Oportun Financial Corp. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. Comparisons are to Q1 2020 unless otherwise noted. Oportun provides consumer lending and related financial services, primarily unsecured installment loans, and reports as one segment.
Key financial results
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Total revenue | $135.3 million | $163.4 million |
| Net revenue | $110.2 million | $80.6 million |
| Operating expenses | $106.3 million | $98.6 million |
| Net income (loss) | $3.0 million | $(13.3) million |
| Diluted EPS | $0.10 | $(0.49) |
| Operating cash flow | $18.2 million | $52.1 million |
Revenue fell 17.2%, mainly as average daily principal balance declined 12.7% and portfolio yield fell 70 basis points. Net revenue improved despite lower revenue because the net fair-value decrease narrowed to $11.6 million from $66.5 million; this measure includes fair-value movements and charge-offs. Q1 2021 included $34.6 million of net charge-offs. The annualized net charge-off rate was 8.6%, versus 8.9%.
Cash, cash equivalents and restricted cash totaled $183.2 million, including $140.4 million unrestricted cash. Total assets were $2.0 billion and stockholders’ equity was $472.0 million at March 31. Secured financing was $64.8 million and asset-backed notes at fair value were $1.341 billion. Management reported compliance with debt covenants. Net cash from investing activities was $9.0 million; financing activities used $12.6 million.
Changes and operating metrics
- Aggregate originations declined 22.5% to $335.2 million; loans originated fell 19.9% to 114,670. Management attributed weaker applications to COVID-19 stimulus measures and elevated unemployment, alongside tighter underwriting.
- Active customers declined 17.1% to 644,000 and managed principal balance fell 16.0% to $1.833 billion year over year. Customer acquisition cost rose 22.4% to $208.
- Delinquencies improved: the 30-plus-day rate was 3.0%, down from 3.8%. Management cited collections, stimulus support and tighter underwriting; 0.6% of owned principal balance was in active emergency deferral.
- Operating expenses rose 7.8%. The company recorded $7.8 million of retail-network optimization and related severance costs, including $4.0 million of accelerated right-of-use asset amortization. It had closed 136 retail locations by quarter-end.
- Non-GAAP Adjusted EBITDA was a loss of $2.3 million, versus income of $17.9 million; Adjusted Net Income was $12.2 million, versus a loss of $1.2 million. These measures exclude or adjust for items and are not GAAP substitutes.
Outlook, risks and unusual items
No quantitative earnings or originations guidance is provided. Management said existing cash, expected operating cash flows and available borrowing capacity should cover anticipated operating and capital needs for at least 12 months, while noting that additional financing may be needed and may not be available on acceptable terms. The company anticipated launching its MetaBank personal-loan partnership in mid-2021 and continued pursuing a national bank charter; neither outcome was assured.
Funding included a $375 million two-year securitization priced at a 1.79% weighted-average interest rate. Proceeds supported redemption of 2018-A notes and repayment of secured financing. The company also announced redemption of $225 million of 2018-B notes in April. A WebBank facility supports credit-card growth: WebBank retains receivables up to $25 million, with Oportun responsible for certain excess and ineligible receivables; $7.8 million had been utilized by March 31.
Key risks include continued COVID-19 effects on demand, customer repayment and funding markets; possible waning of government stimulus; reliance on securitizations and a warehouse facility; credit losses and model-estimation uncertainty; and regulatory uncertainty around bank partnerships, consumer lending and the proposed bank charter. The nationwide 36% APR cap for newly originated loans may reduce yield and spread. Management cited no material market-risk changes, but warned COVID-related volatility could affect results.
A pending trademark and unfair-competition dispute has no trial date set. As of March 31, the company recorded a $1.9 million liability and a $1.0 million insurance recovery receivable. The filing also reports expected $4.7 million of remaining retail-closure expenses for Q2 2021.
Important facts for investors to verify
- How much Q1 profitability depended on non-cash fair-value movements, and how sensitive the loan valuation is to credit-loss, prepayment and discount-rate assumptions.
- Whether originations and customer demand recover, particularly as stimulus support changes, and how the APR cap affects yield and margins.
- Whether delinquency and charge-off performance remain stable as pandemic-related relief effects fade.
- Available borrowing capacity, refinancing needs and covenant headroom, including the secured facility’s October 2021 maturity and securitization redemptions.
- Actual costs and execution of the retail optimization plan, and progress and regulatory conditions for the MetaBank launch and national bank charter.