quarter, our annualized net charge off rate was 9.4%, 107 basis points lower sequentially, and only 35 basis points higher than last year prior to the pandemic. Our ability to manage risk with precision contributed to this favorable charge off trend and is a testament to the adaptability of our decision platform. Third, our investment in digital capabilities gives us a path for continued growth in a more capital efficient manner. We were deliberately driving a shift from in-store to mobile prior to 2020. With the onset of the pandemic and shelter at home orders, we further accelerated the development of our digital capabilities and increased the percentage of online marketing spend. To illustrate how much progress we've made in transitioning to a digital first strategy, let me share a few statistics. For the fourth quarter, 65% of new applicants chose to apply online. up from 46% one year ago. Additionally, 73% of all payments were made outside of our stores, whereas this figure was 60% one year ago. Based on the success of our Digital First strategy, we believe we can consolidate our retail operations while continuing to provide great levels of service to our customers and creating incremental shareholder value. As a result, we will be closing 136 locations primarily in our larger markets where there is the greatest coverage overlap. We have modeled how to achieve this with minimal impact to our customers and to our expected loan production. After initial charges relating to these actions, we will generate approximately $19 million of operating expense savings a year, which affords us the ability to reinvest capital in our growth initiatives, new products, and technology developments. While we recognize and still believe that our retail channel is a key differentiator in our customer experience, we are optimizing the mix of our omnichannel ecosystem and leaning even more heavily into our digital tools and capabilities. This brings me to my fourth highlight of 2020. Our partnership with Dolex is an exciting capital-efficient growth opportunity that leverages our digital platform to underwrite a partner's customer base making it our first application of lending as a service. As a reminder, we had committed to starting our pilot in the fourth quarter, which we did successfully with a subset of DOLEX locations in Florida. In the next few weeks, we will begin the rollout to all locations in Florida and also plan to launch shortly in Texas, which has a much larger footprint. This is an exciting extension of our business, and I will share our 2021 goals for this service in a moment. My fifth and final highlight relates to our new product initiatives. Based on the fourth quarter results, we believe we have product market fit for both credit cards and secured personal loans, which gives us confidence to begin scaling these new products. For credit card, we continued our geographic expansion across the US and are now in 40 states. In the fourth quarter, we saw 77% sequential growth in credit card receivables. We ended the year with 13,000 active customer accounts and over $5.7 million in credit card receivables, which we're proud of considering we launched the product about a year ago, just prior to the start of the pandemic. For Otto, during the fourth quarter, we originated $1.7 million of secured personal loans, representing 717% quarter-over-quarter growth, and we ended the year with $2 million in secured personal loan receivables. We unlocked that high growth with the introduction of side-by-side offers of a secured personal loan and an unsecured personal loan, and we let the customer choose the product that was right for them. We also expanded the secured personal loan offering to all eligible customers in California, and we are preparing to make secured personal loans available across additional states in 2021. In summary, Our 2020 achievements are a direct result of our abilities to manage superior credit outcomes, swiftly and prudently return to growth, scale our business in a capital-efficient manner, and innovate through new products and strategic partnerships. As we look ahead to 2021, our roadmap includes key initiatives to drive more digitally-enabled, capital-efficient growth. I would summarize these initiatives as follows. Launch our metabank partnership to expand our addressable markets. expand our points of presence with the rollout of additional Dolex locations, further accelerate the enhancement of our digital platform and AI capabilities, scale our credit card and secured personal loan products, and make strides in obtaining a national bank charter. I will now spend a moment on each of these initiatives. With MetaBank, we remain on track to expand our distribution in over 30 additional states by mid-2021. We estimate that by expanding across the nation through the MetaBank partnership, we can nearly double the size of our addressable market. With respect to Dolex, we are pleased with our initial lending as a service offering and are excited to announce that we expect to launch in over 150 Dolex locations by the end of the year. We believe this initial offering can be a foundation for signing up new partners in 2021. To further enhance our AI-driven digital platform, we will utilize a portion of the cost savings from our retail network optimization. Today, we leverage AI and alternative data in our direct marketing models that were developed using over 100 billion data points. This is another area I don't think I've highlighted enough. These models are driving our digital growth as evidenced by the 65% of new applicants who chose to apply online in Q4. We plan to invest more in our digital marketing capabilities in 2021 to drive the efficient scaling of our MetaBank partnership, as well as growth in all states as our customers continue to respond favorably to our digital capability. Regarding our new products, our goal is to grow our credit card portfolio to $50 million and our secured personal loan portfolio to $40 million by the end of 2021. And finally, With a bank charter application, I remain enthusiastic about the opportunity to more broadly serve our customers and to fulfill our mission on a national scale. Becoming a national bank will allow us to offer uniform products across the country while greatly reducing operational complexity and allowing us to pass savings along to our customers. It will also enable us to offer depository services that can support our customers' efforts to build savings over time. I am encouraged by the progress we are making on this effort, and I will provide more detail on it and all our initiatives in the near future. I'll now turn the call over to Jonathan, who will walk you through a more in-depth discussion of our fourth quarter financial results, and then we'll open up the line for your question. Jonathan?