Oportun Financial Corporation

Greetings and welcome to the Opportune Financial second quarter 2025 earnings call. At this time, all participants are in a listen-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Dorian Hare, Senior Vice President of Investor Relations. Please go ahead.

Thanks, and hello, everyone. With me to discuss Opportunity's second quarter 2025 results are Raul Vasquez, Chief Executive Officer, and Paul Appleton, our Treasurer, Head of Capital Markets, and the 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 on our filings with the Securities and Exchange Commission under the caption Risk Factor. including our upcoming Form 10-Q filing for the quarter ended June 30, 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 period-to-period comparisons 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-gap-to-gap financial measures is included in our earnings press release, our second quarter 2025 financial supplement, and the appendix section of the second 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. Q2 was another strong quarter. Gap profitability, improved credit metrics, and disciplined growth reaffirm that our strategy is working. We also continue to make progress on our long-term ROE and leverage targets, a testament to the strength of our operating model and good execution in Q2. The four key headlines from Q2 are continued gap profitability, improved credit performance, ongoing expense discipline, and a strengthening balance sheet. First, we were gap profitable once again in Q2. Net income reached $6.9 million, our third consecutive quarter of gap profitability, driven by the $38 million year-over-year improvement. We also generated an ROE of 7%, up 41 percentage points year-over-year. We achieved these results with ongoing expense discipline, improved credit performance, and originations growth. We remain on track to achieve GAAP profitability for full year 2025. Regarding improved credit performance, our annualized net charge off rate was 11.9%, 41 basis points better than last year's levels. Our 30 plus day delinquency rate also improved year over year, by 54 basis points to 4.4%. For Q2, we reported $94 million in operating expenses, down 13% year-over-year. We reduced total expenses while increasing our marketing expenditure by $2 million, which drove our originations growth. Thanks to our diligent expense management, we now expect full-year 2025 gap operating expenses of approximately $380 million, down $10 million from our prior expectation of $390 million, and down $30 million from 2024's level of $410 million. This implies $96.5 million of quarterly OPEX on average during the second half of the year. Finally, in June, we successfully completed our latest ABS transaction, a $439 million issuance of two-year revolving fixed-rate asset-backed notes. I'm very pleased to note that the transaction was completed at a weighted average yield of 5.67%, a 128 basis point improvement from our prior ABS transaction in January. We received a AAA rating on our most senior bonds, a first for Opportune and a testament to how far we have come over the past couple of years. We view this as a very strong outcome for Opportune and a reflection of our progress. While we generally met our Q2 objectives, revenue did unperform slightly due to higher member repayment rates, and Paul will walk you through that. With the financial highlights covered, let's take a step back and review how we're executing against our three strategic priorities, improving credit outcomes, strengthening business economics, and identifying high-quality originations. Regarding improving credit outcomes, we are consistently fine-tuning our models and processes based upon member behavior and trends we observe within the communities that we serve. For example, Having successfully used Plaid to access bank transaction data for underwriting for several years now, we recently enhanced our decisioning to utilize Plaid Check, their FCRA compliance consumer report. Approximately 60% of second quarter loan disbursements utilized bank transaction data. The first half saw a greater mix of new members versus returning members than expected. Given typical credit performance dynamics, this shift is anticipated to result in modestly higher full-year losses. As a result, we're recalibrating our originations more towards existing members. On strengthening business economics, our focus is on continued efficiency gains. During Q2, we improved our risk-adjusted net interest margin year over year by 192 basis points to 16.3%. As a reminder, that metric includes portfolio yield, net charge-offs, cost of capital, and loan-related fair value impacts. We also improved our adjusted OpEx ratio year-over-year by 46 basis points to 13.3% of our own portfolio. Both measures contribute meaningfully to the strong operating leverage we delivered this quarter. dragging ROE higher by 41 percentage points year-over-year and nearly quadrupling our adjusted EPS. Finally, we're continuing to identify high-quality originations by reinvesting in marketing and targeting members with higher levels of free cash flow within our conservative credit standards. QQ originations of $481 million were up 11% year-over-year. That's the third consecutive quarter that we've grown originations under our ongoing conservative credit posture. Supporting this strategy, our loan referral program delivered strong results, with originations increasing 127% year over year to $34 million during Q2. We also remained focused on expanding our secured personal loans portfolio, which accounted for 39% of our personal loan originations growth during Q2, As a reminder, during full year 2024, secured personal loan losses ran approximately 500 basis points lower compared to unsecured personal loans. We grew the secured loan portfolio by 58% year-over-year to $195 million, or to 7% of our own portfolio. That's up from 5% of our portfolio a year ago. I'm also pleased to inform you that SPL is now available in eight states after we launched the product in Nevada and Utah during Q2. I'd like to now preview our updated 2025 outlook. While we continue to monitor key indicators such as inflation, unemployment, fuel prices, and evolving government policies, alongside our internal performance metrics, we have been pleased to observe how resilient our customers have been despite ongoing macro uncertainty. Supported by our more efficient cost structure and improved credit performance, this positions us to remain agile and well-prepared as conditions continue to evolve. While first half results exceeded expectations, we expect higher member repayment rates to result in a lower portfolio yield than previously anticipated, and we now expect a slower decline in our net charge-off rate for the second half. We've responded by recalibrating credit and implementing the additional cost reductions that I just discussed. Incorporating these actions, we are increasing our full-year adjusted EPS guidance by 8% at the midpoint, now targeting $1.20 to $1.40 per share, representing strong growth of 67% to 94% versus last year's adjusted EPS levels. In summary, We are very pleased with our ability to deliver enhanced profitability while offering essential financial services to our hardworking members. We are focused on executing our three strategic priorities and ensuring we continue our strong momentum. With that, I will turn it over to Paul for additional details on our financial and credit performance, as well as our guidance.