Oportun Financial Corporation

Greetings and welcome to the OPPORTUNE Financial Third Quarter 2025 Earnings Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the full 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 your host, Dorian Hare of Investor Relations. Thank you. You may begin.

Thanks, and hello, everyone. With me to discuss OPPORTUNE's third quarter 2025 results are Raul Vasquez, Chief Executive Officer, and Paul Appleton, our Treasurer, Head of Capital Markets, and Interim Chief Financial Officer. I 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 projections, adjusted ROE attainment, and expected originations growth, planned products and services, business strategy, expense savings measures, and plans and objectives of management for 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 ending September 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 the period-to-period comparisons of our core business and which will provide useful information to investors regarding our future 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 third quarter 2025 financial supplement, and the appendix section of the third 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 Rahul.

Thanks, Dorian, and good afternoon, everyone. Thank you for joining us. Our third quarter results were strong, marking our fourth consecutive quarter of GAAP profitability. We met or exceeded all of our guidance metrics, reflecting continued operational discipline and strong execution across the business. The four key headlines from the quarter are continued GAAP profitability, improved credit performance, ongoing expense discipline, and an enhanced capital structure. Let's start with profitability. We were GAAP profitable once again in Q3 with net income of $5.2 million, reflecting $35 million of year-over-year improvement. Our ROE was 5% up 40 percentage points year-over-year. We achieved these results through continued disciplined expense management, improved credit performance, and growth in originations. Based on our performance through the first three quarters, we remain confident that we'll deliver on our promise of full year 2025 GAAP profitability as we committed to at the start of the year. This includes our expectation to be GAAP profitable in the fourth quarter. Turning to credit performance, Our annualized net charge off rate was 11.8%, a modest improvement from 11.9% in the prior year period. Our 30 plus day delinquency rate also improved year over year by 44 basis points to 4.7%. On the expense side, we reported $91 million in operating expenses down 11% year over year. That represents our second lowest quarterly expense level since becoming a public company in 2019 and our lowest ever on an adjusted basis. Thanks to our planned reduction of second half 2025 marketing and other expenses, we now expect full year 2025 GAAP operating expenses of approximately $370 million, a $10 million improvement from our prior outlook and a $40 million improvement from 2024. Finally, we took meaningful steps during and after the quarter to further strengthen our capital structure. We executed ABS financings at weighted average yields below 6% in August and October and proactively repaid higher cost corporate debt. Additionally, we expanded our warehouse financing capacity in October by adding a new facility and modifying an existing one, extending average maturity and reducing our average cost of capital. Our debt-to-equity ratio was 7.1 times at the end of Q3, down significantly from the 8.7 times peak level in the prior year quarter, and we remain on track toward our target of six times. With our Q3 highlights covered, I'll now review how we're executing against our three strategic priorities, improving credit outcomes, strengthening business economics, and identifying high-quality originations. Starting with credit outcomes, on our last earnings call, we shared that the first half of the year saw a higher mix of new members than expected and that we were recalibrating originations more toward returning members. Our efforts were effective. 70% of Q3 originations went to returning members, up from 64% in the first half. Although our third quarter 30-plus day delinquency rate of 4.7% came down by 44%, basis points year over year, it was at the higher end of our internal expectations. Observing this trend, we took additional credit tightening actions during the quarter, which are ongoing. This included leveraging a new early default model to enhance predictiveness in using our bank transaction model to lower loan amounts and enact hard declines where needed. While these actions help protect portfolio quality, they led to slightly lower originations in Q3, and we expect continued impact in Q4 origination levels. Accordingly, we now expect full-year 2025 originations growth in the high single digits percentage range, slightly down from our prior expectation for growth of approximately 10%. Turning to business economics, we continue to make strong progress on efficiency and operating leverage. Our risk-adjusted net interest margin ratio improved 231 basis points year-over-year, to 16.4%. As a reminder, that metric includes portfolio yield, net charge-offs, cost of capital, and loan-related fair value impacts. Our adjusted OpEx ratio improved 133 basis points year-over-year to 12.6% of our own portfolio. That's a new record for cost efficiency and within eight basis points of our 12.5% target. These improvements drove strong operating leverage, lifting ROE by 40 percentage points year over year, and sharply increasing adjusted EPS from $0.02 to $0.39. Finally, on identifying high-quality originations, even as we maintain a conservative credit posture, we grew originations by focusing on members with higher free cash flow and on channels that deliver the strongest results. Q3 originations were $512 million, up 7% year-over-year, marking our fourth consecutive quarter of growth under a disciplined credit approach. Our referral program continues to perform well, driving 25% growth in referral-based originations to $31 million in the quarter. And expanding our secured personal loans portfolio remains a key pillar of our responsible growth strategy. SPL originations increased 22% year-over-year, and our secured portfolio grew 48% year-over-year to $209 million, now 8% of our own portfolio, up from 5% a year ago. Through the first three quarters of this year, secured personal loan losses have run over 500 basis points lower compared to unsecured personal loans. Altogether, these actions reflect our commitment to balancing growth, credit quality, and efficiency, an approach that's driving consistent improvement in opportunes profitability and overall momentum. With that, I'd like to now preview our updated 2025 outlook. We continue to closely monitor key indicators such as inflation, unemployment, fuel prices, and evolving government policies alongside our internal performance metrics. Our members have remained remarkably resilient despite ongoing macro uncertainty and our third quarter results reflect that resilience. With that being the case, our 30 plus day delinquency rate did come in at the high end of our internal expectations as I mentioned earlier. While we tighten credit accordingly, we do anticipate these trends to result in a slight increase at the midpoint of our full year 2025 annualized net charge off rate by 20 basis points to 12.1%, reflecting approximately $5 million in higher anticipated losses. This includes a 12.45% annualized net charge-off rate expectation at the midpoint of our guidance for the fourth quarter. We expect this elevated loss rate to be temporary, impacting early 2026 before easing by next year's second quarter as recent tightening actions take hold. Finally, We've raised our full-year adjusted EPS guidance to a range of $1.30 to $1.40 per share, up 4% at the midpoint, reflecting strong year-over-year growth of 81% to 94%. This increase is driven by continued expense discipline and a lower cost of capital, which together strengthen our profitability outlook for 2025. Opportunity itself has become far more resilient with sustained GAAP profitability, improved operating efficiency, and a clear path toward our 20 to 28% target ROEs. Looking ahead to 2026, we plan to stay focused on our three strategic priorities, which gives us confidence that we'll continue to grow adjusted EPS next year. With that, I will turn it over to Paul for additional details on our financial and credit performance, as well as our guidance.