Oportun Financial Corporation — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Oportun provides consumer financial services, primarily unsecured installment loans, with expanding secured-loan and credit-card offerings. Figures are unaudited; dollar amounts are in millions unless stated otherwise.
Financial performance and condition
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $138.3 | $142.7 | $273.6 | $306.1 |
| Net revenue | $120.2 | $46.1 | $230.4 | $126.7 |
| Operating expenses | $110.4 | $93.0 | $216.7 | $191.6 |
| Net income (loss) | $7.3 | $(34.2) | $10.3 | $(47.5) |
| Diluted EPS | $0.24 | $(1.26) | $0.34 | $(1.75) |
| Cash provided by operating activities | — | $53.8 | $94.0 |
Revenue declined 3.1% in Q2 and 10.6% for the first half, largely reflecting a smaller average loan balance. Interest expense fell 19.5% in Q2 and 18.4% year to date; reported cost of debt was 3.3% in Q2 and 3.6% for the first half. Net revenue includes fair-value changes and charge-offs: the net decrease in fair value was $5.9 million in Q2 and $17.5 million for the first half, versus $81.5 million and $148.0 million, respectively, in 2020. Management attributed the improvement principally to better credit trends and lower discount rates, partly offset by charge-offs.
Operating efficiency was 79.8% in Q2 versus 65.2% a year earlier; adjusted operating efficiency, a non-GAAP measure, was 70.0% versus 60.0%. Higher operating costs included investments in products and channels, retail-closure costs, and a right-of-use asset impairment. Adjusted EBITDA was $4.5 million in Q2 and $2.2 million for the first half; adjusted net income was $17.0 million and $29.2 million, respectively. These are non-GAAP measures and are not directly comparable to GAAP net income.
At June 30, cash and cash equivalents were $138.4 million and restricted cash was $219.5 million, for total cash and restricted cash of $358.0 million. Restricted cash included $171.3 million in a securitization prefunding account intended to fund loan purchases. Total assets were $2.22 billion; total liabilities were $1.74 billion; stockholders’ equity was $484.3 million. Asset-backed notes had a $1.614 billion fair value and $1.604 billion unpaid principal balance. The $400 million secured financing facility had no balance outstanding at quarter-end and was scheduled to mature October 1, 2021. Management stated existing cash, expected operating cash flows, and available borrowing capacity should cover anticipated operating and capital needs for at least 12 months.
Operating trends and changes from prior period
- Q2 aggregate originations rose 174.7% to $433.0 million; first-half originations rose 30.1% to $768.3 million. Management cited stronger demand, increased approvals, and a return toward pre-pandemic underwriting practices. Q2 loans originated increased to 154,994 from 48,193.
- Active customers increased 1.2% year over year to 684,843, while managed principal balance declined 3.4% to $1.873 billion and owned principal balance declined 0.7% to $1.631 billion.
- Customer acquisition cost fell to $153 in Q2 from $413; first-half CAC was $177 versus $232.
- The 30+ day delinquency rate improved to 2.5% from 3.7%. Annualized net charge-off rates were 6.4% in Q2 versus 10.6%, and 7.5% for the first half versus 9.8%. Management cited improved economic conditions, customer stimulus, and collection and underwriting tools; it cautioned that stimulus and pandemic effects remain uncertain.
- Operating cash flow declined to $53.8 million from $94.0 million for the first half. Investing cash use was $57.2 million, compared with $93.6 million provided in the prior-year period, reflecting increased loan originations. Financing provided $192.7 million, principally from 2021 securitizations.
Outlook, risks, contingencies, and unusual items
- No specific numerical earnings or revenue guidance is provided. Management expects to continue funding growth through securitizations, secured financing, and whole-loan sales, and plans to expand lending through a MetaBank partnership; rollout was anticipated in the coming weeks. The company had also applied for a national bank charter; approval and timing were uncertain.
- Oportun closed 136 retail locations in Q1 2021 as part of network optimization. Related expenses were $4.9 million in Q2 and $12.7 million for the first half, including severance and benefits. Management said it did not expect significant additional closure expenses. A separate $3.3 million impairment related to leased office space followed the decision to move toward a remote-first work environment.
- In March and May, the company issued $375 million of two-year notes at a 1.79% weighted-average rate and $500 million of three-year notes at 2.05%. It redeemed the 2018-A and 2018-B securitizations during the first half. After quarter-end, it redeemed $275 million of 2018-C notes on July 8, funded with secured-facility borrowings, 2021-B securitization funds, and unrestricted cash.
- WebBank’s credit-card retention facility was initially capped at $25 million for a two-year term; $18.4 million had been utilized at June 30. On July 28, the parties temporarily increased capacity by $10 million through the earlier of a new facility closing or September 30, 2021.
- The Opportune trademark lawsuit remains pending, with no trial date stated. At June 30, the company recorded a $1.9 million liability and a $1.0 million insurance receivable. The filing says other disclosed proceedings were not believed to be material individually or collectively.
- Principal risks include pandemic and macroeconomic uncertainty, loan-credit and fair-value estimation risk, dependence on securitization and whole-loan funding, debt covenant or early-amortization triggers, interest-rate and LIBOR-transition exposure, regulatory and bank-partnership risk, cybersecurity and privacy, and execution of new products and retail optimization. The company reported compliance with financing covenants at June 30.
Most important facts for investors to verify
- Whether originations and portfolio balances continue to recover without deterioration in delinquencies or charge-offs as stimulus effects fade.
- How fair-value assumptions, including expected cumulative charge-offs and discount rates, affect reported earnings; loan fair values rely on significant Level 3 inputs.
- Availability, pricing, and covenant capacity of securitizations and other funding, including the secured facility’s October 2021 maturity and subsequent refinancing actions.
- Whether new products, bank partnerships, and the proposed national bank charter produce sustainable returns and meet regulatory requirements.
- Actual remaining costs and operating effects of retail closures and the remote-first office strategy, as well as the outcome and potential cost of the Opportune litigation.