Oportun Financial Corp. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with the three months ended March 31, 2021 unless otherwise noted. Amounts are in U.S. dollars.
Business context
Oportun is a consumer-finance and digital-banking platform offering personal and secured loans, credit cards, savings, checking, investing and retirement products. Its December 2021 acquisition of Digit expanded its digital-banking offerings; Digit is included in the current-period results but not the prior-year comparison. The company reports one operating segment.
Key financial results
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Total revenue | $214.7 million | $135.3 million | +58.7% |
| Net revenue | $205.0 million | $110.2 million | +86.0% |
| Operating expenses | $147.3 million | $106.3 million | +38.7% |
| Income before taxes | $57.7 million | $4.0 million | Increased |
| Net income | $45.7 million | $3.0 million | Increased |
| Diluted EPS | $1.37 | $0.10 | Increased |
| Adjusted EBITDA (non-GAAP) | $33.9 million | $(2.3) million | Improved |
| Adjusted Net Income (non-GAAP) | $52.7 million | $12.2 million | Increased |
Revenue growth reflected a 51.1% rise in interest income, primarily from a 48.5% increase in average daily principal balance to $2.4 billion, and Digit subscription income. Non-interest income rose to $22.5 million, including $9.3 million attributed to Digit subscription income. Operating expenses increased with business growth, technology and cloud usage, higher staffing and marketing, and $7.3 million of Digit acquisition and integration costs. The reported net income margin was approximately 21.3% of revenue.
The $4.0 million net fair-value increase was a material earnings factor. Fair-value adjustments included a $58.3 million gain on asset-backed notes, offset in part by a $16.9 million reduction on loans and $51.4 million of net loan charge-offs; the result also included a $15.9 million cumulative mark on loans sold in the structured transaction. Management said the note valuation gain reflected rising rates and widening securitization spreads, and expects fair-value results to remain volatile.
Cash flow, balance sheet and credit
- Cash and liquidity: Cash and cash equivalents were $109.9 million and restricted cash was $60.7 million at March 31, 2022, totaling $170.6 million, down from $193.0 million at year-end. Operating cash flow was $38.6 million; investing cash outflow was $122.5 million; financing cash inflow was $61.5 million. Investing outflow primarily reflected loan originations.
- Loans and assets: Loans receivable at fair value were $2.451 billion, versus $2.387 billion at December 31, 2021. Total assets were $2.993 billion.
- Debt and equity: Secured financing was $473.3 million, asset-backed notes were $1.593 billion and acquisition financing was $103.9 million. Total liabilities were $2.343 billion and stockholders’ equity was $649.9 million. The company reported compliance with financing covenants.
- Available funding: Warehouse facilities totaled $750 million, with $273 million of undrawn capacity at quarter-end. Management targets liquidity sufficient for at least 12 months of expected net cash outflows and believes existing cash, operating cash flows and borrowing capacity can cover anticipated needs for at least 12 months.
- Credit metrics: Aggregate originations increased 138.7% to $800.1 million. The 30-plus-day delinquency rate rose to 4.5% from 3.0%; management said it would have been 4.1% absent the quarter-end sale of $227.6 million of loans. The annualized net charge-off rate remained 8.6%. Loans 90 or more days past due had $23.0 million unpaid principal balance; $3.7 million was in non-accrual status.
Material changes and unusual items
- In March, Oportun participated in a $400 million securitization as co-sponsor, selling loans with approximately $227.6 million unpaid principal balance and its share of the residual interest; it received $245.0 million of net proceeds and continued servicing the loans.
- The prior whole-loan sale agreement expired on March 4, 2022 and was not renewed. The company reported $48.7 million of originations for sale under that program during the quarter.
- Oportun decided to close 27 additional retail locations in April 2022. It recorded $0.6 million of related closure and severance costs in Q1 and estimated a further $1.5 million of closure expense for Q2.
- The company reported 1.68 million members and 1.76 million products, but these metrics are not directly comparable with the prior-year “Active Customers” measure because the definitions changed and now include Digit users.
Outlook, risks and contingencies
The filing provides no specific numerical revenue or earnings guidance. Management expects interest expense to rise in 2022 as the company funds portfolio growth and market interest rates increase. It also anticipates that net charge-off rates will return toward pre-pandemic levels; it cited 7%–9% as the historical range from 2011 to 2019. Management identified inflation, rising rates, credit trends and capital-market volatility as potential pressures on results, liquidity and funding costs.
The CFPB is investigating Oportun’s lending and collection practices, including legal collections from 2019–2021 and COVID-19 hardship treatments. Digit also received a CFPB demand concerning alleged product-term or cost misrepresentations. Oportun says it is cooperating and cannot predict the outcomes. Other key risks include loan fair-value estimation, credit deterioration and delinquencies, reliance on securitizations and warehouse funding, interest-rate exposure, regulatory scrutiny of bank partnerships and consumer finance, cyber and data-security risks, and integration of Digit. The filing states that the company does not currently hedge interest-rate exposure associated with debt financing or fair-value measurements.
Investor verification priorities
- Assess how much reported earnings depended on noncash fair-value movements, especially the gain on asset-backed notes, and how results would look absent those changes.
- Track delinquency, charge-off and vintage loss trends as underwriting returns toward pre-pandemic criteria and loan growth accelerates.
- Verify that liquidity and warehouse capacity remain adequate as originations grow, and review funding availability and borrowing costs after the whole-loan program’s expiration.
- Monitor the CFPB investigations, any related remediation or regulatory actions, and the effect on collection practices and Digit products.
- Evaluate Digit’s contribution to recurring revenue and member engagement separately from acquisition-related costs and non-GAAP adjustments.