Oportun Financial Corporation — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Amounts below are in U.S. dollars; financial statement amounts are unaudited. Oportun is a consumer-finance and digital-banking platform. Its December 2021 acquisition of Digit added savings, banking and investment products.
Key financial results
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total revenue | $250.1 million | $159.1 million | $690.6 million | $432.7 million |
| Net revenue | $147.0 million | $139.5 million | $497.2 million | $370.0 million |
| Net income (loss) | $(105.8) million | $23.0 million | $(69.3) million | $33.2 million |
| Diluted EPS | $(3.21) | $0.75 | $(2.12) | $1.11 |
| Adjusted EBITDA (non-GAAP) | $(6.2) million | $18.1 million | $23.3 million | $23.3 million |
- Q3 revenue rose 57.2% year over year, primarily as average daily loan principal grew to $2.90 billion from $1.74 billion and Digit contributed subscription income. Net revenue rose only 5.3%, reflecting a $76.4 million net decrease in fair value, versus an $9.0 million decrease a year earlier.
- The Q3 net loss included a $108.5 million non-cash goodwill impairment. Excluding specified items, adjusted net income was $8.4 million and adjusted EPS was $0.25; these are non-GAAP measures.
- Q3 operating expenses were $259.3 million, including the impairment; reported operating efficiency was 103.7%, versus 70.0% a year earlier. Adjusted operating efficiency was 54.2%, versus 67.1%.
- Interest expense increased 152.2% to $26.7 million in Q3. Management attributed the increase to higher debt balances, increased leverage and rising rates and securitization spreads. Q3 cost of debt was 3.9%, compared with 2.8%.
Credit, cash flow and financial position
- At September 30, cash and cash equivalents were $175.9 million and restricted cash was $96.4 million, totaling $272.2 million. Total assets were $3.54 billion, total liabilities $2.99 billion and stockholders’ equity $549.1 million.
- Debt carrying values included $2.24 billion of asset-backed notes, $365.1 million of secured financing and $241.8 million of acquisition and corporate financing. The company reported compliance with debt covenants at quarter-end. Its $750 million warehouse facilities had $382 million of undrawn capacity.
- For the first nine months, operating cash flow was $159.3 million, investing cash outflow was $915.9 million and financing cash inflow was $835.8 million. Investing outflows primarily reflected loan originations.
- Loans originated in Q3 totaled $634.2 million, down 4.2% year over year; nine-month originations increased 61.7% to $2.31 billion. Management said tighter underwriting and a focus on existing and returning borrowers drove the quarterly decline.
- The 30-plus-day delinquency rate was 5.4%, versus 2.8% a year earlier. Annualized net charge-off rates were 9.8% for Q3 and 9.0% for nine months, compared with 5.5% and 6.8%, respectively, in 2021. Management cited a higher share of first-time borrowers and warned losses could rise further amid inflation.
Changes, outlook and material risks
- Fair value marks on loans reflected higher expected cumulative charge-offs and discount rates. The loan discount rate rose to 10.19% from 6.94% at year-end 2021; management expects continued fair-value volatility amid macroeconomic conditions.
- Oportun recorded the $108.5 million goodwill impairment after its share-price decline led to a quantitative impairment test. Goodwill was reduced to zero.
- The company said existing cash, expected operating cash flow and available borrowing capacity should cover anticipated operating and capital needs for at least 12 months. It also noted that rising rates, credit deterioration or reduced capital-market access could pressure liquidity and funding costs.
- No specific earnings or operating guidance is provided in the filing. Management expected interest expense to increase as borrowing and benchmark rates rose, and said charge-off rates could increase further.
- On September 15, 2022, the company received a CFPB NORA letter stating staff was considering recommending legal action concerning collection lawsuits and pandemic hardship treatments, including related credit reporting. Oportun disputed the allegations in its October response and said the outcome could not be predicted.
- Digit agreed to a CFPB consent order in August 2022, including a $2.7 million civil penalty and at least $68,145 in consumer redress; the company had recorded a reserve in Q2.
- After quarter-end, on November 3, Oportun issued $300 million of asset-backed notes, priced at a 10.94% weighted-average yield. Other key risks include consumer credit deterioration, funding-market access and cost, fair-value estimation, regulatory exposure, and execution of Digit integration.
Important facts for investors to verify
- Track delinquencies, charge-offs, loan vintage performance and the effects of underwriting changes, particularly if inflation or economic weakness persists.
- Assess the sensitivity of reported earnings and equity to Level 3 loan fair-value assumptions, including expected losses and discount rates, and to fair-value changes in asset-backed notes.
- Review the cost, maturities, covenants and availability of funding, including the higher-yield November securitization and the SOFR-plus-9% corporate term loan.
- Monitor the CFPB matter’s status, potential consequences and any related financial reserve updates.
- Evaluate whether Digit’s products and subscription revenue can contribute sustainably while integration and operating costs remain elevated.