Oportun Financial Corp. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. The filing was signed February 23, 2021. Oportun provides consumer credit, primarily unsecured personal installment loans, to borrowers underserved by traditional credit providers. Its newer products include credit cards and auto-secured personal loans.
Financial and operating performance
| Metric | FY2020 | FY2019 |
|---|---|---|
| Total revenue | $583.7 million | $600.1 million |
| Net income (loss) | $(45.1) million | $61.6 million |
| Adjusted EBITDA (non-GAAP) | $22.1 million | $74.3 million |
| Adjusted net income (loss) (non-GAAP) | $(14.2) million | $62.8 million |
| Net cash from operating activities | $152.9 million | $218.4 million |
| Cash, cash equivalents and restricted cash at year-end | $168.6 million | $136.1 million |
- Revenue declined 2.7%. Interest income was nearly flat at $545.5 million; non-interest income fell 31.7% to $38.3 million, primarily as loan-sale gains decreased.
- Net revenue was $335.1 million, down from $446.8 million. The $190.3 million net decrease in fair value included $166.9 million in net charge-offs and a $23.4 million fair-value mark-to-market decrease.
- Net loss per diluted share was $1.65. Operating expenses rose 8.5% to $393.2 million; operating efficiency increased to 67.4% from 60.4%. Adjusted operating efficiency was 61.1%, versus 57.2%.
- Annualized net charge-off rate rose to 9.8% from 8.3%; 30-plus-day delinquency was 3.7% at year-end versus 4.0% a year earlier. Fourth-quarter charge-off rate was 9.4%, down from 10.4% in Q3.
- Aggregate originations fell 34.3% to $1.35 billion; loans originated declined 38.2% to 449,362. Active customers fell 17.9% to 651,600, while customer acquisition cost rose to $199 from $134.
- Year-end owned principal balance was $1.64 billion. Average daily principal balance increased 4.8% to $1.70 billion.
- Year-end total assets were $2.01 billion, total liabilities $1.54 billion, and stockholders’ equity $466.4 million. Reported debt was approximately $1.41 billion, including $1.17 billion in asset-backed notes and $246.4 million in secured financing.
- Cost of debt fell to 4.1% from 4.4%; management reported more than 80% of debt at fixed cost. The $400 million warehouse facility had $153 million undrawn capacity at year-end.
Changes and accounting considerations
- COVID-19, tighter underwriting and reduced marketing contributed to fewer applications and originations. Fourth-quarter originations rose 48.3% sequentially, but December originations were 28% below December 2019.
- Effective January 1, 2020, Oportun elected fair-value accounting for all loans held for investment previously recorded at amortized cost. This changed the presentation of credit losses and earnings; year-over-year results are therefore not fully comparable. Fair-value loans represented 84% of total assets at year-end and rely on Level 3 estimates.
- Interest expense decreased 3.6% to $58.4 million. The company reported $152.9 million of operating cash flow, compared with $218.4 million in 2019.
- FY2020 includes $4.6 million of COVID-related expenses, a $3.7 million impairment associated with exiting direct purchase-money auto loans, and an $8.8 million litigation settlement reserve. Management characterized COVID expenses as nonrecurring, subject to the pandemic subsiding.
Outlook, management commentary and key risks
- Management said it had more than 12 months of liquidity runway and expected cash, operating cash flow and available borrowing capacity to cover anticipated needs for at least the next 12 months. No numerical earnings or revenue guidance was provided.
- Management planned to close 136 retail locations and reduce related staffing, estimating approximately $19 million in annual operating expense savings after one-time charges. It estimated $5–6 million of closure-related charges in Q1 2021 and another $5–6 million during the remainder of 2021.
- Growth plans include expanding digital and mobile origination, launching unsecured loans through MetaBank in additional states around mid-2021, and developing the DolEx lending partnership. Oportun began applying for a national bank charter in November 2020; approval was not assured.
- Key risks include continued pandemic effects on borrowers and credit performance; access to securitization and warehouse funding; debt covenants and early-amortization triggers; interest-rate and fair-value estimation risk; regulatory and legal developments affecting consumer lending and bank partnerships; and geographic concentration. California and Texas accounted for 55.9% and 26.2% of owned principal balance, respectively, according to the risk-factor disclosure.
- The whole-loan sale agreement covering at least 10% of eligible unsecured originations was extended only through February 26, 2021, with further extensions to be considered monthly. The $400 million secured financing facility was committed through October 2021.
- Subsequent events: WebBank’s February 2021 credit-card receivables facility provides for it to retain up to $25 million of receivables; Oportun purchases certain excess and ineligible receivables. Oportun also announced the retail closures and a planned redemption of $200 million of 2018-A notes in March 2021.
Most important facts for investors to verify
- How loan-loss forecasts and other Level 3 fair-value assumptions affect reported earnings, and how actual collections and charge-offs compare with those estimates.
- Whether originations, delinquency and charge-off trends continue to improve, particularly after emergency deferrals and government support measures.
- Availability and cost of replacement or extended funding as warehouse, securitization and whole-loan arrangements approach key dates, and compliance with performance triggers.
- Whether the retail optimization delivers projected savings after closure costs, and whether customers transition successfully to digital, partner or remaining retail channels.
- Progress, economics and regulatory status of the MetaBank and DolEx partnerships, credit-card funding facility and national bank charter application.
- The outcome and potential cost of the pending Opportune trademark litigation; the filing does not state a clear final resolution.