Oportun Financial Corporation

and welcome to the Opportun Financial third quarter 2022 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask questions, you may press star, then one on your telephone keypad. To withdraw your question, Please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Dorian here. Please go ahead.

Thanks, and hello, everyone. With me to discuss OPPORTUNE's third quarter 2022 results are Raul Vasquez, Chief Executive Officer, and Jonathan Copeland, Chief Financial Officer and 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 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 September 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 of 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 third quarter 2022 financial supplement, and the appendix section of the third 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 third 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. OPPORTUNE delivered a strong, profitable third quarter on an adjusted basis. Let me start with the following summary. We delivered revenue of $250 million, up 57%, along with adjusted net income of $8.4 million for adjusted EPS of 25 cents. Our annualized net charge-off rate of 9.8% was in line with our prior guidance. we're upwardly revising our full year 2022 revenue and adjusted EPS guidance. Let me now update you in more detail regarding what we saw in Q3, starting with credit. Credit is the most important metric in our business. On our prior earnings call, we shared that starting in July, we had initiated a set of actions, including significantly tightening our underwriting standards to address the impact of inflation on our members. I'm pleased to inform you that these actions are having their intended effect. We're continuing to reduce our exposure to new borrowers and increase our proportionate exposure to more profitable returning borrowers who have already successfully repaid at least one loan to opportune. In the third quarter, 28% of our loans were to new borrowers as compared to 44% in the second quarter and 51% in the first quarter. Early stage delinquencies are trending downward. For instance, from July to September, our 15 to 29-day delinquencies declined from 2.1% to 1.8%, and our 30 to 59-day delinquencies declined from 2.2% to 2.1%. These trends defy the usual seasonal patterns in delinquencies, which typically rise in the back half of the year. And our first payment defaults are now below 2019 pre-pandemic levels, having come down from the 2% range to below 1%. So in summary, we're very pleased with the credit results from Q3 originations, and we are setting ourselves up well for good credit performance in 2023. Now I'd like to update you on the other actions we've been taking. Starting with underwriting, we're introducing and leveraging new underwriting models that have and will continue to significantly improve our credit performance. For instance, we launched an updated version of our model specifically focused on underwriting our returning portfolio. We are also expanding the use of the bank transaction model we launched earlier this year by giving more applicants the opportunity to share their data, providing a more complete snapshot of their current financial situation. We also launched a new direct marketing platform this quarter that we expect will be fully implemented by the end of the year. We expect this new platform to improve the risk levels of the direct mail program and enable additional digital channels, where we will be able to target customers based on their credit profile. Our funding and liquidity remains strong, and in September we bolstered them by raising additional capital with a new four-year $150 million senior secured term loan. The investment community's confidence in Opportune was also just further validated by our closing last week of our fourth securitization of 2022. Our ability to complete these financings increases our capacity to fund future originations. Finally, we've made progress and continue to focus on a significant reduction of operating expense growth. We are reiterating our mandate for flat second half adjusted operating expenses versus the first half of the year by reducing sales and marketing costs and limiting headcount growth. As a proof point of achieving this objective, Third quarter adjusted operating expense declined 3% sequentially, defying our typical seasonal patterns. And adjusted operating efficiency improved by approximately 1,300 basis points year-over-year to 54%, our lowest level since our 2019 IPO. As you can see, we continue to take the necessary steps towards putting the company on the strongest possible footing and are committed to limiting expense growth in order to operate more efficiently in 2023. Shifting now to our long-term strategic priorities, let me update you on our progress on enhancing our platform capabilities, growing our members, and increasing our multi-product relationships. We're continuing to enhance our platform capabilities to meet the everyday financial needs of hardworking people. We are on track to start testing our unified app this quarter that brings together all the Digit savings, banking, investing products, and opportune credit products into a single mobile application. Digit's financial performance is exceeding our expectations, and our overall integration continues to progress nicely. We ended the third quarter with 1.9 million members, up from 1.8 million at the end of last quarter, a 9% annualized growth rate. We are pleased with this pace of adding high-quality new members to OPPORTUNE, given our lower marketing spend and decreased focus on acquiring new borrowers. Furthermore, in the third quarter, products grew at an annualized rate of 11%, faster than our member growth of 9%, as members continued to increase their engagement with OPPORTUNE. Now let me update you on new product activities. As a reminder, We indicated on our prior earnings call that we would deliberately moderate growth in our secured personal loan and credit card products in the second half of this year as part of our credit tightening actions. For our secured personal loan products, we ended the third quarter with $116 million in receivables, up from $100 million sequentially. Our credit card receivables grew at a similarly moderate pace to $131 million, up from $119 million sequentially. We now have more than 200,000 members who have an OPPORTUNE branded credit card. Finally, we have also continued to make great progress with our lending as a service partner channel, from which we can efficiently increase our applicant pool and selectively add high quality new members, even while we tighten our credit standards. During the third quarter, we scaled our partner network to include 348 locations, up from 229 a year ago. and we still expect to complete 2022 with over 500 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 this quarter. With that, I'd like to turn it over to Jonathan for additional details on our financial performance and our revised guidance. He will also take you through a technical accounting requirement that caused a non-cash $108 million write-off of Goodwill that impacted our Q3 GAAP results.