Oportun Financial Corporation

Hello and welcome to the Opportune Financial first quarter 2024 earnings call. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. You may be placed into question queue at any time by pressing star one on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Dorian Hare, Investor Relations.

Please go ahead. Thanks, and hello everyone. With me to discuss OPPORTUNE's first quarter 2024 results are Raul Vazquez, Chief Executive Officer, and Jonathan Koblentz, Chief Financial Officer and Chief Administrative Officer. I remind everyone on the call or webcast that some of the remarks made today will include forward-looking statements relating to our business, future results of operations and financial position, planned products and services, business strategy, expense savings measures, statements regarding our senior secure term loan, 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 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 upcoming Form 10-Q filing for the quarter ended March 31, 2024. 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 their 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 financial measures is included in our earnings press release, our first quarter 2024 financial supplement, and the appendix section of the first quarter 2024 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 repair 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'll discuss our first quarter performance and update you on our progress on key areas of focus. Let me begin with four highlights of our Q1 performance. First, we generated revenue of $250 million, outperforming the top end of our guidance range by $12 million, or 5%. This outperformance was driven by a strong march with higher interest income and portfolio yield as the price increases we've been enacting took hold at a higher rate than anticipated. Second, our Q1 annualized net charge-off rate was 12% and at the low end of our guidance range. 22 basis points lower sequentially and 7 basis points better than last year. Our quarterly net charge-offs, measured in dollars, declined year-over-year for the second consecutive quarter, in this instance by 7%. Third, our gap operating expenses were just under $110 million, down 15% sequentially and 25% year-over-year. The last time we reported quarterly gap operating expenses below $110 million was the first quarter of 2021. Finally, our profitability has markedly improved with both our adjusted EBITDA and adjusted net income turning positive from year-ago losses. Adjusted EBITDA was $2 million, an improvement of $22 million year-over-year. We generated $4 million in adjusted net income, a $61 million improvement from the year-ago quarter, And our gap net income improvement was even more substantial at $76 million. In summary, I'm proud of how the team executed and pleased that Q1 showed more signs of the expected business recovery that I outlined during the last earnings call. I'll now update you on progress we're making on our 2024 strategic priorities, which gives me confidence in our outlook. Starting with credit, I'll highlight three positive dynamics that we're seeing. First, As you can see on slide five of our earnings presentation, the loss rates 12 or more months post-disbursement for our front book of loans continue to run approximately 400 basis points lower when compared to our back book of loans, with our Q1 2023 vintage now joining that group. Even more encouraging, we're now seeing that more recent front book vintages are outperforming their predecessors. As a reminder, the back book is comprised of loans originated prior to the first material tightening in July of 2022. The front book of loans is comprised of originations since then. Second, you can also see on slide six that the back book shrank to 16% of our own principal balance at the end of the first quarter, but disproportionately accounted for 40% of our gross charge-offs. We still expect the impact of the back book to diminish throughout 2024 and our back book to shrink to 3% of our own principal balance at the end of this year. And third, starting in late January, we started experiencing positive trends in early stage delinquencies, which continued in February and March. One to 29 day delinquencies are now running well below 2023 levels, and the positive trends are starting to roll into 30 to 59 day delinquencies. We expect that these favorable trends will drive 30-plus-day delinquencies further down in Q2 from the 5.2% level during Q1 2024, which we're already down over 60 basis points from Q4 2023. Improving credit outcomes is our top priority, and I'm pleased with the progress we've made and expect to continue to make this year. Relating to our priority to fortify business economics during 2024, I'd like to update you on our expense management progress. As you can see on slide seven of our earnings presentation, we are significantly more efficient today than we were during our IPO year five years ago. Adjusted OPEX as a percentage of average managed principal balance was down by almost 400 basis points, to 13 percent in Q1 2024 versus 16.9 percent in Q1 2019. And we've made substantial progress to get our GAAP operating expenses below $110 million for Q1 2024, remaining on track to achieve operating expenses of $97.5 million or below by Q4 2024. In summary, we outperformed our expectations for the first quarter, including a return to adjusted profitability, and remain keenly focused on expense management with even more profitability improvement on the horizon. Jonathan will share the details with you shortly, but I want to let you know that we are raising full-year adjusted EBITDA guidance by 31 percent at the midpoint of the range. Shifting to our priority to identify high-quality originations, I'd like to highlight our prudent expansion in secured personal loans or our SPL product, which you can see on slide eight. As a reminder, we launched SPL in the summer of 2020 and paused our originations in four states during 2023 due to our rebalancing of priorities and our desire to retool the partnership with Pathword. Available only in California as of the end of last year, we reintroduced secured personal loans in our next two biggest states, Texas and Florida, at the end of the first quarter. We also relaunched SPL in Arizona and New Jersey earlier this month and are rolling out the product in Illinois for the first time during this quarter. We are excited about the expansion of SPL because of its superior unit economics. Not only did losses last year run approximately 350 basis points lower for our secured personal loans as compared to unsecured, but revenue per loan was over 50 percent higher since on average SPL loans are over $3,000 larger. In addition, responsibly expanding secured lending, which is collateralized by members' autos, allows us to better serve our members. Our SPL product has allowed us to invite three of 10 applicants who we weren't able to approve for unsecured personal loans to apply for an SPL loan. In summary, I am very pleased with our first quarter performance yet we expect a better second quarter than our first quarter, and our conviction remains strong to be profitable on an adjusted basis during 2024. With that, I will turn it over to Jonathan for additional details on our first quarter financial performance, as well as our second quarter and full year guidance.