Oportun Financial Corporation

welcome to the Opportunity Financial First Quarter 2025 Earnings Conference Call. At this time, all lines are in listen-only mode, and following the presentation, there will be a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, May 8th, 2025. I would now like to turn the conference call over to Mr. Dorian Hare. Please go ahead.

Thanks, and hello, everyone. With me to discuss Opportunity's first quarter 2025 results are Raul Vasquez, Chief Executive Officer, and Paul Appleton, our Treasurer, Head of Capital Markets, and Interim Chief Financial 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, including projected adjusted ROE attainment and expected origination growth, planned products and services, business strategy, expense savings measures, 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 10Q filing for the quarter ended March 31, 2025. 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 comparison 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 financial measures is included in our earnings press release, our first quarter 2025 financial supplement, and the appendix section of the first quarter 2025 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 Raul.

Thanks, Dorian, and good afternoon, everyone. Thank you for joining us. I'd also like to welcome Paul to the call for the first time. We started 2025 with a strong first quarter, building on our momentum from last year. We've now met or exceeded guidance for six consecutive quarters while consistently driving financial and operational improvements across the business. The four key headlines from Q1 are continuing gap profitability, improving credit performance, responsible originations growth, and ongoing expense disciplines. First, we were gap profitable again in Q1, continuing the momentum we regained in Q4. Our Q1 net income of $9.8 million was a $36 million improvement year over year and drove an ROE of 11%. Adjusted net income of $19 million represented a $15 million year over year increase. Moreover, we generated $34 million of adjusted EBITDA, a $32 million increase. We achieved these results primarily through a combination of originations growth, ongoing expense discipline, and improved credit performance. I want to reiterate that we expect to be profitable on a GAAP basis for full year 2025. Regarding improved credit performance, Our annualized net charge-off rate was 12.2%, which was at the low end of our guidance range. Importantly, our underlying trends remain positive with dollar net charge-offs down year-over-year for the sixth consecutive quarter. Our 30-plus day delinquency rate was 4.7%, marking the fifth consecutive year-over-year decline, in this instance, by 56 basis points. I'm pleased to inform you that following the first quarter, our 30-day plus day delinquency rate declined further to 4.5% at the end of April. The guidance Paul will share reflects lower net charge-off rates in the quarters ahead. Third, originations were $469 million during Q1, up 39% year-over-year. It's important to note that this growth reflects the unusually low baseline from 1Q24. Secured personal loans accounted for 19% of our 1Q25 personal loan growth. This is constructive to credit quality because losses on secured personal loans were approximately 500 basis points lower than unsecured personal loans last year. Furthermore, $32 million or 7% of Q1 originations were sold to partners. For Q2, we expect year-over-year growth in the 10% range, supported by continued outperformance in secured personal loans. Sequentially, we still expect originations to rise from Q1's $469 million to a higher level in Q4, aligning with our typical seasonal pattern. However, given current macroeconomic uncertainty, we're prudently moderating our full-year 2025 originations growth outlook to approximately 10%, down from our prior 10% to 15% range while maintaining tight credit standards. And lastly, we reported $93 million in operating expenses, down 15% year-over-year. We reduced total expenses while increasing our marketing expenditure by $4 million, or 24%, which drove our originations growth. We continue to expect 2025 gap operating expenses of approximately $390 million or $97.5 million per quarter on average. Now let me update you on our progress across our three strategic priorities, improving credit outcomes, strengthening business economics, and identifying high-quality originations. Regarding improving credit outcomes, we continue to adjust our models based upon member behavior and the trends observed in the communities we serve. We're making further adjustments to better align risk levels by loan amount based upon recent vintage performance and to enhance our V12 credit model with additional data on new members. On strengthening business economics, I'm pleased that our Q1 adjusted ROE was 21%. We are confident in our progress towards consistently attaining full-year gap ROEs in the 20% to 28% range over the long term. And we're continuing to identify high-quality originations by reinvesting in marketing, targeting new members with higher levels of free cash flow, and supporting our best existing members, all within our conservative credit standards. We also remain focused on expanding our secured personal loans portfolio, which we grew by 59% year over year to $178 million for the 7% of our own portfolio in the first quarter. Finally, I'd like to preview our revised 2025 guidance. While we acknowledge the uncertainty in today's economic environment, it's worth noting that OPPORTUNE, founded in 2005, has weathered multiple macro shocks, beginning with a global financial crisis and consistently emerged stronger. We continue to monitor key indicators such as inflation, unemployment, fuel prices, and evolving government policies alongside our internal performance metrics. Supported by our more efficient cost structure and improved credit performance, this positions us to remain agile and well-prepared as conditions evolve. Despite the uncertain environment, our guidance reflects our commitment to continue to drive performance improvement. Paul will share with you that factoring both our Q1 performance and the tapering of our originations growth expectations to 10%, we're reiterating our full year 2025 adjusted EPS expectations. Our adjusted EPS guidance range of $1.10 to $1.30 continues to reflect strong growth of 53 to 81% over 2024 suggested EPS of 72 cents. In summary, we turned the corner in 2024 and continued to make progress in Q1. We are focused on executing our three strategic priorities and ensuring that momentum continues. With that, I will turn it over to Paul for additional details on our financial and credit performance, as well as our guidance.