Month-over-month originations growth in May, June and July
SAN CARLOS, CALIFORNIA—August 6, 2020—Oportun Financial Corporation (Nasdaq: OPRT) (“Oportun” and the “Company”) today reported financial results for the second quarter ended June 30, 2020.
“The actions we took during the second quarter resulted in improving month-over-month credit trends, steadily increasing originations, and a continued strong balance sheet,” said Raul Vazquez, CEO of Oportun. “During this period of economic uncertainty, we remain committed to financial inclusion and providing our customers with affordable financial services. Our investments in technology have allowed us to innovate throughout the pandemic, and we have developed tools that enable us to better serve our customers, positioning us for smart, sustainable growth.”
Second Quarter 2020 Results
|Net income (loss)||($34.2)||$13.8||($35.1)||$10.9|
|Diluted earnings (loss) per share||($1.26)||$0.52||($1.29)||$0.50|
Dollars in millions, except per share amounts.
- Managed Principal Balance at End of Period was $1.94B, up 3% year-over-year
- 30+ Day Delinquency Rate of 3.7% as compared to 3.4% for the prior-year period
- Annualized Net Charge-Off Rate of 10.6% as compared to 7.7% for the prior-year period
- Book Value of $454.3M, or $16.62 per share, and Adjusted Tangible Book Value of $429.8M, or $15.73 per share
- 12+ months of liquidity runway
Financial and Operating Results
To facilitate useful measures for period-to-period comparisons, the Company has provided unaudited financial information for the three and six-month periods ended June 30, 2020 and 2019 on a GAAP basis as well as a Fair Value Pro Forma (“FVPF”) Adjusted basis. The FVPF and adjusted financial results reflect the Company’s performance as if the fair value option had been elected since inception for all loans originated and held for investment and all asset-backed notes issued. All figures are as of June 30, 2020, unless otherwise noted.
The Company believes it continues to be well positioned strategically and financially in the current environment; however, factors such as economic conditions, the extent and duration of the COVID-19 pandemic, the unemployment rate, and further stimulus measures may impact future performance. The Company remains fully committed to the safety of its employees and customers during the ongoing COVID-19 crisis, and continues to take actions to manage its business in a thoughtful and conservative manner throughout this fluid situation.
1 See the section entitled “About Non-GAAP Financial Measures” for an explanation of non-GAAP measures, and the table entitled “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of non-GAAP to GAAP measures.
Total Revenue and FVPF Total Revenue—Total revenue and FVPF Total Revenue for the second quarter was $142.7 million, comparable with the prior-year quarter. Interest income increased $6.3 million compared to the prior-year quarter. The increase in interest income was offset by a decrease in non-interest income, which decreased $6.2 million compared to the prior-year quarter.
Net Income (Loss) and Adjusted Net Income (Loss)—Net income (loss) was $(34.2) million, as compared to $13.8 million in the prior-year quarter. Adjusted Net Income (Loss) was $(35.1) million compared to $10.9 million in the prior-year quarter. The decreases in net income and Adjusted Net Income are attributable to a mark-to-market decrease related to the increase in value of the Company’s asset-backed notes and current period charge-offs. These decreases were partially offset by an increase in the fair value of the Company’s loan portfolio in the second quarter as a result of a lower discount rate and lower expected losses as compared to the prior quarter.
Earnings (Loss) Per Share and Adjusted EPS—GAAP net loss per share, basic and diluted, were both $(1.26), for the three months ended June 30, 2020. GAAP earnings per share, basic and diluted, were both $0.52 in the prior-year quarter. Adjusted EPS was $(1.29) as compared to $0.50 in the prior-year quarter.
Adjusted EBITDA—Adjusted EBITDA was $4.8 million, down from $19.9 million in the prior-year quarter. The Company believes that Adjusted EBITDA is a useful metric because it is a proxy for Oportun’s pre-tax cash profitability. In addition to adding back taxes, depreciation, amortization, stock-based compensation and one-time events, Adjusted EBITDA also excludes the non-cash impact of fair value accounting.
Credit and Operating Metrics
The Company believes that its rapid implementation of emergency hardship programs and reduced payment plans have been effective in providing impacted customers sufficient time to return to repayment status. At the end of June, 5.0% of Oportun’s Owned Principal Balance at End of Period was in emergency hardship deferral status, down from 14.6% at the end of April. As of July 31, 2020, 3.9% of the Company’s Owned Principal Balance at End of Period was in deferral status under the emergency hardship deferral program.
Net Charge-Off Rate—The Annualized Net Charge-Off Rate for the quarter was 10.6%, compared to 7.7% for the prior-year quarter. As a result of the pandemic and based upon the Company’s analysis of historical loan performance following natural disasters or other emergencies, more loans have been determined to be uncollectible prior to reaching 120 days contractually past due, resulting in higher charge-offs. This led to $4.1 million of additional charge-offs in June, which increased the Annualized Net Charge-Off Rate by 96 basis points for the quarter. The Company expects to continue to see higher charge-offs from some loans impacted by the pandemic that are deemed unlikely to be collectible. The Annualized Net Charge-Off Rate for the month of July was 11.9%, with $4.0 million of additional charge offs, a 290 bps impact.
30+ Day Delinquency Rate—The Company’s 30+ Day Delinquency Rate was 3.7% at the end of the quarter, compared to 3.4% at the end of the prior-year quarter. The 30+ Day Delinquency rate as of June 30, 2020 was down from 4.0% at the end of both April and May. consistent with the Company’s preliminary estimate. The 30+ Day Delinquency Rate was 3.4% as of July 31, 2020.
Operating Efficiency and Adjusted Operating Efficiency—Operating Efficiency for the quarter was 65.2% as compared to 58.4% in the prior-year quarter. Adjusted Operating Efficiency for the second quarter was 60.0%, as compared to 57.1% in the prior-year quarter. Oportun has been actively identifying and reducing discretionary spend, while continuing to invest in those areas that will enhance the Company over the long-term. Sequentially, operating expenses declined due to a reduction in marketing spend and other expense savings initiatives during the second quarter of 2020. The year-over-year increase in operating expenses is driven by $4.0 million in investments in new products and $2.4 million in COVID-19-related expenses in the second quarter of 2020, as well as additional investments in technology, engineering, and data science.
Book Value and Adjusted Tangible Book Value—Book Value for the quarter was $454.3 million, or $16.62 per share, and Adjusted Tangible Book Value was $429.8 million, or $15.73 per share.
Return On Equity (“ROE”) and Adjusted ROE—ROE for the quarter was (29.4)%, as compared to 14.9% in the prior-year quarter. Adjusted ROE for the quarter was (29.9)%, as compared to 11.7% in the prior-year quarter.
Steadily increasing originations—The Company’s originations increased in May, June and July, due to the refinement of its marketing efforts, including increased digital initiatives and optimization of direct mail, and availability of its omni-channel network during the pandemic. Furthermore, credit performance on newly-originated loans is trending below 2019 and pre-pandemic levels due to the Company’s credit tightening in mid-March. Based upon this performance, the Company has prudently increased its approval rates over the last few weeks and has focused on increasing approval rates for its returning customers. These efforts resulted in loan originations for June increasing 46% as compared to May and 64% as compared to April. Loan originations were $85.3 million in July, a 24% increase compared to June.
Funding and Liquidity
As of June 30, 2020, total cash was $198.0 million, consisting of cash and cash equivalents of $139.2 million and restricted cash of $58.7 million. FVPF Cost of Debt and FVPF Debt-to-Equity were 4.2% and 3.1x, respectively, for and at the end of the second quarter 2020 as compared to 4.3% and 3.6x, respectively, for and at the end of the prior-year quarter. As of June 30, 2020, the Company had $302.8 million of undrawn capacity on its existing $400.0 million warehouse line, which is committed through October 2021. Following the redemption in July of the $200 million Series 2017-B asset-backed notes, as of July 31, 2020, the Company had $176.4 million of undrawn capacity on the warehouse line. Based upon its recent projections, Oportun has determined that it continues to have more than 12 months of liquidity runway.(1) Oportun also continues to sell a percentage of newly originated loans on a whole loan basis at a fixed price pursuant to its existing flow sale contract.
Given the ongoing uncertainty surrounding the duration and severity of COVID-19, Oportun is not providing forward-looking guidance at this time for 2020 or 2021. The Company anticipates its future financial performance will continue to be impacted by the pandemic and its economic consequences, but the magnitude and timing of this impact is too dependent on external factors to reliably set guidance parameters at this time.
As previously announced, Oportun’s management will host a conference call to discuss second quarter 2020 results at 5:00 p.m. EDT (2:00 p.m. PDT) today. The dial-in number for the conference call is 877-407-9208 (toll-free) or 201-493-6784 (international). Participants should call in 10 minutes prior to the scheduled start time. A live webcast of the call will be accessible from the Investor Relations page of Oportun’s website at https://investor.oportun.com. Both the call and webcast are open to the general public. For those unable to listen to the live broadcast, a replay will be available through Thursday, August 20, 2020, by phone at 844-512-2921 (toll-free) or 412-317-6671 (international), passcode 13706113, and a webcast replay will be available at https://investor.oportun.com for one year. An investor presentation that includes supplemental financial information and reconciliations of certain non-GAAP measures to their most directly comparable GAAP measures, will be available on the Investor Relations page of Oportun’s website at https://investor.oportun.com prior to the start of the conference call.
1 As of June 30, 2020, assumes maintaining operations and covering all upcoming debt obligations.
About Non-GAAP Financial Measures
This press release presents information about the Company’s Fair Value Pro Forma (“FVPF”) results, FVPF Total Revenue, Adjusted Net Income, Adjusted EPS, Adjusted Tangible Book Value, Adjusted Tangible Book Value Per Share, Adjusted EBITDA, Adjusted Operating Efficiency, and Adjusted Return on Equity, which are non-GAAP financial measures provided as a supplement to the results provided in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The Company believes these Non-GAAP measures can be useful measures for period-to-period comparisons of our core business and provide useful information to investors and others in understanding and evaluating our operating results. Non-GAAP financial measures are provided in addition to, and not as a substitute for, and are not superior to, financial measures calculated in accordance with GAAP. In addition, the non-GAAP measures the Company uses, as presented, may not be comparable to similar measures used by other companies. Reconciliations of non-GAAP to GAAP measures can be found below.
Oportun (Nasdaq: OPRT) is a mission-driven Community Development Financial Institution (CDFI). Oportun provides inclusive, affordable financial services powered by a deep, data-driven understanding of its customers and advanced proprietary technology. By lending money to hardworking, low-to-moderate income individuals, Oportun helps them move forward in their lives, demonstrate their creditworthiness, and establish the credit history they need to access new opportunities. Oportun serves customers in English and Spanish; online and over the phone in 29 states, and in person at over 330 retail locations across 9 of those states. For more information, please visit http://www.oportun.com.
This press release contains forward-looking statements. All statements other than statements of historical fact contained in this press release, including statements as to future results of operations and financial position, liquidity runway, trends in credit performance, originations, payment defaults, planned products and services, planned investments, growth positioning, business strategy and plans and objectives of management for future operations of Oportun are forward-looking statements. These statements involve known and unknown risks, uncertainties, assumptions and other factors that may cause the Oportun’s actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. You generally can identify these statements by terms such as “expect,” “plan,” “anticipate,” “project,” “outlook,” “continue,” “may,” “seek,” “believe,” or “estimate” and similar expressions or the negative versions of these words or comparable words, as well as future or conditional verbs such as “will,” “should,” “would,” “likely” and “could.” These forward-looking statements are subject to the safe harbor provisions under the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those included in or contemplated by the forward-looking statements. Oportun has based these forward-looking statements largely on its current expectations and projections about future events and financial trends that it believes may affect its business, financial condition and results of operations. These risks and uncertainties include those risks described in Oportun’s filings with the Securities and Exchange Commission, including Oportun’s most recent quarterly report on Form 10-Q and most recent annual report on Form 10-K, and include, but are not limited to, the extent and duration of the COVID-19 pandemic, market and economic disruptions stemming from the COVID-19 pandemic; Oportun’s future financial performance, including trends in revenue, net revenue, operating expenses, and net income; changes in market interest rates; increases in loan delinquencies and charge-offs; Oportun’s ability to operate successfully in a highly regulated industry; cyberattacks and security vulnerabilities in Oportun’s products and services; Oportun’s ability to increase the volume of loans it makes; the success of Oportun’s Emergency Hardship Deferral program; and Oportun’s ability to compete successfully with other companies that are currently in, or may in the future enter, its industry. The forward-looking statements speak only as of the date on which they are made, and, except to the extent required by federal securities laws, Oportun disclaims any obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. In light of these risks and uncertainties, there is no assurance that the events or results suggested by the forward-looking statements will in fact occur, and you should not place undue reliance on these forward-looking statements.
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