Oportun Financial Corporation

Greetings, and welcome to Opportune Financial's second quarter 2023 earnings call. At this time, all participants are on a 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. It is now my pleasure to introduce your host, Doreen Hare, Investor Relations. Thank you. You may begin.

Thanks, and hello, everyone. With me to discuss OPPORTUNE's second quarter 2023 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 operations and financial position, plan 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, 2023. 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 future condition and results of operations. A full list of definitions can be found in our earnings materials available in 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 financial measures is included in our earnings press release, our second quarter 2023 financial supplement, and the appendix section of the second quarter 2023 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 copy of our prepared remarks. With that, I will now turn the call over to Raoul.

Thanks, Dorian, and good afternoon, everyone. Thanks for joining us. Today, I'll discuss our second quarter financial performance and update you on opportunities areas of focus. Let me begin with five highlights from our Q2 performance. First, we returned to profitability in Q2 with $2 million in adjusted net income driven by strong top-line performance in the steps that we took earlier this year to streamline our operating expenses. We've now reported positive adjusted net income in 11 of the last 12 quarters. Our adjusted EBITDA, which also turned positive at $4 million, was within our guidance range and, more importantly, We expect to deliver $35 to $40 million in adjusted EBITDA in Q3. Second, our credit outlook is improving as a result of our tightened credit posture. Our annualized net charge-off rate of 12.5% outperformed our guidance due to effective collection and recovery efforts, as well as our tighter credit standards. We expect Q2 to have been the peak level and we project that our loss rate will decline by approximately 80 basis points in Q3 based upon our midpoint guidance. As a reminder, we initiated our credit tightening in July of 2022 due to heightened inflation present at that time and are continuing to see improvements within our portfolio. Third, we're seeing the tangible benefits and results of our cost savings initiatives. You'll recall that we enacted a combined set of initiatives in February and May to produce $126 to $136 million in annual life expense savings. Those actions are taking hold and resulted in total operating expenses of $136 million for Q2, a 7% sequential and a 14% year-over-year decline. We increased revenue by 18% and set a new quarterly record of $267 million while expenses were down 14% year over year. This demonstrates the resilience of our business and also highlights the impact of our efforts to increase yield. We see yield continuing to rise in the second half of the year. Finally, Since our last earnings call, we've entered into two new whole loan sale agreements that validate the quality of our originations and will provide a total of up to $700 million of additional liquidity and funding over the next year. I'm pleased with our performance and grateful for the efforts of our team to produce a strong quarter. Our focus remains on creating a leaner and more efficient company And we're excited about the second half of 2023, which Jonathan will detail for you when he provides guidance. Before handing off to Jonathan, I want to spend a few minutes reiterating our strategic priorities and how we're allocating our spending to the two most proven and profitable parts of the business, unsecured personal loans and our savings product, which is key to our member engagement platform. 85% of our corporate expense is allocated to the core unsecured personal loan product, which is appropriate for the largest and most proven component of OPPORTUNE. We will continue to leverage data, technology, and AI to grow it at prudent levels and enhance this product's profitability. Approximately 10% of our corporate expense is allocated to our savings product and our member engagement platform which continues to be profitable on a cash flow basis at that level of investment. Within this category, we're leveraging our new OPPORTUNE mobile app, fully launched in Q1, which will drive increased cross-selling, higher conversions, and lower customer acquisition costs over time. I'm pleased to share that 550,000 members have now signed up to use the app, with more to come now that we'll start marketing it more broadly and have translated the app into Spanish. We're maintaining optionality for future growth opportunities by allocating only 5% of our corporate expense on developing the rest of the product suite. Consistent with our focus on operating efficiently, we have decided to phase out our checking account products so we can shift resources to more accretive products. We will continue to evaluate our other products and initiatives to ensure they are the best use of resources and capital. In summary, I'm proud of the team's strong execution and continued focus on driving shareholder value while delivering on our mission to empower our now more than 2 million members to build a better future. With that, I will turn it over to Jonathan for additional details on our second quarter financial performance and our updated 2023 guidance.