Oportun Financial Corporation

Second quarter 2022 earnings conference call. All lines have been placed on mute to prevent background noise. After the speaker's remark, there will be a question and answer session. Today's call is being recorded. For opening remarks and introduction, I'd like to turn the call over to Darian Hare, Senior Vice President of Investor Relations. Mr. Hare, you may begin.

Thanks, and hello, everyone. With me today to discuss Opportunity's second quarter 22 results are Raul Vazquez, Chief Executive Officer, and Jonathan Koblenz, 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 positions, 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, and we question 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 upcoming Form 10-Q filing for the quarter ended June 30, 2022. 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 other than as required by law. Also on today's call, we will present both GAAP and non-GAAP financial measures, which we believe can be useful measures for the period-to-period comparisons of our core business and which will provide useful information to investors regarding our financial condition and results of operations. A full list of definitions can be found in our earnings materials available at the investor relations section on our website. 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 second quarter 2022 financial supplement, and the appendix section of the second quarter 2022 earnings presentation, all of which are available at the investor relations section of our website at investor.opportune.com. In addition, this call is being webcast, and an archived version will be available after the call, along with a script of our prepared remarks. With that, I will now turn the call over to Raul.

Thanks, Dorian, and good afternoon, everyone. Thank you for joining us. Today, I'd like to discuss our second quarter financial performance, followed by an update on how the macroeconomic environment is impacting Opportunity and its members, and close with an update on our strategic initiatives. I'm pleased with our results for the second quarter. Let me start by sharing the headlines. We achieved second quarter originations of $878 million, up 103% from the second quarter of 2021. Originations growth continued to be driven by high demand for our loans, including our expansion into new states where we are taking share. We delivered revenue of $226 million, up 63%, along with adjusted net income of $3.8 million for adjusted EPS of 11 cents. We delivered a solid quarter of credit results as evidenced by our annualized net charge-off rate of 8.6% in line with last quarter and the midpoint of our prior guidance. Overall, we've had a very strong first half of 2022. Since the end of the quarter, however, we've observed that the weakening macroeconomic environment, including higher inflation and gas prices, has started impacting our members more than it previously had. Credit is the most important metric in our business, and as we said on the last earnings call, we've been tightening since the third quarter of 2021. Since the end of the second quarter, we have seen an uptick in delinquencies, particularly among borrowers with lower free cash flows and those with smaller loans with shorter maturities. We expect this to lead to increased charge-offs in the second half of 2022. We have taken further swift actions towards tightening our credit standards to address the rising delinquencies. Let me provide further details. We're reducing our exposure to new borrowers and increasing our exposure to more profitable returning borrowers who have already successfully repaid at least one loan to opportunity. In July, 35% of our loans were to new borrowers as compared to 51% in the first quarter. Returning borrowers have materially lower loss rates compared to new borrowers, so we expect this action will help us return losses to our target range. Additionally, we have taken further steps to responsibly increase our portfolio yield to offset increased cost of funds. Finally, we are focused on a significant reduction of operating expense growth. We now expect our operating expense in the second half of the year to be flat compared to the first half of the year. Opportune is taking these steps now to put the company on the strongest possible footing to achieve our long-term objectives while advancing our mission. The revised full-year guidance that Jonathan will detail with you today will feature higher revenue, reflecting our strong first half portfolio growth. However, we are lowering our full-year originations guidance to reflect the additional credit tightening actions we have already implemented. We are also upwardly revising our four-year charge off guidance by 80 basis points and lowering our profit expectations, which we believe is prudent given the weakening macroeconomic environment. While in the short term we are making necessary changes, our long-term strategic priorities have not changed. Let me tell you about our progress on our three strategic priorities for the year that support our long-term outlook for profitable and sustainable growth. Our first strategic priority is to grow our members. We ended the second quarter with 1.8 million members up from 1.7 million at the end of the last quarter, a 38% annualized growth rate, so we are very pleased with the pace of member growth. Our second strategic priority is to increase multi-product relationships with our members. In the second quarter, products grew at an annualized rate of 45%, faster than our member growth of 38%. Our third strategic priority is enhancing our platform capabilities to meet the everyday financial needs of hardworking people. We continue to make progress towards creating a seamless unified app to increase growth in members and products. We anticipate this unified app will increase opportune and digit member multi-product relationships by enabling seamless access to all products in one multi-tab app. increased digit membership by bringing the app to the center of the expanding Opportune ecosystem, and increased member satisfaction leading to increased brand loyalty. We currently intend to be in the market in the testing phase with our unified app during the fourth quarter. This and other aspects of the digit integration continue to progress nicely. Now, let me share with you more detail regarding our progress across our newer products. For our secured personal loan product, we ended the second quarter with $100 million in receivables, up 620% year-over-year. In April, we expanded our secured personal loan product to Arizona, and in May to New Jersey. Our secured personal loan growth continues to benefit from the fact that it is offered through the same acquisition funnel along with our unsecured personal loans. We also saw good progress this quarter from our credit card product. Receivables grew 511% year over year to $119 million, and we now have more than 193,000 members who have an OPPORTUNE branded credit card. Finally, we have also continued to make great progress with our lending as a service offering. During the second quarter, we scaled our lending as a service network to include 294 partner locations, up from 108 a year ago. and we still expect to complete 2022 with over 500 partner locations. Additionally, our partnership with Sezzle, a buy now, pay later company, and our first digital lending as a service relationship remains on track to launch in the second half of the year. With that, I'd like to turn it over to Jonathan for additional details on our financial performance and our revised guidance.